10-Q 1 d649185d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended September 30, 2018

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 814-00754

 

 

SOLAR CAPITAL LTD.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   26-1381340
(State of Incorporation)  

(I.R.S. Employer

Identification No.)

500 Park Avenue

New York, N.Y.

  10022
(Address of principal executive offices)   (Zip Code)

(212) 993-1670

(Registrant’s telephone number, including area code)

 

 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☐    No  ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller Reporting company  
Emerging growth company       

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

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

The number of shares of the registrant’s Common Stock, $.01 par value, outstanding as of November 1, 2018 was 42,260,826.

 

 

 


Table of Contents

SOLAR CAPITAL LTD.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2018

TABLE OF CONTENTS

 

    PAGE  

PART I. FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements

 
 

Consolidated Statements of Assets and Liabilities as of September  30, 2018 (unaudited) and December 31, 2017

    3  
 

Consolidated Statements of Operations for the three and nine months ended September 30, 2018 (unaudited) and the three and nine months ended September 30, 2017 (unaudited)

    4  
 

Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2018 (unaudited) and the year ended December 31, 2017

    5  
 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 (unaudited) and the nine months ended September 30, 2017 (unaudited)

    6  
  Consolidated Schedule of Investments as of September 30, 2018 (unaudited)     7  
  Consolidated Schedule of Investments as of December 31, 2017     15  
  Notes to Consolidated Financial Statements (unaudited)     23  
  Report of Independent Registered Public Accounting Firm     51  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations     52  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk     77  

Item 4.

  Controls and Procedures     77  

PART II. OTHER INFORMATION

 

Item 1.

  Legal Proceedings     78  

Item 1A.

  Risk Factors     78  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds     81  

Item 3.

  Defaults Upon Senior Securities     81  

Item 4.

  Mine Safety Disclosures     81  

Item 5.

  Other Information     81  

Item 6.

  Exhibits     82  
  Signatures     84  


Table of Contents

PART I. FINANCIAL INFORMATION

In this Quarterly Report, “Solar Capital”, “Company”, “Fund”, “we”, “us”, and “our” refer to Solar Capital Ltd. unless the context states otherwise.

 

Item 1.

Financial Statements

SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except share amounts)

 

    September 30,
2018 (unaudited)
    December 31,
2017
 

Assets

   

Investments at fair value:

   

Companies less than 5% owned (cost: $894,050 and $835,041, respectively)

  $ 893,481     $ 834,410  

Companies more than 25% owned (cost: $499,089 and $609,226, respectively)

    517,299       626,760  

Cash

    10,182       5,963  

Cash equivalents (cost: $199,806 and $144,826, respectively)

    199,806       144,826  

Receivable for investments sold

    25,864       6,160  

Dividends receivable

    9,745       15,013  

Interest receivable

    8,134       7,336  

Other receivable

    —         58  

Prepaid expenses and other assets

    781       1,039  
 

 

 

   

 

 

 

Total assets

  $ 1,665,292     $ 1,641,565  
 

 

 

   

 

 

 

Liabilities

   

Revolving credit facility (see notes 6 and 7)

  $ 114,000     $ 245,600  

Unsecured senior notes due 2022 (see notes 6 and 7)

    150,000       150,000  

Unsecured tranche c senior notes due 2022 ($21,000 and $21,000 face amounts, respectively, reported net of unamortized debt issuance costs of $274 and $316, respectively. See note 7)

    20,726       20,684  

Unsecured senior notes due 2023 ($75,000 and $75,000 face amounts, respectively, reported net of unamortized debt issuance costs of $1,537 and $1,813, respectively. See note 7)

    73,463       73,187  

Term loans (see notes 6 and 7)

    50,000       50,000  

SSLP 2016-1, LLC revolving credit facility (the “SSLP Facility”) (see notes 6 and 7)

    22,998       —    

SSLP II 2016-1, LLC revolving credit facility (the “SSLP II Facility”) (see notes 6 and 7)

    26,168       —    

NEFPASS SPV LLC credit facility ($30,000 and $0 face amounts, respectively, reported net of unamortized debt issuance costs of $1,129 and $0, respectively. See note 7)

    28,871       —    

Payable for investments and cash equivalents purchased

    210,221       145,118  

Distributions payable

    18,007       16,904  

Management fee payable (see note 3)

    6,399       7,373  

Performance-based incentive fee payable (see note 3)

    4,604       4,660  

Interest payable (see note 7)

    6,768       2,485  

Administrative services expense payable (see note 3)

    2,067       2,756  

Other liabilities and accrued expenses

    3,408       1,193  
 

 

 

   

 

 

 

Total liabilities

  $ 737,700     $ 719,960  
 

 

 

   

 

 

 

Commitments and contingencies (see notes 10, 11, 12 and 13)

   

Net Assets

   

Common stock, par value $0.01 per share, 200,000,000 and 200,000,000 common shares authorized, respectively, and 42,260,826 and 42,260,826 shares issued and outstanding, respectively

  $ 423     $ 423  

Paid-in capital in excess of par

    991,340       991,340  

Distributions in excess of net investment income

    (8,862     (13,319

Accumulated net realized loss

    (72,505     (73,742

Net unrealized appreciation (see notes 12 and 13)

    17,196       16,903  
 

 

 

   

 

 

 

Total net assets

  $ 927,592     $ 921,605  
 

 

 

   

 

 

 

Net Asset Value Per Share

  $ 21.95     $ 21.81  
 

 

 

   

 

 

 

See notes to consolidated financial statements.

 

3


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share amounts)

 

    Three months ended     Nine months ended  
    September 30, 2018     September 30, 2017     September 30, 2018     September 30, 2017  

INVESTMENT INCOME:

       

Interest:

       

Companies less than 5% owned

  $ 21,859     $  21,465     $ 70,704     $ 64,882  

Companies more than 25% owned

    884       293       1,842       935  

Dividends:

       

Companies less than 5% owned

    12       5       22       21  

Companies more than 25% owned

    14,255       13,726       41,446       37,080  

Other income:

       

Companies less than 5% owned

    83       264       1,101       993  

Companies more than 25% owned

    49       394       175       516  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

    37,142       36,147       115,290       104,427  
 

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES:

       

Management fees (see note 3)

  $ 6,399     $ 6,751     $ 19,285     $ 20,037  

Performance-based incentive fees (see note 3)

    4,604       4,329       14,109       12,395  

Interest and other credit facility expenses (see note 7)

    5,521       5,348       17,522       15,974  

Administrative services expense (see note 3)

    1,459       1,346       4,151       3,994  

Other general and administrative expenses

    743       1,058       3,785       2,303  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    18,726       18,832       58,852       54,703  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

  $ 18,416     $ 17,315     $ 56,438     $ 49,724  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

       

Net realized gain (loss) on investments and cash equivalents:

       

Companies less than 5% owned

  $ 687     $ (28   $ 1,074     $ 470  

Companies 5% to 25% owned

    (7     (8,515     168       (8,534

Companies more than 25% owned

    —         —         (5     —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain (loss) on investments and cash equivalents

    680       (8,543     1,237       (8,064

Net realized gain (loss) on foreign currencies

    —         2       —         1  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

    680       (8,541     1,237       (8,063
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized gain (loss) on investments and cash equivalents:

       

Companies less than 5% owned

    530       1,061       62       6,324  

Companies 5% to 25% owned

    —         8,511       —         7,734  

Companies more than 25% owned

    (1,496     (1,182     231       (2,614
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized gain (loss) on investments and cash equivalents

    (966     8,390       293       11,444  

Net change in unrealized loss on foreign currencies

    —         (1     —         (1
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized gain (loss)

    (966     8,389       293       11,443  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    (286     (152     1,530       3,380  
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

  $ 18,130     $ 17,163     $ 57,968     $ 53,104  
 

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER SHARE (see note 5)

  $ 0.43     $ 0.41     $ 1.37     $ 1.26  
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

4


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except share amounts)

 

     Nine months ended
September 30, 2018
(unaudited)
    Year ended
December 31, 2017
 

Increase in net assets resulting from operations:

    

Net investment income

   $ 56,438     $ 68,363  

Net realized gain (loss)

     1,237       (12,015

Net change in unrealized gain

     293       14,082  
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     57,968       70,430  
  

 

 

   

 

 

 

Distributions to stockholders:

    

From net investment income

     (51,981     (67,612
  

 

 

   

 

 

 

Capital transactions (see note 16):

    

Reinvestment of distributions

     —         280  
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from capital transactions

     —         280  
  

 

 

   

 

 

 

Total increase in net assets

     5,987       3,098  

Net assets at beginning of period

     921,605       918,507  
  

 

 

   

 

 

 

Net assets at end of period (1)

   $ 927,592     $ 921,605  
  

 

 

   

 

 

 

Capital stock activity (see note 16):

    

Common stock issued from reinvestment of distributions

     —         12,301  
  

 

 

   

 

 

 

Net increase from capital stock activity

     —         12,301  
  

 

 

   

 

 

 

 

(1)

Includes overdistributed net investment income of ($8,862) and ($13,319), respectively.

See notes to consolidated financial statements.

 

5


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

     Nine months ended  
     September 30, 2018     September 30, 2017  

Cash Flows from Operating Activities:

    

Net increase in net assets resulting from operations

   $ 57,968     $ 53,104  

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

    

Net realized (gain) loss on investments and cash equivalents

     (1,237     8,064  

Net realized gain on foreign currencies

     —         (1

Net change in unrealized (gain) loss on investments and cash equivalents

     (293     (11,444

Net change in unrealized loss on foreign currencies

     —         1  

Effect of consolidation of Senior Secured Unitranche Loan Program LLC (“SSLP”) and Senior Secured Unitranche Loan Program II LLC (“SSLP II”) (see notes 12 and 13)

     (445     —    

(Increase) decrease in operating assets:

    

Purchase of investments

     (473,649     (351,516

Proceeds from disposition of investments

     525,366       267,739  

Capitalization of payment-in-kind interest

     (136     (201

Collections of payment-in-kind interest

     784       173  

Receivable for investments sold

     (19,704     5,677  

Interest receivable

     (798     582  

Dividends receivable

     5,268       (2,698

Other receivable

     58       (336

Prepaid expenses and other assets

     258       (157

Increase (decrease) in operating liabilities:

    

Payable for investments and cash equivalents purchased

     65,103       (110,214

Management fee payable

     (974     (119

Performance-based incentive fee payable

     (56     (83

Administrative services expense payable

     (689     (1,197

Interest payable

     4,283       2,165  

Other liabilities and accrued expenses

     2,215       (600
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Operating Activities

     163,322       (141,061
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Cash distributions paid

     (50,878     (50,423

Proceeds from issuance of unsecured debt

     —         100,000  

Deferred financing costs

     320       82  

Consolidation of SSLP Facility and SSLP II Facility

     61,066       —    

Proceeds from secured borrowings

     395,969       452,200  

Repayment of secured borrowings

     (510,600     (467,400
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Financing Activities

     (104,123     34,459  
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     59,199       (106,602

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

     150,789       312,046  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 209,988     $ 205,444  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 13,239     $ 13,809  
  

 

 

   

 

 

 

Non-cash financing activities consist of the reinvestment of distributions of $0 and $280 for the nine months ended September 30, 2018 and 2017, respectively.

See notes to consolidated financial statements.

 

6


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)

September 30, 2018

(in thousands, except share/unit amounts)

 

Description

 

Industry

  Spread
Above
Index (9)
    LIBOR
Floor
    Interest
Rate (1)
    Acquisition
Date
    Maturity
Date
    Par
Amount
    Cost     Fair
Value
 

Senior Secured Loans — 84.3%

                 

Bank Debt/Senior Secured Loans

                 

Aegis Toxicology Sciences Corporation (10)

  Health Care Providers & Services     L+550       1.00     7.84     5/7/2018       5/9/2025     $ 26,000     $ 25,563     $ 26,000  

Alteon Health, LLC (10)(16)(17)

  Health Care Providers & Services     L+650       1.00     8.74     9/14/2018       9/1/2022       15,315       15,196       14,626  

American Teleconferencing Services, Ltd. (PGI) (10)(17)

  Communications Equipment     L+650       1.00     8.84     5/5/2016       12/8/2021       31,415       30,339       31,415  

Amerilife Group, LLC (10)

  Insurance     L+875       1.00     10.99     7/9/2015       1/10/2023       15,000       14,802       15,000  

Associated Pathologists,
LLC (10)(16)(17)

  Health Care Providers & Services     L+500       1.00     7.23     9/14/2018       8/1/2021       3,835       3,813       3,835  

Atria Wealth Solutions, Inc. (10)(17)

  Diversified Financial Services     L+600       1.00     8.61     9/14/2018       11/30/2022       8,416       8,331       8,331  

Bishop Lifting Products, Inc. (7)(10)

  Trading Companies & Distributors     L+800       1.00     10.24     3/24/2014       3/27/2022       25,000       24,880       24,500  

Datto, Inc. (10)

  IT Services     L+800       1.00     10.15     12/6/2017       12/7/2022       25,000       24,566       25,000  

Falmouth Group Holdings Corp. (AMPAC) (10)(16)(17)

  Chemicals     L+675       1.00     8.99     12/7/2015       12/14/2021       42,963       42,702       42,963  

Global Holdings LLC & Payment Concepts LLC (10)(17)

  Consumer Finance     L+750       1.00     9.83     9/14/2018       5/5/2022       7,159       7,049       7,159  

Global Tel*Link Corporation

  Communications Equipment     L+400       1.25     6.39     11/6/2015       5/23/2020       7,089       6,389       7,143  

Global Tel*Link Corporation

  Communications Equipment     L+825       1.25     10.64     5/21/2013       11/23/2020       18,500       18,360       18,604  

Greystone Select Holdings LLC & Greystone & Co., Inc. (10)

  Thrifts & Mortgage Finance     L+800       1.00     10.20     3/29/2017       4/17/2024       19,950       19,782       19,950  

iCIMS, Inc. (10)

