10-Q 1 d68721d10q.htm 10-Q 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2015

OR

 

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

For the transition period from                      to                     

Commission file number 814-00789

 

 

THL CREDIT, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   27-0344947

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

100 Federal St., 31st Floor, Boston, MA   02110
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s Telephone Number, Including Area Code: 800-450-4424

 

 

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, as amended, during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-Accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding at August 6, 2015 was 33,601,002.

 

 

 


Table of Contents

THL CREDIT, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2015

Table of Contents

 

    

INDEX

   PAGE
NO.
 

PART I.

  FINANCIAL INFORMATION   

Item 1.

  Financial Statements   
  Consolidated Statements of Assets and Liabilities as of June 30, 2015 (unaudited) and December 31, 2014      2   
  Consolidated Statements of Operations for the six months ended June 30, 2015 and 2014 (unaudited)      3   
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2015 and 2014 (unaudited)      4   
  Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)      5   
  Consolidated Schedules of Investments as of June 30, 2015 (unaudited) and December 31, 2014      6   
  Notes to Consolidated Financial Statements (unaudited)      17   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      48   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      81   

Item 4.

  Controls and Procedures      81   

PART II.

  OTHER INFORMATION   

Item 1.

  Legal Proceedings      82   

Item 1A.

  Risk Factors      82   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      82   

Item 3.

  Defaults Upon Senior Securities      82   

Item 4.

  Mine Safety Disclosures      82   

Item 5.

  Other Information      82   

Item 6.

  Exhibits      83   

SIGNATURES

       84   

 

1


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Assets and Liabilities

(in thousands, except per share data)

(unaudited)

 

     June 30,
2015
    December 31,
2014
 

Assets:

    

Investments at fair value:

    

Non-controlled, non-affiliated investments (cost of $683,752 and $726,811, respectively)

   $ 690,808      $ 732,862   

Controlled investments (cost of $70,990 and $52,208, respectively)

     75,413        51,349   

Non-controlled, affiliated investments (cost of $8 and $9, respectively)

     8        9   
  

 

 

   

 

 

 

Total investments at fair value (cost of $754,750 and $779,028, respectively)

   $ 766,229      $ 784,220   

Cash

     7,798        2,656   

Interest, dividends, and fees receivable

     9,192        6,221   

Deferred financing costs

     6,230        7,021   

Due from affiliate

     722        1,216   

Deferred tax assets

     661        285   

Other deferred assets

     488        600   

Receivable for paydown of investments

     717        329   

Prepaid expenses and other assets

     136        399   

Deferred offering costs

     94        —     

Receivable for investments sold

     —          9,538   

Total assets

   $ 792,267      $ 812,485   

Liabilities:

    

Loans payable

   $ 282,851      $ 294,851   

Notes payable

     50,000        50,000   

Payable for investment purchased

     —          10,400   

Accrued incentive fees

     4,006        4,175   

Base management fees payable

     2,889        2,810   

Deferred tax liability

     2,781        2,565   

Accrued expenses and other payables

     1,078        1,856   

Other deferred liabilities

     1,305        1,418   

Accrued interest and fees

     483        576   

Interest rate derivative

     356        213   

Accrued administrator expenses

     23        —     

Total liabilities

     345,772        368,864   

Commitments and contingencies (Note 8)

    

Net Assets:

    

Preferred stock, par value $.001 per share, 100,000 preferred shares authorized, no preferred shares issued and outstanding

     —          —     

Common stock, par value $.001 per share, 100,000 common shares authorized, 33,601 and 33,905 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

     34        34   

Paid-in capital in excess of par

     444,788        448,726   

Net unrealized appreciation on investments, net of provision

     8,698        2,627   

for taxes of $2,781 and $2,565, respectively

    

Net unrealized depreciation on interest rate derivative

     (356     (213

Accumulated undistributed net realized losses

     (13,587     (13,360

Accumulated undistributed net investment income

     6,918        5,807   

Total net assets

     446,495        443,621   

Total liabilities and net assets

   $ 792,267      $ 812,485   
  

 

 

   

 

 

 

Net asset value per share

   $ 13.29      $ 13.08   
  

 

 

   

 

 

 

See accompanying notes to these consolidated financial statements.

 

2


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

     For the three months ended June 30,     For the six months ended June 30,  
     2015     2014     2015     2014  

Investment Income:

        

From non-controlled, non-affiliated investments:

        

Interest income

   $ 20,872      $ 21,721      $ 41,781      $ 39,273   

Dividend income

     293        637        293        2,785   

Other income

     847        588        2,501        1,030   

From non-controlled, affiliated investments:

        

Other income

     650        760        1,245        1,514   

From controlled investments:

        

Interest income

     238        39        476        39   

Dividend income

     776        —          1,104        —     

Other income

     75        —          113        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     23,751        23,745        47,513        44,641   

Expenses:

        

Interest and fees on borrowings

     3,159        2,475        6,240        4,565   

Incentive fees

     2,983        2,321        5,961        5,066   

Base management fees

     2,889        2,879        5,894        5,402   

Administrator expenses

     923        947        1,870        1,874   

Other general and administrative expenses

     743        702        1,429        1,264   

Amortization of deferred financing costs

     398        328        825        635   

Professional fees

     463        706        797        1,017   

Directors’ fees

     236        143        436        292   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     11,794        10,501        23,452        20,115   

Income tax provision, excise and other taxes

     23        357        218        937   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

     11,934        12,887        23,843        23,589   

Realized Gain and Change in Unrealized Appreciation on Investments:

        

Net realized gain (loss) on non-controlled, non-affiliated investments

     46        (573     77        (274

Net change in unrealized appreciation (depreciation) on investments:

        

Non-controlled, non-affiliated investments

     (881     (2,851     1,004        (3,460

Controlled, non-affiliated investments

     3,420        —          5,282        —     

Non-controlled, affiliated investments

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on investments

     2,539        (2,851     6,286        (3,460
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss) from investments

     2,585        (3,424     6,363        (3,734

Benefit (provision) for taxes on realized gain on investments

     —          72        —          (249

(Provision) benefit for taxes on unrealized gain on investments

     (388     14        (216     984   

Interest rate derivative periodic interest payments, net

     (111     (114     (227     (227

Net change in unrealized appreciation (depreciation) on interest rate derivative

     39        (152     (143     (99
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 14,059      $ 9,283      $ 29,620      $ 20,264   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income per common share:

        

Basic and diluted

   $ 0.35      $ 0.38      $ 0.70      $ 0.70   

Net increase in net assets resulting from operations per common share:

        

Basic and diluted

   $ 0.42      $ 0.27      $ 0.87      $ 0.60   

Dividends declared and paid

   $ 0.34      $ 0.34      $ 0.68      $ 0.68   

Weighted average shares of common stock outstanding:

        

Basic and diluted

     33,810        33,905        33,857        33,905   

See accompanying notes to these consolidated financial statements.

 

3


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets

(in thousands, except per share data)

(unaudited)

 

     For the six months ended June 30,  
     2015     2014  

Increase in net assets from operations:

    

Net investment income

   $ 23,843      $ 23,589   

Interest rate derivative periodic interest payments, net

     (227     (227

Net realized gain (loss) on investments

     77        (274

Income tax provision, realized gain

     —          (249

Net change in unrealized appreciation (depreciation) on investments

     6,286        (3,460

(Provision) benefit for taxes on unrealized gain (loss) on investments

     (216     984   

Net change in unrealized appreciation (depreciation) on interest rate derivative

     (143     (99
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     29,620        20,264   

Distributions to stockholders

    

Distributions to stockholders from net investment income

     (22,981     (20,771

Distributions to stockholders from net realized gain

     —          (2,284
  

 

 

   

 

 

 

Total distributions to stockholders

     (22,981     (23,055

Capital share transactions:

    

Repurchase of common stock

     (3,765     —     
  

 

 

   

 

 

 

Net decrease in net assets from capital share transactions

     (3,765     —     
  

 

 

   

 

 

 

Total increase (decrease) in net assets

     2,874        (2,791

Net assets at beginning of period

     443,621        452,942   
  

 

 

   

 

 

 

Net assets at end of period

   $ 446,495      $ 450,151   
  

 

 

   

 

 

 

Common shares outstanding at end of period

     33,601        33,905   
  

 

 

   

 

 

 

Capital share activity:

    

Shares repurchased

     304        —     
  

 

 

   

 

 

 

Net decrease in capital activity

     304        —     
  

 

 

   

 

 

 

See accompanying notes to these consolidated financial statements

 

4


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

     For the six months ended June 30,  
     2015     2014  

Cash flows from operating activities

    

Net increase in net assets resulting from operations

   $ 29,620      $ 20,264   

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

    

Net change in unrealized (depreciation) appreciation on investments

     (6,286     3,460   

Net change in unrealized depreciation (appreciation) on interest rate derivative

     143        99   

Net realized loss on investments

     8        455   

Increase in investments due to PIK

     (2,369     (1,126

Amortization of deferred financing costs

     825        635   

Accretion of discounts on investments and other fees

     (1,577     (2,748

Changes in operating assets and liabilities:

    

