10-Q 1 tv506927_10q.htm FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended September 30, 2018

 

OR

 

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

 

Commission file number: 814-00821

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

(Exact Name of Registrant as Specified in its Charter)

 

Maryland 27-2614444
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
   
9 West 57th Street, 49th Floor, Suite 4920  
New York, New York 10019
(Address of Principal Executive Office) (Zip Code)

 

(212) 588-6770

(Registrant’s Telephone Number, Including Area Code)

 

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

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

 

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

 

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

 

Large accelerated filer ¨ Accelerated filer ¨
   
Non-accelerated filer x Smaller reporting company ¨
   
  Emerging growth company ¨

 

(Do not check if a smaller reporting company)

 

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

 

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

 

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of November 13, 2018 was 189,956,960

 

 

 

 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

 

TABLE OF CONTENTS

 

    Page
PART I - FINANCIAL INFORMATION    
Item 1. Consolidated Financial Statements   1
Consolidated Statements of Assets and Liabilities as of September 30, 2018 (Unaudited) and December 31, 2017   1
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)   2
Consolidated Statements of Changes in Net Assets for the Nine Months Ended September 30, 2018 and 2017 (Unaudited)   4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (Unaudited)   5
Consolidated Schedules of Investments as of September 30, 2018 (Unaudited) and December 31, 2017   7
Notes to Consolidated Financial Statements (Unaudited)   36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   73
Item 3. Quantitative and Qualitative Disclosures About Market Risk   88
Item 4. Controls and Procedures   88
PART II - OTHER INFORMATION    
Item 1. Legal Proceedings   89
Item 1A. Risk Factors   89
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   89
Item 3. Defaults Upon Senior Securities   90
Item 4. Mine Safety Disclosures   90
Item 5. Other Information   90
Item 6. Exhibits   91
Signatures   92

 

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(dollars in thousands except share and per share data)

 

   September 30,   December 31, 
   2018   2017 
   (Unaudited)     
ASSETS          
Investments, at fair value:          
Control Investments, at fair value (amortized cost of $343,964 and $374,888, respectively)  $322,612   $350,279 
Affiliate Investments, at fair value (amortized cost of $243,575 and $296,884, respectively)   217,158    236,801 
Non-affiliate Investments, at fair value (amortized cost of $1,984,833 and $1,926,856, respectively)   1,960,207    1,916,443 
Investments, at fair value (amortized cost of $2,572,372 and $2,598,628, respectively)   2,499,977    2,503,523 
Cash and cash equivalents   125,266    99,822 
Interest and dividends receivable   26,149    21,542 
Receivable for unsettled trades   19,680    21,409 
Prepaid expenses and other assets   2,658    6,218 
Total assets  $2,673,730   $2,652,514 
           
LIABILITIES          
Debt (net of deferred financing costs of $12,513 and $10,926, respectively)  $1,110,527   $1,030,223 
Stockholder distributions payable   9,520    9,923 
Management fees payable   10,082    9,932 
Incentive fee on income payable   6,450    4,558 
Accounts payable and accrued expenses   14,686    11,137 
Payable for unsettled trades   45,243    80,547 
Interest and debt fees payable   13,013    11,611 
Directors’ fees payable   61    67 
Unrealized depreciation on forward currency exchange contracts   302    — 
Total liabilities  $1,209,884   $1,157,998 
Commitments and contingencies (Note 7)          
           
NET ASSETS          
Preferred stock, $.001 par value, 50,000,000 shares authorized, none issued and outstanding  $—   $— 
Common stock, $.001 par value, 450,000,000 shares authorized, 178,224,771 and 179,733,998 shares issued and outstanding, respectively   178    180 
Additional paid in capital   1,740,251    1,752,793 
Accumulated under distributed net investment income   24,170    33,469 
Accumulated over distributed net realized losses   (227,729)   (197,348)
Net unrealized depreciation, net of deferred taxes   (76,113)   (97,399)
Total net assets attributable to Business Development Corporation of America   1,460,757    1,491,695 
Net assets attributable to non-controlling interest   3,089    2,821 
Total net assets   1,463,846    1,494,516 
           
Total liabilities and net assets  $2,673,730   $2,652,514 
           
Net asset value per share attributable to Business Development Corporation of America  $8.20   $8.30 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 1 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except share and per share data)

(Unaudited)

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2018   2017   2018   2017 
Investment income:                    
From control investments                    
Interest income  $5,433   $6,008   $17,115   $18,329 
Dividend income   2,691    —    7,898    946 
Fee and other income   —    —    20    — 
Total investment income from control investments   8,124    6,008    25,033    19,275 
From affiliate investments                    
Interest income   5,776    3,265    16,141    14,526 
Dividend income   875    2,663    2,958    8,340 
Fee and other income   3    24    8    27 
Total investment income from affiliate investments   6,654    5,952    19,107    22,893 
From non-affiliate investments                    
Interest income   43,497    40,388    128,281    117,407 
Dividend income   84    1,886    309    2,818 
Fee and other income   579    529    3,389    5,111 
Total investment income from non-affiliate investments   44,160    42,803    131,979    125,336 
Interest from cash and cash equivalents   244    82    490    272 
Total investment income   59,182    54,845    176,609    167,776 
Operating expenses:                    
Management fees   10,082    9,907    30,117    29,136 
Incentive fee on income   6,450    3,834    15,992    15,149 
Interest and debt fees   13,862    11,448    41,095    32,108 
Professional fees   1,639    1,249    4,475    4,073 
Other general and administrative   1,161    1,334    5,504    4,679 
Administrative services   195    203    594    608 
Insurance   —    2    3    9 
Directors’ fees   227    265    760    675 
Total expenses   33,616    28,242    98,540    86,437 
                     
Income tax (benefit) expense, including excise tax   (270)   79    270    1,349 
                     
Net investment gain (loss) attributable to non-controlling interests   37    (6)   32    — 
                     
Net investment income   25,799    26,530    77,767    79,990 
                     
Realized and unrealized gain (loss):                    
Net realized gain (loss):                    
Control investments   —    —    —    — 
Affiliate investments   503    (2,809)   (40,287)   (20,031)
Non-affiliate investments   (178)   2,113    9,889    (15,647)
Net realized gain on foreign currency transactions   —    —    17    — 
Total net realized gain (loss)   325    (696)   (30,381)   (35,678)
Net change in unrealized appreciation (depreciation) on investments, net of deferred taxes                    
Control investments   4,441    2,178    2,371    (3,017)
Affiliate investments   (5,508)   3,214    33,666    15,227 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 2 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except share and per share data)

(Unaudited)

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2018   2017   2018   2017 
Non-affiliate investments   4,268    (13,680)   (14,213)   (4,590)
Total net change in unrealized appreciation (depreciation) on investments, net of deferred taxes   3,201    (8,288)   21,824    7,620 
Net change in unrealized depreciation attributable to non-controlling interests   (567)   (258)   (236)   (563)
Net change in unrealized depreciation from forward currency exchange contracts   (275)   —    (302)   — 
Net realized and unrealized gain (loss)   2,684    (9,242)   (9,095)   (28,621)
Net increase in net assets resulting from operations  $28,483   $17,288   $68,672   $51,369 
                     
Per share information - basic and diluted                    
Net investment income  $0.14   $0.15   $0.43   $0.45 
Net increase in net assets resulting from operations  $0.16   $0.10   $0.38   $0.29 
Weighted average shares outstanding   178,984,007    179,311,957    179,087,323    179,140,235 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 3 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(dollars in thousands except share and per share data)

(Unaudited)

 

   For the Nine Months Ended September 30, 
   2018   2017 
Operations:          
Net investment income  $77,767   $79,990 
Net realized loss from investments   (30,398)   (35,678)
Net realized gain on foreign currency transactions   17    — 
Net change in unrealized appreciation on investments, net of deferred taxes   21,824    7,620 
Net change in unrealized depreciation attributable to non-controlling interests   (236)   (563)
Net change in unrealized depreciation from forward currency exchange contracts   (302)   — 
Net increase in net assets resulting from operations   68,672    51,369 
Stockholder distributions:          
Distributions   (87,066)   (106,467)
Net decrease in net assets from stockholder distributions   (87,066)   (106,467)
Capital share transactions:          
Reinvestment of stockholder distributions   29,766    41,961 
Repurchases of common stock   (42,310)   (30,239)
Net (decrease) increase in net assets from capital share transactions   (12,544)   11,722 
Total decrease in net assets, before non-controlling interest   (30,938)   (43,376)
Increase in non-controlling interest   268    563 
Total decrease in net assets   (30,670)   (42,813)
Net assets at beginning of period   1,494,516    1,529,734 
Net assets at end of period  $1,463,846   $1,486,921 
           
Net asset value per common share attributable to Business Development Corporation of America  $8.20   $8.31 
Common shares outstanding at end of period   178,224,771    178,476,800 
           
Accumulated under distributed net investment income  $24,170   $22,467 
Accumulated over distributed net realized losses  $(227,729)  $(164,839)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 4 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

(Unaudited)

 

   For the Nine Months Ended September 30, 
   2018   2017 
Operating activities:          
Net increase in net assets resulting from operations  $68,672   $51,369 
Adjustments to reconcile net increase in net assets from operations to net cash provided by (used in) operating activities:          
Payment-in-kind interest income   (3,653)   (4,924)
Net accretion of discount on investments   (6,395)   (6,243)
Amortization of deferred financing costs   2,406    1,816 
Amortization of discount on unsecured notes   384    236 
Sales and repayments of investments   915,719    706,656 
Purchases of investments   (909,813)   (787,257)
Net realized loss from investments   30,398    35,678 
Net realized gain on foreign currency transactions   (17)   — 
Net unrealized appreciation on investments, gross of deferred taxes   (22,710)   (8,011)
Net unrealized depreciation from forward currency exchange contracts   302    — 
(Increase) decrease in operating assets:          
Interest and dividends receivable   (4,607)   9,183 
Receivable for unsettled trades   1,729    (28,273)
Prepaid expenses and other assets   3,560    (831)
Increase (decrease) in operating liabilities:          
Management fees payable   150    336 
Incentive fee on income payable   1,892    697 
Accounts payable and accrued expenses   3,549    2,537 
Payable for unsettled trades   (35,304)   (10,312)
Interest and debt fees payable   1,402    99 
Directors’ fees payable   (6)   (13)
Net cash provided by (used in) operating activities   47,658    (37,257)
Financing activities:          
Repurchases of common stock   (42,310)   (87,835)
Proceeds from debt   634,298    128,673 
Payments on debt   (552,791)   (30,000)
Payments of financing costs   (3,993)   (4,588)
Stockholder distributions   (57,703)   (68,485)
Increase in non-controlling interest   268    563 
Net cash used in financing activities   (22,231)   (61,672)
           
Net increase (decrease) in cash and cash equivalents   25,427    (98,929)
Effect of foreign currency exchange rates   17    — 
Cash and cash equivalents, beginning of period   99,822    189,270 
Cash and cash equivalents, end of period  $125,266   $90,341 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 5 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

(Unaudited)

 

   For the Nine Months Ended September 30, 
   2018   2017 
Supplemental information:          
Interest paid during the period  $36,852   $29,607 
Taxes, including excise tax, paid during the period  $52   $1,100 
Distributions reinvested  $29,766   $41,961 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 6 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)

 

September 30, 2018
(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
Senior Secured First Lien Debt - 116.4% (b)                          
Abaco Systems Holding Corp. (c) (i)  Business Services  L+6.00% (8.33%), 12/7/2021  $23,517   $23,213   $23,039    1.6%
ABC Financial Intermediate, LLC (j)  Media  L+4.25% (6.37%), 1/2/2025   7,700    7,666    7,729    0.5%
AccentCare, Inc. (c) (f) (i)  Health Care  L+4.50% (6.84%), 4/2/2019   1,810    1,803    1,794    0.1%
AccentCare, Inc. (c) (i)  Health Care  L+4.50% (6.84%), 4/3/2024   28,790    28,521    28,525    2.0%
AHP Health Partners, Inc.  Health Care  9.75%, 7/15/2026   6,589    6,501    6,859    0.5%
Aleris International, Inc. (j)  Metals & Mining  L+4.75% (6.83%), 2/27/2023   18,340    18,188    18,655    1.3%
Alvogen Pharma US, Inc. (j)  Health Care  L+4.75% (6.83%), 4/1/2022   13,610    13,525    13,712    0.9%
Am General Llc (c) (j)  Industrials  L+7.25% (9.33%), 12/28/2021   1,858    1,858    1,858    0.1%
American Greetings Corporation (j)  Consumer Products  L+4.50% (6.58%), 4/5/2024   1,760    1,727    1,766    0.1%
AMI Entertainment Network, LLC (c) (f) (i)  Hotels, Restaurants & Leisure  L+6.00% (8.33%), 7/21/2022   13,582    13,376    13,368    0.9%
AP Gaming I, LLC (a) (i) (j)  Gaming/Lodging  L+4.25% (6.33%), 2/15/2024   33,339    33,280    33,505    2.3%
AP NMT Acquisition B.V. (a) (j)  Media  L+5.75% (8.09%), 8/13/2021   6,586    6,602    6,586    0.4%
AqGen Ascensus Inc. (j)  Technology  L+3.50% (5.67%), 12/3/2022   8,493    8,486    8,509    0.6%
Ardent Legacy Acquisitions, Inc. (i)  Health Care  L+4.50% (6.58%), 6/16/2025   18,936    18,751    19,117    1.3%
Avantor Performance Materials, Inc.  Health Care  9.00%, 10/1/2025   8,000    8,259    8,250    0.6%
Avatar Purchaser, Inc. (c) (j)  Business Services  L+7.50% (10.00%), 11/17/2025   11,716    11,403    11,540    0.8%
Avaya Holdings Corp. (a) (j)  Communications Equipment  L+4.25% (6.41%), 12/15/2024   26,448    26,220    26,663    1.8%
Avenna Healthcare LLC (c)  Health Care  L+5.50% (7.81%), 3/18/2024   4,683    4,404    4,404    0.3%
Avenna Healthcare LLC (j)  Health Care  L+4.25% (6.33%), 3/18/2024   794    744    780    0.1%
BCP Raptor, LLC (j)  Energy Equipment & Services  L+4.25% (6.33%), 6/24/2024   14,222    14,106    13,991    1.0%
BCP Renaissance, LLC (j)  Energy Equipment & Services  L+3.50% (5.84%), 10/31/2024   3,472    3,457    3,491    0.2%
BDS Solutions Group, LLC (c)  Business Services  L+8.75% (11.09%), 6/1/2021   2,719    2,684    2,664    0.2%
BDS Solutions Group, LLC (c) (i)  Business Services  L+8.75% (11.09%), 6/1/2021   31,111    30,735    30,489    2.1%
Beaver-Visitec International Holdings, Inc. (c) (j)  Health Care  L+4.00% (6.17%), 8/21/2023   6,530    6,530    6,546    0.4%
Black Mountain Sand, LLC (c)  Energy Equipment & Services  L+9.00% (11.34%), 11/30/2021   13,050    12,895    12,806    0.9%
Black Mountain Sand, LLC (c) (f)  Energy Equipment & Services  L+9.00% (11.35%), 11/30/2021   11,745    11,573    11,525    0.8%
BMC Software Finance, Inc. (j)  Software  L+4.25% (6.65%), 6/28/2025   23,309    23,076    23,527    1.6%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 7 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)

 