  Software     L+650       1.00     8.64     9/7/2018       9/12/2024       12,670       12,418       12,416  

IHS Intermediate, Inc. (10)

  Health Care Providers & Services     L+825       1.00     10.61     6/19/2015       7/20/2022       25,000       24,688       24,750  

K2 Pure Solutions NoCal, L.P. (10)

  Chemicals     L+900       1.00     11.24     8/19/2013       2/19/2021       7,331       7,272       7,331  

Kore Wireless Group, Inc. (10)

  Wireless Telecommunication Services     L+825       1.00     10.64     9/12/2014       3/12/2021       55,500       54,998       54,390  

Logix Holding Company,
LLC (10)(17)

  Communications Equipment     L+575       1.00     7.99     9/14/2018       12/22/2024       7,197       7,131       7,197  

On Location Events, LLC & PrimeSport Holdings Inc. (10)(16)(17)

  Media     L+550       1.00     7.83     12/7/2017       9/29/2021       24,750       24,508       24,565  

Pet Holdings ULC & Pet Supermarket, Inc. (5)(10)(16)(17)

  Specialty Retail     L+550       1.00     7.84     9/14/2018       7/5/2022       29,388       29,081       29,388  

PhyMed Management LLC (10)

  Health Care Providers & Services     L+875       1.00     11.07     12/18/2015       5/18/2021       32,321       31,602       31,998  

Phynet Dermatology LLC (10)

  Health Care Providers & Services     L+550       1.00     7.66     9/5/2018       8/16/2024       9,668       9,572       9,571  

PPT Management Holdings, LLC (10)

  Health Care Providers & Services     L+750 PIK       1.00     9.69     9/14/2018       12/16/2022       19,310       19,167       16,414  

PSKW, LLC & PDR,
LLC (10)(16)(17)

  Health Care Providers & Services     L+425       1.00     6.64     9/14/2018       11/25/2021       2,107       2,098       2,107  

PSKW, LLC & PDR,
LLC (10)(16)(17)

  Health Care Providers & Services     L+826       1.00     10.65     10/24/2017       11/25/2021       26,647       26,325       26,647  

 

See notes to consolidated financial statements.

 

7


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2018

(in thousands, except share/unit amounts)

 

Description

 

Industry

  Spread
Above
Index (9)
    LIBOR
Floor
    Interest
Rate (1)
    Acquisition
Date
    Maturity
Date
    Par
Amount
    Cost     Fair
Value
 

Rug Doctor LLC (3)(10)

  Diversified Consumer Services     L+975       1.50     12.33     12/23/2013       10/31/2019     $ 9,111     $ 9,032     $ 9,111  

Solara Medical Supplies, Inc. (10)(17)

  Health Care Providers & Services     L+600       1.00     8.39     5/31/2018       5/31/2023       5,022       4,951       4,972  

Southern Auto Finance
Company (5)(10)

  Consumer Finance     —         —         11.15     10/19/2011       12/4/2019       25,000       24,900       25,000  

The Octave Music Group, Inc. (fka TouchTunes) (10)

  Media     L+825       1.00     10.36     5/28/2015       5/27/2022       14,000       13,873       14,000  

Varilease Finance, Inc. (10)

  Multi-Sector Holdings     L+825       1.00     10.59     8/22/2014       8/24/2020       33,000       32,764       33,000  
               

 

 

   

 

 

 

Total Bank Debt/Senior Secured Loans

                $ 576,152     $ 577,383  
 

 

 

   

 

 

 

Life Science Senior Secured Loans

                 

Alimera Sciences, Inc. (10)

  Pharmaceuticals     L+765       —         9.77     1/5/2018       7/1/2022       25,000     $ 24,968     $ 25,000  

Ardelyx, Inc. (5)(10)

  Pharmaceuticals     L+745       —         9.57     5/10/2018       11/1/2022       24,500       24,315       24,316  

aTyr Pharma, Inc. (10)

  Pharmaceuticals     P+410       —         9.10     11/18/2016       11/18/2020       8,667       8,898       8,797  

Axcella Health Inc. (10)

  Pharmaceuticals     L+850       —         10.58     1/9/2018       1/9/2022       21,000       21,165       21,157  

BioElectron Technology
Corporation (10)

  Pharmaceuticals     L+750       —         9.62     8/9/2018       8/10/2022       10,500       10,418       10,395  

Breathe Technologies, Inc. (10)

  Health Care Equipment & Supplies     L+850       —         10.58     1/5/2018       1/5/2022       22,000       22,222       22,000  

CardioDx, Inc. (10)

  Health Care Providers & Services     P+670       —         11.70     6/18/2015       4/1/2019       1,750       2,443       2,327  

Cardiva Medical, Inc. (10)

  Health Care Equipment & Supplies     L+795       0.63     10.18     9/24/2018       9/1/2022       12,000       12,004       12,000  

Cianna Medical, Inc. (10)

  Health Care Equipment & Supplies     L+900       —         11.08     9/28/2016       9/28/2020       9,000       9,607       9,720  

Corindus Vascular Robotics,
Inc. (5)(10)

  Health Care Equipment & Supplies     L+725       —         9.35     3/9/2018       3/1/2022       6,783       6,757       6,783  

Delphinus Medical Technologies,
Inc. (10)

  Health Care Equipment & Supplies     L+850       —         10.62     8/18/2017       9/1/2021       3,750       3,717       3,769  

OmniGuide Holdings, Inc. (10)(15)

  Health Care Equipment & Supplies     L+805       —         10.17     7/30/2018       7/9/2023       10,500       10,470       10,447  

PQ Bypass, Inc. (10)

  Health Care Equipment & Supplies     L+885       1.00     10.93     4/21/2016       4/21/2020       5,000       5,072       4,975  

Restoration Robotics, Inc. (10)

  Health Care Equipment & Supplies     L+795       —         10.07     5/10/2018       5/1/2022       9,000       8,852       8,955  

scPharmaceuticals, Inc. (10)

  Pharmaceuticals     L+845       —         10.57     5/23/2017       5/1/2021       5,000       4,990       5,025  

Scynexis, Inc. (10)

  Pharmaceuticals     L+849       —         10.61     9/30/2016       9/30/2020       15,000       15,250       15,225  

SentreHeart, Inc. (10)

  Health Care Equipment & Supplies     L+885       —         10.93     11/15/2016       11/15/2020       10,000       10,140       10,100  

Sunesis Pharmaceuticals, Inc. (10)

  Pharmaceuticals     L+854       —         10.66     3/31/2016       4/1/2020       3,750       3,816       3,769  
               

 

 

   

 

 

 

Total Life Science Senior Secured Loans

                $ 205,104     $ 204,760  
 

 

 

   

 

 

 

Total Senior Secured Loans

                $ 781,256     $ 782,143  
 

 

 

   

 

 

 

 

See notes to consolidated financial statements.

 

8


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2018

(in thousands, except share/unit amounts)

 

Description

 

Industry

  Interest
Rate (1)
    Acquisition
Date
    Maturity
Date
    Par
Amount
    Cost     Fair
Value
 

Equipment Financing — 32.1%

             

Althoff Crane Service, Inc.(10)(18)

  Commercial Services & Supplies     10.55%       7/31/2017       6/8/2022     $ 1,405     $ 1,405     $ 1,433  

B&W Resources, Inc. (10)(12)

  Oil, Gas & Consumable Fuels     11.40%       8/17/2018       3/27/2020       348       339       362  

BB578, LLC (10)(12)

  Media     10.00%       7/31/2017       11/1/2021       703       703       709  

Beverly Hills Limo and Corporate Coach, Inc. (10)(18)

  Road & Rail     10.57%       3/19/2018       9/9/2019       486       509       484  

Blackhawk Mining, LLC (10)(18)

  Oil, Gas & Consumable Fuels     11.34%       2/16/2018       3/1/2022       3,328       3,100       3,328  

Brightwater R&B Acquisition, LLC (10)(18)

  Machinery     12.24%       8/17/2018       4/20/2019       149       150       150  

Capital City Jet Center, Inc. (10)(12)

  Airlines     10.00%       4/4/2018       4/4/2023       2,261       2,261       2,261  

Central Freight Lines, Inc.(10)(12)

  Road & Rail     7.16%       7/31/2017       1/14/2024       1,779       1,779       1,779  

Cfactor Leasing Corp. & CZM USA, Corp. (10)(18)

  Machinery     12.00-14.11%       7/31/2017       5/31/2019-8/3/2022       3,632       3,612       3,663  

Champion Air, LLC (10)(12)

  Airlines     10.00%       3/19/2018       1/1/2019       3,350       3,339       3,307  

Delicate Productions, Inc.(10)(12)

  Commercial Services & Supplies     13.30%       5/3/2018       5/15/2022       2,140       2,125       2,140  

Easton Sales and Rentals, LLC (10)(12)

  Commercial Services & Supplies     10.00%       9/18/2018       10/1/2021       2,193       2,131       2,193  

Equipment Operating Leases, LLC (3)(10)(14)

  Multi-Sector Holdings     7.53-8.37%       4/27/2018       8/1/22-4/27/2025       33,630       33,630       33,630  

Family First Freight, LLC(10)(12)

  Road & Rail     9.29-11.52%       7/31/2017       7/2/2019-1/22/2022       970       968       968  

Garda CL Technical Services, Inc. (10)(18)

  Commercial Services & Supplies     8.77%       3/22/2018       7/13/2023       2,058       2,058       2,058  

Georgia Jet, Inc. (10)(12)

  Airlines     8.00%       12/4/2017       12/4/2021       2,513       2,513       2,446  

Globecomm Systems Inc.(10)(18)

  Wireless Telecommunication Services     12.00%       5/10/2018       5/10/2021       1,739       1,739       1,739  

Great Plains Gas Compression Holdings, LLC (10)(12)

  Oil, Gas & Consumable Fuels     9.37-9.93%       3/19/2018       8/1/2019-9/7/19       9,241       9,210       9,157  

Haljoe Coaches USA, LLC(10)(18)

  Road & Rail     8.12-9.90%       7/31/2017       7/1/2022-11/17/2022       5,315       5,316       5,297  

Hawkeye Contracting Company, LLC (10)(12)(13)

  Oil, Gas & Consumable Fuels     10.00%       11/15/2017       11/15/2020       4,074       4,074       4,040  

Interstate NDT, Inc. (10)(18)

  Road & Rail     11.32-12.09%       6/11/2018       7/1/2023-10/1/2023       2,536       2,536       2,536  

JP Motorsports, Inc. (10)(18)

  Road & Rail     13.96%       8/17/2018       1/25/2022       423       420       439  

Knight Transfer Services, Inc. & Dumpstr Xpress, Inc. (10)(18)

  Commercial Services & Supplies     12.05-12.76%       7/31/2017       4/11/2020-4/30/2020       605       605       608  

Kool Pak, LLC (10)(18)

  Road & Rail     8.58%       2/5/2018       3/1/2024       757       757       757  

Logicorp Enterprises, LLC(10)(12)

  Road & Rail     12.18%       7/31/2017       2/3/2021       3,100       3,100       3,213  

Marcal Manufacturing, LLC dba Soundview Paper Company, LLC (10)(18)

  Paper & Forest Products     12.91-12.98%       7/31/2017       7/30/2022-10/25/2022       1,437       1,437       1,472  

Meridian Consulting I Corp, Inc. (10)(12)

  Hotels, Restaurants & Leisure     10.72%       7/31/2017       12/4/2021       2,206       2,206       2,269  

Mountain Air Helicopters, Inc. (10)(12)

  Commercial Services & Supplies     10.00%       7/31/2017       4/30/2022       1,712       1,712       1,731  

Mulholland Energy Services Equipment Leasing, LLC (10)(18)

  Commercial Services & Supplies     8.89%       8/17/2018       10/30/2019       1,068       1,064       1,057  

 

See notes to consolidated financial statements.