Purchases of investments, net of payable for investment purchased

     (79,825     (183,746

Proceeds from sale and paydown of investments

     106,789        92,204   

Increase in interest, dividends and fees receivable

     (2,971     (1,906

Decrease in escrow receivable

     —          1,800   

Decrease in other deferred assets

     113        112   

Decrease in due from affiliate

     494        142   

Decrease in prepaid expenses and other assets

     263        287   

Increase in deferred tax asset

     (376     —     

Decrease in accrued expenses

     (827     (462

Decrease (increase) in accrued credit facility fees and interest

     (93     324   

Increase in income taxes payable

     40        11   

Increase (decrease) in deferred tax liability

     216        (1,111

Increase in base management fees payable

     79        636   

Increase (decrease) in accrued administrator expenses

     23        (11

(Decrease) increase in other deferred liabilities

     (113     233   

(Decrease) increase in accrued incentive fees payable

     (169     564   

Increase in due to affiliate

     —          (361
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     44,007        (70,245

Cash flows from financing activities

    

Repurchase of common stock

     (3,765     —     

Borrowings under credit facility

     76,000        210,750   

Repayments under credit facility

     (88,000     (101,249

Distributions paid to stockholders

     (22,981     (23,055

Financing and offering costs paid

     (119     (1,811
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (38,865     84,635   
  

 

 

   

 

 

 

Net increase in cash

     5,142        14,390   

Cash, beginning of period

     2,656        7,829   
  

 

 

   

 

 

 

Cash, end of period

   $ 7,798      $ 22,219   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information:

    

Cash interest paid

   $ 5,934      $ 2,722   

Income taxes paid

   $ 66      $ 752   

PIK income earned

   $ 2,380      $ 1,162   

See accompanying notes to these consolidated financial statements.

 

5


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

June 30, 2015

(dollar amounts in thousands)

(unaudited)

 

Type of Investment/Portfolio company(1)(2)

 

Industry

 

Interest Rate(3)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No.  of Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Non-controlled/non-affiliated
investments —154.73% of net asset value

             

First lien secured debt

             

20-20 Technologies Inc.(5)

  IT services   10.8%(6)     9/12/2012        3/29/2019      $ 30,236      $ 29,945      $ 30,236   

Airborne Tactical Advantage Company, LLC

  Aerospace & defense   11.0%     9/7/2011        3/7/2016        2,750        2,725        2,750   

Airborne Tactical Advantage Company, LLC

  Aerospace & defense   11.0%     6/24/2014        3/7/2016        1,788        1,772        1,788   

Allied Wireline Services, LLC

  Energy / Utilities   9.5% (LIBOR + 8.0%)     2/28/2014        2/28/2019        9,670        9,318        9,186   

BeneSys Inc.

  Business services   10.8% (LIBOR + 9.8%)     3/31/2014        3/31/2019        8,506        8,370        8,506   

BeneSys Inc.(7) (8)

  Business services   10.8% (LIBOR + 9.8%)     8/1/2014        3/31/2019        —          (9     —     

Charming Charlie, LLC.

  Retail & grocery   9.0% (LIBOR + 8.0%)     12/18/2013        12/24/2019        16,700        16,504        16,678   

Copperweld Bimetallics LLC

  Industrials   12.0%     12/11/2013        12/11/2018        20,075        19,478        19,874   

CRS Reprocessing, LLC

  Manufacturing   10.5% (LIBOR + 9.5%)     6/16/2011        6/16/2016        14,935        14,935        14,188   

Dodge Data & Analytics LLC

  IT services   9.8% (LIBOR + 8.8%)     11/20/2014        10/31/2019        11,615        11,407        11,440   

Duff & Phelps Corporation(9)

  Financial services   4.5% (LIBOR + 3.5%)     5/15/2013        4/23/2020        245        248        245   

Embarcadero Technologies, Inc.

  IT services   10.5% (6)     2/15/2013        12/28/2017        9,042        8,966        9,042   

Food Processing Holdings, LLC

  Food & beverage   10.5% (LIBOR + 9.5%)     10/31/2013        10/31/2018        22,202        21,884        22,202   

Harrison Gypsum, LLC

  Industrials   10.5% (LIBOR + 8.5% and 0.5% PIK)(10)     12/21/2012        12/21/2017        31,828        31,525        31,828   

Hart InterCivic, Inc.

  IT services   13.0% (LIBOR + 10.0% Cash + 1.5% PIK)     7/1/2011        7/1/2016        8,596        8,555        8,467   

Hart InterCivic, Inc.(7)

  IT services   11.5% (LIBOR + 10.0% Cash)     7/1/2011        7/1/2016        3,000        2,988        3,000   

HEALTHCAREfirst, Inc.

  Healthcare   13.1% (6)     8/31/2012        8/30/2017        9,294        9,142        8,830   

Holland Intermediate Acquisition Corp.

  Energy / Utilities   10.0% (LIBOR + 9.0%)     5/29/2013        5/29/2018        23,415        23,092        22,244   

Holland Intermediate Acquisition Corp.(7)

  Energy / Utilities   10.0% (LIBOR + 9.0%)     5/29/2013        5/29/2018        —          —          —     

Igloo Products Corp.

  Consumer products   11.3% (LIBOR + 9.8%)     3/28/2014        3/28/2020        24,636        24,151        24,267   

Key Brand Entertainment, Inc.

  Media, entertainment and leisure   8.8% (LIBOR + 7.5%)     8/8/2013        8/8/2018        12,519        12,351        12,519   

Key Brand Entertainment, Inc.

  Media, entertainment and leisure   12.5% (LIBOR + 11.3%)     5/29/2014        8/8/2018        2,874        2,829        2,903   

Key Brand Entertainment, Inc.(7) (8)

  Media, entertainment and leisure   8.8% (LIBOR + 7.5%)     8/8/2013        8/8/2018        —          (18     —     

Key Brand Entertainment, Inc.(8)

  Media, entertainment and leisure   12.5% (LIBOR + 11.3%)     5/29/2014        8/8/2018        —          (47     —     

LAI International, Inc.

  Manufacturing   9.8% (6)     10/22/2014        10/22/2019        19,308        18,920        19,018   

LAI International, Inc.(7)

  Manufacturing   8.3% (6)     10/22/2014        10/22/2019        1,000        1,000        1,000   

Loadmaster Derrick & Equipment, Inc.

  Energy / Utilities   11.3% (LIBOR + 10.3%)     9/28/2012        9/28/2017        8,288        8,176        7,708   

Loadmaster Derrick & Equipment, Inc.(7)

  Energy / Utilities   11.3% (LIBOR + 10.3%)     9/28/2012        9/28/2017        3,755        3,755        3,492   

Loadmaster Derrick & Equipment, Inc.(7)

  Energy / Utilities   11.3% (LIBOR + 10.3%)     7/16/2014        9/28/2017        3,286        3,238        3,056   

OEM Group, Inc.

  Manufacturing   15.0% (12.5% Cash + 2.5% PIK)(10)     10/7/2010        10/7/2015        28,912        28,807        27,467   

OEM Group, Inc.

  Manufacturing   15.0% (12.5% Cash + 2.5% PIK)(10)     6/6/2014        10/7/2015        3,081        3,078        2,927   

Virtus Pharmaceuticals, LLC

  Healthcare   10.6%(6)     7/17/2014        7/17/2019        19,869        19,463        19,671   

Wheels Up Partners, LLC

  Transportation   9.6% (LIBOR + 8.6%)     1/31/2014        10/15/2022        9,295        9,185        9,202   

Wheels Up Partners, LLC

  Transportation   9.6% (LIBOR + 8.6%)     8/27/2014        7/15/2023        6,777        6,777        6,709   
         

 

 

   

 

 

   

 

 

 

Subtotal first lien secured debt

          $ 367,497      $ 362,510      $ 360,443   

Second lien debt

             

Aerogroup International Inc.

  Consumer products   9.5% (LIBOR + 8.5%)     6/9/2014        12/9/2019      $ 13,648      $ 13,419      $ 12,692   

Aerogroup International Inc.(7)(8)

  Consumer products   9.5% (LIBOR + 8.5%)     6/9/2014        12/9/2019        —          (40     —     

Alex Toys, LLC

  Consumer products   11.0% (LIBOR + 10.0%)     6/30/2014        12/30/2019        30,201        29,654        29,597   

Allen Edmonds Corporation

  Consumer products   10.0% (LIBOR + 9.0%)     11/26/2013        5/27/2019        7,333        7,221        7,260   

BBB Industries US Holding, Inc.

  Manufacturing   9.8% (LIBOR + 8.8%)     10/17/2014        11/18/2022        4,500        4,246        4,410   

Connecture, Inc.

  Healthcare   12.0% (LIBOR + 11.0%)     3/18/2013        7/15/2018        21,831        21,637        22,049   

Expert Global Solutions, Inc.

  Business services   12.5% (LIBOR + 10.3% and 0.8% PIK)(10)     6/21/2013        10/3/2018        12,703        12,831        12,782   

Expert Global Solutions, Inc.