September 30, 2018
(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
Bomgar Corp. (j)  Software  L+4.00% (6.33%), 4/17/2025  $1,348   $1,341   $1,348    0.1%
California Resources Corp. (a) (j)  Metals & Mining  L+4.75% (6.96%), 12/31/2022   12,259    12,048    12,438    0.9%
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t)  Food Products  L+12.50% (14.84%), 9/25/2020   23,808    16,406    3,333    0.2%
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t)  Food Products  L+12.50% (14.84%), 9/25/2020   52,942    33,647    7,412    0.5%
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t)  Food Products  L+12.50% (14.84%), 9/25/2020   3,165    2,829    3,102    0.2%
CareCentrix, Inc. (j)  Health Care  L+4.50% (6.84%), 4/2/2025   9,666    9,621    9,617    0.7%
CCW, LLC (c) (f)  Hotels, Restaurants & Leisure  L+7.00% (9.06%), 3/18/2021   1,300    1,300    1,261    0.1%
CCW, LLC (c) (i)  Hotels, Restaurants & Leisure  L+7.00% (9.13%), 3/21/2021   27,444    27,207    26,620    1.8%
CDHA Holdings, LLC (c) (i)  Health Care  L+5.75% (8.06%), 8/24/2023   15,798    15,566    15,566    1.1%
CDHA Holdings, LLC (c) (f)  Health Care  L+5.75% (8.06%), 8/24/2023   126    126    126    —%
Chicken Soup for the Soul Publishing, LLC (c)  Media  L+6.25% (8.35%), 1/8/2019   27,236    27,217    23,150    1.6%
Chloe Ox Parent, LLC (c) (i)  Health Care Providers & Services  L+4.50% (6.83%), 12/23/2024   10,714    10,618    10,728    0.7%
Clarion Events, Ltd (a) (j)  Business Services  L+5.00% (7.31%), 3/22/2025   10,550    10,345    10,319    0.7%
Clover Technologies Group, LLC (j)  Commercial Services & Supplies  L+4.50% (6.58%), 5/8/2020   13,214    13,179    12,917    0.9%
Cold Spring Brewing Company (c) (f) (i)  Food & Beverage  L+5.25% (7.41%), 5/15/2024   3,425    3,361    3,366    0.2%
Community Care Health Network, LLC (j)  Health Care  L+4.75% (6.83%), 2/16/2025   2,679    2,673    2,691    0.2%
CONSOL Energy Inc. (j)  Metals & Mining  L+6.00% (8.08%), 11/28/2022   3,216    3,162    3,280    0.2%
Contura Energy Inc. (a) (j)  Energy Equipment & Services  L+5.00% (7.08%), 3/18/2024   7,369    7,311    7,351    0.5%
Corfin Industries LLC (c) (f) (i)  Industrials  L+6.50% (8.67%), 2/15/2024   8,593    8,439    8,435    0.6%
Deva Holdings, Inc. (c) (f)  Consumer Products  L+5.50% (7.58%), 10/31/2023   7,209    7,277    7,281    0.5%
DLC Acquisition, LLC (c) (f)  Financials  12.00%, 12/30/2020   4,462    4,461    4,462    0.3%
DLC Acquisition, LLC (c) (f)  Financials  L+8.00% (10.34%), 12/1/2020   3,520    3,519    3,520    0.2%
Eagle Rx, LLC (c) (i)  Health Care Providers & Services  L+4.25% (6.35%), 8/15/2019   26,912    26,859    26,912    1.9%
Elo Touch Solutions, Inc (c) (j)  Technology  L+6.00% (8.13%), 10/31/2023   2,584    2,562    2,603    0.2%
Florida Foods Products, LLC (c) (i)  Food & Beverage  L+6.75% (8.88%), 9/6/2025   24,122    23,525    23,525    1.6%
Florida Foods Products, LLC (c) (f)  Food & Beverage  L+6.75% (8.88%), 9/6/2023   532    532    532    —%
Frank Entertainment Group, LLC (c) (p) (t)  Media Entertainment  6.00%, 6/1/2022   2,827    1,649    1,414    0.1%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 8 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)

 

September 30, 2018
(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
Frontier Communications (a) (j)  Diversified Telecommunication Services  L+3.75% (5.83%), 6/17/2024  $4,945   $4,884   $4,839    0.3%
Green Energy Partners/Stonewall LLC (c) (j)  Utilities  L+5.50% (7.83%), 11/15/2021   1,012    1,010    1,015    0.1%
Green Energy Partners/Stonewall LLC (c) (j)  Utilities  L+5.50% (7.83%), 11/15/2021   1,341    1,338    1,344    0.1%
Greenwave Holdings, Inc. (c) (d) (l)  Internet Software & Services  13.00%, 7/8/2019   7,072    7,059    6,719    0.5%
Harrison Gypsum, LLC (c) (f)  Building Materials  L+7.00% (9.08%), 4/27/2024   186    185    185      —%
Harrison Gypsum, LLC (c) (i)  Building Materials  L+7.00% (9.08%), 4/27/2024   6,686    6,624    6,627    0.5%
HC Group Holdings III, Inc. (j)  Health Care  L+3.75% (5.83%), 4/7/2022   14,668    14,492    14,723    1.0%
Hexion Inc.  Chemicals  10.38%, 2/1/2022   5,000    4,940    4,870    0.3%
Hexion Inc.  Chemicals  6.63%, 4/15/2020   5,000    4,616    4,703    0.3%
Hexion Inc.  Chemicals  10.00%, 4/15/2020   5,000    4,990    4,913    0.3%
ICR Operations, LLC (c) (f)  Business Services  L+5.50% (7.83%), 3/26/2024   165    162    162      —%
ICR Operations, LLC (c) (i)  Business Services  L+5.50% (7.83%), 3/26/2025   13,602    13,350    13,370    0.9%
Ideal Tridon Holdings, Inc. (c) (i)  Commercial Services & Supplies  L+6.50% (8.83%), 7/31/2023   5,185    5,112    5,111    0.3%
Ideal Tridon Holdings, Inc. (c) (f)  Commercial Services & Supplies  L+6.50% (9.00%), 7/31/2022   1,802    1,773    1,777    0.1%
Ideal Tridon Holdings, Inc. (c) (i) (m)  Commercial Services & Supplies  L+6.50% (8.83%), 7/31/2023   23,730    23,348    23,390    1.6%
InMotion Entertainment Group, LLC (c) (f) (i)  Specialty Retail  L+7.75% (10.09%), 10/1/2021   314    314    314      —%
InMotion Entertainment Group, LLC (c) (i)  Specialty Retail  L+7.25% (9.59%), 10/1/2021   12,771    12,738    12,771    0.9%
Integral Ad Science, INC. (c) (f) (l)  Advertising  L+6.00% (8.08%), 7/19/2024   14,152    13,879    13,879    1.0%
Integrated Efficiency Solutions, Inc. (c)  Energy  L+9.25% (11.59%), 6/1/2022   3,876    3,875    3,721    0.3%
Internap Corporation (a) (j)  Communications Equipment  L+5.75% (7.90%), 4/6/2022   11,910    11,894    11,950    0.8%
IPC Corp. (j)  Diversified Telecommunication Services  L+4.50% (6.85%), 8/6/2021   3,784    3,738    3,682    0.3%
Iridium Communications, Inc.  Diversified Telecommunication Services  10.25%, 4/15/2023   3,536    3,536    3,872    0.3%
K2 Pure Solutions NoCal, L.P. (c) (i)  Chemicals  L+6.00% (8.08%), 2/19/2021   6,375    6,334    6,375    0.4%
Kahala Ireland OpCo Designated Activity Company (a) (c) (l) (o)  Aerospace & Defense  L+8.00% (13.00%), 12/23/2028   121,549    121,549    121,549    8.3%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 9 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)

 

September 30, 2018
(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
Kissner Milling Co. Ltd. (a) (c)  Chemicals  8.38%, 12/1/2022  $21,199   $21,487   $21,886    1.5%
Lakeland Tours, LLC (i)  Diversified Consumer Services  L+4.00% (6.33%), 12/15/2024   6,068    6,055    6,117    0.4%
Lakeview Health Holdings, Inc. (c0 (f)  Health Care  L+8.75% (11.20%), 12/15/2021   4,088    3,065    3,270    0.2%
Lightsquared LP (l)  Diversified Telecommunication Services  L+8.75% (11.07%), 12/7/2020   12,263    11,674    9,350    0.6%
Lionbridge Technologies, Inc. (c) (i)  Business Services  L+5.50% (7.58%), 2/28/2024   13,660    13,607    13,606    0.9%
Loparex International Holding B.V. (j)  Industrials  L+4.25% (6.58%), 4/11/2025   1,998    1,989    2,022    0.1%
MCS Acquisition Corp. (c) (j)  Professional Services  L+4.75% (7.08%), 5/18/2024   14,189    14,139    12,060    0.8%
Medallion MidlandAcquisition, L.P. (j)  Energy Equipment & Services  L+3.25% (5.33%), 11/13/2024   4,417    4,407    4,382    0.3%
Medical Depot Holdings, Inc. (c) (i)  Health Care  L+5.50% (7.83%), 1/3/2023   19,391    18,132    17,919    1.2%
Michael Baker International, LLC (c) (j)  Business Services  L+4.50% (6.56%), 11/21/2022   1,795    1,780    1,811    0.1%
Micross Solutions LLC (c) (f)  Technology  L+5.75% (7.87%), 8/7/2023   3,235    3,078    3,106    0.2%
Midwest Can Company, LLC (c) (f)  Energy Equipment & Services  L+5.00% (7.38%), 4/11/2023   39    39    39    —%
Midwest Can Company, LLC (c) (i)  Energy Equipment & Services  L+5.00% (7.19%), 4/11/2024   4,680    4,637    4,615    0.3%
Min US Holdco LLC (a)  Technology  L+4.50% (6.83%), 7/11/2025   6,965    6,948    7,026    0.5%
MMM Holdings, LLC (c) (f) (i) (l)  Health Care  L+6.25% (8.59%), 3/14/2023   20,578    20,212    20,265    1.4%
Monitronics International, Inc. (j)  Diversified Consumer Services  L+5.50% (7.83%), 9/30/2022   10,098    10,123    9,830    0.7%
Montreign Operating Company, LLC (j)  Hotels, Restaurants & Leisure  L+8.25% (10.59%), 1/24/2023   27,025    26,661    24,120    1.7%
Mood Media Corporation (c) (i) (l)  Business Services  L+7.25% (9.58%), 6/28/2022   14,429    14,185    14,160    1.0%
Murray Energy Holdings Co. (j)  Energy Equipment & Services  L+7.25% (9.33%), 10/17/2022   9,254    9,102    8,472    0.6%
National Technical Systems, Inc. (c) (i)  Professional Services  L+6.25% (8.37%), 6/12/2021   16,427    16,354    15,441    1.1%
Navitas Midstream Midland Basin, LLC (j)  Energy Equipment & Services  L+4.50% (6.67%), 12/13/2024   8,418    8,384    8,371    0.6%
New Star Metals, Inc. (c) (i) (l)  Business Services  L+6.00% (8.33%), 12/22/2021   22,995    22,652    22,553    1.6%
NexSteppe Inc. (c) (l) (o) (t)  Chemicals  12.00%, 9/30/2018   1,931    1,750    —      —%
NexSteppe Inc. (c) (l) (o) (t)  Chemicals  12.00%, 9/30/2018   13,005    10,453    —    —%
Noosa Acquirer, Inc. (c) (i)  Food Products  L+5.25% (7.33%), 11/21/2020   25,000    24,866    25,000    1.7%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 10 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)

 

September 30, 2018
(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
NTM Acquisition Corp. (c) (i)  Media  L+6.25% (8.58%), 6/7/2022  $17,939   $17,787   $17,850    1.2%
Office Depot, Inc. (a) (j)  Specialty Retail  L+7.00% (9.33%), 11/8/2022   8,445    8,304    8,656    0.6%
Orchid Underwriters Agency, LLC (c) (f)  Insurance Broker  L+5.00% (7.08%), 3/17/2022   1,100    1,100    1,100    0.1%
Orchid Underwriters Agency, LLC (c) (i)  Insurance Broker  L+5.00% (7.33%), 3/17/2022   16,508    16,393    16,508    1.1%
ORG Chemical Holdings, LLC (c) (i)  Chemicals  L+5.75% (8.08%), 6/30/2022   27,612    27,199    26,768    1.8%
ORG GC Holdings, LLC (c) (i)  Business Services  L+6.00% (8.33%), 7/31/2022   25,356    25,064    25,006    1.7%
Passport Food Group, LLC (c)  Food & Beverage  L+9.00% (11.34%), 3/1/2022   4,470    2,905    2,682    0.2%
PeopLease Holdings, LLC (c) (i)  Commercial Services & Supplies  L+9.00% (11.34%), 2/26/2021   20,000    19,902    17,500    1.2%
PGX Holdings, Inc. (c) (j)  Transportation Infrastructure  L+5.25% (7.33%), 9/29/2020   12,274    12,240    12,029    0.8%
Premier Dental Services, Inc. (i) (j)  Health Care  L+4.50% (6.58%), 6/30/2023   32,769    32,551    32,851    2.3%
Premier Global Services, Inc. (j)  Diversified Telecommunication Services  L+6.50% (8.68%), 12/8/2021   8,972    8,766    8,624    0.6%
Pride Plating, Inc. (c) (i)  Aerospace & Defense  L+5.50% (7.83%), 6/13/2019   12,379    12,367    12,379    0.9%
PSKW, LLC (c) (i)  Health Care Providers & Services  L+4.25% (6.58%), 11/25/2021   1,449    1,441    1,449    0.1%
PSKW, LLC (c) (i)  Health Care Providers & Services  L+8.27% (10.60%), 11/25/2021   17,750    17,563    17,750    1.2%
PSKW, LLC (c) (i)  Health Care Providers & Services  L+8.27% (10.60%), 11/25/2021   1,972    1,941    1,972    0.1%
PSKW, LLC (c) (i)  Health Care Providers & Services  L+8.27% (10.60%), 11/25/2021   1,930    1,912    1,930    0.1%
PT Network, LLC (c) (f)  Health Care  P+4.50% (9.50%), 11/30/2021   658    658    635      —% 
PT Network, LLC (c) (i)   Health Care  L+5.50% (7.84%), 11/30/2021   16,679    16,573    16,117    1.1%
Pure Barre, LLC (c) (l)  Hotels, Restaurants & Leisure  L+7.00% (9.08%), 6/12/2020   503    503    503      —% 
Pure Barre, LLC (c) (i) (l)  Hotels, Restaurants & Leisure  L+7.00% (9.08%), 6/12/2020   25,635    25,483    25,635    1.8%
Questex, Inc. (c) (i)  Media Entertainment  L+6.25% (8.57%), 9/7/2024   16,191    15,871    15,871    1.1%
Questex, Inc. (c) (f)  Media Entertainment  L+6.25% (8.57%), 9/7/2024   431    431    431    —%
Quorum Health Corporation (j)  Health Care  L+6.75% (8.83%), 4/29/2022   4,255    4,334    4,313    0.3%
Resco Products, Inc. (c)  Metals & Mining  L+6.25% (8.33%), 3/7/2020   10,000    10,000    9,850    0.7%
SCA Pharmaceuticals, LLC (c)  Health Care  L+9.00% (11.34%), 12/1/2020   2,235    2,141    2,134    0.1%
Schenectady International Group (j)  Chemicals  L+4.75% (7.19%), 8/21/2025   12,791    12,279    12,279    0.8%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 11 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)

 