 

9


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2018

(in thousands, except share/unit amounts)

 

Description

 

Industry

  Interest
Rate (1)
    Acquisition
Date
    Maturity
Date
    Par
Amount
    Cost     Fair
Value
 

OKK Equipment, LLC (10)(12)

  Commercial Services & Supplies     10.15%       7/31/2017       8/27/2023     $ 637     $ 637     $ 626  

Reston Limousine & Travel Service, Inc. (10)(18)

  Road & Rail     11.82%       9/13/2017       10/1/2021       1,563       1,582       1,571  

Rossco Crane & Rigging, Inc. (10)(18)

  Commercial Services & Supplies     11.13-11.53%       8/25/2017       4/1/2021-9/1/2022       848       848       851  

RVR Air Charter, LLC & RVR Aviation, LLC (10)(12)

  Airlines     12.00%       7/31/2017       8/1/2020-1/1/2022       2,915       2,915       2,941  

Santek Environmental, LLC (10)(18)

  Commercial Services & Supplies     10.00%       7/31/2017       3/1/2021       116       116       116  

Santek Environmental of Alabama, LLC (10)(18)

  Commercial Services & Supplies     8.95-10.00%       7/31/2017       12/18/2020-11/29/2021       198       198       197  

Sidelines Tree Service LLC (10)(18)

  Diversified Consumer Services     10.31-10.52%       7/31/2017       8/1/2022-10/1/2022       455       456       459  

South Texas Oilfield Solutions, LLC (10)(18)

  Energy Equipment & Services     12.52-13.76%       3/29/2018       9/1/2022-7/1/2023       3,546       3,546       3,546  

Southern Nevada Oral & Maxillofacial Surgery, LLC (10)(12)

  Health Care Providers & Services     12.00%       7/31/2017       3/1/2024       1,435       1,435       1,464  

Southwest Traders, Inc. (10)(18)

  Road & Rail     9.13%       11/21/2017       11/1/2020       155       155       153  

ST Coaches, LLC (10)(18)

  Road & Rail     8.21-8.59%       7/31/2017       10/1/2022-10/1/2023       4,503       4,503       4,503  

Star Coaches Inc. (10)(18)

  Road & Rail     8.42%       3/9/2018       4/1/2025       3,899       3,899       3,899  

Sturgeon Services International Inc. (10)(12)

  Energy Equipment & Services     18.41%       7/31/2017       2/28/2022       1,864       1,864       1,836  

Sun-Tech Leasing of Texas, L.P. (10)(18)

  Road & Rail     8.68-8.83%       7/31/2017       6/25/2020-7/25/2021       478       478       471  

Superior Transportation, Inc. (10)(18)

  Road & Rail     9.77-10.30%       7/31/2017       4/23/2022-1/1/2024       4,643       4,641       4,640  

The Smedley Company & Smedley Services, Inc. (10)(12)

  Commercial Services & Supplies     9.92-14.68%       7/31/2017       10/29/2023-2/10/2024       6,446       6,490       6,615  

Tornado Bus Company (10)(18)

  Road & Rail     10.78%       7/31/2017       9/1/2021       2,301       2,301       2,326  

Trinity Equipment Rentals, Inc. (10)(12)

  Commercial Services & Supplies     11.02%       9/13/2018       10/1/2022       1,000       1,000       1,000  

Trolleys, Inc. (10)(18)

  Road & Rail     9.81%       7/18/2018       8/1/2022       3,214       3,214       3,214  

Up Trucking Services, LLC (10)(18)

  Road & Rail     11.91%       3/23/2018       4/1/2022       2,308       2,348       2,308  

Waste Services of Alabama, LLC (10)(18)

  Commercial Services & Supplies     10.24%       8/17/2018       11/27/2020       1,966       1,972       1,976  

Waste Services of Tennessee, LLC (10)(18)

  Commercial Services & Supplies     8.95-10.15%       7/31/2017       2/7/2021-11/29/2021       804       804       798  

Waste Services of Texas, LLC (10)(18)

  Commercial Services & Supplies     8.95%       7/31/2017       12/6/2021       158       158       156  

WJV658, LLC (10)(12)

  Airlines     8.50%       7/31/2017       7/1/2022       8,031       8,031       8,031  

W.P.M., Inc., WPM-Southern, LLC, WPM Construction Services, Inc. (10)(12)

  Construction & Engineering     7.50%       7/31/2017       10/1/2022       3,231       3,231       3,189  
                          Shares/Units              

NEF Holdings, LLC Equity Interests (3)(10)(11)

  Multi-Sector Holdings       7/31/2017         200       145,000       145,200  
           

 

 

   

 

 

 

Total Equipment Financing

            $ 296,620     $ 297,312  
           

 

 

   

 

 

 

Preferred Equity — 1.0%

             

SOAGG LLC (3)(5)(6)(10)

  Aerospace & Defense     8.00%       12/14/2010       6/30/2020       2,864     $ 2,864     $ 3,152  

SOINT, LLC (3)(5)(6)(10)

  Aerospace & Defense     15.00%       6/8/2012       6/30/2020       60,073       6,007       6,557  
           

 

 

   

 

 

 

Total Preferred Equity

            $ 8,871     $ 9,709  
           

 

 

   

 

 

 

 

See notes to consolidated financial statements.

 

10


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2018

(in thousands, except share/unit amounts)

 

Description

 

Industry

 

Acquisition
Date

      Shares/Units     Cost     Fair
Value
 

Common Equity/Equity Interests/Warrants — 34.7%

 

Ark Real Estate Partners LP (2)(3)(10)*

  Diversified Real Estate Activities   3/12/2007       —       $ 527     $ 82  

Ark Real Estate Partners II LP (2)(3)(10)*

  Diversified Real Estate Activities   10/23/2012       —         12       2  

aTyr Pharma, Inc. Warrants (10)*

  Pharmaceuticals   11/18/2016       88,792       106       —    

B Riley Financial Inc. (5)

  Research & Consulting Services   3/16/2007       38,015       2,684       861  

CardioDx, Inc. Warrants (10)*

  Health Care Providers & Services   6/18/2015       3,986       129       —    

CardioFocus, Inc. Warrants (10)*

  Health Care Equipment & Supplies   3/31/2017       440,816       51       45  

CAS Medical Systems, Inc. Warrants (10)*

  Health Care Equipment & Supplies   6/30/2016       48,491       38       41  

Cianna Medical, Inc. Warrants (10)*

  Health Care Equipment & Supplies   9/28/2016       134,590       56       397  

Conventus Orthopaedics, Inc. Warrants (10)*

  Health Care Equipment & Supplies   6/15/2016       157,500       65       45  

Corindus Vascular Robotics, Inc. Warrants (5)(10)*

  Health Care Equipment & Supplies   3/9/2018       79,855       40       41  

Crystal Financial LLC (3)(5)(10)

  Diversified Financial Services   12/28/2012       280,303       280,737       301,500  

Delphinus Medical Technologies, Inc. Warrants (10)*

  Health Care Equipment & Supplies   8/18/2017       380,904       74       66  

Essence Group Holdings Corporation (Lumeris) Warrants (10)*

  Health Care Technology   3/22/2017       208,000       63       308  

PQ Bypass, Inc. Warrants (10)*

  Health Care Equipment & Supplies   4/21/2016       176,471       70       39  

RD Holdco Inc. (Rug Doctor) (3)(10)*

  Diversified Consumer Services   12/23/2013       231,177       15,683       12,849  

RD Holdco Inc. (Rug Doctor) Class B (3)(10)*

  Diversified Consumer Services   12/23/2013       522       5,216       5,216  

RD Holdco Inc. (Rug Doctor) Warrants (3)(10)*

  Diversified Consumer Services   12/23/2013       30,370       381       —    

Restoration Robotics, Inc. Warrants (10)*

  Health Care Equipment & Supplies   5/10/2018       72,776       111       40  

Scynexis, Inc. Warrants (10)*

  Pharmaceuticals   9/30/2016       122,435       105       —    

SentreHeart, Inc. Warrants (10)*

  Health Care Equipment & Supplies   11/15/2016       261,825       126       83  

Sunesis Pharmaceuticals, Inc. Warrants (10)*

  Pharmaceuticals   3/31/2016       104,001       118       1  
         

 

 

   

 

 

 

Total Common Equity/Equity Interests/Warrants

          $ 306,392     $ 321,616  
         

 

 

   

 

 

 

Total Investments (8) — 152.1%

          $ 1,393,139     $ 1,410,780  
         

 

 

   

 

 

 

Description

 

Industry

 

Acquisition
Date

 

Maturity

Date

  Par Amount              

Cash Equivalents — 21.5%

U.S. Treasury Bill

  Government   9/28/2018   10/18/2018   $ 200,000     $ 199,806     $ 199,806  
         

 

 

   

 

 

 

Total Investments & Cash Equivalents —173.6%

 

  $  1,592,945     $  1,610,586

Liabilities in Excess of Other Assets — (73.6%)

 

      (682,994
           

 

 

 

Net Assets — 100.0%.

 

    $ 927,592  
           

 

 

 

 

(1)

Floating rate debt investments typically bear interest at a rate determined by reference to the London Interbank Offered Rate (“LIBOR”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current rate of interest, or in the case of leases the current implied yield, in effect as of September 30, 2018.

(2)

Ark Real Estate Partners is held through SLRC ADI Corp., a wholly-owned taxable subsidiary.

 

See notes to consolidated financial statements.

 

11


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2018

(in thousands)

 

(3)

Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the Investment Company Act of 1940 (“1940 Act”), due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the nine months ended September 30, 2018 in these controlled investments are as follows:

 

Name of Issuer

  Fair Value at
December 31,
2017
    Gross
Additions
    Gross
Reductions
    Realized
Gain
(Loss)
    Change in
Unrealized
Gain (Loss)
    Interest/
Dividend/
Other Income
    Fair Value at
September 30,
2018
 

Ark Real Estate Partners LP

  $ 263     $ —       $ —       $ (5 )†    $ (181   $ —       $ 82  

Ark Real Estate Partners II LP

    6       —         —         —         (4     —         2  

AviatorCap SII, LLC I

    10       —         10       —         —         —         —    

Crystal Financial LLC

    303,200       —         —         —         (1,700     22,720       301,500  

Equipment Operating Leases, LLC

    —         34,511       881       —         —         1,001       33,630  

NEF Holdings, LLC

    145,500       —         —         —         (300     7,000       145,200  

RD Holdco Inc. (Rug Doctor, common equity)

    10,102       —         —         —         2,747       —         12,849  

RD Holdco Inc. (Rug Doctor, class B)

    5,216       —         —         —         —         —         5,216  

RD Holdco Inc. (Rug Doctor, warrants)

    35       —         —         —         (35     —         —    

Rug Doctor LLC

    9,111       —         —         —         (13     854       9,111  

SSLP(19)

    88,736       25,322       115,038       —         626       6,289       —    

SSLP II(19)

    51,744       21,781       72,858       —         (758     4,628       —    

SOAGG LLC

    4,537       —         1,283       —         (102     210       3,152  

SOINT, LLC (preferred equity)

    8,300       —         1,694       —         (49     761       6,557  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 626,760     $ 81,614     $ 191,764     $ (5   $ 231     $ 43,463     $ 517,299  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(4)

Denotes investments in which we are an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the nine months ended September 30, 2018 in these affiliated investments are as follows:

 

Name of Issuer

   Fair Value at
December 31,
2017
     Gross
Additions
     Gross
Reductions
     Realized
Gain (Loss)
    Change in
Unrealized
Gain (Loss)
     Interest/
Dividend
Income
     Fair Value at
September 30,
2018
 

DSW Group Holdings LLC

   $ —        $ —        $ —        $ 168  †    $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

(5)

Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 (“1940 Act”), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of September 30, 2018, on a fair value basis, non-qualifying assets in the portfolio represented 23.7% of the total assets of the Company.

(6)

Solar Capital Ltd.’s investments in SOAGG, LLC and SOINT, LLC include a two and one dollar investment in common shares, respectively.

(7)

Bishop Lifting Products, Inc., SEI Holding I Corporation, Singer Equities, Inc. & Hampton Rubber Company are co-borrowers.

(8)

Aggregate net unrealized appreciation for U.S. federal income tax purposes is $10,480; aggregate gross unrealized appreciation and depreciation for federal tax purposes is $23,961 and $13,481, respectively, based on a tax cost of $1,400,300. All of the Company’s investments are pledged as collateral against the borrowings outstanding on the revolving credit facility. The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.

(9)

Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.

(10)

Level 3 investment valued using significant unobservable inputs.

(11)

NEF Holdings, LLC is held through NEFCORP LLC, a wholly-owned consolidated taxable subsidiary and NEFPASS LLC, a wholly-owned consolidated subsidiary.

(12)

Indicates an investment that is wholly held by Solar Capital Ltd. through NEFPASS LLC.

(13)

Hawkeye Contracting Company, LLC, Eagle Creek Mining, LLC & Falcon Ridge Leasing, LLC are co-borrowers.

(14)

Equipment Operating Leases, LLC is a subsidiary of NEF Holdings, LLC.

(15)

OmniGuide Holdings, Inc., Domain Surgical, Inc. and OmniGuide, Inc. are co-borrowers.

(16)

Indicates an investment that is wholly or partially held by Solar Capital Ltd. through its wholly-owned consolidated financing subsidiary SSLP 2016-1, LLC (the “SSLP SPV”). Such investments are pledged as collateral under the SSLP 2016-1, LLC Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of Solar Capital Ltd.

 

See notes to consolidated financial statements.

 

12


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2018

(in thousands)

 

(17)

Indicates an investment that is wholly or partially held by Solar Capital Ltd. through its wholly-owned consolidated financing subsidiary SSLP II 2016-1, LLC (the “SSLP II SPV”). Such investments are pledged as collateral under the SSLP II 2016-1, LLC Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of Solar Capital Ltd.

(18)

Indicates an investment that is held by Solar Capital Ltd. through its wholly-owned consolidated financing subsidiary NEFPASS SPV, LLC (the “NEFPASS SPV”). Such investments are pledged as collateral under the NEFPASS SPV, LLC Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of Solar Capital Ltd.

(19)

On September 14, 2018 and September 18, 2018, the Company acquired 100% of the equity of SSLP II and SSLP, respectively, and as such is consolidating these investments as of this date.

*

Non-income producing security.

Represents estimated change in receivable balance.

 

See notes to consolidated financial statements.

 

13


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2018

(in thousands)

 

Industry Classification

  Percentage of Total
Investments (at fair value) as
of September 30, 2018
 

Diversified Financial Services (Crystal Financial LLC)

    21.9

Multi-Sector Holdings (includes NEF Holdings, LLC and Equipment Operating Leases, LLC)

    15.0

Health Care Providers & Services

    11.7

Pharmaceuticals

    8.0

Health Care Equipment & Supplies

    6.3

Communications Equipment

    4.5

Wireless Telecommunication Services

    4.0

Chemicals

    3.6

Media

    2.8

Road & Rail

    2.7

Consumer Finance

    2.3

Specialty Retail

    2.1

Diversified Consumer Services

    2.0

IT Services

    1.8

Trading Companies & Distributors

    1.7

Commercial Services & Supplies

    1.6

Thrifts & Mortgage Finance

    1.4

Airlines

    1.3

Oil, Gas & Consumable Fuels

    1.2

Insurance

    1.1

Software

    0.9

Aerospace & Defense

    0.7

Energy Equipment & Services

    0.5

Machinery

    0.3

Construction & Engineering

    0.2

Hotels, Restaurants & Leisure

    0.2

Paper & Forest Products

    0.1

Research & Consulting Services

    0.1

Health Care Technology

    0.0

Diversified Real Estate Activities

        0.0
 

 

 

 

Total Investments

    100.0
 

 

 

 

 

See notes to consolidated financial statements.