  Business services   13.0% PIK     6/21/2013        10/3/2018        144        3        145   

Hostway Corporation

  IT services   10.0% (LIBOR + 8.8%)     12/27/2013        12/13/2020        12,000        11,801        11,880   

Merchants Capital Access, LLC

  Financial services   11.5% (LIBOR + 10.5%)     4/20/2015        4/20/2021        12,500        12,258        12,258   

Oasis Legal Finance Holding Company LLC

  Financial services   10.5%     9/30/2013        9/30/2018        13,246        13,060        13,379   

Specialty Brands Holdings, LLC

  Restaurants   11.3% (LIBOR + 9.8%)     7/16/2013        7/16/2018        20,977        20,698        20,348   

Synarc-Biocore Holdings, LLC

  Healthcare   9.3% (LIBOR + 8.3%)     3/13/2014        3/13/2022        11,000        10,904        10,175   

Vision Solutions, Inc.

  IT services   9.5% (LIBOR + 8.0%)     3/31/2011        7/23/2017        9,625        9,594        9,577   

Washington Inventory Service

  Business services   10.3% (LIBOR + 9.0%)     12/27/2012        6/20/2019        11,000        10,897        11,000   
         

 

 

   

 

 

   

 

 

 

Subtotal second lien debt

          $ 180,708      $ 178,183      $ 177,552   

 

(continued on next page)

See accompanying notes to these consolidated financial statements.

 

6


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

June 30, 2015

(dollar amounts in thousands)

(unaudited)

 

Type of Investment/Portfolio company(1)(2)

 

Industry

 

Interest Rate(3)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No.  of Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Subordinated debt

             

A10 Capital, LLC(7)

  Financial services   12.0%     8/25/2014        2/25/2021      $ 10,444      $ 10,347      $ 10,444   

Dr. Fresh, LLC(11)

  Consumer products   16.0% (10.0% Cash and 6.0% PIK)(10)     5/15/2012        11/15/2017        15,189        15,040        14,961   

Gold, Inc.

  Consumer products   11.0%     12/31/2012        6/30/2019        16,788        16,788        16,788   

Martex Fiber Southern Corp.

  Industrials   13.5% (12.0% Cash and 1.5% PIK)(10)     4/30/2012        10/31/2019        9,094        9,005        8,275   

Tri Starr Management Services, Inc.

  IT services   15.8% (2.1% Cash and 13.7%
PIK)
(10)
    3/4/2013        3/4/2019        20,201        19,828        16,261   
         

 

 

   

 

 

   

 

 

 

Subtotal subordinated debt

          $ 71,716      $ 71,008      $ 66,729   

Equity investments(13)

             

A10 Capital, LLC(12)(14)(21)

  Financial services       8/25/2014          14,889      $ 14,884      $ 14,884   

Aerogroup International Inc.(22)

  Consumer products       6/9/2014          253,616        11        —     

Aerogroup International Inc.(21)

  Consumer products       6/9/2014          28,180        1,108        200   

AIM Media Texas Operating,
LLC
(12)(15)(22)

  Media, entertainment and leisure       6/21/2012          0.763636        764        875   

Airborne Tactical Advantage Company,
LLC
(22)

  Aerospace & defense       9/7/2011          512        113        35   

Airborne Tactical Advantage Company,
LLC
(21)

  Aerospace & defense       9/17/2013          225        169        216   

Alex Toys, LLC(12)(13)(15)(22)

  Consumer products       5/22/2015          154        1,000        1,000   

Allied Wireline Services,
LLC
(12)(15)(22)

  Energy / Utilities       2/28/2014          619        619        718   

Allied Wireline Services,
LLC
(12)(15)(22)

  Energy / Utilities       2/28/2014          501        175        243   

Firebirds International,
LLC
(22)

  Restaurants       5/17/2011          1,906        191        338   

Food Processing Holdings,
LLC
(22)

  Food & beverage       4/20/2010          162.44        163        235   

Food Processing Holdings,
LLC
(22)

  Food & beverage       4/20/2010          406.09        408        839   

Hostway Corporation(22)

  IT services       12/27/2013          20,000        200        —     

Hostway Corporation(21)

  IT services       12/27/2013          1,800        1,800        2,006   

Igloo Products Corp.(12)(22)

  Consumer products       4/30/2014          1,902        1,716        1,716   

OEM Group, Inc.(22)(23)

  Manufacturing       10/7/2010          —          —          —     

Surgery Center Holdings,
Inc.
(12)(22)

  Healthcare       4/20/2013          469,673        —          7,097   

Virtus Pharmaceuticals,
LLC
(15)(22)

  Healthcare       3/31/2015          6,796.47        127        220   

Virtus Pharmaceuticals,
LLC
(15)(22)

  Healthcare       3/31/2015          83.92        94        99   

Virtus Pharmaceuticals,
LLC
(15)(22)

  Healthcare       3/31/2015          589.76        590        602   

Wheels Up Partners,
LLC
(12)(15)(22)

  Transportation       1/31/2014          1,000        1,000        1,000   

YP Equity Investors,
LLC
(12)(15)(22)

  Media, entertainment and leisure       5/8/2012          —          —          4,000   
           

 

 

   

 

 

 

Subtotal equity

            $ 25,132      $ 36,323   

CLO residual interests

             

Adirondack Park CLO Ltd.(5)(16)

  Structured Products   15.0%     3/27/2013          —        $ 7,768      $ 8,050   

Dryden CLO, Ltd.(5)(16)

  Structured Products   14.8%     9/12/2013          —          7,399        7,704   

Flagship VII, Ltd.(5)(16)

  Structured Products   14.5%     12/18/2013          —          3,836        4,080   

Flagship VIII, Ltd.(5)(16)

  Structured Products   12.3%     10/3/2014          —          7,465        7,217   

Sheridan Square CLO, Ltd(5)(16)

  Structured Products   16.5%     3/12/2013          —          5,164        5,590   
           

 

 

   

 

 

 

Subtotal CLO residual interests

            $ 31,632      $ 32,641   

Investment in payment rights

             

Duff & Phelps Corporation(9) (16)

  Financial services   16.9%     6/1/2012          —        $ 11,877      $ 13,490   
           

 

 

   

 

 

 

Subtotal investment in payment rights

            $ 11,877      $ 13,490   

Investments in funds(17)

             

Freeport Financial SBIC Fund LP

  Financial services       6/14/2013          $ 2,544      $ 2,578   

Gryphon Partners 3.5, L.P.

  Financial services       11/20/2012            866        1,052   
           

 

 

   

 

 

 

Subtotal investments in funds

            $ 3,410      $ 3,630   
           

 

 

   

 

 

 

Total non-controlled/non-affiliated investments—154.73% of net asset value

            $ 683,752      $ 690,808   
           

 

 

   

 

 

 

 

(continued on next page)

 

See accompanying notes to these consolidated financial statements.

 

7


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

June 30, 2015

(dollar amounts in thousands)

(unaudited)

 

Type of Investment/Portfolio company(1)(2)

 

Industry

 

Interest
Rate(3)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No.  of Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Controlled investments—16.89% of net asset value

             

First lien secured debt

             

Thibaut, Inc(18)

 

Consumer

products

  14.0%     6/19/2014        $ 6,488      $ 6,420      $ 6,488   
         

 

 

   

 

 

   

 

 

 

Subtotal first lien secured debt

          $ 6,488      $ 6,420      $ 6,488   

Subordinated debt

             

Dimont & Associates, Inc.(18)(24)

 

Financial

services

  11.0% PIK     10/20/2014        4/20/2018      $ 4,556      $ 4,474      $ 2,962   
         

 

 

   

 

 

   

 

 

 

Subtotal subordinated debt

          $ 4,556      $ 4,474      $ 2,962   

Equity investments

             

C&K Market, Inc.(18)(22)

  Retail & grocery       11/3/2010          1,967,367      $ 2,271      $ 13,777   

C&K Market, Inc.(18)(21)

  Retail & grocery       11/3/2010          1,967,367        10,956        9,837   

Dimont & Associates, Inc.(18)(22)

  Financial services       10/20/2014          50,004        6,569        —     

Thibaut, Inc(12) (13) (18) (19) (21)

  Consumer products       6/19/2014          4,747        4,700        5,030   

Thibaut, Inc(12)(13)(18)(22)

  Consumer products       6/19/2014          20,639        —          1,661   
           

 

 

   

 

 

 

Subtotal equity

            $ 24,496      $ 30,305   

Investments in funds

             

THL Credit Logan JV LLC(12)(17)(18)(20)(22)

 

Financial

services

      12/3/2014          —        $ 35,600      $ 35,658   
           

 

 

   

 

 

 

Subtotal investments in funds

            $ 35,600      $ 35,658   
           

 

 

   

 

 

 

Total controlled investments
—16.89% of net asset value

            $ 70,990      $ 75,413   
           

 

 

   

 

 

 

Non-controlled/affiliated investments
—0.00% of net asset value

             

Investments in funds

             

THL Credit Greenway Fund LLC(12)(17)(22)

 

Financial

services

      1/27/2011          $ 4      $ 4   

THL Credit Greenway Fund II LLC(12)(17)(22)

 

Financial

services

      3/1/2013            4        4   
           

 

 

   

 

 

 

Subtotal investments in funds

            $ 8      $ 8   
           

 

 

   

 

 

 

Total non-controlled/affiliated investments
—0.00% of net asset value

            $ 8      $ 8   
           

 

 

   

 

 

 

    

             
           

 

 

   

 

 

 

Total investments—171.61%
of net asset value

            $ 754,750      $ 766,229   
           

 

 

   

 

 

 

 

Derivative Instruments                                      
Counterparty   Instrument   Interest Rate   Expiration
Date
    # of Contracts     Notional     Cost     Fair Value  

ING Capital Markets, LLC

  Interest Rate Swap – Pay Fixed/Receive Floating   1.1425%/LIBOR     05/10/17        1      $ 50,000      $ —        $ (356
         

 

 

   

 

 

   

 

 

 

Total derivative instruments—0.08 % of net asset value

      $ 50,000      $ —        $ (356
         

 

 

   

 

 

   

 

 

 

 

(1) All debt investments are income-producing, unless otherwise noted. Equity and member interests are non-income-producing unless otherwise noted.
(2) All investments are pledged as collateral under the Revolving Facility and Term Loan Facility.
(3) Variable interest rate investments bear interest in reference to LIBOR or ABR, which are effective as of June 30, 2015. LIBOR loans are typically indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option, and ABR rates are typically indexed to the current prime rate or federal funds rate. Both LIBOR and ABR rates are subject to interest floors.
(4) Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments.
(5) Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.
(6) Unitranche investment; interest rate reflected represents the implied interest rate earned on the investment for the most recent quarter.
(7) Issuer pays 0.50% unfunded commitment fee on delayed draw term loan and revolving loan facility.
(8) The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.
(9) Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.