September 30, 2018
(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
Schweiger Dermatology Group, LLC (c)  Health Care  L+8.50% (10.82%), 6/1/2022  $7,778   $7,707   $7,700    0.5%
SCUF Gaming, Inc. (c)  Gaming/Lodging  L+9.50% (11.61%), 12/1/2021   5,533    4,482    4,565    0.3%
SCUF Gaming, Inc. (c) (f)  Gaming/Lodging  L+9.50% (11.61%), 3/1/2019   335    295    276    —%
Skillsoft Corp. (j)  Technology  L+4.75% (6.83%), 4/28/2021   17,090    16,486    16,180    1.1%
Squan Holding Corp. (c)  Diversified Telecommunication Services  L+6.00% (8.34%), 10/10/2019   16,641    15,229    12,315    0.9%
SSH Group Holdiings, Inc. (j)  Consumer Products  L+4.25% (6.59%), 7/25/2025   6,058    6,043    6,106    0.4%
Steel City Media (c)  Media  P+3.50% (8.50%), 3/29/2020   37,956    37,956    37,576    2.6%
Subsea Global Solutions, LLC (c) (f)  Business Services  L+7.00% (9.34%), 3/28/2023   125    125    123    —%
Subsea Global Solutions, LLC (c) (i)  Business Services  L+7.00% (9.33%), 3/28/2023   8,433    8,281    8,278    0.6%
Tax Defense Network, LLC (c) (l) (p) (t)  Diversified Consumer Services  L+6.00% (10.00%), 8/27/2019   32,511    26,532    7,802    0.5%
Tillamook Country Smoker, LLC (c) (f)  Food Products  L+5.75% (8.09%), 5/19/2022   2,022    2,022    1,984    0.1%
Tillamook Country Smoker, LLC (c) (i)  Food Products  L+5.75% (8.06%), 5/19/2022   10,218    10,107    10,028    0.7%
Trademark Global LLC (c)  Consumer Products  L+5.50% (7.58%), 10/1/2022   2,199    2,199    2,199    0.2%
Transperfect Global, Inc. (c) (i)  Business Services  L+6.75% (8.92%), 5/7/2024   6,825    6,697    6,723    0.5%
Traverse Midstream Partners, LLC (j)  Energy Equipment & Services  L+4.00% (6.34%), 9/27/2024   6,352    6,325    6,394    0.4%
Trilogy International Partners, LLC (a)  Diversified Telecommunication Services  8.88%, 5/1/2022   14,875    14,819    15,061    1.0%
Trojan Battery Company, LLC (j)  Auto Components  L+4.75% (6.82%), 6/11/2021   10,370    10,328    10,344    0.7%
Turning Tech LLC (c) (i)  Software  L+9.75% (12.09%), 6/30/2020   16,725    16,628    15,889    1.1%
TwentyEighty, Inc. (c) (f) (l) (p)  Media  8.00%, 3/31/2020   6,486    5,210    6,405    0.4%
TwentyEighty, Inc. (c) (f) (l) (p)  Media  L+8.00% (10.33%), 3/31/2020   339    300    335      —%
TwentyEighty, Inc. (c) (f) (l) (p)  Media  9.00%, 3/31/2020   6,143    4,984    6,066    0.4%
US Salt, LLC (c) (f)  Food Products  L+4.75% (6.82%), 12/1/2023   1,247    1,247    1,236    0.1%
US Salt, LLC (c) (i)  Food Products  L+4.75% (6.82%), 12/1/2023   5,163    5,118    5,116    0.3%
USF S&H Holdco, LLC (c) (f)  Hotels, Restaurants & Leisure  L+5.75% (8.08%), 3/16/2023   323    323    319      —%
USF S&H Holdco, LLC (c) (i)  Hotels, Restaurants & Leisure  L+5.75% (8.08%), 3/19/2024   24,245    23,914    23,896    1.6%
Veritas US Inc.  Technology  10.50%, 2/1/2024   7,289    7,138    6,669    0.5%
Veritas US Inc. (j)  Technology  L+4.50% (6.58%), 1/27/2023   7,570    7,588    7,371    0.5%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 12 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)

 

September 30, 2018
(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
Vertex Aerospace Services (i)  Industrials  L+4.75% (6.83%), 6/16/2025  $8,837   $8,794   $8,914    0.6%
Von Drehle Corporation (c) (i) (l)  Life Sciences Tools & Services  L+11.50% (13.83%), 3/6/2023   26,176    25,839    25,574    1.8%
Vyaire Medical, Inc. (c) (j)  Health Care  L+4.75% (7.23%), 4/16/2025   8,963    8,625    8,783    0.6%
WMK, LLC (c) (i)  Travel Services  L+5.75% (7.86%), 9/5/2025   20,661    20,252    20,252    1.4%
WMK, LLC (c) (f)  Travel Services  L+5.75% (7.89%), 9/5/2024   436    436    436    —%
Xplornet Communications, Inc. (a) (j) (l)  Diversified Telecommunication Services  L+4.00% (6.33%), 9/9/2021   13,029    12,967    13,094    0.9%
YummyEarth Inc.  Food & Beverage  L+8.50% (10.84%), 8/1/2023   6,776    4,945    4,743    0.3%
Sub Total Senior Secured First Lien Debt             $1,789,531   $1,703,863    116.4%
Senior Secured Second Lien Debt - 18.6% (b)                          
Anchor Glass Container Corporation (c)  Containers & Packaging  L+7.75% (9.91%), 12/7/2024  $20,000   $19,845   $13,100    0.9%
Answers Corporation (c) (p)  Technology  L+7.90% (9.00%), 9/15/2021   4,640    4,174    4,408    0.3%
Astro AB Merger Sub, Inc. (a) (c)  Diversified Financial Services  L+7.50% (9.84%), 4/30/2023   7,758    7,758    7,836    0.5%
Baker Hill Acquisition, LLC (c)  Technology  L+11.00% (13.34%), 3/1/2021   3,017    1,508    1,509    0.1%
Baker Hill Acquisition, LLC (c)  Technology  L+11.00% (13.34%), 3/1/2021   447    384    447    —%
Boston Market Corporation (c)  Hotels, Restaurants & Leisure  L+8.25% (10.57%), 12/16/2018   23,976    23,960    20,859    1.4%
BrandMuscle Holdings Inc. (c)  Internet Software & Services  L+8.50% (10.84%), 6/1/2022   24,500    24,222    24,010    1.7%
Cafe Enterprises, Inc. (c) (t)  Restaurants  P+5.25% (10.75%), 3/31/2019   475    —    —    —%
Carlisle FoodService Products, Incorporated (c)  Food Products  L+7.75% (9.96%), 3/20/2026   10,719    10,519    10,515    0.7%
CDS U.S. Intermediate Holdings, Inc. (a) (c)  Hotels, Restaurants & Leisure  L+8.25% (10.33%), 7/8/2023   7,927    7,825    7,613    0.5%
Constellis Holdings, LLC (c)  Business Services  L+9.00% (11.33%), 4/1/2025   1,117    1,117    1,083    0.1%
Dentalcorp Perfect Smile ULC (a) (c)  Health Care  L+7.50% (9.58%), 6/1/2026   8,111    8,033    8,111    0.6%
Dentalcorp Perfect Smile ULC (a) (c) (f)  Health Care  L+7.50% (9.58%), 6/1/2026   515    510    515    —%
Dimora Brands, Inc. (c)  Consumer Products  L+8.50% (10.58%), 8/25/2025   4,470    4,469    4,470    0.3%
Edelman Financial Services LLC (a) (j)  Financial Services  L+6.75% (9.09%), 6/26/2026   6,764    6,731    6,899    0.5%
Epic Health Services, Inc. (c) (f) (j)  Health Care Providers & Services  L+8.00% (10.24%), 3/17/2025   15,000    14,817    14,475    1.0%
Frank Entertainment Group, LLC (c) (p) (t)  Media Entertainment  2.50%, 6/1/2022   724    —    —    —%
Genex Holdings, Inc. (c)  Health Care  L+7.00% (9.07%), 3/6/2026   2,305    2,283    2,293    0.2%
ICP Industrial, Inc. (c)  Chemicals  L+8.25% (10.31%), 5/3/2024   5,588    5,587    5,588    0.4%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 13 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)

 

September 30, 2018
(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
IDERA, Inc. (c)  Technology  L+9.00% (11.08%), 6/1/2025  $2,235   $2,234   $2,235    0.2%
KidKraft, Inc. (c)  Consumer Products  12.00%, 3/1/2022   6,283    6,195    6,189    0.4%
Min US Holdco LLC (a)  Technology  L+8.75% (11.08%), 7/13/2026   3,000    2,940    2,940    0.2%
Navicure, Inc. (c)  Health Care  L+7.50% (9.58%), 12/1/2026   1,341    1,341    1,341    0.1%
Northstar Financial Services Group, LLC (c)  Media Entertainment  L+7.50% (9.56%), 5/25/2026   3,381    3,365    3,415    0.2%
PetVet Care Centers, LLC  Business Services  L+6.25% (8.42%), 2/13/2026   3,539    3,523    3,539    0.2%
PI US Holdco III Limited (a) (c)  Consumer Finance  L+7.25% (9.33%), 12/20/2025   6,696    6,635    6,686    0.5%
ProAmpac, LLC (c)  Paper & Packaging  L+8.50% (10.81%), 1/1/2024   3,352    3,351    3,352    0.2%
Q International Courier, LLC (c)  Transports  L+8.25% (10.33%), 9/19/2025   3,129    3,128    3,129    0.2%
Recess Holdings, Inc. (c)  Hotels, Restaurants & Leisure  L+7.75% (10.20%), 9/29/2025   13,008    12,835    12,813    0.9%
Renaissance Holding Corp (j)  Education  L+7.00% (9.33%), 5/25/2026   8,456    8,293    8,414    0.6%
REP WWEX Acquisition Parent, LLC (c)  Transports  L+8.75% (11.09%), 2/2/2025   3,352    3,351    3,352    0.2%
River Cree Entertainment (a) (c) (z)  Gaming/Lodging  10.00%, 5/17/2025   CAD21,275    16,394    16,235    1.1%
SSH Group Holdings, Inc.   Consumer Products  L+4.25% (6.59%), 7/24/2026   10,122    10,023    10,023    0.7%
St. Croix Hospice Acquisition Corp. (c) (j)  Health Care  L+8.75% (10.82%), 3/1/2024   2,056    1,961    2,025    0.1%
TierPoint, LLC (c)  Technology  L+7.25% (9.33%), 5/5/2025   5,334    5,290    5,227    0.4%
Travelpro Products, Inc. (a) (c)  Retail  13.00%, 11/1/2022   2,337    2,336    2,337    0.2%
Travelpro Products, Inc. (a) (c)  Retail  13.00%, 11/1/2022   2,070    2,070    2,070    0.1%
U.S. Auto (c)  Diversified Consumer Services  L+10.50% (12.61%), 6/8/2020   30,000    29,822    29,850    2.0%
US Salt, LLC (c)  Food Products  L+8.75% (10.87%), 12/1/2024   12,872    12,702    12,697    0.9%
Sub Total Senior Secured Second Lien Debt             $281,531   $271,600    18.6%
                           
Subordinated Debt - 9.3% (b)                          
Cafe Enterprises, Inc. (c) (t)  Restaurants  14.00%, 9/30/2019  $3,681   $  —   $ —    —%
Capital Contractors, Inc. (c) (t)  Business Services  16.00%, 6/30/2020   2,200    —    —    —%
Captek Softgel International, Inc. (c)  Health Care  11.50%, 1/1/2023   6,948    6,946    6,670    0.5%
Community Intervention Services, Inc. (c) (t)  Health Care  13.00%, 1/31/2021   5,052    —    —    —%
Del Real, LLC (c)  Consumer Products  11.00%, 4/1/2023   3,129    2,947    3,004    0.2%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 14 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)

 

September 30, 2018
(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
Dyno Acquiror, Inc. (c)  Business Services  12.00%, 8/1/2020  $1,051   $1,051   $ 1,051    0.1%
Frontier Communications (a)  Diversified Telecommunication Services  8.50%, 4/15/2020   10,000    9,398    10,063    0.7%
Frontstreet Facility Solutions, Inc. (c) (p)  Telecom  13.00%, 3/1/2021   1,891    227    189    —%
Frozen Specialties, Inc. (c)   Food & Beverage  14.00%, 10/31/2018   3,257    2,035    2,280    0.2%
HemaSource, Inc. (c) (ac)  Health Care  11.00%, 1/1/2024   2,270    2,160    2,179    0.1%
HTC Borrower, LLC (c)  Technology  13.00%, 9/1/2020   5,561    5,304    5,450    0.4%
NB Products, Inc. (c)  Consumer Products  10.00%, 2/1/2020   1,230    1,230    1,280    0.1%
NB Products, Inc. (c)  Consumer Products  14.00%, 2/1/2020   5,330    5,329    5,526    0.4%
NB Products, Inc. (c)  Consumer Products  20.00%, 5/1/2021   610    610    610    —%
Orchid Underwriters Agency, LLC (c)  Insurance Broker  11.50%, 3/1/2023   482    482    482    —%
Orchid Underwriters Agency, LLC (c)  Insurance Broker  13.50%, 3/1/2024   196    196    196    —%
Park Ave RE Holdings, LLC (c) (d) (l) (o)  Real Estate Management & Development  13.00%, 12/31/2021   37,192    37,192    37,192    2.5%
PCX Aerostructures, LLC (c)  Industrials  6.00%, 8/9/2021   7,244    5,432    5,433    0.4%
RMP Group, Inc. (c)  Financials  11.50%, 9/1/2022   2,267    2,180    2,244    0.1%
Rotolo Consultants, Inc. (c)  Industrials  14.00%, 8/1/2021   1,736    1,736    1,736    0.1%
Smile Brands, Inc. (f) (c)  Health Care  12.00%, 2/1/2023   5,156    5,155    5,156    0.4%
Steel City Media (c) (l) (t)  Media  16.00%, 3/30/2020   26,530    24,536    21,754    1.5%
Tax Advisors Group, LLC (c)  Financials  12.00%, 12/1/2022   2,776    2,775    2,776    0.2%
Technology Crops, LLC (c) (t)  Business Services  12.00%, 8/2/2019   2,575    644    644    —%
Trademark Global LLC (c)  Consumer Products  11.25%, 4/1/2023   3,311    3,310    3,311    0.2%
Vantage Mobility International, LLC (c)  Automotive  L+7.75% (9.83%), 9/1/2021   6,863    5,759    5,696    0.4%
Xplornet Communications, Inc. (a) (l)  Diversified Telecommunication Services  9.63%, 6/1/2022   11,094    11,094    11,399    0.8%
Sub Total Subordinated Debt             $137,728   $136,321    9.3%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 15 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)

 

September 30, 2018
(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
Collateralized Securities - 10.8% (b)                          
Collateralized Securities - Debt Investment                          
Figueroa - Class F Notes (a) (c) (p)  Diversified Investment Vehicles  12.34%, 1/15/2027  $8,000   $8,000   $8,000    0.6%
NewStar Arlington Senior Loan Program LLC Class FR Notes (a) (c) (p)  Diversified Investment Vehicles  13.34%, 4/25/2031   4,750    4,527    4,530    0.3%
NewStar Exeter Fund CLO - Debt (a) (c) (p)  Diversified Investment Vehicles  9.85%, 1/20/2027   10,728    9,383    9,075    0.6%
WhiteHorse VIII, Ltd. CLO - Debt (a) (c) (p)  Diversified Investment Vehicles  6.89%, 5/1/2026   8,000    7,661    7,594    0.5%
Collateralized Securities - Equity Investment (n)                          
B&M CLO 2014-1, LTD. Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles  11.61%, 4/16/2026  $40,250   $11,676   $10,681    0.7%
CVP Cascade CLO, LTD. Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles  62.02%, 1/16/2026   31,000    1,285    1,896    0.1%
Figueroa CLO 2014-1, LTD. Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles  18.83%, 1/15/2027   35,057    11,941    12,016    0.8%
MidOcean Credit CLO II, LLC Income Notes (a) (c) (p) (v)  Diversified Investment Vehicles  12.13%, 1/29/2025   37,600    20,876    20,788    1.4%
MidOcean Credit CLO III, LLC Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles  15.05%, 7/21/2026   43,300    17,670    18,336    1.3%
MidOcean Credit CLO IV, LLC Income Notes (a) (c) (p) (v)  Diversified Investment Vehicles  10.02%, 4/15/2027   21,500    13,066    12,152    0.8%
NewStar Arlington Senior Loan Program LLC Class FR Notes (a) (c) (p) (v)  Diversified Investment Vehicles  18.47%, 7/25/2025   31,603    19,974    27,674    2.0%
NewStar Exeter Fund CLO - Equity (a) (c) (p) (v)  Diversified Investment Vehicles  17.24%, 1/19/2027   31,575    10,766    10,689    0.7%
OFSI Fund VI, Ltd. Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles  0.00%, 3/20/2025   38,000    10,722    6,726    0.5%
Related Fee Agreements (a) (c) (s)  Diversified Investment Vehicles      13,840    4,499    2,005    0.1%
WhiteHorse VIII, Ltd. CLO Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles  0.00%, 5/1/2026   36,000    9,934    6,479    0.4%
Sub Total Collateralized Securities             $161,980   $158,641    10.8%
                           