 

14


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(in thousands, except share/unit amounts)

 

Description

 

Industry

  Spread
Above
Index (9)
    LIBOR
Floor
    Interest
Rate (1)
    Acquisition
Date
    Maturity
Date
    Par
Amount
    Cost     Fair
Value
 

Senior Secured Loans — 83.5%

                 

Bank Debt/Senior Secured Loans

                 

AccentCare, Inc. (11)

  Health Care Providers & Services     L+525       1.00     6.94     12/29/2017       3/3/2022     $ 2,580     $ 2,567     $ 2,567  

AccentCare, Inc. (11)

  Health Care Providers & Services     L+950       1.00     11.01     9/3/2015       9/3/2022       10,000       9,869       9,900  

Aegis Toxicology Sciences Corporation (11)

  Health Care Providers & Services     L+850       1.00     10.17     2/20/2014       8/24/2021       31,000       30,606       30,070  

American Teleconferencing Services, Ltd. (PGI) (11)

  Communications Equipment     L+650       1.00     7.90     5/5/2016       12/8/2021       21,627       21,127       21,303  

Amerilife Group, LLC (11)

  Insurance     L+875       1.00     10.25     7/9/2015       1/10/2023       15,000       14,775       14,887  

Argo Turboserve Corporation & Argo Tech, LLC ††(11)

  Air Freight & Logistics     L+1425 (10)      —         15.73     5/2/2014       5/2/2018       6,660       6,235       6,660  

AviatorCap SII, LLC I (3)(11)

  Aerospace & Defense     —         —         12.00     5/31/2011       1/31/2019       10       10       10  

Bishop Lifting Products, Inc. (7)(11)

  Trading Companies & Distributors     L+800       1.00     9.57     3/24/2014       3/27/2022       25,000       24,857       23,500  

Datto, Inc. (11)

  IT Services     L+800       1.00     9.41     12/6/2017       12/7/2022       25,000       24,505       24,500  

DISA Holdings Acquisition Subsidiary Corp. (11)

  Professional Services     L+850       1.00     9.84     12/9/2014       6/9/2021       51,476       51,008       51,476  

Falmouth Group Holdings Corp. (AMPAC) (11)

  Chemicals     L+675       1.00     8.44     12/7/2015       12/14/2021       9,298       9,265       9,298  

Global Tel*Link Corporation

  Communications Equipment     L+400       1.25     5.69     11/6/2015       5/23/2020       7,194       6,205       7,230  

Global Tel*Link Corporation

  Communications Equipment     L+825       1.25     9.94     5/21/2013       11/23/2020       18,500       18,317       18,540  

Greystone Select Holdings LLC & Greystone & Co., Inc. (11)

  Thrifts & Mortgage Finance     L+800       1.00     9.40     3/29/2017       4/17/2024       20,000       19,815       20,000  

IHS Intermediate, Inc. (11)

  Health Care Providers & Services     L+825       1.00     9.62     6/19/2015       7/20/2022       25,000       24,639       24,562  

K2 Pure Solutions NoCal, L.P. (11)

  Chemicals     L+900       1.00     10.57     8/19/2013       2/19/2021       7,475       7,398       7,400  

Kore Wireless Group, Inc. (11)

  Wireless Telecommunication Services     L+825       1.00     9.94     9/12/2014       3/12/2021       55,500       54,866       54,945  

MRI Software LLC (11)

  Software     L+625       1.00     7.83     6/7/2017       6/30/2023       16,352       16,197       16,271  

On Location Events, LLC & PrimeSport Holdings Inc. (11)

  Media     L+550       1.00     7.04     12/7/2017       9/29/2021       60,000       59,260       59,250  

PhyMed Management LLC (11)

  Health Care Providers & Services     L+875       1.00     10.21     12/18/2015       5/18/2021       32,321       31,430       31,271  

PSKW, LLC & PDR, LLC (11)

  Health Care Providers & Services     L+826       1.00     9.95     10/24/2017       11/25/2021       3,461       3,394       3,392  

Radiology Partners, Inc. (11)

  Health Care Providers & Services     L+575       1.00     7.44     11/28/2017       12/4/2023       9,122       9,032       9,031  

Rug Doctor LLC (3)(11)

  Diversified Consumer Services     L+975       1.50     11.42     12/23/2013       12/31/2018       9,111       9,019       9,111  

Salient Partners, L.P. (11)

  Asset Management     L+850       1.00     9.85     6/10/2015       6/9/2021       13,980       13,803       13,980  

Southern Auto Finance Company (5)(11)

  Consumer Finance     —         —         11.15     10/19/2011       12/4/2018       25,000       24,905       25,000  

The Octave Music Group, Inc. (fka TouchTunes) (11)

  Media     L+825       1.00     9.62     5/28/2015       5/27/2022       14,000       13,852       14,000  

Varilease Finance, Inc. (11)

  Multi-Sector Holdings     L+825       1.00     9.58     8/22/2014       8/24/2020       48,000       47,548       48,000  
               

 

 

   

 

 

 

Total Bank Debt/Senior Secured Loans

                $ 554,504     $ 556,154  
               

 

 

   

 

 

 

 

See notes to consolidated financial statements.

 

15


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2017

(in thousands, except share/unit amounts)

 

Description

 

Industry

  Spread
Above
Index (9)
    LIBOR
Floor
    Interest
Rate (1)
    Acquisition
Date
    Maturity
Date
    Par
Amount
    Cost     Fair
Value
 

Life Science Senior Secured Loans

                 

Achaogen, Inc. (5)(11)

  Pharmaceuticals     L+699       1.00     8.34     8/5/2015       8/5/2019     $ 20,833     $ 21,783     $ 22,500  

aTyr Pharma, Inc. (11)

  Pharmaceuticals     P+410       —         8.35     11/18/2016       11/18/2020       10,000       9,986       10,100  

Axcella Health Inc. (11)

  Pharmaceuticals     L+880       —         10.15     8/7/2015       8/31/2019       20,000       20,600       20,900  

Breathe Technologies, Inc. (11)

  Health Care Equipment & Supplies     L+830       —         9.65     11/5/2015       11/5/2019       15,000       16,774       16,800  

CardioDx, Inc. (11)

  Health Care Providers & Services     P+670       —         11.20     6/18/2015       4/1/2019       4,000       4,507       4,480  

CardioFocus, Inc. (11)

  Health Care Equipment & Supplies     L+750       —         8.88     3/31/2017       7/1/2020       5,300       5,307       5,300  

Cardiva Medical, Inc. (11)

  Health Care Equipment & Supplies     L+865       0.63     10.00     2/2/2017       2/2/2021       9,000       9,125       9,045  

CAS Medical Systems, Inc. (11)

  Health Care Equipment & Supplies     L+875       —         10.10     6/30/2016       7/1/2020       6,000       6,083       6,045  

Cianna Medical, Inc. (11)

  Health Care Equipment & Supplies     L+900       —         10.35     9/28/2016       9/28/2020       7,500       7,613       7,556  

Claret Medical, Inc. (11)

  Health Care Equipment & Supplies     P+450       —         9.00     11/22/2017       10/1/2020       5,000       4,947       4,933  

Clinical Ink, Inc. (11)

  Health Care Technology     L+850       0.70     9.86     3/8/2016       3/8/2020       5,056       5,153       5,056  

Delphinus Medical Technologies, Inc. (11)

  Health Care Equipment & Supplies     L+850       —         9.88     8/18/2017       9/1/2021       3,750       3,664       3,722  

Lumeris Solutions Company, LLC (11)

  Health Care Technology     L+860       0.25     9.98     3/22/2017       2/1/2020       16,000       16,147       16,160  

Mitralign, Inc. (11)

  Health Care Equipment & Supplies     —         —         9.48     4/22/2016       12/1/2018       833       843       829  

Nabsys 2.0 LLC (11)

  Life Sciences Tools & Services     —         —         8.90     4/22/2016       10/13/2018       2,302       2,695       2,532  

PQ Bypass, Inc. (11)

  Health Care Equipment & Supplies     L+885       1.00     10.20     4/21/2016       4/21/2020       5,000       5,012       4,975  

Rapid Micro Biosystems, Inc. (11)

  Life Sciences Tools & Services     L+880       —         10.16     6/30/2015       6/30/2019       15,360       16,126       15,322  

scPharmaceuticals, Inc. (11)

  Pharmaceuticals     L+845       —         9.83     5/23/2017       5/1/2021       5,000       4,952       5,000  

Scynexis, Inc. (11)

  Pharmaceuticals     L+849       —         9.87     9/30/2016       9/30/2020       15,000       15,049       14,850  

SentreHeart, Inc. (11)

  Health Care Equipment & Supplies     L+885       —         10.20     11/15/2016       11/15/2020       10,000       9,958       10,000  

Sunesis Pharmaceuticals, Inc. (11)

  Pharmaceuticals     L+854       —         9.92     3/31/2016       4/1/2020       3,750       3,765       3,769  

Trevi Therapeutics, Inc. (11)

  Pharmaceuticals     L+775       —         9.11     12/29/2014       6/29/2018       2,406       2,786       2,623  

Vapotherm, Inc. (11)

  Health Care Equipment & Supplies     L+899       —         10.34     11/16/2016       5/16/2021       20,000       20,040       20,450  
               

 

 

   

 

 

 

Total Life Science Senior Secured Loans

                $ 212,915     $ 212,947  
               

 

 

   

 

 

 

Total Senior Secured Loans

                $ 767,419     $ 769,101  
               

 

 

   

 

 

 

 

See notes to consolidated financial statements.

 

16


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2017

(in thousands, except share/unit amounts)

 

Description

 

Industry

  Interest
Rate (1)
    Acquisition
Date
    Maturity
Date
    Par
Amount
    Cost     Fair
Value
 

Equipment Financing — 23.7%

             

Althoff Crane Service, Inc. (11)(13)

  Commercial Services & Supplies     10.55%       7/31/2017       6/8/2022     $ 1,526     $ 1,526     $ 1,526  

BB578, LLC (11)(13)

  Media     10.00%       7/31/2017       11/1/2021       801       801       821  

Beverly Hills Limo and Corporate Coach, Inc. (11)(13)

  Road & Rail     10.67%       7/31/2017       2/28/2018       38       38       37  

Blue Star Materials II, LLC (11)(13)

  Construction Materials     39.06%       7/31/2017       5/1/2018       102       102       102  

Carl R. Bieber, Inc. (11)(13)

  Hotels, Restaurants & Leisure     9.92%       7/31/2017       1/13/2024       1,363       1,363       1,347  

Central Freight Lines, Inc. (11)(13)

  Road & Rail     7.16%       7/31/2017       1/14/2024       1,979       1,979       1,940  

Cfactor Leasing Corp. & CZM USA, Corp. (11)(13)

  Machinery     12.00-12.05%       7/31/2017       5/31/2019-1/15/2021       2,090       2,090       2,135  

Family First Freight, LLC (11)(13)

  Road & Rail     10.11%       7/31/2017       1/22/2022       505       505       513  

Georgia Jet, Inc. (11)(13)

  Airlines     8.00%       12/4/2017       12/4/2021       2,918       2,918       2,918  

Haljoe Coaches USA, LLC (11)(13)

  Road & Rail     8.12-9.90%       7/31/2017       7/1/2022-11/17/2022       6,172       6,172       6,172  

Hawkeye Contracting Company, LLC (11)(13)(14)

  Oil, Gas & Consumable Fuels     10.00%       11/15/2017       11/15/2020       5,292       5,292       5,292  

Knight Transfer Services, Inc. & Dumpstr Xpress, Inc. (11)(13)

  Commercial Services & Supplies     12.05-12.76%       7/31/2017       4/11/2020-4/30/2020       852       852       854  

Logicorp Enterprises, LLC (11)(13)

  Road & Rail     12.18%       7/31/2017       2/3/2021       4,016       4,016       4,096  

Marcal Manufacturing, LLC dba Soundview Paper Company, LLC (11)(13)

  Paper & Forest Products     12.91-12.98%       7/31/2017       7/30/2022-10/25/2022       1,637       1,637       1,637  

Meridian Consulting I Corp, Inc. (11)(13)

  Hotels, Restaurants & Leisure     10.72%       7/31/2017       12/4/2021       3,784       3,784       3,873  

Mountain Air Helicopters, Inc. (11)(13)

  Commercial Services & Supplies     10.00%       7/31/2017       4/30/2022       1,882       1,882       1,882  

OKK Equipment, LLC (11)(13)

  Commercial Services & Supplies     10.15%       7/31/2017       8/27/2023       709       709       696  

Reston Limousine & Travel Service, Inc. (11)(13)

  Road & Rail     11.81%       9/13/2017       10/1/2021       1,868       1,895       1,868  

Rossco Crane & Rigging, Inc. (11)(13)

  Commercial Services & Supplies     11.53%       8/25/2017       9/1/2022       711       711       711  

Royal Coach Lines, Inc. (11)(13)

  Road & Rail     10.03%       7/31/2017       8/28/2018       364       364       361  

RVR Air Charter, LLC & RVR Aviation, LLC (11)(13)

  Airlines     12.00%       7/31/2017       1/1/2022       1,550       1,550       1,581  

Santek Environmental, LLC (11)(13)

  Commercial Services & Supplies     10.00%       7/31/2017       3/1/2021       154       154       153  

Santek Environmental of Alabama, LLC (11)(13)

  Commercial Services & Supplies     8.95-10.00%       7/31/2017       12/18/2020-11/29/2021       252       252       250  

Sidelines Tree Service LLC (11)(13)

  Diversified Consumer Services     10.31%-10.52%       7/31/2017       8/1/2022-10/1/2022       523       525    

 

523

 

 

See notes to consolidated financial statements.