 

(continued on next page)

 

See accompanying notes to these consolidated financial statements.

 

8


Table of Contents
(10) At the option of the issuer, interest can be paid in cash or cash and PIK. The percentage of PIK shown is the maximum PIK that can be elected by the company.
(11) Amended rate was 8% cash and 10% PIK from April 1, 2015 to June 29, 2015. The rate changed to 10% cash and 6% PIK from June 30, 2015 and will revert back to 12% cash and 2% PIK upon the earlier of achievement of certain milestones or maturity.
(12) Member interests of limited liability companies are the equivalent of the stock of corporations.
(13) Equity ownership may be held as a commitment amount, in shares or in units of companies related to the portfolio company.
(14) Preferred stock investment return is income-producing with a stated rate of 12% cash and 2% PIK due on a monthly basis
(15) Interest held by a wholly owned subsidiary of THL Credit, Inc.
(16) Income-producing security with no stated coupon; interest rate reflects an estimation of the effective yield to expected maturity as of June 30, 2015.
(17) Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.
(18) As defined in Section 2(a)(9) of the 1940 Act, the Company is deemed to control this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities.
(19) Part of our preferred stock investment return is income-producing with a stated rate of 3% due on a quarterly basis.
(20) On December 3, 2014, the Company entered into an agreement with Perspecta to create THL Credit Logan JV LLC, or Logan JV, a joint venture, which will invest primarily in senior secured first lien term loans. All Logan JV investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of the Company and Perspecta. Although the Company owns more than 25% of the voting securities of Logan JV, the Company does not believe that it has control over Logan JV (other than for purposes of the 1940 Act or otherwise). Funding to Logan JV will only be made pursuant to unanimous approval from the Company and Perspecta.
(21) Preferred stock
(22) Common stock, member interest, and warrants
(23) Warrants received at initial acquisition date at no cost to the Company
(24) Loan was on non-accrual as of June 30, 2015.

See accompanying notes to these consolidated financial statements.

 

9


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

December 31, 2014

(dollar amounts in thousands)

 

Type of Investment/ Portfolio company(1)(2)

  Industry  

Interest Rate(3)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No.  of Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Non-controlled/non-affiliated investments—170.46% of net asset value

             

First lien secured debt

             

20-20 Technologies Inc.(5)

  IT services   10.8%(6)     9/12/2012        3/29/2019      $ 31,600      $ 31,275      $ 31,600   

Airborne Tactical Advantage Company, LLC

  Aerospace &
defense
  11.0%     9/7/2011        3/7/2016        4,000        3,939        3,980   

Airborne Tactical Advantage Company, LLC

  Aerospace &
defense
  11.0%     6/24/2014        3/7/2016        2,600        2,563        2,587   

Allied Wireline Services, LLC

  Energy /
Utilities
 

9.5% (LIBOR

+ 8.0%)

    2/28/2014        2/28/2019        9,928        9,524        9,630   

BeneSys Inc.

  Business
services
 

10.8% (LIBOR

+ 9.8%)

    3/31/2014        3/31/2019        8,611        8,457        8,525   

BeneSys Inc.(7)(8)

  Business
services
  10.8% (LIBOR
+ 9.8%)
    8/1/2014        3/31/2019        —         (10     —    

Charming Charlie, LLC.

  Retail &
grocery
  9.0% (LIBOR
+ 8.0%)
    12/18/2013        12/24/2019        26,798        26,446        26,459   

Copperweld Bimetallics LLC

  Industrials   12.0%     12/11/2013        12/11/2018        20,625        19,934        20,212   

CRS Reprocessing, LLC

  Manufacturing   10.5% (LIBOR
+ 9.5%)
    6/16/2011        6/16/2015        15,461        15,447        14,687   

Dodge Data & Analytics LLC

  IT services   9.8% (LIBOR
+ 8.8%)
    11/20/2014        10/31/2019        13,000        12,745        12,745   

Duff & Phelps Corporation(9)

  Financial
services
  4.5% (LIBOR
+ 3.5%)
    5/15/2013        4/23/2020        246        249        244   

Embarcadero Technologies, Inc.

  IT services   10.7%(6)     2/15/2013        12/28/2017        9,300        9,208        9,300   

Food Processing Holdings, LLC

  Food &
beverage
  10.5% (LIBOR
+9.5%)
    10/31/2013        10/31/2018        22,202        21,842        22,202   

Harrison Gypsum, LLC

  Industrials   10.0% (LIBOR
+ 8.5% and 0.5%
PIK)
(10)
    12/21/2012        12/21/2017        25,963        25,699        25,444   

Hart InterCivic, Inc.

  IT services   12.3% (LIBOR
+ 9.8% Cash +
1.0% PIK)
    7/1/2011        7/1/2016        8,556        8,496        8,342   

Hart InterCivic, Inc.(7)

  IT services   11.3% (LIBOR
+ 9.8% Cash)
    7/1/2011        7/1/2016        3,000        2,982        3,000   

HEALTHCAREfirst, Inc.

  Healthcare   13.6%(6)     8/31/2012        8/30/2017        8,558        8,403        8,173   

Holland Intermediate Acquisition Corp.

  Energy /
Utilities
  10.0% (LIBOR
+ 9.0%)
    5/29/2013        5/29/2018        24,227        23,841        23,500   

Holland Intermediate Acquisition Corp.(7)

  Energy /
Utilities
  10.0% (LIBOR
+ 9.0%)
    5/29/2013        5/29/2018        —         —         —    

Igloo Products Corp.

  Consumer
products
  11.3% (LIBOR
+ 9.8%)
    3/28/2014        3/28/2020        38,286        37,479        37,425   

Ingenio Acquisition, LLC

  Media,
entertainment
and leisure
  11.3% (10.3%
Cash + 1.0%
PIK)
    5/9/2013        3/14/2019        9,108        8,971        9,108   

 

10


Table of Contents

Type of Investment/ Portfolio company(1)(2)

  Industry   Interest Rate(3)   Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Key Brand Entertainment, Inc.

  Media,
entertainment
and leisure
  9.8% (LIBOR
+ 8.5%)
    8/8/2013        8/8/2018        12,849        12,651        12,849   

Key Brand Entertainment, Inc.

  Media,
entertainment
and leisure
  12.5% (LIBOR
+ 11.3%)
    5/29/2014        8/8/2018        2,874        2,823        2,874   

Key Brand Entertainment, Inc.(7)(8)

  Media,
entertainment
and leisure
  9.8% (LIBOR
+ 8.5%)
    8/8/2013        8/8/2018        —         (21     —    

Key Brand Entertainment, Inc.(8)

  Media,
entertainment
and leisure
  12.5% (LIBOR
+ 11.3%)
    5/29/2014        8/8/2018        —         (54     —    

LAI International, Inc.

  Manufacturing   10.1%(6)     10/22/2014        10/22/2019        19,308        18,899        18,899   

LAI International, Inc.

  Manufacturing   10.1%(6)     10/22/2014        10/22/2019        —         —         —    

Loadmaster Derrick & Equipment, Inc.

  Energy /
Utilities
  9.3% (LIBOR
+ 8.3%)
    9/28/2012        9/28/2017        8,828        8,686        7,990   

Loadmaster Derrick & Equipment, Inc.(7) 

  Energy /
Utilities
  9.3% (LIBOR
+ 8.3%)
    9/28/2012        9/28/2017        4,000        4,000        3,620   

Loadmaster Derrick & Equipment, Inc.(7)

  Energy /
Utilities
  9.3% (LIBOR
+ 8.3%)
    7/16/2014        9/28/2017        3,500        3,439        3,168   

OEM Group, Inc.

  Manufacturing   15.0% (12.5%
Cash + 2.5%
PIK)
(10)
    10/7/2010        10/7/2015        26,597        26,376        24,735   

OEM Group, Inc.