Equity/Other - 15.7% (b)                          
Aden & Anais Holdings, Inc (c) (e) (ac)  Retail      4,470   $—   $—    —%
Answers Corporation - Common Equity (c) (e) (p)  Technology      908,911    11,361    4,545    0.3%
Avaya Holdings Corp. (a) (e) (aa)  Communications Equipment      207,310    3,292    4,590    0.3%
Baker Hill Acquisition, LLC (c) (e)  Technology      22,653    —    —    —%
Cafe Enterprises, Inc. (c) (e)  Restaurants      2,235    —    —    —%
California Resources Development JV, LLC - Preferred Equity (a) (c) (o) (u)  Metals & Mining  9.00%   38,858,603    32,712    34,084    2.4%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 16 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)

 

September 30, 2018
(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
Capital Contractors, Inc. (c) (e)  Business Services      45    —    —    —%
Capital Contractors, Inc. (c) (e)  Business Services      4,470    —    —    —%
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (c) (e) (o) (u)  Food Products      6,023    1,630   $—    —%
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (c) (e) (o) (u)  Food Products      24,656    —    —    —%
Captek Softgel International, Inc. (c) (e) (ac)  Health Care      8,498    942    827    0.1%
Centerfield Media Holding Company (c) (e)  Business Services      112    245    247    —%
Consolidated Lumber Holdings, LLC (c) (e)  Building Materials      3,352    1,053    1,013    0.1%
CPower Ultimate HoldCo, LLC (c) (e)  Business Services      77,230    631    631     —% 
CRS-SPV, Inc. (c) (e)  Business Services      246    2,219    2,239    0.2%
CWS Holding Company, LLC (c) (e)  Building Materials      335,255    —    —    —%
Danish CRJ LTD. - Common Equity (a) (c) (e) (p) (r)  Aerospace & Defense      5,002    —    163    —%
Data Source Holdings, LLC (c) (e)  Media/ Entertainment      10,617    140    145    —%
Del Real, LLC (c) (e)  Consumer Products      670,510    382    481    —%
Dyno Acquiror, Inc. (c) (e)  Business Services      134,102    58    69    —%
FCL Holding SPV, LLC (c) (e)  Publishing      5,559    132    35    —%
FCL Holding SPV, LLC (c) (e)  Publishing      10,824    30         —%
FCL Holding SPV, LLC (c) (e)  Publishing      837    —    —    —%
Frank Entertainment Group, LLC (c) (e) (p)  Media Entertainment      135,566    —    —    —%
Frank Entertainment Group, LLC (c) (e) (p)  Media Entertainment      625,810    —    —    —%
Frank Entertainment Group, LLC (c) (e) (p)  Media Entertainment      625,810    —    —    —%
Frontstreet Facility Solutions, Inc. (c) (e) (p)  Telecom      24,114    —    —    —%
Greenwave Holdings, Inc. - Series C Preferred StockWarrant (c) (e)  Internet Software & Services  Expire 8/16/2025   172,414    —    —    —%
HemaSource, Inc. (c) (e) (ac)  Health Care      223,503    168    209    —%
ICP Industrial, Inc. (c) (e)  Chemicals      288    279    379    —%
Inland Pipe Rehabilitation Holding Company LLC (c) (e)  Energy      223    245    505    —%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 17 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

September 30, 2018

(Unaudited)

 

Portfolio Company (q)  Industry 

Investment Coupon

Rate / Maturity (y)

 

Principal /

Number of

Shares

  

Amortized

Cost

   Fair Value  

% of Net

Assets (b)

 
Integrated Efficiency Solutions, Inc. (c) (e)  Energy      53,215    56    67    —%
Integrated Efficiency Solutions, Inc. (c) (e)  Energy      2,975    3    3    —%
Kahala Ireland OpCo Designated Activity Company - Common Equity (a) (c) (e) (h) (o)  Aerospace & Defense      —    —    14,401    1.0%
Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (a) (c) (e) (h) (o)  Aerospace & Defense      3,250,000    2,831    3,250    0.2%
Kahala US OpCo LLC - Class A Preferred Units (a) (c) (e) (k) (o)  Aerospace & Defense  13.00%   4,413,472    —    —    —%
K-Square Restaurant Partners, LP (c) (e) (ac)  Food & Beverage      447    175    83    —%
Lakeview Health Holdings, Inc. (c) (e)  Health Care      447    —    —    —%
MIC Holding LLC (c) (e)  Business Services      1,470    3,687    3,817    0.3%
MIC Holding LLC (c) (e)  Business Services      30,000    4,917    5,008    0.3%
Micross Solutions LLC (c) (e)  Technology      442,430    223    201    —%
Mood Media Corporation - Warrants (c) (e)  Business Services      121,021    27    76    —%
Motor Vehicle Software Corporation (c) (e) (ab)  Technology      223,503    318    300    —%
NB Products, Inc. (c) (e)  Consumer Products      372,958    4,246    6,662    0.5%
NB Products, Inc. (c) (e)  Consumer Products      1,752    2,438    2,603    0.2%
New Star Metals Inc. - Warrants (c) (e)  Business Services  Expire 12/22/2036   100,216    151    450    —%
NexSteppe Inc. - Series C Preferred Stock Warrant (c) (e) (o)  Chemicals      237,240    737    —    —%
NMFC Senior Loan Program I, LLC (a) (o)  Diversified Investment Vehicles      50,000    50,000    50,371    3.5%
Nomacorc, LLC (c) (e) (ab)  Consumer Products      356,816    56    111    —%
Orchid Underwriters Agency, LLC - Common Shares (c) (e) (u)  Insurance Broker      3,352    329    327    —%
Orchid Underwriters Agency, LLC - Common Shares (c) (e) (u)  Insurance Broker      5,000    —    488    —%
Orchid Underwriters Agency, LLC - Preferred Shares (c) (e) (u)  Insurance Broker      3,352    228    236    —%
Orchid Underwriters Agency, LLC - Preferred Shares (c) (e) (u)  Insurance Broker      5,000    113    352    —%
Park Ave RE Holdings, LLC - Common Shares (c) (e) (o) (w)  Real Estate Management & Development      1,000    102    15,315    1.1%
Park Ave RE Holdings, LLC - Preferred Shares (c) (e) (o) (w)  Real Estate Management & Development  8.00%   47,290    23,645    23,645    1.6%
Passport Food Group, LLC (c) (e) (ac)  Food & Beverage      4,470    —    —    —%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 18 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

September 30, 2018

(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
PCX Aerostructures, LLC (c) (e)  Industrials     27,250   $—   $—    —% 
PCX Aerostructures, LLC (c) (e)  Industrials      1,356    —    —    —% 
PCX Aerostructures, LLC (c) (e)  Industrials      315    —    —    —% 
PennantPark Credit Opportunities Fund II, LP (a) (f) (g) (p)  Diversified Investment Vehicles     $9,952    9,952    10,206    0.7%
RMP Group, Inc. (c) (e)  Financials      223    164    218    —% 
RockYou, Inc. (c) (e)  Advertising      15,105    —    —    —%
Rotolo Consultants, Inc. (c) (e) (ab)  Industrials      8,717    1,900    1,833    0.1%
Schweiger Dermatology Group, LLC (c) (e)  Health Care      265,024    —    —    —%
SCUF Gaming, Inc. (c) (e)  Gaming/Lodging      6,060    21    30    —% 
Smile Brands, Inc. (c) (e)  Health Care      669    748    840    0.1%
South Grand MM CLO I, LLC (a) (o)  Diversified Investment Vehicles     $6,691    6,262    6,719    0.5%
Squan Holding Corp. - Class A Common Stock (c) (e) (p)  Diversified Telecommunication Services      180,835    —    —    —% 
Squan Holding Corp. - Series A Preferred Stock (c) (e) (p)  Diversified Telecommunication Services      8,962    —    —    —% 
St. Croix Hospice Acquisition Corp. (c) (e)  Health Care      112    —    —    —%
St. Croix Hospice Acquisition Corp. (c) (e)  Health Care      112    64    76    —%
SYNACOR INC (c) (e)  Technology      59,785    —     96    —%
Tax Advisors Group, LLC (c) (e)  Financials      86    609    579    —%
Tax Defense Network, LLC (c) (e)  Diversified Consumer Services      351,944    —    —    —% 
Tax Defense Network, LLC - Common Equity (c) (e)  Diversified Consumer Services      147,099    425    —    —% 
TCG BDC, Inc. - Common Stock (fka Carlyle GMS Finance, Inc.) (a)  Diversified Investment Vehicles      226    4,336    3,701    0.3%
Team Waste, LLC (c) (e)  Industrials      111,752    2,235    2,235    0.2%
Technology Crops, LLC (c) (e)  Business Services      11,175    —    —    —% 
Tennenbaum WatermanFund, L.P. (a) (c) (e) (p)  Diversified Investment Vehicles     $10,000    10,000    10,100    0.7%
The Cook & Boardman Group, LLC (c) (e) (ac)  Industrials      312,905    1,027    1,162    0.1%
THL Credit Greenway Fund II LLC (a) (p)  Diversified Investment Vehicles     $8,457    8,457    8,484    0.6%
Travelpro Products, Inc. (a)  Retail      447,007    506    541    —% 
TwentyEighty, Inc. - Class A Common Equity (c)  Media      54,586    —    —    —%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 19 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

September 30, 2018

(Unaudited)

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
TZ Holdings, Inc. - Preferred Shares (fka Zimbra, Inc.) (c) (e)  Software  Expire 10/25/2023   1,000,000   $10   $179    —% 
U.S. Auto - Series A Common Units (c) (e) (u)  Diversified Consumer Services      10,000    10    —    —% 
U.S. Auto - Series A Preferred Units (c) (e) (u)  Diversified Consumer Services      490    490    545    —%
U.S. Auto - Series C Preferred Equity Units (c) (e) (u)  Diversified Consumer Services      56    56    111    —%
United Biologics, LLC (c) (e)  Health Care      39,769    132    —    —% 
United Biologics, LLC (c) (e)  Health Care      3,155    —    —    —%
United Biologics, LLC (c) (e)  Health Care      4,206    31    —    —%
United Biologics, LLC (c) (e)  Health Care      99,236    —    —    —% 
United Biologics, LLC (c) (e)  Health Care      223    35    —    —%
Vantage Mobility International, LLC (c) (e)  Automotive      391,131    —    —    —%
Women's Marketing, Inc. (c) (e)  Media Entertainment      3,643    —    —    —% 
Women's Marketing, Inc. (c) (e)  Media Entertainment      2,235    —    —    —%
World Business Lenders, LLC - Preferred Stock (c) (e) (p)  Consumer Finance      922,669    3,750    3,759    0.3%
WSO Holdings, LP (c) (e)  Food & Beverage      698    279    99    —% 
Wythe Will Tzetzo, LLC (c) (e)  Food & Beverage      22,312    302    111    —%
YummyEarth Inc. (c) (e)  Food & Beverage      223    —    —    —%
Sub Total Equity/Other             $201,602   $229,552    15.7%
TOTAL INVESTMENTS - 170.8% (b)             $2,572,372   $2,499,977    170.8%

 

Forward foreign currency contracts:

 

               Unrealized 
               Appreciation/ 
Counterparty  Contract to Deliver   In Exchange For   Maturity Date   (Depreciation) 
Goldman Sachs International  CAD21,275   $16,198    10/3/2018   $(302)

 

(a)All of the Company's investments, except the investments noted by this footnote, are qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (the "1940 Act"). Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of our total assets. Qualifying assets represent 74.0% of the Company's total assets. The significant majority of all investments held are deemed to be illiquid.
(b)Percentages are based on net assets of $1,463,846 as of September 30, 2018.
(c)The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's board of directors as required by the 1940 Act. Such investments are valued using significant unobservable inputs (See Note 3 to the consolidated financial statements).
(d)As of the date of election, the portfolio company elected to pay cash interest, noting the company has the option to elect a portion of the interest to be payment-in-kind (“PIK”).
(e)Non-income producing at September 30, 2018.
(f)The Company has various unfunded commitments to portfolio companies. The remaining amount of these unfunded commitments as of September 30, 2018 are comprised of the following:

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 20 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

September 30, 2018

(Unaudited)

 

Portfolio Company Name  Investment Type  Commitment Type 

Original

Commitment

  

Remaining

Commitment

 
Accent Care, Inc.  Senior Secured First Lien Debt  Delayed draw term loan  $4,310   $2,500 
AMI Entertainment Network, LLC  Senior Secured First Lien Debt  Revolver term loan   1,234    1,234 
Black Mountain Sand, LLC  Senior Secured First Lien Debt  Delayed draw term loan   13,050    1,305 
CCW, LLC  Senior Secured First Lien Debt  Revolver term loan   3,000    1,700 
CDHA Holdings, LLC  Senior Secured First Lien Debt  Revolver term loan   1,264    1,138 
CDHA Holdings, LLC  Senior Secured First Lien Debt  Delayed draw term loan   7,583    7,583 
Cold Spring Brewing Company  Senior Secured First Lien Debt  Revolver term loan   238    238 
Corfin Industries LLC  Senior Secured First Lien Debt  Revolver term loan   956    956 
Dentalcorp Perfect Smile ULC  Senior Secured Second Lien Debt  Delayed draw term loan   2,028    1,513 
Deva Holdings, Inc.  Senior Secured First Lien Debt  Revolver term loan   559    559 
DLC Acquisition, LLC  Senior Secured First Lien Debt  Revolver term loan   694    694 
Epic Health Services, Inc  Senior Secured Second Lien Debt  Delayed draw term loan   1,373    1,373 
Florida Foods Products, LLC  Senior Secured First Lien Debt  Revolver term loan   1,774    1,242 
Harrison Gypsum, LLC  Senior Secured First Lien Debt  Delayed draw term loan   2,873    2,686 
ICR Operations, LLC  Senior Secured First Lien Debt  Revolver term loan   2,753    2,588 
Ideal Tridon Holdings, Inc.  Senior Secured First Lien Debt  Revolver term loan   2,731    929 
InMotion Entertainment Group, LLC  Senior Secured First Lien Debt  Delayed draw term loan   2,200    1,843 
Integral Ad Science, INC.  Senior Secured First Lien Debt  Revolver term loan   1,085    1,085 
Lakeview Health Holdings  Senior Secured First Lien Debt  Revolver term loan   310    310 
Micross Solutions LLC  Senior Secured First Lien Debt  Delayed draw term loan   669    669 
Midwest Can Company, LLC  Senior Secured First Lien Debt  Revolver term loan   547    508 
MMM Holdings, LLC  Senior Secured First Lien Debt  Delayed draw term loan   3,522    3,522 
MMM Holdings, LLC  Senior Secured First Lien Debt  Revolver term loan   1,761    1,761 
Orchid Underwriters Agency, LLC  Senior Secured First Lien Debt  Revolver term loan   2,200    1,100 
PennantPark Credit Opportunities Fund II, LP  Equity capital commitment  Equity capital commitment   10,764    538 
PT Network, LLC  Senior Secured First Lien Debt  Delayed draw term loan   6,579    6,579 
PT Network, LLC  Senior Secured First Lien Debt  Revolver term loan   1,316    658 
Questex, Inc.  Senior Secured First Lien Debt  Revolver term loan   2,584    2,153 
Smile Brands, Inc.  Subordinated Debt  Delayed draw term loan   4,268    4,268 
Subsea Global Solutions, LLC  Senior Secured First Lien Debt  Revolver term loan   963    838 
Tillamook Country Smoker, LLC  Senior Secured First Lien Debt  Revolver term loan   2,696    674 
TwentyEighty, Inc.  Senior Secured First Lien Debt  Revolver term loan   443    443 
US Salt, LLC  Senior Secured First Lien Debt  Delayed draw term loan   1,297    43 
USF S&H Holdco, LLC  Senior Secured First Lien Debt  Revolver term loan   1,616    1,293 
WMK, LLC  Senior Secured First Lien Debt  Delayed draw term loan   2,618    2,618 
WMK, LLC  Senior Secured First Lien Debt  Revolver term loan   2,618    2,182 
Total        $96,476   $61,323 