 

17


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2017

(in thousands, except share/unit amounts)

 

Description

 

Industry

  Interest
Rate (1)
    Acquisition
Date
    Maturity
Date
  Par
Amount
    Cost     Fair
Value
 

Southern Nevada Oral & Maxillofacial Surgery, LLC (11)(13)

  Health Care Providers & Services     12.00%       7/31/2017     3/1/2024   $ 1,521     $ 1,521     $ 1,544  

Southwest Traders, Inc. (11)(13)

  Road & Rail     9.13%       11/21/2017     11/1/2020     202       202       202  

ST Coaches, LLC (11)(13)

  Road & Rail     8.23-8.72%       7/31/2017     10/1/2022-11/18/2022     3,703       3,703       3,703  

Sturgeon Services International Inc. (11)(13)

  Energy Equipment & Services     17.21%       7/31/2017     2/28/2022     2,212       2,212       2,225  

Sun-Tech Leasing of Texas, L.P. (11)(13)

  Road & Rail     8.68-10.60%       7/31/2017     5/4/2019-7/25/2021     1,253       1,253       1,252  

Superior Transportation, Inc. (11)(13)

  Road & Rail     9.77-10.26%       7/31/2017     4/23/2022-11/25/2022     3,451       3,451       3,423  

The Smedley Company & Smedley Services, Inc. (11)(13)

  Commercial Services & Supplies     11.63%       7/31/2017     2/10/2024     3,119       3,119       3,181  

Tornado Bus Company (11)(13)

  Road & Rail     10.78%       7/31/2017     9/1/2021     2,727       2,727       2,749  

Waste Services of Tennessee, LLC (11)(13)

  Commercial Services & Supplies     8.95-10.15%       7/31/2017     2/7/2021-11/29/2021     983       983       968  

Waste Services of Texas, LLC (11)(13)

  Commercial Services & Supplies     8.95%       7/31/2017     12/6/2021     190       190       185  

WJV658, LLC (11)(13)

  Airlines     8.50%       7/31/2017     7/1/2022     8,452       8,452       8,452  

W.P.M., Inc., WPM-Southern, LLC, WPM Construction Services, Inc. (11)(13)

  Construction & Engineering     7.50%       7/31/2017     10/1/2022     4,004       4,004       3,911  
                        Shares/
Units
             

NEF Holdings, LLC Equity Interests (3)(11)(12)

  Multi-Sector Holdings       7/31/2017         200       145,000       145,500  
         

 

 

   

 

 

 

Total Equipment Financing

            $ 217,934     $ 218,583  
           

 

 

   

 

 

 

Preferred Equity — 1.4%

             

SOAGG LLC (3)(5)(6)

  Aerospace & Defense     8.00%       12/14/2010     6/30/2020     4,147     $ 4,147     $ 4,537  

SOINT, LLC (3)(5)(6)

  Aerospace & Defense     15.00%       6/8/2012     6/30/2020     77,014       7,701       8,300  
           

 

 

   

 

 

 

Total Preferred Equity

            $ 11,848     $ 12,837  
           

 

 

   

 

 

 

 

See notes to consolidated financial statements.

 

18


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2017

(in thousands, except share/unit amounts)

 

Description

 

Industry

    Acquisition
Date
          Shares/
Units
    Cost     Fair
Value
 

Common Equity/Equity Interests/Warrants — 50.0%

 

         

Ark Real Estate Partners LP (2)(3)(11)*

  Diversified Real Estate Activities

 

    3/12/2007         —       $ 527     $ 263  

Ark Real Estate Partners II LP (2)(3)(11)*

  Diversified Real Estate Activities

 

    10/23/2012         —         12       6  

aTyr Pharma, Inc. Warrants (11)*

  Pharmaceuticals

 

    11/18/2016         88,792       106       73  

B Riley Financial Inc. (5)

  Research & Consulting Services

 

    3/16/2007         38,015       2,684       688  

CardioDx, Inc. Warrants (11)*

  Health Care Providers & Services

 

    6/18/2015         3,986       129       —    

CardioFocus, Inc. Warrants (11)*

  Health Care Equipment & Supplies

 

    3/31/2017         440,816       51       43  

CAS Medical Systems, Inc. Warrants (11)*

  Health Care Equipment & Supplies

 

    6/30/2016         48,491       38       —    

Cianna Medical, Inc. Warrants (11)*

  Health Care Equipment & Supplies

 

    9/28/2016         112,158       47       39  

Claret Medical, Inc. Warrants (11)*

  Health Care Equipment & Supplies

 

    11/22/2017         367,737       42       42  

Conventus Orthopaedics, Inc. Warrants (11)*

  Health Care Equipment & Supplies

 

    6/15/2016         157,500       65       43  

Crystal Financial LLC (3)(5)(11)

  Diversified Financial Services

 

    12/28/2012         280,303       280,737       303,200  

Delphinus Medical Technologies, Inc. Warrants (11)*

  Health Care Equipment & Supplies

 

    8/18/2017         380,904       74       66  

Essence Group Holdings Corporation (Lumeris) Warrants (11)*

  Health Care Technology

 

    3/22/2017         208,000       63       155  

PQ Bypass, Inc. Warrants (11)*

  Health Care Equipment & Supplies

 

    4/21/2016         176,471       70       38  

RD Holdco Inc. (Rug Doctor) (3)(11)*

  Diversified Consumer Services

 

    12/23/2013         231,177       15,683       10,102  

RD Holdco Inc. (Rug Doctor) Class B (3)(11)*

  Diversified Consumer Services

 

    12/23/2013         522       5,216       5,216  

RD Holdco Inc. (Rug Doctor) Warrants (3)(11)*

  Diversified Consumer Services

 

    12/23/2013         30,370       381       35  

Scynexis, Inc. Warrants (11)*

  Pharmaceuticals

 

    9/30/2016         122,435       105       3  

Senior Secured Unitranche Loan Program LLC (3)(5)(11).

  Asset Management

 

    11/25/2015         —         89,716       88,736  

Senior Secured Unitranche Loan Program II LLC (3)(5)(11)

  Asset Management

 

    8/5/2016         —         51,076       51,744  

SentreHeart, Inc. Warrants (11)*

  Health Care Equipment & Supplies

 

    11/15/2016         261,825       126       79  

Sunesis Pharmaceuticals, Inc. Warrants (11)*

  Pharmaceuticals

 

    3/31/2016         104,001       118       78  
         

 

 

   

 

 

 

Total Common Equity/Equity Interests/Warrants

          $ 447,066     $ 460,649  
 

 

 

   

 

 

 

Total Investments(8) — 158.6%

            $ 1,444,267     $ 1,461,170  
           

 

 

   

 

 

 
                    Maturity
Date
    Par
Amount
             

Cash Equivalents — 15.7%

U.S. Treasury Bill

  Government       12/28/2017       2/8/2018     $ 145,000     $ 144,826     $ 144,826  
           

 

 

   

 

 

 

Total Investments & Cash Equivalents —174.3%

            $  1,589,093     $  1,605,996

Liabilities in Excess of Other Assets — (74.3%)

                (684,391
             

 

 

 

Net Assets — 100.0%

              $ 921,605  
             

 

 

 

 

(1)

Floating rate debt investments typically bear interest at a rate determined by reference to the London Interbank Offered Rate (“LIBOR”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current rate of interest in effect as of December 31, 2017.

(2)

Ark Real Estate Partners is held through SLRC ADI Corp., a wholly-owned taxable subsidiary.

 

See notes to consolidated financial statements.

 

19


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2017

(in thousands, except share/unit amounts)

 

(3)

Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the Investment Company Act of 1940 (“1940 Act”), due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2017 in these controlled investments are as follows:

 

Name of Issuer

  Fair Value at
December 31,
2016
    Gross
Additions
    Gross
Reductions
    Realized
Gain (Loss)
    Change in
Unrealized
Gain (Loss)
    Interest/
Dividend/
Other Income
    Fair Value at
December 31,
2017
 

Ark Real Estate Partners LP

  $ 336     $ —       $ —       $ (6 )†    $ (73   $ —       $ 263  

Ark Real Estate Partners II LP

    8       —         —         —         (2     —         6  

AviatorCap SII, LLC I

    497       —         487       —         —         31       10  

Crystal Financial LLC

    305,000       —         —         —         (1,800     31,600       303,200  

NEF Holdings, LLC

    —         145,000       —         —         500       5,898       145,500  

RD Holdco Inc. (Rug Doctor, common equity)

    13,574       —         —         —         (3,472     —         10,102  

RD Holdco Inc. (Rug Doctor, class B)

    5,216       —         —         —         —         —         5,216  

RD Holdco Inc. (Rug Doctor, warrants)

    168       —         —         —         (133     —         35  

Rug Doctor LLC

    9,111       —         —         —         (92     1,149       9,111  

SSLP

    100,653       525       12,687       —         245       8,393       88,736  

SSLP II

    47,363       8,872       4,758       —         267       5,180       51,744  

SOAGG LLC

    5,806       —         1,476       —         207       394       4,537  

SOINT, LLC

    2,386       —         2,386       —         (6     60       —    

SOINT, LLC (preferred equity)

    9,100       —         966       —         166       1,259       8,300  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 499,218     $ 154,397     $ 22,760     $ (6   $ (4,193   $ 53,964     $ 626,760  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See notes to consolidated financial statements.

 

20


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2017

(in thousands, except share/unit amounts)

 

(4)

Denotes investments in which we are an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2017 in these affiliated investments are as follows:

 

Name of Issuer

  Fair Value at
December 31,
2016
    Gross
Additions
    Gross
Reductions
    Realized
Gain (Loss)
    Change in
Unrealized
Gain (Loss)
    Interest/
Dividend
Income
    Fair Value at
December 31,
2017
 

Direct Buy Inc. (common equity)

  $ —       $ —       $ —       $ —       $ —       $ —       $ —    

Direct Buy Inc. (senior secured loan)

    777       333       11,439       (8,387     7,734       —         —    

DSW Group Holdings LLC

    —         —         —         283 †      —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 777     $ 333     $ 11,439     $ (8,104   $ 7,734     $ —       $ —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(5)

Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 (“1940 Act”), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of December 31, 2017, on a fair value basis, non-qualifying assets in the portfolio represented 30.5% of the total assets of the Company.

(6)

Solar Capital Ltd.’s investments in SOAGG, LLC and SOINT, LLC include a two and one dollar investment in common shares, respectively.

(7)

Bishop Lifting Products, Inc., SEI Holding I Corporation, Singer Equities, Inc. & Hampton Rubber Company are co-borrowers.

(8)

Aggregate net unrealized appreciation for U.S. federal income tax purposes is $10,234; aggregate gross unrealized appreciation and depreciation for federal tax purposes is $27,742 and $17,508, respectively, based on a tax cost of $1,450,936. All of the Company’s investments are pledged as collateral against the borrowings outstanding on the revolving credit facility.

(9)

Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.

(10)

Spread is 12.25% Cash / 2.00% PIK.

(11)

Investment valued using significant unobservable inputs.

(12)

NEF Holdings, LLC is held through NEFCORP LLC, a wholly-owned consolidated taxable subsidiary and NEFPASS LLC, a wholly-owned consolidated subsidiary.

(13)

Indicates an investment that is wholly held by Solar Capital Ltd. through NEFPASS LLC.

(14)

Hawkeye Contracting Company, LLC, Eagle Creek Mining, LLC & Falcon Ridge Leasing, LLC are co-borrowers.

*

Non-income producing security.

Represents estimated change in receivable balance.

††

Investment contains a payment-in-kind (“PIK”) feature.

 

See notes to consolidated financial statements.

 

21


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2017

(in thousands)

 

 

Industry Classification

   Percentage of Total
Investments (at fair value) as
of December 31, 2017
 

Diversified Financial Services (Crystal Financial LLC)

     20.7

Multi-Sector Holdings (includes NEF Holdings, LLC)

     13.2

Asset Management (includes SSLP and SSLP II)

     10.6

Health Care Providers & Services

     8.0

Health Care Equipment & Supplies

     6.2

Pharmaceuticals

     5.5

Media

     5.1

Wireless Telecommunication Services

     3.8

Professional Services

     3.5

Communications Equipment

     3.2

Road & Rail

     1.8

Consumer Finance

     1.7

Diversified Consumer Services

     1.7

IT Services

     1.7

Trading Companies & Distributors

     1.6

Health Care Technology

     1.5

Thrifts & Mortgage Finance

     1.4

Life Sciences Tools & Services

     1.2

Chemicals

     1.1

Software

     1.1

Insurance

     1.0

Airlines

     0.9

Aerospace & Defense

     0.9

Commercial Services & Supplies

     0.7

Air Freight & Logistics

     0.5

Oil, Gas & Consumable Fuels

     0.4

Hotels, Restaurants & Leisure

     0.4

Construction & Engineering

     0.3

Energy Equipment & Services

     0.1

Machinery

     0.1

Paper & Forest Products

     0.1

Research & Consulting Services

     0.0

Diversified Real Estate Activities

     0.0

Construction Materials

         0.0
  

 

 

 

Total Investments

     100.0
  

 

 

 

 

See notes to consolidated financial statements.

 

22


Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

September 30, 2018

(in thousands, except share amounts)

Note 1. Organization

Solar Capital LLC, a Maryland limited liability company, was formed in February 2007 and commenced operations on March 13, 2007 with initial capital of $1,200,000 of which 47.04% was funded by affiliated parties.

Immediately prior to our initial public offering, through a series of transactions, Solar Capital Ltd. merged with Solar Capital LLC, leaving Solar Capital Ltd. as the surviving entity (the “Merger”). Solar Capital Ltd. issued an aggregate of approximately 26.65 million shares of common stock and $125,000 in senior unsecured notes to the existing Solar Capital LLC unit holders in connection with the Merger. Solar Capital Ltd. had no assets or operations prior to completion of the Merger and as a result, the historical books and records of Solar Capital LLC have become the books and records of the surviving entity. The number of shares used to calculate weighted average shares for use in computations on a per share basis have 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 Merger.