  Manufacturing   15.0% (12.5%
Cash + 2.5%
PIK)
(10)
    6/6/2014        10/7/2015        3,044        3,036        2,892   

Virtus Pharmaceuticals, LLC

  Healthcare   10.7%(6)     7/17/2014        7/17/2019        20,124        19,667        19,822   

Wheels Up Partners, LLC

  Transportation   9.6% (LIBOR
+ 8.6%)
    1/31/2014        10/15/2022        9,629        9,510        9,533   

Wheels Up Partners, LLC

  Transportation   9.6% (LIBOR
+ 8.6%)
    8/27/2014        7/15/2023        3,763        3,763        3,726   
         

 

 

   

 

 

   

 

 

 

Subtotal first lien secured debt

          $ 396,753      $ 390,265      $ 387,271   

Second lien debt

             

Aerogroup International Inc.

  Consumer
products
  9.0% (LIBOR
+ 8.0%)
    6/9/2014        12/9/2019      $ 13,648      $ 13,397      $ 13,102   

Aerogroup International
Inc.
(7)(8)

  Consumer
products
  9.0% (LIBOR
+ 8.0%)
    6/9/2014        12/9/2019        —         (45     —    

Alex Toys, LLC

  Consumer
products
  11.0% (LIBOR
+ 10.0%)
    6/30/2014        12/30/2019        17,000        16,683        16,683   

Allen Edmonds Corporation

  Consumer
products
  10.0% (LIBOR
+ 9.0%)
    11/26/2013        5/27/2019        7,333        7,210        7,223   

BBB Industries US Holding, Inc.

  Manufacturing   9.8% (LIBOR
+ 8.8%)
    10/7/2014        11/18/2022        7,500        7,059        7,144   

Connecture, Inc.

  Healthcare   12.0% (LIBOR
+ 11.0%)
    3/18/2013        7/15/2018        21,831        21,609        22,049   

Expert Global Solutions, Inc.

  Business
services
  12.5% (LIBOR
+ 10.3% and
0.8% PIK)
(10)
    6/21/2013        10/3/2018        12,703        12,849        12,576   

Expert Global Solutions, Inc.

  Business
services
  13.0% PIK     6/21/2013        10/3/2018        144        —         143   

Hostway Corporation

  IT services   10.0% (LIBOR
+ 8.8%)
    12/27/2013        12/13/2020        12,000        11,785        11,880   

 

11


Table of Contents

Type of Investment/ Portfolio company(1)(2)

 

Industry

 

Interest Rate(3)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Oasis Legal Finance Holding Company LLC

  Financial
services
  10.5%     9/30/2013        9/30/2018        13,246        13,035        13,312   

Sheplers, Inc.

  Retail &
grocery
  13.2% (LIBOR
+ 11.7%)
    12/20/2011        12/20/2016        11,426        11,292        11,426   

Specialty Brands Holdings, LLC

  Restaurants   11.3% (LIBOR +
9.8%)
    7/16/2013        7/16/2018        20,977        20,656        20,453   

Synarc-Biocore Holdings, LLC

  Healthcare   9.3% (LIBOR +
8.3%)
    3/13/2014        3/13/2022        11,000        10,898        10,010   

Vision Solutions, Inc.

  IT services   9.5% (LIBOR +
8.0%)
    3/31/2011        7/23/2017        11,625        11,577        11,509   

Washington Inventory Service

  Business
services
  10.3% (LIBOR +
9.0%)
    12/27/2012        6/20/2019        11,000        10,886        11,000   
         

 

 

   

 

 

   

 

 

 

Subtotal second lien secured debt

          $ 171,433      $ 168,891      $ 168,510   

(Continued on next page)

 

12


Table of Contents

Type of Investment/ Portfolio company(1)(2)

  

Industry

  

Interest Rate(3)

   Initial
Acquisition
Date
     Maturity/
Dissolution
Date
     Principal(4)
No. of  Shares /
No. of Units
     Amortized
Cost
     Fair Value  

Subordinated debt

                    

A10 Capital, LLC(7)

   Financial
services
   12.0%      8/25/2014         2/25/2021       $ 5,444       $ 5,391       $ 5,431   

Country Pure Foods, LLC

   Food &
beverage
   13.0%      8/13/2010         2/13/2017         16,181         16,181         16,181   

Dr. Fresh, LLC

   Consumer
products
   14.0%
(12.0%
Cash
+ 2.0%
PIK)
(10)
     5/15/2012         11/15/2017         14,743         14,565         14,448   

Gold, Inc.

   Consumer
products
   12.0%      12/31/2012         6/30/2019         16,788         16,788         16,620   

Martex Fiber Southern Corp.

   Industrials    13.5%
(12.5%
Cash
+ 1.5%
PIK)
(10)
     4/30/2012         10/31/2019         9,026         8,928         8,394   

Sheplers, Inc.

   Retail &
grocery
   17.0%
(10.0%
Cash
+ 7.0%
PIK)
(11)
     12/20/11         12/20/2017         2,040         2,020         2,040   

The Studer Group, L.L.C.

   Healthcare    12.0%      9/29/2011         1/31/2019         16,910         16,910         16,910   

Tri Starr Management Services, Inc.

   IT services    15.8%
(12.5%
Cash
+ 3.3%
PIK)
(10)
     3/4/2013         3/4/2019         18,918         18,637         16,080   
              

 

 

    

 

 

    

 

 

 

Subtotal subordinated debt

            $ 100,050       $ 99,420       $ 96,104   

Equity investments(13)

                    

A10 Capital, LLC(12)(14)(23)

   Financial
services
        8/25/2014            2,967       $ 9,837       $ 9,837   

Aerogroup International Inc.(24)

   Consumer
products
        6/9/2014            253,616         11          

Aerogroup International Inc.(25)

   Consumer
products
        6/9/2014            28,180         1,108         467   

AIM Media Texas Operating, LLC(12)(15)(24)

   Media,
entertainment
and leisure
        6/21/2012            0.763636         764         857   

Airborne Tactical Advantage Company, LLC(24)

   Aerospace &
defense
        9/7/2011            511,812         113         9   

Airborne Tactical Advantage Company,
LLC
(23)

   Aerospace &
defense
        9/17/2013            225,000         169         204   

Allied Wireline Services,
LLC
(12)(15)(24)

   Energy /
Utilities
        2/28/2014            619         619         779   

Allied Wireline Services,
LLC
(12)(15)(24)

   Energy /
Utilities
        2/28/2014            501         175         302   

Firebirds International,
LLC
(24)

   Restaurants         5/17/2011            1,906         191         300   

Food Processing Holdings, LLC(24)

   Food &
beverage
        4/20/2010            162.44         163         226   

Food Processing Holdings, LLC(24)

   Food &
beverage
        4/20/2010            406.09         408         642   

 

13


Table of Contents

Hostway Corporation(24)

   IT services        12/27/2013            20,000         200        —     

Hostway Corporation(24)

   IT services        12/27/2013            1,800         1,800         2,111   

Igloo Products Corp.(12) (24)

   Consumer
products
       4/30/2014            2,406         2,407         2,241   

OEM Group, Inc.(24)(25)

   Manufacturing        10/7/2010            —          —          —    

Surgery Center Holdings, Inc.(12)(24)

   Healthcare        4/20/2013            469,673         —          6,200   

Wheels Up Partners, LLC(12)(15)(24)

   Transportation        1/31/2014            1,000         1,000         1,000   

YP Equity Investors, LLC(12)(15)(24)

   Media,
entertainment
and leisure
       5/8/2012            —          —          4,000   
                

 

 

    

 

 

 

Subtotal equity

           $ 18,965       $ 29,175   

CLO residual interests

                   

Adirondack Park CLO Ltd.(5)(16)

   Structured
Products
   12.8%     3/27/2013            —        $ 8,172       $ 8,216   

Dryden CLO, Ltd.(5)(16)

   Structured
Products
   13.8%     9/12/2013            —          8,040         8,244   

Flagship VII, Ltd.(5)(16)

   Structured
Products
   13.8%     12/18/2013            —          4,105         4,305   

Flagship VIII, Ltd.(5)(16)

   Structured
Products
   12.8%     10/3/2014            —          8,450         8,450   

Sheridan Square CLO, Ltd(5)(16)

   Structured
Products
   14.5%     3/12/2013            —          5,446         5,720   
                

 

 

    

 

 

 

Subtotal CLO residual interests

           $ 34,213       $ 34,935   

Investment in payment rights

                   

Duff & Phelps Corporation(9)(16)

   Financial
services
   16.8%     6/1/2012            —        $ 11,877       $ 13,488   
                

 

 

    

 

 

 

Subtotal investment in payment rights

           $ 11,877       $ 13,488   

(Continued on next page)

 

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Table of Contents

Type of Investment/ Portfolio company(1)(2)

  

Industry

  

Interest Rate(3)

   Initial
Acquisition
Date
     Maturity/
Dissolution
Date
     Principal(4)
No. of  Shares /
No. of Units
     Amortized
Cost
     Fair Value  

Investments in funds(17)

                    

Freeport Financial SBIC Fund LP

   Financial
services
        6/14/2013          $ 2,314       $ 2,314       $ 2,316   

Gryphon Partners 3.5, L.P.