 

(g)The investment is subject to a three year lock-up restriction on withdrawals. The lock-up expires on March 31, 2019.
(h)The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala LuxCo, which own 100% of the equity of the operating company, Kahala Ireland OpCo Designated Activity Company.
(i)The Company's investment or a portion thereof is pledged as collateral under the Wells Fargo Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.
(j)The Company's investment or a portion thereof is pledged as collateral under the Citi Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.
(k)The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala Aviation US, Inc. which own 100% of the equity of the operating company, Kahala US OpCo LLC.
(l)For the three months ended September 30, 2018, the following investments paid or have the option to pay all or a portion of interest and dividends via payment-in-kind (“PIK”):

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 21 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

September 30, 2018

(Unaudited)

 

Portfolio Company  Investment Type  Cash   PIK   All-in Rate  

PIK Earned for the

three months

ended September

30, 2018

 
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.)  Senior Secured First Lien Debt   —%   14.84%   14.84%  $— 
Greenwave Holdings, Inc.  Senior Secured First Lien Debt   10.00%   3.00%   13.00%   41 
Integral Ad Science  Senior Secured First Lien Debt   6.83%   1.25%   8.08%   35 
Kahala Ireland OpCo Designated Activity Company  Senior Secured First Lien Debt   13.00%   —%   13.00%   — 
Lightsquared LP  Senior Secured First Lien Debt   —%   11.07%   11.07%   337 
MMM Holdings, Inc.  Senior Secured First Lien Debt   8.59%   —%   8.59%   — 
Mood Media Corporation  Senior Secured First Lien Debt   8.83%   0.75%   9.58%   104 
New Star Metals, Inc.  Senior Secured First Lien Debt   8.33%   —%   8.33%   — 
NetSteppe Inc.  Senior Secured First Lien Debt   —%   12.00%   12.00%   — 
Park Ave RE Holdings, LLC  Subordinated Debt   13.00%   —%   13.00%   — 
Pure Barre, LLC  Senior Secured First Lien Debt   7.83%   1.25%   9.08%   81 
Pure Barre, LLC  Senior Secured First Lien Debt   7.83%   1.25%   9.08%   2 
Steel City Media  Subordinated Debt   —%   16.00%   16.00%   — 
Tax Defense Network, LLC  Senior Secured First Lien Debt   10.00%   0.00%   10.00%   — 
TwentyEighty, Inc.  Senior Secured First Lien Debt   6.33%   4.00%   10.33%   65 
TwentyEighty, Inc.  Senior Secured First Lien Debt   4.00%   4.00%   8.00%   133 
TwentyEighty, Inc.  Senior Secured First Lien Debt   0.25%   8.75%   9.00%   — 
Von Drehle Corporation  Senior Secured First Lien Debt   11.83%   2.00%   13.83%   — 
Xplornet Communications, Inc.  Senior Secured First Lien Debt   6.33%   —%   6.33%   — 
Xplornet Communications, Inc.  Subordinated Debt   —%   9.63%   9.63%   — 
Total                    $798 

 

(m)The Company's investment or a portion thereof is pledged as collateral under the UBS Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.
(n)For equity investments in Collateralized Securities, the effective yield is presented in place of the investment coupon rate for each investment. Refer to footnote (v) for a further description of an equity investment in a Collateralized Security.
(o)The provisions of the 1940 Act classify investments based on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be "non-controlled" when we own 25% or less of the portfolio company's voting securities and "controlled" when we own more than 25% of the portfolio company's voting securities. The Company classifies this investment as "controlled".
(p)The provisions of the 1940 Act classify investments further based on the level of ownership that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as "non-affiliated" when we own less than 5% of a portfolio company's voting securities and "affiliated" when we own 5% or more of a portfolio company's voting securities. The Company classifies this investment as "affiliated".
(q)Unless otherwise indicated, all investments in the schedule of investments are non-affiliated, non-controlled investments.
(r)The Company's investment is held through the Consolidated Holding Company, Kahala Aviation Holdings, LLC, which owns 49% of the operating company, Danish CRJ LTD.
(s)Related Fee Agreements consist of five investments with a total fair value of $2.0 million that are classified as Affiliated Investments.
(t)The investment is on non-accrual status as of September 30, 2018.
(u)Investments are held in the taxable wholly-owned, consolidated subsidiary, 54th Street Equity Holdings, Inc.
(v)The Collateralized Securities - subordinated notes are treated as equity investments and are entitled to recurring distributions which are generally equal to the remaining cash flow of the payments made by the underlying fund’s securities less contractual payments to debt holders and fund expenses. The estimated yield indicated is based upon a current projection of the amount and timing of these recurring distributions and the estimated amount of repayment of principal upon termination. Such projections are periodically reviewed and adjusted, and the estimated yield may not ultimately be realized.
(w)The Company's investment is held through the consolidated subsidiary, Park Ave RE, Inc., which owns 100% of the equity of the operating company, Park Ave RE Holdings, LLC.
(x)The Company's investment or a portion thereof is pledged as collateral under the JPMC PB Account. Individual investments can be divided into parts which are pledged to separate credit facilities.
(y)The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate ("LIBOR" or "L") or Prime ("P") and which reset daily, monthly, quarterly or semiannually. For each, the Company has provided the spread over LIBOR or Prime and the current interest rate in effect at September 30, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate loans, a spread above a reference rate is not applicable.
(z)The principal amount (par amount) is denominated in Canadian Dollars or CAD.
(aa)The investment is not a restricted security. All other securities are restricted securities.
(ab)

The investment is held through a participation interest in which the Company has a contractual relationship only with the loan transferor, not the underlying borrower. The Company may be subject to the credit risk of the loan transferor as well as of the borrower.
(ac)

The investment is held through BSP TCAP Acquisition Holdings LP which, as further outlined in Note 1, is an affiliated acquisition entity utilized for the Triangle Transaction.  Due to certain restrictions, such as limits on the number of partners allowable within the equity structures of the newly acquired investments, these investments are still held within the acquisition entity as of September 30, 2018.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 22 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

September 30, 2018

(Unaudited)

 

The following table shows the portfolio composition by industry grouping based on fair value at September 30, 2018:

 

   At September 30, 2018 
  

Investments at

Fair Value

  

Percentage of

Total Portfolio

 
Health Care  $276,939    11.1%
Diversified Investment Vehicles   248,222    9.9%
Business Services   202,697    8.1%
Hotels, Restaurants & Leisure   157,007    6.3%
Aerospace & Defense   151,742    6.1%
Media   127,451    5.1%
Diversified Telecommunication Services   92,299    3.7%
Chemicals   87,761    3.5%
Energy Equipment & Services   81,437    3.3%
Food Products   80,423    3.2%
Technology   78,822    3.2%
Metals & Mining   78,307    3.1%
Real Estate Management & Development   76,152    3.0%
Health Care Providers & Services   75,216    3.0%
Consumer Products   61,622    2.5%
Commercial Services & Supplies   60,695    2.4%
Gaming/Lodging   54,611    2.2%
Diversified Consumer Services   54,255    2.2%
Communications Equipment   43,203    1.7%
Software   40,943    1.6%
Food & Beverage   37,421    1.5%
Industrials   33,628    1.3%
Internet Software & Services   30,729    1.2%
Professional Services   27,501    1.1%
Life Sciences Tools & Services   25,574    1.0%
Specialty Retail   21,741    0.9%
Media Entertainment   21,131    0.9%
Travel Services   20,688    0.8%
Insurance Broker   19,689    0.8%
Advertising   13,879    0.6%
Financials   13,799    0.6%
Containers & Packaging   13,100    0.5%
Transportation Infrastructure   12,029    0.5%
Consumer Finance   10,445    0.4%
Auto Components   10,344    0.4%
Education   8,414    0.3%
Diversified Financial Services   7,836    0.3%
Building Materials   7,825    0.3%
Financial Services   6,899    0.3%
Transports   6,481    0.3%
Automotive   5,696    0.2%
Retail   4,948    0.2%
Energy   4,296    0.2%
Paper & Packaging   3,352    0.1%
Utilities   2,359    0.1%
Telecom   189    —%
Media/Entertainment   145    —%
Publishing   35    —%
Restaurants   —    —%
Total  $2,499,977    100.0%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 23 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

Portfolio Company (q)  Industry 

Investment Coupon

Rate / Maturity (y)

 

Principal /

Number of

Shares

  

Amortized

Cost

   Fair Value  

% of Net

Assets (b)

 
Senior Secured First Lien Debt - 118.8% (b)                          
Abaco Systems Holding Corp. (c) (i)  Business Services  L+6.00% (7.35%), 12/7/2021  $23,698   $23,320   $23,129    1.6%
ABC Financial Intermediate, LLC (c) (j)  Media  L+4.25% (5.94%), 1/2/2025   7,739    7,700    7,700    0.5%
Ability Networks Inc. (c) (j)  Health Care Providers & Services  L+5.00% (6.35%), 12/13/2024   13,607    13,539    13,607    0.9%
Adams Publishing Group, LLC (c) (i)  Media  L+7.00% (8.69%), 11/3/2020   16,250    16,109    16,250    1.1%
Adams Publishing Group, LLC (c)  Media  L+7.00% (8.69%), 11/3/2020   4,432    4,432    4,432    0.3%
Aleris International, Inc. (x)  Metals & Mining  9.50%, 4/1/2021   2,882    3,046    3,044    0.2%
Alvogen Pharma US, Inc. (j)  Health Care  L+5.00% (6.57%), 4/2/2022   14,061    13,955    13,932    0.9%
AMI Entertainment Network, LLC (c) (f) (i)  Hotels, Restaurants & Leisure  L+6.00% (7.69%), 7/21/2022   14,632    14,365    14,368    1.0%
Amports, Inc. (c) (m)  Transportation Infrastructure  L+5.00% (6.69%), 5/19/2020   14,876    14,832    14,876    1.0%
Amteck, LLC (c) (f) (i)  Commercial Services & Supplies  L+7.50% (9.20%), 7/2/2020   21,688    21,499    21,579    1.4%
Answers Corporation (c) (p)  Technology  L+5.00% (6.57%), 4/15/2021   3,007    2,945    2,916    0.2%
AP Gaming I, LLC (i) (j)  Gaming/Lodging  L+5.50% (7.07%), 2/15/2024   33,592    33,524    33,823    2.3%
APCO Holdings (c) (i)  Diversified Consumer Services  L+6.00% (7.57%), 1/29/2022   3,666    3,590    3,593    0.2%
Applied Merchant Systems West Coast, Inc. (c) (m)  Diversified Financial Services  L+11.50% (12.84%), 10/26/2020   18,853    18,635    17,816    1.2%
Applied Merchant Systems West Coast, Inc. (c) (m)  Diversified Financial Services  L+11.50% (12.84%), 10/26/2020   6,500    6,425    6,143    0.4%
AqGen Ascensus Inc. (j)  Technology  L+3.50% (5.06%), 12/3/2022   19,637    19,637    19,694    1.3%
AqGen Ascensus Inc. (f)  Technology  L+3.50% (5.06%), 12/3/2022   3,333    3,325    3,348    0.2%
Avatar Purchaser, Inc. (c) (m)  Business Services  L+7.50% (8.99%), 11/17/2025   11,716    11,370    11,520    0.8%
Avaya Holdings Corp. (j)  Communications Equipment  L+4.75% (6.23%), 12/15/2024   26,108    25,848    25,662    1.7%
Basho Technologies, Inc. (c) (d) (l) (t)  Software  17.00%, 5/31/2018   6,645    6,485    —    —%
Basho Technologies, Inc. (c) (d) (l) (t)  Software  17.00%, 5/31/2018   2,550    2,550    —    —%
BCP Raptor, LLC (j)  Energy Equipment & Services  L+4.25% (5.73%), 6/24/2024   19,986    19,800    20,048    1.3%
BCP Renaissance, LLC (j)  Energy Equipment & Services  L+4.00% (5.38%), 10/31/2024   8,472    8,431    8,569    0.6%
BDS Solutions Group, LLC (c) (i) (m)  Business Services  L+8.75% (10.45%), 6/1/2021   33,042    32,531    33,042    2.2%
BDS Solutions Group, LLC (c)  Business Services  L+8.75% (10.45%), 6/1/2021   2,888    2,841    2,888    0.2%
Beaver-Visitec International Holdings, Inc. (c) (j)  Health Care  L+5.00% (6.69%), 8/21/2023   6,580    6,580    6,580    0.4%
Berner Food & Beverage LLC (c)(f) (i)  Food Products  L+7.00% (8.69%), 3/16/2022   18,853    18,536    18,476    1.2%
Black Mountain Sand, LLC (c) (f)  Energy Equipment & Services  L+9.00% (10.50%), 11/30/2021   13,050    12,859    12,854    0.9%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 24 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

Portfolio Company (q)  Industry 

Investment Coupon

Rate / Maturity (y)

 

Principal /

Number of

Shares

  

Amortized

Cost

   Fair Value  

% of Net

Assets (b)

 
Blount International, Inc. (j)  Commercial Services & Supplies  L+4.25% (5.61%), 4/12/2023  $12,500   $12,470   $12,637    0.9%
California Resources, Corp. (m)  Metals & Mining  L+10.38% (11.88%), 12/31/2022   12,259    12,014    12,198    0.8%
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t)  Food Products  L+12.50% (13.88%), 4/28/2019   20,482    16,406    4,096    0.3%
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t)  Food Products  L+12.50% (13.88%), 4/28/2019   47,336    33,647    9,467    0.6%
Catapult Learning, LLC  (c) (i) (m)  Diversified Consumer Services  L+6.50% (7.88%), 7/16/2020   27,138    26,861    25,917    1.7%
CCW, LLC (c) (f) (i)  Hotels, Restaurants & Leisure  L+7.00% (8.63%), 3/21/2021   26,525    26,292    26,525    1.8%
Central Security Group, Inc. (c) (i) (j)  Commercial Services & Supplies  L+5.63% (7.19%), 10/6/2021   25,293    24,999    25,294    1.7%
Chicken Soup for the Soul Publishing, LLC (c)  Media  L+6.25% (7.61%), 1/8/2019   27,536    27,465    24,369    1.6%
Chloe Ox Parent, LLC (j)  Health Care Providers & Services  L+5.00% (6.64%), 12/23/2024   10,768    10,660    10,768    0.7%
Clover Technologies Group, LLC (j)  Commercial Services & Supplies  L+4.50% (6.07%), 5/8/2020   13,548    13,495    10,070    0.7%
Community Care Health Network, LLC (c) (j)  Health Care  L+5.50% (7.07%), 10/19/2021   2,376    2,384    2,377    0.2%
CONSOL Energy, Inc. (j)  Metals & Mining  L+6.00% (7.47%), 11/28/2022   3,240    3,176    3,275    0.2%
Contura Energy Inc. (j)  Energy Equipment & Services  L+5.00% (6.63%), 3/18/2024   7,491    7,425    7,379    0.5%
ConvergeOne Holdings Corp. (j)  Technology  L+4.75% (6.44%), 6/20/2024   16,475    16,323    16,489    1.1%
Cvent, Inc. (c) (j)  Internet Software & Services  L+3.75% (5.32%), 11/29/2024   16,436    16,333    16,436    1.1%
DigiCert, Inc (j)  Internet Software & Services  L+4.75% (6.13%), 10/31/2024   10,800    10,747    10,930    0.7%
Eagle Rx, LLC (c) (i)  Health Care Providers & Services  L+4.25% (5.61%), 8/15/2019   27,279    27,192    27,279    1.8%
Elo Touch Solutions, Inc (j)  Technology  L+6.00% (7.44%), 10/31/2023   3,781    3,744    3,772    0.3%
ERG Holding Company (c) (i) (m)  Health Care Providers & Services  L+6.75% (8.45%), 4/4/2019   34,099    33,846    33,587    2.3%
ERG Holding Company (c) (f)  Health Care Providers & Services  L+6.75% (8.45%), 4/4/2019   136    136    134    0.1%
Everi Payments, Inc. (j)  Hotels, Restaurants & Leisure  L+3.50% (4.98%), 5/9/2024   10,654    10,639    10,748    0.7% 
Excelitas Technologies Corp. (j)  Electronic Equipment, Instruments & Components  L+3.50% (5.16%), 12/2/2024   10,000    9,975    10,066    0.7%
Genesys Telecommunications Laboratories, Inc. (j)  Diversified Telecommunication Services  L+3.75% (5.44%), 12/1/2023   24,751    24,435    24,874    1.7%
Greenwave Holdings, Inc. (c) (d) (l)  Internet Software & Services  13.00%, 7/8/2019   12,184    12,136    12,184    0.8%
GTCR Valor Companies, Inc. (j)  Internet Software & Services  L+4.25% (5.94%), 6/16/2023   9,975    9,952    10,079    0.7%
HC Group Holdings III, Inc. (j)  Health Care  L+5.00% (6.57%), 4/7/2022   14,781    14,567    14,911    1.0%
Hexion Inc. (x)  Chemicals  10.38%, 2/1/2022   920    920    853    0.1%
Ideal Tridon Holdings, Inc. (c) (m)  Commercial Services & Supplies  L+6.50% (7.74%), 7/31/2023   23,917    23,472    23,465    1.6%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 25 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