Solar Capital Ltd. (“Solar Capital”, the “Company”, “we”, “us” or “our”), a Maryland corporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply the guidance in FASB Accounting Standards Codification (“ASC”) Topic 946. In addition, for tax purposes, the Company has elected to be treated, and intend to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

On February 9, 2010, Solar Capital priced its initial public offering, selling 5.68 million shares, including the underwriters’ over-allotment, at a price of $18.50 per share. Concurrent with this offering, the Company’s senior management purchased an additional 600,000 shares through a private placement, also at $18.50 per share.

The Company’s investment objective is to maximize both current income and capital appreciation through debt and equity investments. The Company invests primarily in leveraged middle market companies in the form of senior secured loans, stretch-senior loans, unitranche loans, and to a lesser extent, mezzanine loans and equity securities. From time to time, we may also invest in public companies that are thinly traded.

Note 2. Significant Accounting Policies

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”), and include the accounts of the Company and certain wholly-owned subsidiaries, including SSLP and SSLP II effective September 2018. 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 may have been reclassified to conform to the current period presentation.

Interim consolidated financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. Accordingly, they may not include all of the information and notes required by GAAP for annual consolidated financial statements. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other

 

23


Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

parameters used in determining these estimates could cause actual results to differ materially. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending on December 31, 2018.

In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements, have been included.

The significant accounting policies consistently followed by the Company are:

 

  (a)

Investment transactions are accounted for on the trade date;

 

  (b)

Under procedures established by our board of directors (the “Board”), we value investments, including certain senior secured debt, subordinated debt and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we may utilize independent third-party valuation firms to assist us in determining the fair value of material assets. Accordingly, such investments go through our multi-step valuation process as described below. In each such case, independent valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations. Debt investments with maturities of 60 days or less shall each be valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of Solar Capital Partners, LLC (the “Investment Adviser”), does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our Board. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our Board. Such determination of fair values involves subjective judgments and estimates.

With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board has approved a multi-step valuation process each quarter, as described below:

 

  (1)

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

 

  (2)

preliminary valuation conclusions are then documented and discussed with senior management of the Investment Adviser;

 

  (3)

independent valuation firms engaged by our Board conduct independent appraisals and review the Investment Adviser’s preliminary valuations and make their own independent assessment for all material assets;

 

  (4)

the audit committee of the Board reviews the preliminary valuation of the Investment Adviser and that of the independent valuation firm and responds to the valuation recommendation of the independent valuation firm, if any, to reflect any comments; and

 

  (5)

the Board discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm, if any, and the audit committee.

 

24


Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC 820-10, certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as a practical expedient for fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation approaches to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. For the nine months ended September 30, 2018, there has been no change to the Company’s valuation approaches or techniques and the nature of the related inputs considered in the valuation process.

ASC Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The exercise of judgment is based in part on our knowledge of the asset class and our prior experience.

 

  (c)

Gains or losses on investments are calculated by using the specific identification method.

 

  (d)

The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and we amortize such amounts into income using the effective interest method or on a straight-line basis, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record call premiums received on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendment fees, consent fees, and any other non-recurring fee income as well as management fee and other fee income for services rendered, if any, are recorded as other income when earned.

 

  (e)

The Company intends to comply with the applicable provisions of the Code pertaining to regulated investment companies to make distributions of taxable income sufficient to relieve it of substantially all U.S. federal income taxes. The Company, at its discretion, may carry forward taxable income in excess

 

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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

  of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on such estimated excess taxable income as appropriate.

 

  (f)

Book and tax basis differences relating to stockholder distributions and other permanent book and tax differences are typically reclassified among the Company’s capital accounts annually. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.

 

  (g)

Distributions to common stockholders are recorded as of the record date. The amount to be paid out as a distribution is determined by the Board. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.

 

  (h)

In accordance with Regulation S-X and ASC Topic 810—Consolidation, the Company consolidates its interest in controlled investment company subsidiaries, including SSLP and SSLP II, financing subsidiaries and certain wholly-owned holding companies that serve to facilitate investment in portfolio companies. In addition, the Company may also consolidate any controlled operating companies substantially all of whose business consists of providing services to the Company (see notes 12 and 13).

 

  (i)

The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The Company will not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations would be included with the net unrealized gain or loss from investments. The Company’s investments in foreign securities, if any, may involve certain risks, including without limitation: 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 in terms of U.S. dollars and therefore the earnings of the Company.

 

  (j)

The Company and its wholly-owned investment subsidiaries SSLP and SSLP II have made irrevocable elections to apply the fair value option of accounting to the senior secured credit facility (the “Credit Facility”), the unsecured senior notes due 2022 (the “2022 Unsecured Notes”), the consolidated SSLP Facility and the consolidated SSLP II Facility (see note 6 and 7), in accordance with ASC 825-10.

 

  (k)

In accordance with ASC 835-30, the Company records origination and other expenses related to certain debt issuances as a direct deduction from the carrying amount of the debt liability. These expenses are deferred and amortized using either the effective interest method or the straight-line method over the stated life. The straight-line method may be used on revolving facilities and when it approximates the effective yield method.

 

  (l)

The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when contracts are settled.

 

  (m)

The Company records expenses related to shelf registration statements and applicable equity offering costs as prepaid assets. These expenses are typically charged as a reduction of capital upon utilization, in accordance with ASC 946-20-25. Certain subsequent costs are expensed per the AICPA Audit & Accounting Guide for Investment Companies.

 

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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

  (n)

Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 days or more (90 days or more for equipment financing) and/or when it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on such investments may be recognized as income or applied to principal depending on management’s judgment.

 

  (o)

The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact of ASU 2018-13 on its consolidated financial statements and disclosures.

In August 2018, the US Securities and Exchange Commission adopted final rules to eliminate redundant, duplicative, overlapping, outdated or superseded disclosure requirements in light of other disclosure requirements, GAAP or changes in the information environment. These rules amend certain provisions of Regulation S-X and Regulation S-K, certain rules promulgated under the Securities Act of 1933 and the Securities Exchange Act of 1934 and certain related forms. These changes become effective thirty days after the date of publication in the Federal Register. The Company is evaluating the impact of these changes on its consolidated financial statements and disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, which amends FASB ASC 230. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. For public business entities, the amendments were effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company has adopted ASU 2016-18 and determined that the adoption has not had a material impact on its consolidated financial statements and disclosures.

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which will amend FASB ASC 310-20. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium, generally requiring the premium to be amortized to the earliest call date. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,

 

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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

2018. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of ASU 2017-08 on its consolidated financial statements and disclosures.

In May 2014, the FASB issued ASC 606, Revenue From Contracts With Customers, originally effective for public business entities with annual reporting periods beginning after December 15, 2016. On August 12, 2015, the FASB issued an ASU, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASC 606 for one year. ASC 606 provides accounting guidance related to revenue from contracts with customers. For public business entities, ASC 606 was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company has adopted ASC 606 and determined that the adoption has not had a material impact on its consolidated financial statements and disclosures.

Note 3. Agreements

Solar Capital has an Advisory Agreement with 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 a performance-based 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 1.75%. Prior to January 1, 2018, the annual rate was 2.00%. Effective August 2, 2018, the annual rate is 1.00% on gross assets that exceed 200% of the Company’s total net assets as of the immediately preceding quarter end. For purposes of computing the base management fee, gross assets exclude temporary assets acquired at the end of each fiscal quarter for purposes of preserving investment flexibility in the next fiscal quarter. Temporary assets include, but are not limited to, U.S. treasury bills, other short-term U.S. government or government agency securities, repurchase agreements or cash borrowings.

The performance-based 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 distributions paid on any issued and outstanding preferred stock, but excluding the performance-based incentive fee). Pre-incentive fee net investment income does not include any realized capital gains or losses, or unrealized capital appreciation or 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). Solar Capital pays the Investment Adviser a performance-based incentive fee with respect to Solar Capital’s pre-incentive fee net investment income in each calendar quarter as follows: (1) no performance-based 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.

 

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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

The second part of the performance-based incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Advisory Agreement, as of the termination date), and will equal 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 net capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For financial statement purposes, the second part of the performance-based incentive fee is accrued based upon 20% of cumulative net realized gains and net unrealized capital appreciation. No accrual was required for the three and nine months ended September 30, 2018 and 2017.

For the three and nine months ended September 30, 2018, the Company recognized $6,399 and $19,285, respectively, in base management fees and $4,604 and $14,109, respectively, in performance-based incentive fees. For the three and nine months ended September 30, 2017, the Company recognized $6,751 and $20,037, respectively, in base management fees and $4,329 and $12,395, respectively, in performance-based incentive fees.

Solar Capital has also entered into an Administration Agreement with Solar Capital Management, LLC (the “Administrator”) under which the Administrator provides administrative services to 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. The Company typically reimburses the Administrator on a quarterly basis.

For the three and nine months ended September 30, 2018, the Company recognized expenses under the Administration Agreement of $1,459 and $4,151, respectively. For the three and nine months ended September 30, 2017, the Company recognized expenses under the Administration Agreement of $1,346 and $3,994, respectively. No managerial assistance fees were accrued or collected for the three and nine months ended September 30, 2018 and 2017.

Note 4. Net Asset Value Per Share

At September 30, 2018, the Company’s total net assets and net asset value per share were $927,592 and $21.95, respectively. This compares to total net assets and net asset value per share at December 31, 2017 of $921,605 and $21.81, respectively.

Note 5. Earnings Per Share

The following table sets forth the computation of basic and diluted net increase in net assets per share resulting from operations, pursuant to ASC 260-10, for the three and nine months ended September 30, 2018 and 2017:

 

     Three months ended September 30,      Nine months ended September 30,  
             2018                      2017                      2018                      2017          

Earnings per share (basic & diluted)

           

Numerator - net increase in net assets resulting from operations:

   $ 18,130      $ 17,163      $ 57,968      $ 53,104  

Denominator - weighted average shares:

     42,260,826        42,260,826        42,260,826        42,256,636  

Earnings per share:

   $ 0.43      $ 0.41      $ 1.37      $ 1.26  

 

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Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

Note 6. Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuations used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

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.

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;

 

  c)

Pricing models whose inputs are observable for substantially the full term of the asset or liability; 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 and, if applicable, an independent third-party valuation firm’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3).

Gains and losses for assets and liabilities categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of the appropriate category as of the end of the quarter in which the reclassifications occur.

 

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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, as of September 30, 2018 and December 31, 2017:

Fair Value Measurements

As of September 30, 2018

 

     Level 1      Level 2      Level 3      Total  

Assets:

           

Senior Secured Loans

   $ —        $ 25,747      $ 756,396      $ 782,143  

Equipment Financing

     —          —          297,312        297,312  

Preferred Equity

     —          —          9,709        9,709  

Common Equity/Equity Interests/Warrants

     861        —          320,755        321,616  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 861      $ 25,747      $ 1,384,172      $ 1,410,780  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Credit Facility, 2022 Unsecured Notes, SSLP Facility and SSLP II Facility

   $ —        $ —        $ 363,166      $ 363,166  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair Value Measurements

As of December 31, 2017

 

     Level 1      Level 2      Level 3      Measured
at Net
Asset
Value*
     Total  

Assets:

              

Senior Secured Loans

   $ —        $ 25,770      $ 743,331      $ —        $ 769,101  

Equipment Financing

     —          —          218,583        —          218,583  

Preferred Equity

     —          —          12,837        —          12,837  

Common Equity/Equity Interests/Warrants

     688        —          319,481        140,480        460,649  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 688      $ 25,770      $ 1,294,232      $ 140,480      $ 1,461,170  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

              

Credit Facility and 2022 Unsecured Notes

   $ —        $ —        $ 445,600      $ —        $ 445,600  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

*

In accordance with ASC 820-10, certain investments that are measured using the net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities. The two portfolio investments in this category are SSLP and SSLP II. See Note 11 & 12, respectively, for more information on these investments, including their investment strategies and the Company’s unfunded equity commitments to SSLP and SSLP II. Neither of these investments are redeemable by the Company absent an election by the members of the entities to liquidate all investments and distribute the proceeds to the members.

The following tables provide a summary of the changes in fair value of Level 3 assets and liabilities for the nine months ended September 30, 2018 and the year ended December 31, 2017 as well as the portion of gains or

 

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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at September 30, 2018 and December 31, 2017:

Fair Value Measurements Using Level 3 Inputs

 

     Senior Secured
Loans
    Equipment
Financing
    Preferred Equity     Common Equity/
Equity
Interests/
Warrants
    Total  

Fair value, December 31, 2017

   $ 743,331     $ 218,583     $ 12,837     $ 319,481     $ 1,294,232  

Total gains or losses included in earnings:

          

Net realized gain (loss)

     405       17       —         282       704  

Net change in unrealized gain (loss)

     658       43       (151     1,158       1,708  

Purchase of investment securities

     249,676       104,627       —         209       354,512  

Proceeds from dispositions of investment securities.

     (464,142     (25,958     (2,977     (375     (493,452

Transfers in/out of Level 3

     226,468       —         —         —         226,468  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair value, September 30, 2018

   $ 756,396     $ 297,312     $ 9,709     $ 320,755     $ 1,384,172  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:

          

Net change in unrealized gain (loss)

   $ 1,369     $ (15   $ (151   $ 1,158     $ 2,361  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

During the three months ended September 30, 2018, the Company’s investments in SSLP and SSLP II were consolidated, and as such the Level 3 assets held by SSLP and SSLP II are reflected as transfers into Level 3.

The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the nine months ended September 30, 2018:

 

Credit Facility, 2022 Unsecured Notes, SSLP Facility and SSLP II
Facility

   For the nine
months ended
September 30,
2018
 

Beginning fair value

   $ 445,600  

Net realized (gain) loss

     —    

Net change in unrealized (gain) loss

     —    

Borrowings

     367,100  

Repayments

     (510,600

Transfers in/out of Level 3

     61,066  
  

 

 

 

Ending fair value

   $ 363,166  
  

 

 

 

The Company and its wholly-owned investment subsidiaries SSLP and SSLP II have made irrevocable elections to apply the fair value option of accounting to the Credit Facility, the 2022 Unsecured Notes, the

 

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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

consolidated SSLP Facility and the consolidated SSLP II Facility, in accordance with ASC 825-10. On September 30, 2018, there were borrowings of $164,000, $150,000, $22,998 and $26,168, respectively, on the Credit Facility, the 2022 Unsecured Notes, the SSLP Facility and the SSLP II Facility. As a result of the consolidation of SSLP and SSLP II, the SSLP Facility and the SSLP II Facility are shown as transfers into Level 3.