   Financial
services
        11/20/2012            1,251         866         1,063   
              

 

 

    

 

 

    

 

 

 

Subtotal investments in funds

               $ 3,565       $ 3,180       $ 3,379   
              

 

 

    

 

 

    

 

 

 

Total non-controlled/non-affiliated investments—170.46% of net asset value

               $ 671,801       $ 726,811       $ 732,862   
              

 

 

    

 

 

    

 

 

 

Controlled investments—6.32% of net asset value

                    

First lien secured debt

                    

Thibaut, Inc(18)

   Consumer
products
   12.0%      6/19/2014          $ 6,520       $ 6,445       $ 6,520   
              

 

 

    

 

 

    

 

 

 

Subtotal first lien secured debt

               $ 6,520       $ 6,445       $ 6,520   

Subordinated debt

                    

Dimont & Associates, Inc.(18)(20)

   Financial
services
   11.0%
PIK
     10/20/2014         4/20/2018       $ 4,556       $ 4,473       $ 4,556   
              

 

 

    

 

 

    

 

 

 

Subtotal subordinated debt

               $ 4,556       $ 4,473       $ 4,556   

Equity investments

                    

C&K Market, Inc.(18)(19)(24)

   Retail &
grocery
        11/3/2010            1,967,367       $ 2,271       $ 6,036   

C&K Market, Inc.(18)(19)(23)

   Retail &
grocery
        11/3/2010            1,967,367         10,956         9,837   

Dimont & Associates, Inc.(18)(20)(24)

   Financial
services
        10/20/2014            50,004         6,569         2,000   

Thibaut, Inc(12)(13)(18)(21)(23)

   Consumer
products
        6/19/2014            4,747         4,694         4,874   

Thibaut, Inc(12)(13)(18)(24)

   Consumer
products
        6/19/2014            20,639         —          785   
                 

 

 

    

 

 

 

Subtotal equity

                  $ 24,490       $ 23,532   

Investments in Logan JV

                    

THL Credit Logan JV LLC(12)(18)(22)(24)

   Financial
services
        12/3/2014            —          16,800         16,741   
                 

 

 

    

 

 

 

Subtotal investments in funds

                  $ 16,800       $ 16,741   
              

 

 

    

 

 

    

 

 

 

Total controlled investments—6.32% of net asset value

               $ 11,076       $ 52,208       $ 51,349   
              

 

 

    

 

 

    

 

 

 

Non-controlled/affiliated investments—0.00% of net asset value

                    

Investments in funds

                    

THL Credit Greenway Fund
LLC
(12) (17)(24)

   Financial
services
        1/27/2011               5         5   

THL Credit Greenway Fund II
LLC
(12)(17)(24)

   Financial
services
        3/1/2013               4         4   
                 

 

 

    

 

 

 

Subtotal investments in funds

                  $ 9       $ 9   

Total non-controlled/affiliated investments—0.00% of net asset value

                  $ 9       $ 9   
              

 

 

    

 

 

    

 

 

 

Total investments—176.78% of net asset value

               $ 682,877       $ 779,028       $ 784,220   
              

 

 

    

 

 

    

 

 

 

(Continued on next page)

 

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Table of Contents
Derivative Instruments  
Counterparty   

Instrument

  

Interest Rate

   Expiration
Date
     # of Contracts      Notional      Cost      Fair Value  

ING Capital Markets, LLC

   Interest Rate Swap –
Pay Fixed/Receive
Floating
   1.1425%/LIBOR      05/10/17         1       $ 50,000       $ —        $ (213
              

 

 

    

 

 

    

 

 

 

Total derivative instruments—0.03% of net asset value

  

      $ 50,000       $ —        $ (213
              

 

 

    

 

 

    

 

 

 

 

(1) All debt investments are income-producing, unless otherwise noted. Equity and member interests are non-income-producing unless otherwise noted.
(2) All investments are pledged as collateral under the Revolving Facility and Term Loan Facility.
(3) Variable interest rate investments bear interest in reference to LIBOR or ABR, which are effective as of December 31, 2014. LIBOR loans are typically indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option, and ABR rates are typically indexed to the current prime rate or federal funds rate. Both LIBOR and ABR rates are subject to interest floors.
(4) Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments.
(5) Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.
(6) Unitranche investment; interest rate reflected represents the implied interest rate earned on the investment for the most recent quarter.
(7) Issuer pays 0.50% unfunded commitment fee on delayed draw term loan and revolving loan facility.
(8) The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.
(9) Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.
(10) At the option of the issuer, interest can be paid in cash or cash and PIK. The percentage of PIK shown is the maximum PIK that can be elected by the company.
(11) Issuer has the option to increase its aggregate interest rate to 18.5% all PIK for a period of time under certain conditions in the credit agreement.
(12) Member interests of limited liability companies are the equity equivalents of the stock of corporations.
(13) Equity ownership may be held in shares or units of companies related to the portfolio company.
(14) Preferred stock investment return is income-producing with a stated rate of 12% cash and 2% PIK due on a monthly basis
(15) Interest held by a wholly owned subsidiary of THL Credit, Inc.
(16) Income-producing security with no stated coupon; interest rate reflects an estimation of the effective yield to expected maturity as of December 31, 2014.
(17) Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.
(18) As defined in Section 2(a)(9) of the 1940 Act, the Company is deemed to control this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities.
(19) C&K Market, Inc., or C&K, filed for bankruptcy in November 2013. On August 12, 2014, the date C&K emerged from bankruptcy, the cost basis of the senior subordinated note, certain interest due and warrants totaling $14,272 were converted to common and preferred equity. In connection with the extinguishment and conversion to equity, the Company recognized a loss in the amount of $1,000. See Note 4, Realized Gains and Losses on Investments for additional detail.
(20) On October 20, 2014, THL Credit restructured its investment in Wingspan Portfolio Holdings, Inc., or Wingspan. As part of the restructuring, THL Credit exchanged the cost basis of its subordinated term loan totaling $18,447 for a controlled equity position of an affiliated entity, Dimont Acquisition Inc., or Dimont. In connection with the restructuring and conversion to equity, the Company recognized a loss in the amount of $11,878 and invested $4,557 in the subordinated term loan of Dimont. See Note 4, Realized Gains and Losses on Investments for additional detail.
(21) Part of our preferred stock investment return is income-producing with a stated rate of 3% due on a quarterly basis.
(22) On December 3, 2014, the Company entered into an agreement with Perspecta to create THL Credit Logan JV LLC, or Logan JV, a joint venture, which will invest primarily in senior secured first lien term loans. All Logan JV investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of the Company and Perspecta. Although the Company owns more than 25% of the voting securities of Logan JV, the Company does not believe that it has control over Logan JV (other than for purposes of the 1940 Act or otherwise).
(23) Preferred stock
(24) Common stock, member interest, and warrants
(25) Warrants received at initial acquisition date at no cost to the Company

 

16


Table of Contents

THL Credit, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2015

(in thousands, except per share data)

(unaudited)

1. Organization

THL Credit, Inc., or the Company, was organized as a Delaware corporation on May 26, 2009 and was initially funded on July 23, 2009. The Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or 1940 Act. The Company has elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, or as amended, the Code. The Company’s investment objective is to generate both current income and capital appreciation, primarily through privately negotiated investments in debt and equity securities of middle market companies.

On April 20, 2010, in anticipation of completing an initial public offering and formally commencing principal operations, the Company entered into a purchase and sale agreement with THL Credit Opportunities, L.P. and THL Credit Partners BDC Holdings, L.P., or BDC Holdings, an affiliate of the Company, to effectuate the sale by THL Credit Opportunities, L.P. to the Company of certain securities valued at $62,107, as determined by the Company’s board of directors, and on the same day issued 4,140 shares of common stock to BDC Holdings valued at $15.00 per share, pursuant to such agreement, in exchange for the aforementioned securities. Subsequently, the Company filed an election to be regulated as a BDC.

On April 21, 2010, the Company completed its initial public offering, formally commencing principal operations, and sold 9,000 shares of its common stock through a group of underwriters at a price of $13.00 per share, less an underwriting discount and commissions totaling $0.8125 per share. Concurrently, the Company sold 6,308 shares of its common stock to BDC Holdings at $13.00 per share, the sale of which was not subject to an underwriting discount and commission. On April 27, 2010, the Company closed the sale of the aforementioned 15,308 shares and received $190,684 of net proceeds, which includes an underwriting discount and offering expenses.

On May 26, 2010, the underwriters exercised their over-allotment option under the underwriting agreement and elected to purchase an additional 337 shares of common stock at $13.00 per share resulting in additional net proceeds of $3,892, which includes an underwriting discount and offering expenses.

On September 25, 2012, the Company closed a public equity offering selling 6,095 shares of its common stock through a group of underwriters at a price of $14.09 per share, less an underwriting discount and offering expenses, and received $81,657 in net proceeds.

On June 24, 2013, the Company closed a public equity offering selling 7,590 shares of its common stock through a group of underwriters at a price of $14.62 per share, less an underwriting discount and offering expenses, and received $106,179 in net proceeds.

In December 2014, the Company completed a public debt offering selling $50,000 of 6.75% Notes due 2021, or the Notes, including the exercise of the over allotment option, through a group of underwriters, less an underwriting discount, and received net proceeds of $48,500.

The Company has established wholly owned subsidiaries, THL Credit AIM Media Holdings Inc., THL Credit Holdings, Inc. and THL Credit YP Holdings Inc., which are structured as Delaware entities, or tax blockers, to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass-through entities). Tax blockers are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of portfolio companies.

The Company has a wholly owned subsidiary, THL Corporate Finance, Inc. and THL Corporate Finance, LLC, its wholly owned subsidiary, serves as the administrative agent on certain investment transactions.