         Principal /             
      Investment Coupon  Number of   Amortized       % of Net 
Portfolio Company (q)  Industry  Rate / Maturity (y)  Shares   Cost   Fair Value   Assets (b) 
Ideal Tridon Holdings, Inc. (c) (f)  Commercial Services & Supplies  L+6.50% (7.74%), 7/31/2022  $546   $511   $536    —%
Indivior Finance S.A.R.L. (i)  Health Care  L+4.50% (6.11%), 12/18/2022   6,983    6,948    7,001    0.5%
InMotion Entertainment Group, LLC (c) (i)  Specialty Retail  L+7.25% (8.95%), 10/1/2021   13,343    13,299    13,343    0.9%
InMotion Entertainment Group, LLC (c) (f) (i)  Specialty Retail  L+7.75% (9.45%), 10/1/2021   327    327    327    —%
Intelsat S.A (m)  Diversified Telecommunication Services  L+4.50% (6.19%), 1/2/2024   665    665    672    —%
Intelsat S.A (m)  Diversified Telecommunication Services  L+4.50% (6.63%), 1/2/2024   2,211    2,211    2,231    0.1%
Internap Corporation (m)  Communications Equipment  L+7.00% (8.41%), 4/6/2022   8,208    8,102    8,280    0.6%
IPC Corp. (j)  Diversified Telecommunication Services  L+4.50% (5.89%), 8/6/2021   7,103    6,995    6,943    0.5%
Jackson Hewitt, Inc. (j)  Diversified Consumer Services  L+7.00% (8.38%), 7/30/2020   6,515    6,448    6,409    0.4%
K2 Pure Solutions NoCal, L.P. (c) (i)  Chemicals  L+6.00% (7.57%), 2/19/2021   6,500    6,445    6,500    0.4%
Kahala Ireland OpCo Designated Activity Company (a) (c) (l) (o)  Aerospace & Defense  L+8.00% (13.00%), 12/23/2028   141,549    141,549    141,549    9.5%
Kissner Milling Co. Ltd. (c) (x)  Chemicals  8.38%, 12/1/2022   21,199    21,530    21,430    1.4%
Lakeland Tours, LLC (f)  Diversified Consumer Services  L+4.00% (5.59%), 12/15/2024   5,634    5,620    5,683    0.4%
LenderLive Services, LLC (c)  Business Services  L+12.00% (13.50%), 8/11/2020   10,000    9,869    9,650    0.7%
Lightsquared LP (l)  Diversified Telecommunications Services  L+8.75% (10.27%), 6/15/2020   11,315    10,598    10,481    0.7%
Lionbridge Technologies, Inc. (c) (i)  Business Services  L+5.50% (7.07%), 2/28/2024   13,764    13,703    13,702    0.9%
MCS Acquisition Corp. (c) (j)  Professional Services  L+4.75% (6.25%), 5/18/2024   14,297    14,239    14,297    1.0%
Medallion MidlandAcquisition, L.P. (j)  Energy Equipment & Services  L+3.25% (4.82%), 11/13/2024   4,450    4,439    4,456    0.3%
Medical Depot Holdings, Inc. (c) (i)  Health Care  L+5.50% (7.19%), 1/3/2023   19,771    18,270    18,407    1.2%
Metal Services LLC (j)  Metals & Mining  L+7.50% (9.19%), 6/30/2019   10,806    10,726    10,846    0.7%
Michael Baker International, LLC (j)  Business Services  L+4.50% (5.94%), 11/21/2022   5,607    5,552    5,593    0.4%
Midwest Can Company, LLC (c) (f) (i)  Energy Equipment & Services  L+6.75% (8.32%), 1/26/2022   5,067    4,994    5,008    0.3%
MMM Holdings, LLC (c) (d) (j) (l)  Health Care  L+8.75% (10.32%), 6/28/2019   7,028    7,029    6,818    0.5%
Monitronics International, Inc. (j)  Diversified Consumer Services  L+5.50% (7.19%), 9/30/2022   2,963    2,950    2,933    0.2%
Montreign Operating Company, LLC (c) (m)  Hotels, Restaurants & Leisure  L+8.25% (9.82%), 1/24/2023   27,161    26,732    27,473    1.8%
Mood Media Corporation (c) (m)  Business Services  L+7.25% (8.94%), 6/28/2022   13,912    13,638    13,608    0.9%
Motion Recruitment Partners, LLC (c) (f) (i)  Professional Services  L+6.00% (7.57%), 2/13/2020   17,194    17,021    17,194    1.2%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 26 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

Portfolio Company (q)  Industry 

Investment Coupon

Rate / Maturity (y)

 

Principal /

Number of

Shares

  

Amortized

Cost

   Fair Value  

% of Net

Assets (b)

 
MSO of Puerto Rico, LLC (c) (d) (j) (l)  Health Care  L+8.75% (10.32%), 6/28/2019  $5,110   $5,110   $4,956    0.3%
Murray Energy Holdings Co. (j)  Energy Equipment & Services  L+7.25% (8.94%), 4/16/2020   13,408    12,929    11,778    0.8%
National Technical Systems, Inc. (c) (i)  Professional Services  L+6.25% (7.61%), 6/12/2021   16,469    16,376    15,481    1.0%
Navitas Midstream Midland Basin, LLC (j)  Energy Equipment & Services  L+4.50% (5.98%), 12/13/2024   7,969    7,929    7,969    0.5%
New Star Metals Inc. (c) (d) (l) (m)  Business Services  L+9.50% (11.00%), 12/22/2021   24,388    23,959    24,413    1.6%
NexSteppe Inc. (c) (f) (l) (t)  Chemicals  12.00%, 9/30/2018   1,533    1,500    —    —%
NexSteppe Inc. (c) (l) (t)  Chemicals  12.00%, 9/30/2018   11,998    10,453    —    —%
Noosa Acquirer, Inc. (c) (i) (m)  Food Products  L+5.25% (6.94%), 11/21/2020   25,000    24,819    25,000    1.7%
NTM Acquisition Corp. (c) (i)  Media  L+6.25% (7.94%), 6/7/2022   18,681    18,490    18,587    1.2%
Office Depot, Inc. (j)  Specialty Retail  L+7.00% (8.41%), 11/8/2022   9,130    8,949    9,153    0.6%
Optiv, Inc. (j)  Business Services  L+3.25% (4.63%), 2/1/2024   4,455    4,229    4,160    0.3%
Orchid Underwriters Agency, LLC (c) (f) (i)  Insurance Broker  L+5.00% (6.31%), 3/17/2022   18,480    18,325    18,480    1.2%
ORG Chemical Holdings, LLC (c)(i) (m)  Chemicals  L+5.75% (7.44%), 6/30/2022   27,822    27,322    27,338    1.8%
ORG GC Holdings, LLC (c) (i) m)  Business Services  L+6.75% (8.08%), 7/31/2022   25,550    25,199    25,266    1.7%
Peabody Energy Corp. (j)  Metals & Mining  L+3.50% (5.07%), 3/31/2022   2,608    2,602    2,641    0.2%
PeopLease Holdings, LLC (c) (i)  Commercial Services & Supplies  L+9.00% (10.70%), 2/26/2021   20,000    19,872    15,000    1.0%
PetVet Care Centers, LLC (c) (i)  Business Services  L+6.00% (7.69%), 6/8/2023   19,454    19,296    19,386    1.3%
PetVet Care Centers, LLC (c) (f)  Business Services  L+6.00% (7.35%), 6/8/2023   4,425    4,425    4,409    0.3%
PetVet Care Centers, LLC (c) (f)  Business Services  L+6.00% (9.50%), 6/8/2023   1,676    1,676    1,676    0.1%
PGX Holdings, Inc. (c) (j)  Transportation Infrastructure  L+5.25% (6.82%), 9/29/2020   12,547    12,500    12,547    0.8%
Premier Dental Services, Inc. (i) (j)  Health Care  L+5.25% (6.82%), 6/30/2023   33,018    32,764    33,162    2.2%
Premier Global Services, Inc. (j)  Diversified Telecommunication Services  L+6.50% (7.83%), 12/8/2021   9,357    9,093    9,182    0.6%
Pre-Paid Legal Services, Inc. (c) (j)  Diversified Consumer Services  L+5.25% (6.82%), 7/1/2019   12,010    12,026    12,010    0.8%
Pride Plating, Inc. (c) (i)  Aerospace & Defense  L+5.50% (7.19%), 6/13/2019   8,376    8,351    8,293    0.6%
PSKW, LLC (c) (i)  Health Care Providers & Services  L+4.25% (5.94%), 11/25/2021   1,569    1,559    1,569    0.1%
PSKW, LLC (c) (m)  Health Care Providers & Services  L+8.26% (9.95%), 11/25/2021   17,750    17,518    17,750    1.2%
PSKW, LLC (c) (m)  Health Care Providers & Services  L+8.26% (9.95%), 11/25/2021   1,972    1,934    1,972    0.1%
PT Network, LLC (c) (f) (i)  Health Care  L+5.50% (6.86%), 11/30/2021   16,935    16,802    16,931    1.1%
Pure Barre, LLC (c) (i) (m)  Hotels, Restaurants & Leisure  L+7.00% (8.57%), 6/11/2020   25,698    25,478    25,441    1.7%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 27 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

Portfolio Company (q)  Industry 

Investment Coupon

Rate / Maturity (y)

 

Principal /

Number of

Shares

  

Amortized

Cost

   Fair Value  

% of Net

Assets (b)

 
Pure Barre, LLC (c) (f)  Hotels, Restaurants & Leisure  L+7.00% (8.57%), 6/11/2020  $500   $500   $495    —% 
Resco Products, Inc. (c) (i)  Metals & Mining  L+6.25% (7.82%), 3/7/2020   10,000    10,000    9,750    0.7%
Sage Automotive Holdings, Inc. (j)  Auto Components  L+5.00% (6.57%), 11/8/2022   18,461    18,321    18,576    1.2%
SHO Holding II Corporation (c) (j)  Specialty Retail  L+5.00% (6.42%), 10/27/2022   9,770    9,702    9,379    0.6%
Skillsoft Corp. (j)  Technology  L+4.75% (6.32%), 4/28/2021   12,829    12,158    12,325    0.8%
Squan Holding Corp. (c) (p)  Diversified Telecommunication Services  L+4.50% (6.20%), 10/10/2019   17,052    14,680    13,642    0.9%
SSH Group Holdings, Inc. (c) (i)  Diversified Consumer Services  L+5.00% (6.69%), 10/2/2024   6,088    6,029    6,027    0.4%
SunGard Availability Services Capital, Inc. (c) (j)  IT Services  L+10.00% (11.56%), 3/31/2019   6,860    6,842    6,688    0.5%
Tax Defense Network, LLC (c) (l) (t)  Diversified Consumer Services  L+13.00% (14.70%), 8/28/2019   29,670    26,532    7,477    0.5%
Thoughtworks, Inc. (j)  Business Services  L+4.50% (6.07%), 10/12/2024   4,420    4,409    4,420    0.3%
Tillamook Country Smoker, LLC (c) (f) (i)  Food Products  L+5.75% (7.19%), 5/19/2022   10,244    10,110    10,111    0.7%
Traverse Midstream Partners, LLC (j)  Energy Equipment & Services  L+4.00% (5.85%), 9/27/2024   6,352    6,321    6,435    0.4%
Trilogy International Partners, LLC (x)  Diversified Telecommunication Services  8.88%, 5/1/2022   14,875    14,810    15,247    1.0%
Trojan Battery Company, LLC (c) (j)  Auto Components  L+4.75% (6.32%), 6/12/2021   10,478    10,425    10,399    0.7%
Turning Tech LLC (c) (i)  Software  L+10.75% (12.45%), 6/30/2020   23,476    23,271    20,542    1.4%
Twenty Eighty, Inc. (c) (f) (l) (p)  Media  8.00%, 3/31/2020   6,291    4,535    4,719    0.3%
Twenty Eighty, Inc. (c) (f) (l) (p)  Media  L+8.00% (9.42%), 3/31/2020   2,911    2,426    2,853    0.2%
Twenty Eighty, Inc. (c) (f) (l) (p)  Media  9.00%, 3/31/2020   5,753    4,164    3,739    0.3%
United Central Industrial Supply Company, LLC (c) (i) (j)  Commercial Services & Supplies  L+7.25% (8.82%), 10/9/2018   8,504    8,483    7,943    0.5%
US Salt, LLC (c) (f) (i) (m)  Food Products  L+4.75% (6.11%), 12/1/2023   5,189    5,137    5,137    0.3%
VCVH Holding Corp. (c) (i) (j)  Health Care  L+5.00% (6.70%), 6/1/2023   22,875    22,801    23,081    1.5%
Veritas US Inc. (j)  Technology  L+4.50% (6.19%), 1/27/2023   15,018    15,061    15,044    1.0%
VetCor Professional Practices LLC (c) (f) (i)  Diversified Consumer Services  L+6.00% (7.69%), 4/20/2021   4,909    4,877    4,859    0.3%
VetCor Professional Practices LLC (c)  Diversified Consumer Services  L+6.00% (7.69%), 4/20/2021   2,569    2,569    2,543    0.2%
VetCor Professional Practices LLC (c) (i)  Diversified Consumer Services  L+6.00% (7.69%), 4/20/2021   9,750    9,696    9,653    0.7%
Von Drehle Corporation (c) (i) (m)  Life Sciences Tools & Services  L+7.50% (9.19%), 3/6/2023   26,549    26,167    26,220    1.8%
Xplornet Communications, Inc. (a) (j)  Diversified Telecommunication Services  L+4.75% (6.44%), 9/9/2021   13,127    13,051    13,242    0.9%
Sub Total Senior Secured First Lien Debt             $1,865,392   $1,776,534    118.8%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 28 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

Portfolio Company (q)  Industry 

Investment Coupon

Rate / Maturity (y)

 

Principal /

Number of

Shares

  

Amortized

Cost

   Fair Value  

% of Net

Assets (b)