Fair Value Measurements Using Level 3 Inputs

 

     Senior Secured
Loans
    Equipment
Financing
    Subordinated Debt/
Corporate Notes
    Preferred Equity     Common Equity/
Equity
Interests/
Warrants
 

Fair value, December 31, 2016

   $ 759,510     $ —       $ 28,059     $ 14,906     $ 324,842  

Total gains or losses included in earnings:

          

Net realized gain (loss)

     (9,547     —         —         —         —    

Net change in unrealized gain (loss)

     18,455       649       (122     372       (5,661

Purchase of investment securities

     246,367       224,468       36       —         300  

Proceeds from dispositions of investment securities.

     (271,454     (6,534     (27,973     (2,441     —    

Transfers in/out of Level 3

     —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair value, December 31, 2017

   $ 743,331     $ 218,583     $ —       $ 12,837     $ 319,481  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:

          

Net change in unrealized gain (loss)

   $ 9,046     $ 649     $ —       $ 372     $ (5,661
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

During the year ended December 31, 2017, there were no transfers in and out of Levels 1 and 2.

 

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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the year ended December 31, 2017:

 

Credit Facility, Senior Secured Notes and 2022 Unsecured
Notes

   For the year ended
December 31, 2017
 

Beginning fair value

   $ 290,200  

Net realized (gain) loss

     —    

Net change in unrealized (gain) loss

     —    

Borrowings

     861,400  

Repayments

     (706,000

Transfers in/out of Level 3

     —    
  

 

 

 

Ending fair value

   $ 445,600  
  

 

 

 

The Company has made an irrevocable election to apply the fair value option of accounting to the Credit Facility and the 2022 Unsecured Notes, in accordance with ASC 825-10. On December 31, 2017, there were borrowings of $295,600 and $150,000, respectively, on the Credit Facility and the 2022 Unsecured Notes. The Company used an independent third-party valuation firm to assist in measuring the fair value of the Credit Facility and the 2022 Unsecured Notes.

Quantitative Information about Level 3 Fair Value Measurements

The Company typically determines the fair value of its performing debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to current contractual interest rates, relative maturities and other key terms and risks associated with an investment. Among other factors, a significant determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company.

Significant unobservable quantitative inputs typically used in the fair value measurement of the Company’s Level 3 assets and liabilities primarily reflect current market yields, including indices, and readily available quotes from brokers, dealers, and pricing services as indicated by comparable assets and liabilities, as well as enterprise values, returns on equity and earnings before income taxes, depreciation and amortization (“EBITDA”) multiples of similar companies, and comparable market transactions for equity securities.

Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of September 30, 2018 is summarized in the table below:

 

    Asset or
Liability
  Fair Value at
September 30, 2018
    Principal Valuation
Technique/
Methodology
  Unobservable Input   Range (Weighted
Average)

Senior Secured Loans

  Asset   $ 756,396     Income Approach   Market Yield   6.6% – 15.1% (10.7%)

Equipment Financing

  Asset   $

$

152,112

145,200

 

 

  Income Approach

Market Approach

  Market Yield

Return on Equity

  7.2% – 18.9% (10.0%)

9.1% – 9.1% (9.1%)

Preferred Equity

  Asset   $ 9,709     Income Approach   Market Yield   6.1% – 13.1% (10.9%)

Common Equity/Equity Interests/Warrants

  Asset   $

$

19,255

301,500

 

 

  Market Approach

Market Approach

  EBITDA Multiple

Return on Equity

  6.5x – 7.1x (7.1x)

7.6% – 16.6% (13.7%)

Credit Facility, SSLP Facility and SSLP II Facility

  Liability   $ 213,166     Income Approach   Market Yield   L+1.4% – L+4.8%

(L+2.1%)

2022 Unsecured Notes

  Liability   $ 150,000     Income Approach   Market Yield   4.5% – 4.9% (4.5%)

 

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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2017 is summarized in the table below:

 

    Asset or
Liability
  Fair Value at
December 31, 2017
    Principal Valuation
Technique/
Methodology
  Unobservable Input   Range (Weighted
Average)

Senior Secured Loans

  Asset   $ 743,331     Yield Analysis   Market Yield   7.6% – 22.8% (11.2%)

Equipment Financing

  Asset   $

$

73,083

145,500

 

 

  Yield Analysis

Enterprise Value

  Market Yield

Return on Equity

  7.6% – 39.1% (10.0%)

11.8% – 11.8% (11.8%)

Preferred Equity

  Asset   $ 12,837     Yield Analysis   Market Yield   6.2% – 13.4% (10.9%)

Common Equity/Equity Interests/Warrants

  Asset   $

$

16,281

303,200

 

 

  Enterprise Value

Enterprise Value

  EBITDA Multiple

Return on Equity

  5.5x – 6.5x (6.3x)

7.3% – 14.0% (14.0%)

Credit Facility

  Liability   $ 295,600     Yield Analysis   Market Yield   L+1.4% – L+4.8%

(L+2.0%)

2022 Unsecured Notes

  Liability   $ 150,000     Yield Analysis   Market Yield   4.5% – 4.9% (4.5%)

Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in deriving bid-ask spreads, if applicable, could result in significantly lower or higher fair value measurements for such assets and liabilities.

Note 7. Debt

Unsecured Notes

On December 28, 2017, the Company closed a private offering of $21,000 of unsecured tranche c notes due 2022 (the “2022 Tranche C Notes”) with a fixed interest rate of 4.50% and a maturity date of December 28, 2022. Interest on the 2022 Tranche C Notes is due semi-annually on June 28 and December 28. The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

On November 22, 2017, we issued $75,000 in aggregate principal amount of publicly registered unsecured senior notes due 2023 (the “2023 Unsecured Notes”) for net proceeds of $73,846. Interest on the 2023 Unsecured Notes is paid semi-annually on January 20 and July 20, at a rate of 4.50% per year, commencing on January 20, 2018. The 2023 Unsecured Notes mature on January 20, 2023.

On February 15, 2017, the Company closed a private offering of $100,000 of additional 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act, as amended.

On November 8, 2016, the Company closed a private offering of $50,000 of the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act, as amended.

Revolving and Term Loan Facilities

On September 30, 2016, the Company entered into a second Credit Facility amendment. Post amendment, the Credit Facility was composed of $505,000 of revolving credit and $50,000 of term loans. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of 2.00-2.25% or the alternate base

 

35


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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

rate plus 1.00%-1.25%. The Credit Facility has no LIBOR floor requirement. The Credit Facility matures in September 2021 and includes ratable amortization in the final year. The Credit Facility may be increased up to $800,000 with additional new lenders or an increase in commitments from current lenders. The Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Credit 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 also pays issuers of funded term loans quarterly in arrears a commitment fee at the rate of 0.25% per annum on the average daily outstanding balance. On February 23, 2017, the Company prepaid its two non-extending lenders and terminated their commitments, reducing total outstanding revolving credit commitments by $110,000 to $395,000. On April 30, 2018, the revolving credit commitments under the Company’s Credit Facility were expanded by $50,000 from $395,000 to $445,000 and on July 13, 2018, revolving credit commitments were further expanded by $35,000 to $480,000. At September 30, 2018, outstanding USD equivalent borrowings under the Credit Facility totaled $164,000, composed of $114,000 of revolving credit and $50,000 of term loans.

On June 30, 2016, SSLP as transferor and SSLP 2016-1, LLC, a newly formed wholly owned subsidiary of SSLP, as borrower entered into a $200,000 senior secured revolving credit facility (the “SSLP Facility”) with Wells Fargo Bank, NA acting as administrative agent. Solar Capital Ltd. acts as servicer under the SSLP Facility. The SSLP Facility is scheduled to mature on June 30, 2021. The SSLP Facility generally bears interest at a rate of LIBOR plus 2.50%. SSLP and SSLP 2016-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The SSLP Facility also includes usual and customary events of default for credit facilities of this nature. There were $22,998 of borrowings outstanding as of September 30, 2018.

On November 15, 2016, SSLP II as transferor and SSLP II 2016-1, LLC, a newly formed wholly owned subsidiary of SSLP II, as borrower entered into a $100,000 senior secured revolving credit facility (the “SSLP II Facility”) with Wells Fargo Bank, NA acting as administrative agent. Solar Capital Ltd. acts as servicer under the SSLP II Facility. The SSLP II Facility is scheduled to mature on November 15, 2021. The SSLP II Facility generally bears interest at a rate of LIBOR plus 2.50%. SSLP II and SSLP II 2016-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The SSLP II Facility also includes usual and customary events of default for credit facilities of this nature. There were $26,168 of borrowings outstanding as of September 30, 2018.

On September 26, 2018, NEFPASS SPV LLC, a newly formed wholly owned subsidiary of NEFPASS LLC, as borrower entered into a $50,000 senior secured revolving credit facility (the “NEFPASS Facility”) with Keybank acting as administrative agent. The Company acts as servicer under the NEFPASS Facility. The NEFPASS Facility is scheduled to mature on September 26, 2023. The NEFPASS Facility generally bears interest at a rate of LIBOR plus 2.15%. NEFPASS and NEFPASS SPV LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The NEFPASS Facility also includes usual and customary events of default for credit facilities of this nature. There were $30,000 of borrowings outstanding as of September 30, 2018.

Certain covenants on our issued debt 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.

 

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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

The Company and its wholly-owned investment subsidiaries SSLP and SSLP II have made irrevocable elections to apply the fair value option of accounting to the Credit Facility, the 2022 Unsecured Notes, the consolidated SSLP Facility and the consolidated SSLP II Facility, in accordance with ASC 825-10. We believe accounting for these facilities at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility. ASC 825-10 requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated Statement of Assets and Liabilities and changes in fair value of the above facilities are reported in the Consolidated Statement of Operations.

The average annualized interest cost for all borrowings for the nine months ended September 30, 2018 and the year ended December 31, 2017 was 4.27% and 4.73%, respectively. These costs are exclusive of other credit facility expenses such as unused fees, agency fees and other prepaid expenses related to establishing and/or amending the Credit Facility, the 2022 Unsecured Notes, the Tranche C Notes, the NEFPASS Facility, the SSLP Facility, the SSLP II Facility and the 2023 Unsecured Notes (collectively the “Credit Facilities”), if any. During the year ended December 31, 2017, the Company expensed $591 in conjunction with the February 2017 issue of 2022 Unsecured Notes. The maximum amounts borrowed on the Credit Facilities during the nine months ended September 30, 2018 and the year ended December 31, 2017 were $592,600 and $606,600, respectively.

Note 9. Financial Highlights and Senior Securities Table

The following is a schedule of financial highlights for the nine months ended September 30, 2018 and for the year ended December 31, 2017:

 

     Nine months ended
September 30, 2018
    Year ended
December 31,
2017 (audited)
 

Per Share Data: (a)

    

Net asset value, beginning of year

   $ 21.81     $ 21.74  
  

 

 

   

 

 

 

Net investment income

     1.34       1.62  

Net realized and unrealized gain

     0.03       0.05  
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     1.37       1.67  

Distributions to stockholders:

    

From net investment income

     (1.23     (1.60
  

 

 

   

 

 

 

Net asset value, end of period

   $ 21.95     $ 21.81  
  

 

 

   

 

 

 

Per share market value, end of period

   $ 21.38     $ 20.21  

Total Return (b)

     12.13     4.47

Net assets, end of period

   $ 927,592     $ 921,605  

Shares outstanding, end of period

     42,260,826       42,260,826  

Ratios to average net assets (c):

    

Net investment income

     6.11     7.43
  

 

 

   

 

 

 

Operating expenses

     4.47     5.80

Interest and other credit facility expenses

     1.90     2.35 %* 
  

 

 

   

 

 

 

Total expenses

     6.37     8.15
  

 

 

   

 

 

 

Average debt outstanding

   $ 510,524     $ 414,264  

Portfolio turnover ratio

     26.1     24.9

 

37


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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

 

(a)

Calculated using the average shares outstanding method.

(b)

Total return is based on the change in market price per share during the period and takes into account distributions, if any, reinvested in accordance with the dividend reinvestment plan. Total return does not include a sales load.

(c)

Not annualized for periods less than one year.

*

Ratio shown without the non-recurring costs associated with the establishment of the 2022 Unsecured Notes would be 2.29% for the period shown.

Information about our senior securities is shown in the following table as of each year ended December 31 since the Company commenced operations, unless otherwise noted. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.