2. Significant Accounting Policies

Basis of Presentation

The Company is an investment company following the accounting and reporting guidance under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services Investment Companies.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. In accordance with Article 6 of Regulation S-X under the Securities Act of 1933, as amended, and the Securities and Exchange Act of 1934, as amended, the Company generally will not consolidate its interest in any company other than in investment company subsidiaries and controlled operating companies substantially all of whose business consists of providing services to the Company.

 

17


Table of Contents

The accompanying consolidated financial statements of the Company have been presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited financial results included herein contain all adjustments, consisting solely of normal accruals, considered necessary for the fair statement of financial statements for the interim period included herein. The current period’s results of operations are not necessarily indicative of the operating results to be expected for the period ending December 31, 2015.

The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 10, 2015. The financial results of the Company’s portfolio companies are not consolidated in the financial statements.

The accounting records of the Company are maintained in U.S. dollars.

Consolidation

The Company follows the guidance in ASC Topic 946 Financial Services—Investment Companies and will not generally consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of its wholly owned subsidiaries in its consolidated financial statements. The Company does not consolidate its non-controlling interest in THL Credit Logan JV LLC, or Logan JV. See also the disclosure below under the heading, Significant Accounting Policies—THL Credit Logan JV LLC.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Changes in the economic environment, financial markets, credit worthiness of the Company’s portfolio companies and any other parameters used in determining these estimates could cause actual results to differ and these differences could be material.

Cash

Cash consists of funds held in demand deposit accounts at several financial institutions and, at certain times, balances may exceed the Federal Deposit Insurance Corporation insured limit and is therefore subject to credit risk. There were no cash equivalents as of June 30, 2015 and December 31, 2014.

Deferred Financing Costs

Deferred financing costs consist of fees and expenses paid in connection with the closing of credit facilities and the public debt offering of Notes. These costs are capitalized at the time of payment and are amortized using the straight line and effective yield methods over the term of the credit facilities and Notes, respectively.

Deferred Offering Costs

Deferred offering costs consist of fees and expenses incurred in connection with the offer and sale of the Company’s common stock, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a shelf registration statement. These costs are capitalized when incurred and recognized as a reduction of offering proceeds when the offering becomes effective.

Deferred Revenue

Deferred revenues consist of proceeds received for interest and other fees for which the earnings process is not yet complete. Such amounts will be recognized into income over such time that the income is earned.

Interest Rate Derivative

The Company recognizes derivatives as either interest rate derivative assets or liabilities at fair value on its Consolidated Statements of Assets and Liabilities with valuation changes and interest rate payments recorded as net change in unrealized appreciation (depreciation) on interest rate derivative and interest rate derivative periodic interest payments, net, respectively, on the Consolidated Statements of Operations. See also the disclosure in Note 7, Interest Rate Derivative.

Partial Loan Sales

The Company follows the guidance in ASC Topic 860 Transfers and Servicing when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest”, as defined in the guidance as a pro-rata ownership interest in an entire financial asset, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain on the Company’s Consolidated Statements of Assets and Liabilities and the proceeds are recorded as a secured borrowing until the definition is met.

 

18


Table of Contents

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of the Company’s long-term obligations are disclosed in Note 6, Borrowings.

Valuation of Investments

Investments, for which market quotations are readily available, are valued using market quotations, which are generally obtained from an independent pricing service or broker-dealers or market makers. Debt and equity securities, for which market quotations are not readily available or are not considered to be the best estimate of fair value, are valued at fair value as determined in good faith by the Company’s board of directors. Because the Company expects that there will not be a readily available market value for many of the investments in the Company’s portfolio, it is expected that many of the Company’s portfolio investments’ values will be determined in good faith by the Company’s board of directors in accordance with a documented valuation policy that has been reviewed and approved by our board of directors in accordance with GAAP. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

With respect to investments for which market quotations are not readily available, the Company’s board of directors undertakes a multi-step valuation process each quarter, as described below:

 

   

the Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment;

 

   

preliminary valuation conclusions are then documented and discussed with senior management of THL Credit Advisors LLC, or the Advisor;

 

   

to the extent determined by the audit committee of the Company’s board of directors, independent valuation firms are used to conduct independent appraisals and review the Advisor’s preliminary valuations in light of their own independent assessment;

 

   

the audit committee of the Company’s board of directors reviews the preliminary valuations of the Advisor and independent valuation firms and, if necessary, responds and supplements the valuation recommendation of the independent valuation firms to reflect any comments; and

 

   

the Company’s board of directors discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of the Advisor, the respective independent valuation firms and the audit committee.

The types of factors that the Company may take into account in fair value pricing its investments include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. The Company generally utilizes an income approach to value its debt investments and a combination of income and market approaches to value its equity investments. With respect to unquoted securities, the Advisor and the Company’s board of directors, in consultation with the Company’s independent third party valuation firms, values each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors, which valuation is then approved by the board of directors. For debt investments, the Company generally determines the fair value primarily using an income, or yield, approach that analyzes the discounted cash flows of interest and principal for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of each portfolio investments. The Company’s estimate of the expected repayment date is generally the legal maturity date of the instrument. The yield analysis considers changes in leverage levels, credit quality, portfolio company performance and other factors. The enterprise value is used to determine the value of equity investments and for debt investments that are credit impaired, close to maturity or where the Company also holds a controlling equity interest. The method for determining enterprise value uses a multiple analysis, whereby appropriate multiples are applied to the portfolio company’s net income before net interest expense, income tax expense, depreciation and amortization, or EBITDA.

The Company values its interest rate derivative agreement using an income approach that analyzes the discounted cash flows associated with the interest rate derivative agreement. Significant inputs to the discounted cash flows methodology include the forward interest rate yield curves in effect as of the end of the measurement period and an evaluation of the counterparty’s credit risk.

 

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The Company values its residual interest investments in collateralized loan obligations using an income approach that analyzes the discounted cash flows of its residual interest. The discounted cash flows model utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for similar collateralized loan obligation fund subordinated notes or equity, when available. Specifically, the Company uses Intex cash flow models, or an appropriate substitute to form the basis for the valuation of the Company’s residual interest. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated cash flows. The assumptions are based on available market data and projections provided by third parties as well as management estimates.

The Company values its investment in payment rights using an income approach that analyzes the discounted projected future cash flow streams assuming an appropriate discount rate, which will among other things consider other transactions in the market, the current credit environment, performance of the underlying portfolio company and the length of the remaining payment stream.

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 techniques to convert future 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 the Company may take into account in fair value pricing the Company’s investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, the current investment performance rating, security covenants, call protection provisions, information rights, 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, transaction comparables, the Company’s principal market as the reporting entity and enterprise values, among other factors.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2—Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by management.

The Company considers whether the volume and level of activity for the asset or liability have significantly decreased and identifies transactions that are not orderly in determining fair value. Accordingly, if the Company determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.

The Company has adopted the authoritative guidance under GAAP for estimating the fair value of investments in investment companies that have calculated net asset value per share in accordance with the specialized accounting guidance for Investment Companies. Accordingly, in circumstances in which net asset value per share of an investment is determinative of fair value, the Company estimates the fair value of an investment in an investment company using the net asset value per share of the investment (or its equivalent) without further adjustment if the net asset value per share of the investment is determined in accordance with the specialized accounting guidance for investment companies as of the reporting entity’s measurement date.

Investment Risk

The value of investments will generally fluctuate with, among other things, changes in prevailing interest rates, U.S. federal tax rates, counterparty risk, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition of the issuer. During periods of limited liquidity and higher price volatility, the Company’s ability to dispose of investments at a price and time that the Company deems advantageous may be impaired. The extent of this exposure is reflected in the carrying value of these financial assets and recorded in the Consolidated Statements of Assets and Liabilities.

 

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Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the issuer. The value of lower-quality debt securities often fluctuates in response to company, political, or economic developments and can decline significantly over short periods of time or during periods of general or regional economic difficulty. Lower-quality debt securities can be thinly traded or have restrictions on resale, making them difficult to sell at an acceptable price. The default rate for lower-quality debt securities is likely to be higher during economic recessions or periods of high interest rates.

Security Transactions, Payment-in-Kind, Income Recognition, Realized/Unrealized Gains or Losses

Security transactions are recorded on a trade-date basis. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method. The Company reports changes in fair value of investments that are measured at fair value as a component of net change in unrealized appreciation on investments in the Consolidated Statements of Operations. The Company reports changes in fair value of the interest rate derivative that is measured at fair value as a component of net change in unrealized appreciation or depreciation on interest rate derivative in the Consolidated Statements of Operations.

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that the Company expects to collect such amounts. Dividend income is recognized on the ex-dividend date. Original issue discount, principally representing the estimated fair value of detachable equity or warrants obtained in conjunction with the acquisition of debt securities, and market discount or premium are capitalized and accreted or amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion/amortization of discounts and premiums and upfront loan origination fees.

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, the Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. The Company records the reversal of any previously accrued income against the same income category reflected in the Consolidated Statement of Operations. As of June 30, 2015, the Company had one loan on non-accrual with an amortized cost basis of $4,474 and fair value of $2,962. As of December 31, 2014, the Company had no loans on non-accrual.