 
Senior Secured Second Lien Debt - 16.0% (b)                          
Anchor Glass Container Corporation (c) (m)  Containers & Packaging  L+7.75% (9.18%), 12/7/2024  $20,000   $19,826   $20,060    1.3%
Answers Corporation (c) (p)  Technology  L+7.90% (9.00%), 9/15/2021   4,675    4,088    4,371    0.3%
Astro AB Merger Sub, Inc. (m)  Diversified Financial Services  L+7.50% (8.88%), 4/30/2023   7,758    7,758    7,777    0.5%
Boston Market Corporation (c) (m)  Hotels, Restaurants & Leisure  L+8.25% (9.73%), 12/16/2018   24,101    24,026    23,860    1.6%
BrandMuscle Holdings Inc. (c) (m)  Internet Software & Services  L+8.50% (9.84%), 6/1/2022   24,500    24,166    24,500    1.6%
Cayan Holdings (c) (m)  IT Services  L+8.50% (10.18%), 3/24/2022   20,000    19,673    20,000    1.3%
CDS U.S. Intermediate Holdings, Inc. (c) (m)  Hotels, Restaurants & Leisure  L+8.25% (9.94%), 7/8/2023   7,927    7,809    7,828    0.5%
CIG Financial, LLC (a) (c) (m)  Consumer Finance  10.50%, 6/30/2019   9,000    8,973    8,550    0.6%
CIG Financial, LLC (a) (c) (f)  Consumer Finance  10.50%, 6/30/2019   1,000    1,000    950    0.1%
CREDITCORP (x)  Consumer Finance  12.00%, 7/15/2018   13,250    13,238    11,925    0.8%
Epic Health Services, Inc. (c) (m)  Health Care Providers & Services  L+8.00% (9.57%), 3/17/2025   15,000    14,796    14,531    1.0%
Hertz Corp. (x)  Automobiles  7.63%, 6/1/2022   14,194    14,194    14,930    1.0%
PI US Holdco III Limited (c) (m)  Consumer Finance  L+7.25% (8.92%), 12/20/2025   6,696    6,629    6,629    0.4%
Recess Holdings, Inc. (c) (m)  Hotels, Restaurants & Leisure  L+3.75% (5.25%), 9/29/2025   13,008    12,816    12,813    0.9%
Rx30 HoldCo, Inc. (c) (m)  Health Care Technology  L+9.00% (10.35%), 6/15/2022   11,500    11,353    11,500    0.8%
Rx30 HoldCo, Inc. (c) (m)  Health Care Technology  L+9.00% (10.50%), 6/15/2022   1,229    1,204    1,229    0.1%
TierPoint, LLC (c) (m)  Technology  L+7.25% (8.82%), 5/5/2025   5,334    5,285    5,281    0.4%
U.S. Auto (c) (m)  Diversified Consumer Services  L+11.75% (13.12%), 6/8/2020   30,000    29,743    29,100    2.0%
US Salt, LLC (c) (m)  Food Products  L+8.75% (10.18%), 12/1/2024   12,872    12,681    12,679    0.8%
Sub Total Senior Secured Second Lien Debt             $239,258   $238,513    16.0%
                           
Subordinated Debt - 6.3% (b)                          
BMC Software Finance, Inc. (x)  Software  8.13%, 7/15/2021  $8,461   $8,422   $8,482    0.6%
Gold, Inc. (c) (m)  Textiles, Apparel & Luxury Goods  10.00%, 6/30/2019   3,742    3,670    3,312    0.2%
Frontier Communications (x)  Diversified Telecommunication Services  8.13%, 10/1/2018   5,500    5,494    5,479    0.4%
Frontier Communications (x)  Diversified Telecommunication Services  8.50%, 4/15/2020   10,000    9,143    8,300    0.5%
Park Ave RE Holdings, LLC (c) (d) (l) (o)  Real Estate Management & Development  L+8.00% (13.00%), 12/31/2021   37,192    37,192    37,192    2.5%
Steel City Media (c) (l)  Media  16.00%, 3/29/2020   23,661    23,461    20,585    1.4%
Xplornet Communications, Inc. (a) (l) (x)  Diversified Telecommunication Services  10.63%, 6/1/2022   10,534    10,534    10,989    0.7%
Sub Total Subordinated Debt             $97,916   $94,339    6.3%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 29 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

Portfolio Company (q)  Industry 

Investment Coupon

Rate / Maturity (y)

 

Principal /

Number of

Shares

  

Amortized

Cost

   Fair Value  

% of Net

Assets (b)

 
                       
Collateralized Securities - 10.7% (b)                          
Collateralized Securities - Debt Investment                          
NewStar Exeter Fund CLO - Debt (a) (c) (p)  Diversified Investment Vehicles  L+7.50% (8.86%), 1/19/2027  $10,728   $9,262   $8,660    0.6%
Collateralized Securities - Equity Investment (n)                          
B&M CLO 2014-1, LTD. Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles   0.00%, 4/16/2026  $40,250   $15,385   $12,804    0.8%
CVP Cascade CLO, LTD. Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles   0.00%, 1/16/2026   31,000    7,618    4,121    0.3%
Figueroa CLO 2014-1, LTD. Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles   0.00%, 1/15/2027   35,057    16,421    12,508    0.8%
MidOcean Credit CLO II, LLC Income Notes (a) (c) (p) (v)  Diversified Investment Vehicles   15.75%, 1/29/2025   37,600    20,876    20,651    1.4%
MidOcean Credit CLO III, LLC Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles   1.31%, 7/21/2026   40,250    20,323    17,508    1.2%
MidOcean Credit CLO IV, LLC Income Notes (a) (c) (p) (v)  Diversified Investment Vehicles   1.44%, 4/15/2027   21,500    13,289    12,212    0.8%
NewStar Arlington Senior Loan Program LLC Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles  12.62%, 7/25/2025   31,603    21,849    25,439    1.7%
NewStar Exeter Fund CLO - Equity (a) (c) (p) (v)  Diversified Investment Vehicles   3.45%, 1/19/2027   31,575    19,471    13,089    0.9%
OFSI Fund VI, Ltd. Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles   0.00%, 3/20/2025   38,000    14,006    10,162    0.7%
 Related Fee Agreements (a) (c) (s)  Diversified Investment Vehicles           6,959    3,917    0.2%
Silver Spring CLO, Ltd. Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles   0.00%, 10/16/2026   31,500    15,123    10,363    0.7%
WhiteHorse VIII, Ltd. CLO Subordinated Notes (a) (c) (p) (v)  Diversified Investment Vehicles   10.03%, 5/1/2026   36,000    12,947    8,761    0.6%
Sub Total Collateralized Securities             $193,529   $160,195    10.7%
                           
Equity/Other - 15.7% (b)                          
Answers Corporation – Common Equity (c) (e) (p)  Technology      909   $11,361   $14,231    1.0%
Avaya Holdings Corp. (e) (x)  Communications Equipment      611    9,696    10,716    0.7%
Basho Technologies, Inc. - Series G Senior Participating Preferred Stock Warrant (c) (e)  Software  Expire 3/9/2025   306,122    —    —    —%
Basho Technologies, Inc. - Series G Senior Preferred Stock (c) (e)  Software      2,040,816    2,000    —    —%
California Resources Development JV, LLC - Preferred Equity (c) (u)  Metals & Mining  9.00%   26,717,000    26,183    26,984    1.8%
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (c) (e) (o)  Food Products      6,023    1,630    —    —%
Capstone Nutrition - Class B and C Common Stock (fka Integrity Nutraceuticals, Inc.) (c) (e) (o) (u)  Food Products      24,656    —    —    —%
Danish CRJ LTD. - Common Equity (a) (c) (e) (p) (r)  Aerospace & Defense      10,000    1    605    —%
Evolution Research Group - Preferred Equity (c) (e)  Health Care Providers & Services  8.00%   500,000    500    535    —% 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 30 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

Portfolio Company (q)  Industry 

Investment Coupon

Rate / Maturity (y)

 

Principal /

Number of

Shares

  

Amortized

Cost

   Fair Value  

% of Net

Assets (b)

 
                       
Greenwave Holdings, Inc. - Series C Preferred Stock Warrant (c) (e)  Internet Software & Services  Expire 8/16/2025   172,414   $—   $—    —%
Kahala Ireland OpCo Designated Activity Company - Common Equity (a) (c) (e) (h) (o)  Aerospace & Defense      137    —    11,709    0.8%
Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (a) (c) (e) (h) (o)  Aerospace & Defense      3,250,000    2,851    3,250    0.2%
Kahala US OpCo LLC - Class A Preferred Units (c) (e) (k) (o)  Aerospace & Defense  13.00%   4,413,472    —    —    —%
Mood Media Corporation - Warrants (c) (e)  Business Services      121,021    27    47    —%
New Star Metals Inc. - Warrants (c) (e)  Business Services  Expire 12/22/2036   100,216    151    272    —%
NexSteppe Inc. - Series C Preferred Stock Warrant (c) (e)  Chemicals      237,240    737    —    —%
NMFC Senior Loan Program I, LLC (a) (p)  Diversified Investment Vehicles      50,000    50,000    50,805    3.4%
Orchid Underwriters Agency, LLC - Preferred Shares (c) (e) (u)  Insurance Broker      5,000    113    616    —%
Orchid Underwriters Agency, LLC - Common Shares (c) (e) (u)  Insurance Broker      5,000    —    —    —%
Park Ave RE Holdings, LLC - Common Shares (c) (e) (o) (w)  Real Estate Management & Development      1,000    —    12,678    0.8%
Park Ave RE Holdings, LLC - Preferred Shares (c) (e) (o) (w)  Real Estate Management & Development  8.00%   47,290    23,645    23,645    1.6%
PennantPark Credit Opportunities Fund II, LP (a) (f) (g) (p)  Diversified Investment Vehicles      9,952    9,952    10,136    0.7%
South Grand MM CLO I, LLC (a) (f) (p)  Diversified Investment Vehicles      29,524    29,095    28,904    2.0%
Squan Holding Corp. - Class A Common Stock (c) (e) (p)  Diversified Telecommunication Services      180,835    —    —    —%
Squan Holding Corp. - Series A Preferred Stock (c) (e) (p)  Diversified Telecommunication Services      8,962    —    60    —%
Tax Defense Network, LLC - Common Equity (c) (e)  Diversified Consumer Services      106,346    425    —    —%
Tennenbaum Waterman Fund, L.P. (a)  Diversified Investment Vehicles      10,000    10,000    10,427    0.7%
TCG BDC, Inc. - Common Stock (fka Carlyle GMS Finance, Inc.) (a) (x)  Diversified Investment Vehicles      404,899    7,765    7,843    0.5%
The SAVO Group, Ltd. - Warrants (c) (e)  Internet Software & Services  Expire 3/23/2023   138,000    —    —    —%
THL Credit Greenway Fund II LLC (a) (p)  Diversified Investment Vehicles      12,141    12,141    11,373    0.9%
Twentyeighty, Inc. - Class A Common Equity (c) (e)  Media      54,586    —    —    —%
TZ Holdings, Inc. - Warrants (fka Zimbra, Inc.) (c) (e)  Software      —    —    —    —%
TZ Holdings, Inc. - Preferred Shares (fka Zimbra, Inc.) (c) (e)  Software      1,000,000    10    179    —%
U.S. Auto - Series A Common Units (c) (e) (u)  Diversified Consumer Services      10,000    10    —    —%
U.S. Auto - Series A Preferred Units (c) (e) (u)  Diversified Consumer Services      490    490    513    —%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 31 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

Portfolio Company (q)  Industry 

Investment Coupon

Rate / Maturity (y)

 

Principal /

Number of

Shares

  

Amortized

Cost

   Fair Value  

% of Net

Assets (b)

 
                       
World Business Lenders, LLC - Preferred Stock (c) (e)  Consumer Finance      922,669   $3,750   $3,759    0.3%
Xplornet Communications, Inc. - Warrants (a) (c) (e)  Diversified Telecommunication Services  Expire 10/25/2023   10,284    —    4,655    0.3%
Sub Total Equity/Other             $202,533   $233,942    15.7%
TOTAL INVESTMENTS - 167.5% (b)             $2,598,628   $2,503,523    167.5%

 

 

(a)All of the Company's investments, except the investments noted by this footnote, are qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (the "1940 Act"). Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of our total assets. Qualifying assets represent 73.8% of the Company's total assets. The significant majority of all investments held are deemed to be illiquid.
(b)Percentages are based on net assets of $1,494,516 as of December 31, 2017.
(c)The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's board of directors as required by the 1940 Act. Such investments are valued using significant unobservable inputs (See Note 3 to the consolidated financial statements).
(d)As of the date of election, the portfolio company elected to pay cash interest, noting the company has the option to elect a portion of the interest to be payment-in-kind (“PIK”).
(e)Non-income producing at December 31, 2017.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 32 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

(f)The Company has various unfunded commitments to portfolio companies. The remaining amount of these unfunded commitments as of December 31, 2017 are comprised of the following:

 

Portfolio Company Name  Investment Type  Commitment Type 

Original

Commitment

  

Remaining

Commitment

 
AMI Entertainment Network, LLC  Senior Secured First Lien Debt  Revolver term loan  $1,234   $1,234 
Amteck, LLC  Senior Secured First Lien Debt  Revolver term loan   5,000    5,000 
AqGen Ascensus, Inc.  Senior Secured First Lien Debt  Delayed draw term loan   5,000    1,667 
Berner Food & Beverage LLC  Senior Secured First Lien Debt  Delayed draw term loan   2,693    2,693 
Black Mountain Sand LLC  Senior Secured First Lien Debt  Delayed draw term loan   13,050    13,050 
CCW, LLC  Senior Secured First Lien Debt  Revolver term loan   3,000    600 
CIG Financial, LLC  Senior Secured Second Lien Debt  Delayed draw term loan   5,000    4,000 
ERG Holding Company  Senior Secured First Lien Debt  Delayed draw term loan   263    136 
ERG Holding Company  Senior Secured First Lien Debt  Revolver term loan   87    78 
Ideal Tridon Holdings, Inc.  Senior Secured First Lien Debt  Revolver term loan   2,731    2,185 
InMotion Entertainment Group, LLC  Senior Secured First Lien Debt  Delayed draw term loan   2,200    1,843 
Lakeland Tours, LLC  Senior Secured First Lien Debt  Delayed draw term loan   464    464 
Midwest Can Company, LLC  Senior Secured First Lien Debt  Delayed draw term loan   828    828 
Motion Recruitment Partners, LLC  Senior Secured First Lien Debt  Revolver term loan   2,000    2,000 
NexSteppe Inc.  Senior Secured First Lien Debt  Delayed draw term loan   2,825    250 
Orchid Underwriters Agency, LLC  Senior Secured First Lien Debt  Revolver term loan   2,200    2,200 
PennantPark Credit Opportunities Fund II, LP  Equity/Other  Equity capital commitment   10,764    538 
PetVet Care Centers, LLC  Senior Secured First Lien Debt  Delayed draw term loan   6,704    2,272 
PT Network, LLC  Senior Secured First Lien Debt  Delayed draw term loan   6,579    6,579 
PT Network, LLC  Senior Secured First Lien Debt  Revolver term loan   1,316    1,316 
Pure Barre, LLC  Senior Secured First Lien Debt  Revolver term loan   2,500    2,000 
South Grand MM CLO I, LLC  Equity/Other  Equity capital commitment   35,000    5,476 
Tillamook Country Smoker, LLC  Senior Secured First Lien Debt  Revolver term loan   2,696    2,696 
Twentyeighty, Inc.  Senior Secured First Lien Debt  Revolver term loan   442    442 
US Salt, LLC  Senior Secured First Lien Debt  Delayed draw term loan   1,297    1,297 
VetCor Professional Practices LLC  Senior Secured First Lien Debt  Delayed draw term loan   3,656    3,656 
Total        $119,529   $64,500 

 

(g)The investment is subject to a three year lock-up restriction on withdrawals in year 4.
(h)The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala LuxCo, which own 100% of the equity of the operating company, Kahala Ireland OpCo Designated Activity Company.
(i)The Company's investment or a portion thereof is pledged as collateral under the Wells Fargo Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.
(j)The Company's investment or a portion thereof is pledged as collateral under the Citi Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.
(k)The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala Aviation US, Inc. which own 100% of the equity of the operating company, Kahala US OpCo LLC.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 33 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

(l)For the year ended December 31, 2017, the following investments paid or have the option to pay all or a portion of interest and dividends via payment-in- kind (“PIK”):