 

Class and Year

   Total Amount
Outstanding (1)
     Asset
Coverage
Per Unit (2)
     Involuntary
Liquidating
Preference
Per Unit (3)
     Average
Market Value
Per Unit (4)
 

Revolving Credit Facility

           

Fiscal 2018 (through September 30, 2018)

   $ 114,000      $ 675        —          N/A  

Fiscal 2017

     245,600        1,225        —          N/A  

Fiscal 2016

     115,200        990        —          N/A  

Fiscal 2015

     207,900        1,459        —          N/A  

Fiscal 2014

     —          —          —          N/A  

Fiscal 2013

     —          —          —          N/A  

Fiscal 2012

     264,452        1,510        —          N/A  

Fiscal 2011

     201,355        3,757        —          N/A  

Fiscal 2010

     400,000        2,668        —          N/A  

Fiscal 2009

     88,114        8,920        —          N/A  

2022 Unsecured Notes

           

Fiscal 2018 (through September 30, 2018)

     150,000        888        —          N/A  

Fiscal 2017

     150,000        748        —          N/A  

Fiscal 2016

     50,000        430        —          N/A  

2022 Tranche C Notes

           

Fiscal 2018 (through September 30, 2018)

     21,000        124        —          N/A  

Fiscal 2017

     21,000        105        —          N/A  

2023 Unsecured Notes

           

Fiscal 2018 (through September 30, 2018)

     75,000        444        —          N/A  

Fiscal 2017

     75,000        374        —          N/A  

2042 Unsecured Notes

           

Fiscal 2017

     —          —          —          N/A  

Fiscal 2016

     100,000        859        —        $ 1,002  

Fiscal 2015

     100,000        702        —          982  

Fiscal 2014

     100,000        2,294        —          943  

Fiscal 2013

     100,000        2,411        —          934  

Fiscal 2012

     100,000        571        —          923  

Senior Secured Notes

           

Fiscal 2017

     —          —          —          N/A  

Fiscal 2016

     75,000        645        —          N/A  

 

38


Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

Class and Year

   Total Amount
Outstanding (1)
     Asset
Coverage
Per Unit (2)
     Involuntary
Liquidating
Preference
Per Unit (3)
     Average
Market Value
Per Unit (4)
 

Fiscal 2015

     75,000        527        —          N/A  

Fiscal 2014

     75,000        1,721        —          N/A  

Fiscal 2013

     75,000        1,808        —          N/A  

Fiscal 2012

     75,000        428        —          N/A  

Term Loans

           

Fiscal 2018 (through September 30, 2018)

     50,000        296        —          N/A  

Fiscal 2017

     50,000        250        —          N/A  

Fiscal 2016

     50,000        430        —          N/A  

Fiscal 2015

     50,000        351        —          N/A  

Fiscal 2014

     50,000        1,147        —          N/A  

Fiscal 2013

     50,000        1,206        —          N/A  

Fiscal 2012

     50,000        285        —          N/A  

Fiscal 2011

     35,000        653        —          N/A  

Fiscal 2010

     35,000        233        —          N/A  

NEFPASS Facility

           

Fiscal 2018 (through September 30, 2018)

     30,000        178        —          N/A  

SSLP Facility

           

Fiscal 2018 (through September 30, 2018)

     22,998        136        —          N/A  

SSLP II Facility

           

Fiscal 2018 (through September 30, 2018)

     26,168        155        —          N/A  

Total Senior Securities

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Fiscal 2018 (through September 30, 2018)

   $ 489,166      $ 2,896        —          N/A  

Fiscal 2017

     541,600        2,702        —          N/A  

Fiscal 2016

     390,200        3,354        —          N/A  

Fiscal 2015

     432,900        3,039        —          N/A  

Fiscal 2014

     225,000        5,162        —          N/A  

Fiscal 2013

     225,000        5,425        —          N/A  

Fiscal 2012

     489,452        2,794        —          N/A  

Fiscal 2011

     236,355        4,410        —          N/A  

Fiscal 2010

     435,000        2,901        —          N/A  

Fiscal 2009

     88,114        8,920        —          N/A  

 

(1)

Total amount of each class of senior securities outstanding at the end of the period presented.

(2)

The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by all senior securities representing indebtedness. This asset coverage ratio is multiplied by one thousand to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total Asset Coverage Per Unit is allocated based on the amount outstanding in each class of debt at the end of the period. As of September 30, 2018, asset coverage was 289.6%.

(3)

The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.

(4)

Not applicable except for the 2042 Unsecured Notes which were publicly traded. The Average Market Value Per Unit is calculated by taking the daily average closing price during the period and dividing it by twenty-five dollars per share and multiplying the result by one thousand to determine a unit price per

 

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Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

  thousand consistent with Asset Coverage Per Unit. The average market value for the fiscal 2018, 2017, 2016, 2015, 2014, 2013 and 2012 periods was N/A, N/A, $100,175, $98,196, $94,301, $93,392, and $92,302, respectively.

Note 10. Crystal Financial LLC

On December 28, 2012, we completed the acquisition of Crystal Capital Financial Holdings LLC (“Crystal Financial”), a commercial finance company focused on providing asset-based and other secured financing solutions (the “Crystal Acquisition”). We invested $275,000 in cash to effect the Crystal Acquisition. Crystal Financial owned approximately 98% of the outstanding ownership interest in Crystal Financial LLC. The remaining financial interest was held by various employees of Crystal Financial LLC, through their investment in Crystal Management LP. Crystal Financial LLC had a diversified portfolio of 23 loans having a total par value of approximately $400,000 at November 30, 2012 and a $275,000 committed revolving credit facility. On January 27, 2014, the revolving credit facility was expanded to $300,000. On May 18, 2015, the revolving credit facility was expanded to $350,000. On July 28, 2016, the Company purchased Crystal Management LP’s approximately 2% equity interest in Crystal Financial LLC for approximately $5,737. Upon the closing of this transaction, the Company holds 100% of the equity interest in Crystal Financial LLC. On September 30, 2016, Crystal Capital Financial Holdings LLC was dissolved. On March 20, 2018, the revolving credit facility was amended, reducing commitments to $275,000.

As of September 30, 2018 Crystal Financial LLC had 30 funded commitments to 26 different issuers with a total par value of approximately $435,294 on total assets of $478,129. As of December 31, 2017, Crystal Financial LLC had 27 funded commitments to 23 different issuers with a total par value of approximately $300,876 on total assets of $448,465. As of September 30, 2018 and December 31, 2017, the largest loan outstanding totaled $40,000 and $35,954, respectively. For the same periods, the average exposure per issuer was $16,742 and $13,082, respectively. Crystal Financial LLC’s credit facility, which is non-recourse to Solar Capital, had approximately $206,395 and $176,454 of borrowings outstanding at September 30, 2018 and December 31, 2017, respectively. For the three months ended September 30, 2018 and 2017, Crystal Financial LLC had net income of $6,485 and $7,749, respectively, on gross income of $11,653 and $11,716, respectively. For the nine months ended September 30, 2018 and 2017, Crystal Financial LLC had net income of $18,609 and $23,619, respectively, on gross income of $33,585 and $39,755, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions.

 

40


Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

Note 11. Commitments and Contingencies

The Company had unfunded debt and equity commitments to various revolving and delayed draw loans as well as to Crystal Financial LLC. The total amount of these unfunded commitments as of September 30, 2018 and December 31, 2017 is $108,990 and $62,044, respectively, comprised of the following:

 

     September 30,
2018
     December 31,
2017
 

Crystal Financial LLC*

   $ 44,263      $ 44,263  

BioElectron Technology Corporation**

     17,500        —    

Phynet Dermatology LLC

     12,385        —    

Cardiva Medical, Inc.**

     9,000        —    

Breathe Technologies, Inc.**

     8,000        —    

Corindus Vascular Robotics, Inc.**

     6,217        —    

Delphinus Medical Technologies, Inc.**

     3,750        3,750  

Atria Wealth Solutions, Inc

     3,682        —    

Solara Medical Supplies, Inc

     1,718        —    

Datto, Inc

     1,683        1,683  

iCIMS, Inc

     792        —    

MRI Software LLC

     —          2,361  

Radiology Partners, Inc

     —          878  

Alera Group Intermediate Holdings, Inc

     —          3,885  

Accentcare, Inc

     —          3,397  

CardioFocus, Inc

     —          1,000  

WJV658, LLC

     —          827  
  

 

 

    

 

 

 

Total Commitments

   $ 108,990      $ 62,044  
  

 

 

    

 

 

 

 

*

The Company controls the funding of the Crystal Financial LLC commitment and may cancel it at its discretion.

**

Commitments are subject to the portfolio company achieving certain milestones. As of September 30, 2018, these milestones have not yet been achieved, and as such the portfolio company would not have been able to draw on any of the stated commitment at that time.

As of September 30, 2018 and December 31, 2017, the Company had sufficient cash available and/or liquid securities available to fund its commitments.

Note 12. Senior Secured Unitranche Loan Program LLC

On September 2, 2014, the Company entered into a limited liability company agreement with an affiliate (the “Investor”) of a fund managed by Pacific Investment Management Company LLC (“PIMCO”) to co-invest in middle market senior secured unitranche loans sourced by the same origination platform used by the Company. Initial funding commitments to the unitranche strategy total $600,000, consisting of direct equity investments and co-investment commitments as described below. The joint venture vehicle known as the SSLP is structured as an unconsolidated Delaware limited liability company. The Company and the Investor initially made equity commitments to the SSLP of $300,000 and $43,250, respectively. All portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and PIMCO (with approval from a representative of each required).

 

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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

On October 15, 2015, the Company entered into an amended and restated limited liability company agreement for its SSLP to add Voya Investment Management LLC (“Voya”), part of Voya Financial, Inc. (NYSE: VOYA), as a partner in SSLP in place of the investor that was previously the Company’s partner in SSLP, though this investor may still co-invest up to $300,000 of equity in unitranche loans alongside SSLP. This joint venture is expected to invest primarily in senior secured loans, including unitranche loans, primarily to middle market companies predominantly owned by private equity sponsors or entrepreneurs, consistent with the Company’s core origination and underwriting mandate. In addition to the Company’s prior equity commitment of $300,000 to SSLP, Voya has made an initial equity commitment of $25,000 to SSLP, with the ability to upsize.

On November 2, 2015, the Company assigned $125,000 of its $300,000 commitment to SSLP II, a Delaware limited liability company.

On November 25, 2015, SSLP commenced operations. On June 30, 2016, SSLP as transferor and SSLP 2016-1, LLC, a newly formed wholly owned subsidiary of SSLP, as borrower entered into a $200,000 senior secured revolving credit facility (the “SSLP Facility”) with Wells Fargo Bank, NA acting as administrative agent. Solar Capital Ltd. acts as servicer under the SSLP Facility. The SSLP Facility is scheduled to mature on June 30, 2021. The SSLP Facility generally bears interest at a rate of LIBOR plus 2.50%. SSLP and SSLP 2016-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The SSLP Facility also includes usual and customary events of default for credit facilities of this nature. There were $22,998 and $74,248 of borrowings outstanding as of September 30, 2018 and December 31, 2017, respectively. On September 18, 2018, the Company acquired Voya’s share of the equity in SSLP and now holds 100% of the equity in SSLP. As such, the Company is consolidating SSLP as of this date. For financial reporting purposes, assets consolidated were recorded at fair value and the cost basis of the assets consolidated were carried forward to align with the ongoing reporting of the Company’s realized and unrealized gains and losses. Also due to the consolidation, the current $354 in unrealized depreciation on the Company’s equity investment in SSLP is being reflected in unrealized depreciation in our consolidated assets and liabilities as well as an adjustment to net increase in net assets resulting from operations on the Company’s consolidated statement of cash flows. The effect of consolidation did not affect the Company’s net assets at September 30, 2018.

As of September 30, 2018 and December 31, 2017, SSLP had total assets of $125,481 and $179,241, respectively. For the same periods, SSLP’s portfolio consisted of floating rate senior secured loans to 7 and 10 different borrowers, respectively. For the three months ended September 30, 2018 and September 30, 2017, SSLP invested $0 in 0 portfolio companies and $1,694 in 2 portfolio companies, respectively. Investments prepaid or sold totaled $60,617 and $2,574 for the same periods, respectively. At September 30, 2018 and December 31, 2017, the weighted average yield of SSLP’s portfolio was 9.3% and 8.1%, respectively, measured at fair value and 9.2% and 8.1%, respectively, measured at cost.

 

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Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

September 30, 2018

(in thousands, except share amounts)

 

SSLP Portfolio as of September 30, 2018

 

Description

 

Industry

  Spread
Above
Index (1)
    LIBOR
Floor
    Interest
Rate (2)
    Maturity
Date
    Par
Amount
    Cost     Fair
Value (3)
 

Alteon Health, LLC (fka Island Medical)

  Health Care Providers & Services     L+650       1.00     8.74     9/1/22     $ 10,484     $ 10,403     $ 10,013  

Associated Pathologists, LLC

  Health Care Providers & Services     L+500       1.00     7.23     8/1/21       2,625       2,610       2,625  

Falmouth Group Holdings Corp. (AMPAC)

  Chemicals     L+675       1.00     8.99     12/14/21       26,350       26,112       26,350  

On Location Events, LLC & PrimeSport Holdings Inc.

  Media     L+550       1.00     7.83     9/29/21       16,942       16,776       16,815  

Pet Holdings ULC & Pet Supermarket, Inc.

  Specialty Retail     L+550       1.00     7.84     7/5/22       20,908       20,691       20,908  

PPT Management Holdings, LLC

  Health Care Providers & Services     L+750PIK       1.00     9.69     12/16/22       10,921       10,840       9,283  

PSKW, LLC & PDR, LLC

  Health Care Providers & Services     L+425       1.00     6.64     11/25/21       1,541       1,532       1,541  

PSKW, LLC & PDR, LLC

  Health Care Providers & Services     L+826       1.00     10.65     11/25/21       19,469       19,233       19,469  
             

 

 

   

 

 

 
              $ 108,197     $ 107,004  
             

 

 

   

 

 

 

 

(1)

Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.

(2)

Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) index rate or the prime index rate (PRIME or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of September 30, 2018.

(3)

Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation process described elsewhere herein.

SSLP Portfolio as of December 31, 2017 (audited)

 

Description

 

Industry

  Spread
Above
Index (1)
    LIBOR
Floor
    Interest
Rate (2)
    Maturity
Date
    Par
Amount
    Cost     Fair
Value (3)
 

AccentCare, Inc. (4)

  Health Care Providers & Services     L+525       1.00     6.94     3/3/22     $ 14,393     $ 14,350     $ 14,321  

Alera Group Intermediate Holdings, Inc.

  Insurance     L+550       1.00     6.85     12/30/22       17,114       16,963       17,029  

Associated Pathologists, LLC

  Health Care Providers & Services     L+500       1.00     6.42     8/1/21       3,125       3,102       3,125  

Empower Payments Acquisition, Inc. (RevSpring)

  Professional Services     L+550