The Company has investments in its portfolio which contain a contractual paid-in-kind, or PIK, interest provision. PIK interest is computed at the contractual rate specified in each investment agreement, is added to the principal balance of the investment, and is recorded as income. The Company will cease accruing PIK interest if there is insufficient value to support the accrual or if the Company does not expect amounts to be collectible and will generally only begin to recognize PIK income again when all principal and interest have been paid or upon the restructuring of the investment where the interest is deemed collectable. To maintain the Company’s status as a RIC, PIK interest income, which is considered investment company taxable income, must be paid out to stockholders in the form of dividends even though the Company has not yet collected the cash. Amounts necessary to pay these dividends may come from available cash.

The following shows a rollforward of PIK income activity for the three and six months ended June 30, 2015 and 2014:

 

     Three months ended June 30,      Six months ended June 30,  
     2015      2014      2015      2014  

Accumulated PIK balance, beginning of period

   $ 6,245       $ 6,599       $ 7,041       $ 6,064   

PIK income capitalized/receivable

     1,786         627         2,380         1,162   

PIK received in cash from repayments

     (464      —           (1,854      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated PIK balance, end of period

   $ 7,567       $ 7,226       $ 7,567       $ 7,226   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest income from the Company’s TRA and CLO residual interests is recorded based upon an estimation of an effective yield to expected maturity using anticipated cash flows. Amounts in excess of income recognized are recorded as a reduction to the cost basis of the investment. The Company monitors the anticipated cash flows from its TRA and CLO residual interests and will adjust its effective yield periodically as needed.

The Company capitalizes and amortizes upfront loan origination fees received in connection with the closing of investments. The unearned income from such fees is accreted into interest income over the contractual life of the loan based on the effective interest method. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees, and unamortized discounts are recorded as interest income.

In certain investment transactions, the Company may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned. The Company had no income from advisory services related to portfolio companies for the six months ended June 30, 2015 and 2014.

The Company may also generate revenue in the form of fees from the management of Greenway and Greenway II, prepayment premiums, commitment, loan origination, structuring or due diligence fees, exit fees, portfolio company administration fees, fees for providing significant managerial assistance and consulting fees.

 

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Table of Contents

The following is a summary of the levels within the fair value hierarchy in which the Company invests as of June 30, 2015:

 

Description

   Fair Value          Level 1          Level 2      Level 3  

First lien secured debt

   $ 366,931       $ —         $ —         $ 366,931   

Second lien debt

     177,552         —           —           177,552   

Subordinated debt

     69,691         —           —           69,691   

Equity investments

     66,628         —           —           66,628   

CLO residual interests

     32,641         —           —           32,641   

Investment in Logan JV

     35,658         —           —           35,658   

Investment in payment rights

     13,490         —           —           13,490   

Investments in funds

     3,638         —           —           3,638   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

   $ 766,229       $ —         $ —         $ 766,229   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest rate derivative

     (356      —           (356      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liability at fair value

   $ (356    $ —         $ (356    $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

The following is a summary of the levels within the fair value hierarchy in which the Company invests as of December 31, 2014:

 

Description

   Fair Value          Level 1          Level 2     Level 3  

First lien secured debt

   $ 393,791       $ —        $ —       $ 393,791   

Second lien debt

     168,510         —          —         168,510   

Subordinated debt

     100,660         —          —         100,660   

Equity investments

     52,707         —          —         52,707   

CLO residual interests

     34,935         —          —         34,935   

Investment in Logan JV

     16,741         —          —         16,741   

Investment in payment rights

     13,488         —          —         13,488   

Investments in funds

     3,388         —          —         3,388   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investments

   $ 784,220       $ —        $ —       $ 784,220   
  

 

 

    

 

 

    

 

 

   

 

 

 

Interest rate derivative

     (213      —          (213     —    
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liability at fair value

   $ (213    $ —        $ (213   $ —    
  

 

 

    

 

 

    

 

 

   

 

 

 

The following is a summary of the industry classification in which the Company invests as of June 30, 2015:

 

Industry

   Amortized
Cost
     Fair Value      % of Net Assets  

Consumer products

   $ 121,188       $ 121,660         27.25

Financial services

     112,735         106,958         23.96

IT services

     105,084         101,909         22.82

Manufacturing

     70,986         69,010         15.46

Healthcare

     61,957         68,743         15.40

Industrials

     60,008         59,977         13.43

Energy / utilities

     48,373         46,647         10.45

Retail & grocery

     29,731         40,292         9.02

Structured products

     31,632         32,641         7.31

Business services

     32,092         32,433         7.26

Food & beverage

     22,455         23,276         5.21

Restaurants

     20,889         20,686         4.63

Media, entertainment and leisure

     15,879         20,297         4.55

Transportation

     16,962         16,911         3.79

Aerospace & defense

     4,779         4,789         1.07
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 754,750       $ 766,229         171.61
  

 

 

    

 

 

    

 

 

 

 

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The following is a summary of the industry classification in which the Company invests as of December 31, 2014:

 

Industry

   Amortized
Cost
     Fair Value      % of
Net Assets
 

Consumer products

   $ 120,742       $ 120,388         27.15

IT services

     108,705         106,567         24.02

Healthcare

     77,487         83,164         18.75

Financial services

     71,420         68,997         15.55

Manufacturing

     70,817         68,357         15.41

Retail & grocery

     52,985         55,798         12.58

Industrials

     54,561         54,050         12.18

Energy / utilities

     50,284         48,989         11.04

Food & beverage

     38,594         39,251         8.85

Structured products

     34,213         34,935         7.87

Business services

     32,182         32,244         7.27

Media, entertainment and leisure

     25,134         29,688         6.69

Restaurants

     20,847         20,753         4.68

Transportation

     14,273         14,259         3.21

Aerospace & defense

     6,784         6,780         1.53
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 779,028       $ 784,220         176.78
  

 

 

    

 

 

    

 

 

 

The following is a summary of the geographical concentration of our investment portfolio as of June 30, 2015:

 

Region

   Amortized
Cost
     Fair Value      % of Net Assets  

Northeast

   $ 253,746       $ 252,553         56.56

Southwest

     182,252         172,597         38.66

Midwest

     101,605         100,851         22.59

Southeast

     86,593         98,629         22.09

West

     62,151         62,420         13.98

Northwest

     38,458         48,943         10.96

International

     29,945         30,236         6.77
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 754,750       $ 766,229         171.61
  

 

 

    

 

 

    

 

 

 

The following is a summary of the geographical concentration of our investment portfolio as of December 31, 2014:

 

Region

   Amortized
Cost
     Fair Value      % of
Net Assets
 

Northeast

   $ 208,928       $ 208,218         46.95

Southwest

     211,098         204,531         46.10

Southeast

     109,082         119,214         26.87

Midwest

     117,329         116,468         26.25

West

     72,861         73,048         16.47

International

     31,275         31,600         7.12

Northwest

     28,455         31,141         7.02
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 779,028       $ 784,220         176.78
  

 

 

    

 

 

    

 

 

 

 

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The following table rolls forward the changes in fair value during the six months ended June 30, 2015 for investments classified within Level 3:

 

    First lien
secured debt
    Second lien
debt
    Subordinated
debt
    Investments in
funds(2)
    Equity
investments
    Investment in
payment rights
    CLO residual
interests
    Totals  

Beginning balance, January 1, 2015

  $ 393,791      $ 168,510      $ 100,660      $ 20,129      $ 52,707      $ 13,488      $ 34,935      $ 784,220   

Purchases

    13,495        25,188        4,949        19,029        6,764        —          —          69,425   

Sales and repayments

    (42,897     (16,258     (35,187     —          (717     —          (2,581     (97,640

Unrealized appreciation (depreciation)(1)

    918        (251     (2,554     138        7,746        2        287        6,286   

Realized loss

    (5     (3     —          —          —          —          —          (8

Net amortization of premiums, discounts and fees

    1,125        363        74        —          15        —          —          1,577   

PIK

    504        3        1,749        —          113        —          —          2,369   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance, June 30, 2015

  $ 366,931      $ 177,552      $ 69,691      $ 39,296      $ 66,628      $ 13,490      $ 32,641      $ 766,229   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) from investments still held as of the reporting date(1)

  $ 1,055      $ (116   $ (2,535   $ 138      $ 7,746      $ 2      $ 287      $ 6,579   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1) All unrealized appreciation (depreciation) in the table above is reflected in the accompanying Consolidated Statements of Operations.
(2) Includes investment in Logan JV.

The following table rolls forward the changes in fair value during the six months ended June 30, 2014 for investments classified within Level 3:

 

     First lien
secured debt
    Second
lien debt
    Subordinated
debt
    Investments
in Funds
    Equity
investments
    Investment in
payment
rights
     CLO residual
interest
    Totals  

Beginning balance, January 1, 2014

   $ 262,965      $ 157,878      $ 155,979      $ 9,546      $ 11,037      $ 13,844       $ 37,618      $ 648,867   

Purchases

     87,679        89,857        8,275        850        9,345        —           —          196,006   

Sales and repayments

     (59,375     (14,797     (16,500     (8,354     (938     —           (2,464     (102,428

Unrealized appreciation (depreciation)(1)

     1,338        (1,263     (3,092     85        (1,333     3         802        (3,460

Realized loss(1)

     —          —          —          —          (455     —           —      &