 

Portfolio Company  Investment Type  Cash   PIK   All-in Rate  

PIK Earned for the

Year ended

December 31, 2017

 
Basho Technologies, Inc.  Senior Secured First Lien Debt   17.00%   —%   17.00%  $— 
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.)  Senior Secured First Lien Debt   —%   13.88%   13.88%   — 
Greenwave Holdings, Inc.  Senior Secured First Lien Debt   10.00%   3.00%   13.00%   476 
ILC Dover LP  Senior Secured First Lien Debt   8.24%   2.00%   10.24%   214 
Kahala Ireland OpCo Designated Activity Company  Senior Secured First Lien Debt   —%   13.00%   13.00%   141 
Lightsquared LP  Senior Secured First Lien Debt   —%   10.27%   10.27%   1,069 
MMM Holdings, LLC  Senior Secured First Lien Debt   10.32%   —%   10.32%   — 
MSO of Puerto Rico, LLC  Senior Secured First Lien Debt   10.32%   —%   10.32%   — 
New Star Metals Inc.  Senior Secured First Lien Debt   11.00%   —%   11.00%   — 
NexSteppe Inc.  Senior Secured First Lien Debt   —%   12.00%   12.00%   135 
Park Ave RE Holdings, LLC  Subordinated Debt   13.00%   —%   13.00%   — 
Steel City Media  Subordinated Debt   —%   16.00%   16.00%   2,243 
Tax Defense Network, LLC  Senior Secured First Lien Debt   —%   14.70%   14.70%   266 
Twentyeighty, Inc.  Senior Secured First Lien Debt   4.92%   4.50%   9.42%   108 
Twentyeighty, Inc.  Senior Secured First Lien Debt   1.00%   7.00%   8.00%   390 
Twentyeighty, Inc.  Senior Secured First Lien Debt   0.25%   8.75%   9.00%   441 
Xplornet Communications, Inc.  Subordinated Debt   —%   13.00%   13.00%   946 
Xplornet Communications, Inc.  Subordinated Debt   —%   10.63%   10.63%   534 
Total                    $6,963 

 

(m)The Company's investment or a portion thereof is pledged as collateral under the UBS Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.
(n)For equity investments in Collateralized Securities, the effective yield is presented in place of the investment coupon rate for each investment. Refer to footnote (v) for a further description of an equity investment in a Collateralized Security.
(o)The provisions of the 1940 Act classify investments based on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be "non-controlled" when we own 25% or less of the portfolio company's voting securities and "controlled" when we own more than 25% of the portfolio company's voting securities. The Company classifies this investment as "controlled".
(p)The provisions of the 1940 Act classify investments further based on the level of ownership that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as "non-affiliated" when we own less than 5% of a portfolio company's voting securities and "affiliated" when we own 5% or more of a portfolio company's voting securities. The Company classifies this investment as "affiliated".
(q)Unless otherwise indicated, all investments in the schedule of investments are non-affiliated, non-controlled investments.
(r)The Company's investment is held through the Consolidated Holding Company, Kahala Aviation Holdings, LLC, which owns 49% of the operating company, Danish CRJ LTD.
(s)Related Fee Agreements consist of four investments with a total fair value of $3.9 million that are classified as Affiliated Investments.
(t)The investment is on non-accrual status as of December 31, 2017.
(u)Investments are held in the taxable wholly-owned, consolidated subsidiary, 54th Street Equity Holdings, Inc.
(v)The Collateralized Securities - subordinated notes are treated as equity investments and are entitled to recurring distributions which are generally equal to the remaining cash flow of the payments made by the underlying fund’s securities less contractual payments to debt holders and fund expenses. The estimated yield indicated is based upon a current projection of the amount and timing of these recurring distributions and the estimated amount of repayment of principal upon termination. Such projections are periodically reviewed and adjusted, and the estimated yield may not ultimately be realized.
(w)The Company's investment is held through the consolidated subsidiary, Park Ave RE, Inc., which owns 100% of the equity of the operating company, Park Ave RE Holdings, LLC.
(x)The Company's investment or a portion thereof is pledged as collateral under the JPMC PB Account. Individual investments can be divided into parts which are pledged to separate credit facilities.
(y)The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate ("LIBOR" or "L") or Prime ("P") and which reset daily, monthly, quarterly or semiannually. For each, the Company has provided the spread over LIBOR or Prime and the current interest rate in effect at December 31, 2017. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate loans, a spread above a reference rate is not applicable.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 34 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

CONSOLIDATED SCHEDULES OF INVESTMENTS

(dollars in thousands)

 

December 31, 2017

 

The following table shows the portfolio composition by industry grouping based on fair value at December 31, 2017:

 

   At December 31, 2017 
  

Investments at

Fair Value

  

Percentage of

Total Portfolio

 
Diversified Investment Vehicles  $279,683    11.2%
Business Services   197,181    7.9 
Aerospace & Defense   165,406    6.6 
Hotels, Restaurants & Leisure   149,551    6.0 
Health Care   148,156    5.9 
Diversified Telecommunication Services   125,997    5.0 
Health Care Providers & Services   121,732    4.9 
Diversified Consumer Services   116,717    4.7 
Commercial Services & Supplies   116,524    4.6 
Technology   97,471    3.9 
Media   95,534    3.8 
Food Products   84,966    3.4 
Energy Equipment & Services   84,496    3.4 
Internet Software & Services   74,129    3.0 
Real Estate Management & Development   73,515    2.9 
Metals & Mining   68,738    2.6 
Chemicals   56,121    2.2 
Professional Services   46,972    1.9 
Communications Equipment   44,658    1.8 
Software   36,903    1.5 
Gaming/Lodging   33,823    1.3 
Specialty Retail   32,202    1.3 
Consumer Finance   31,813    1.3 
Diversified Financial Services   31,736    1.3 
Auto Components   28,975    1.2 
Transportation Infrastructure   27,423    1.1 
IT Services   26,688    1.1 
Life Sciences Tools & Services   26,220    1.0 
Containers & Packaging   20,060    0.8 
Insurance   19,096    0.8 
Automobiles   14,930    0.6 
Health Care Technology   12,729    0.5 
Electronic Equipment, Instruments & Components   10,066    0.4 
Textiles, Apparel & Luxury Goods   3,312    0.1 
Total  $2,503,523    100.0%

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 35 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

Note 1 — Organization and Basis of Presentation

 

Business Development Corporation of America (the “Company”) is an externally managed, non-diversified closed-end management investment company incorporated in Maryland in May 2010 that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“the 1940 Act”). In addition, the Company has elected to be treated for tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s investment activities are managed by BDCA Adviser, LLC (the “Adviser”), a subsidiary of Benefit Street Partners L.L.C. (“BSP”) and supervised by the Company’s board of directors, a majority of whom are independent of the Adviser and its affiliates. As a BDC, the Company is required to comply with certain regulatory requirements.

 

On April 3, 2018, BSP, through its affiliate BSP TCAP Acquisition Holdings LP (the “Acquisition Entity”), entered into an Asset Purchase Agreement (the “APA”) with Triangle Capital Corporation (“Triangle”) under which certain funds advised by BSP agreed to acquire Triangle’s Investment Portfolio (the “Triangle Portfolio”) for $981.2 million in cash, as adjusted in accordance with the terms of the APA (the “Triangle Transaction”). The Company’s Adviser is an affiliate of BSP, and the Company participated in the Triangle Transaction by purchasing a portion of the Triangle Portfolio, facilitated through the Acquisition Entity.

 

On July 31, 2018, BSP completed the Triangle Transaction. The gross cash proceeds paid to Triangle were approximately $793.3 million, after adjustments to take into account portfolio activity and other matters occurring since December 31, 2017. In accordance with BSP’s allocation policy, the Company acquired approximately 24% of the assets in the Triangle Portfolio for an aggregate purchase price of $188.1 million. The final allocation of the investments in the Triangle Portfolio by BSP was based on a number of factors, including, among others, our available capital at the time of allocation, changes in the composition of the Triangle Portfolio between the signing of the APA and the closing of the Triangle Transaction, the suitability of the investments in Triangle’s Portfolio for the Company as compared to the other funds managed by BSP, regulatory guidance regarding the allocation of certain Triangle Portfolio assets between funds managed by BSP and changes in the relative size of the funds managed by BSP.

 

The Company accounted for the Triangle Transaction under the accounting and reporting guidance within ASC Topic 805, Business Combinations (“ASC 805”). The Company concluded that the Triangle Transaction should be accounted for as an asset acquisition and no further considerations or disclosures required for a business combination under ASC 805 are warranted.

 

The Company incurred approximately $0.4 million of transaction-related expenses related to the Triangle Transaction. Transaction-related expenses were comprised primarily of legal, other professional fees and third party costs. These costs were capitalized by the Company as part of the transaction and allocated to the individual assets acquired.

 

The Company’s investment objective is to generate both current income and to a lesser extent long-term capital appreciation through debt and equity investments. The Company invests primarily in first and second lien senior secured loans and mezzanine debt issued by middle market companies. The Company defines middle market companies as those with annual revenues up to $1 billion. The Company also purchases interests in loans through secondary market transactions. First and second lien secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in bankruptcy priority and are generally secured by liens on the operating assets of a borrower, which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. The Company may invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles (“Collateralized Securities” or "CLOs"). CLOs are entities that are formed to manage a portfolio of senior secured loans made to companies whose debt is typically rated below investment grade or, in limited circumstances, unrated. The senior secured loans within these Collateralized Securities meet specified credit and diversity criteria and are subject to concentration limitations in order to create a diverse investment portfolio. In most cases, companies to whom we provide customized financing solutions will be privately held at the time the Company invests in them.

 

During the nine months ended September 30, 2018, the Company invested approximately $909.8 million to portfolio companies to contribute to the support of their business objectives of which some were contractually obligated. See Note 7 - Commitments and Contingencies. As of September 30, 2018, the Company held investments in loans it made to investee companies with aggregate principal amounts of $2,304.1 million. The details of such investments have been disclosed on the consolidated schedule of investments as well as in Note 3 - Fair Value of Financial Instruments. In addition to providing loans to investee companies, from time to time the Company may assist investee companies in securing financing from other sources by introducing such investee companies to sponsors or other lending institutions.

 

 36 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

While the structure of the Company’s investments is likely to vary, we may invest in senior secured debt, senior unsecured debt, subordinated secured debt, subordinated unsecured debt, mezzanine debt, convertible debt, convertible preferred equity, preferred equity, common equity, warrants, CLOs and other instruments, many of which generate current yields. If the Adviser deems appropriate, the Company may invest in more liquid senior secured and second lien debt securities, some of which may be traded. The Company will make such investments to the extent allowed by the 1940 Act and consistent with its continued qualification as a RIC for federal income tax purposes.

 

On January 25, 2011, the Company commenced its initial public offering (the “IPO”) on a “reasonable best efforts basis” of up to 150.0 million shares of common stock, $0.001 par value per share, and subsequently amended the offering to issue up to an additional 101.1 million shares of its common stock (the “Offering”). The Company closed the Offering to new investments on April 30, 2015. As of September 30, 2018, the Company had issued 199.4 million shares of common stock for gross proceeds of $2.1 billion including the shares purchased by affiliates and shares issued under the Company's distribution reinvestment plan (“DRIP”). As of September 30, 2018, the Company had repurchased a cumulative 21.2 million shares of common stock through its share repurchase program for payments of $185.9 million.

 

The Company intends to co-invest, subject to the conditions included in the exemptive order the Company received from the Securities and Exchange Commission ("SEC"), with certain of our affiliates. The Company believes that such co-investments may afford it additional investment opportunities and an ability to achieve greater diversification.

 

As a BDC, the Company is generally required to invest at least 70% of our total assets primarily in securities of private and certain U.S. public companies (other than certain financial institutions), cash, cash equivalents and U.S. government securities and other high quality debt investments that mature in one year or less.

 

The Company is permitted to borrow money from time to time within the levels permitted by the 1940 Act (which generally currently allows it to incur leverage for up to one half of its total assets). The Company has used, and expects to continue to use, its credit facilities and other borrowings, along with proceeds from the rotation of its portfolio and proceeds from private securities offerings to finance its investment objectives.

 

Although Congress passed the Small Business Credit Availability Act (the “SBCAA”) on March 23, 2018, which amended the 1940 Act to permit BDCs to incur increased leverage if certain conditions are met, we do not presently intend to avail ourselves of the increased leverage limits permitted by the SBCAA. If we were to avail ourselves of the increased leverage permitted by the SBCAA, this would effectively allow the Company to double its leverage, which would increase leverage risk and expenses.

 

Note 2 — Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The consolidated financial statements reflect all adjustments, both normal and recurring which, in the opinion of management, are necessary of the fair presentation of the Company’s results of operations and financial condition for the periods presented. The Company is an investment company and follows accounting and reporting guidance in Accounting Standards Codification ("ASC") Topic 946 - Financial Services - Investment Companies ("ASC 946").

 

The Company consolidates the following subsidiaries for accounting purposes: BDCA Funding I, LLC (“Funding I”), BDCA-CB Funding, LLC (“CB Funding”), BDCA Helvetica Funding, Ltd. (“Helvetica Funding”), 54th Street Equity Holdings, Inc. and the Consolidated Holding Companies. All significant intercompany balances and transactions have been eliminated in consolidation. In conjunction with the consolidation of subsidiaries, the Company recognizes non-controlling interests attributable to third party ownership in the following Consolidated Holding Companies: Kahala Aviation Holdings, LLC, Kahala Aviation US, Inc., and Kahala LuxCo.

 

 37 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

Interim financial statements are prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. Accordingly, the consolidated financial statements may not include all of the information and notes required by U.S. GAAP for annual consolidated financial statements. U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending on December 31, 2018.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Consolidation

 

As provided under Regulation S-X and ASC 946, the Company will generally not consolidate its investment in a company other than a substantially wholly-owned investment company or controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the accounts of the Company's substantially wholly-owned subsidiaries in its consolidated financial statements.

 

Valuation of Portfolio Investments

 

Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. On a quarterly basis, the Company performs an analysis of each investment to determine fair value as follows:

 

Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is readily available according to U.S. GAAP to determine the fair value of the security. If determined readily available, the Company uses the quote obtained.

 

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. 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 amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that 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, 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, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

 

With respect to investments for which market quotations are not readily available, the Adviser undertakes a multi-step valuation process each quarter, as described below:

 

•Each portfolio company or investment will be valued by the Adviser, with assistance from one or more independent valuation firms engaged by our board of directors or as noted below, with respect to investments in an investment fund;
•The independent valuation firm(s) conduct independent appraisals and make an independent assessment of the value of each investment; and
•The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser and independent valuation firm (to the extent applicable).

 

 38 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC 946, as of the Company's measurement date. However, there can be no assurance that we will be able to sell such investment at a price equal to its net asset value per share and we may ultimately sell such investment at a discount to its net asset value per share.

 

The Company’s investments in funds that offer periodic liquidity have redemption frequencies which range from monthly to quarterly and redemption notice periods which range from 30 to 90 days. Investments in private equity typically do not offer liquidity and instead, capital is returned through periodic distributions.

 

Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by its board of directors, as described herein. 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 fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.

 

Investment Classification

 

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control” is defined as the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. In addition, any person “who owns beneficially, either directly or through one or more controlled companies, more than 25% of the voting securities of a company shall be presumed to control such company. Typically, any person who does not so own more than 25% of the voting securities of any company shall be presumed not to control such company”. Consistent with the 1940 Act, “Affiliated Investments” are defined as those investments in companies in which the Company owns 5% or more of the voting securities. Consistent with the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments.

 

Where appropriate, prior period consolidated financial statements may have been reclassified to disclose the Company's Control Investments and Affiliate Investments as defined above. In addition, prior period consolidated financial statements may have been reclassified to present investment industry classifications in a consistent manner with the current year.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include short-term, liquid investments in a money market deposit account. Cash and cash equivalents are carried at cost which approximates fair value.

 

Offering Costs

 

The Company incurs certain costs in connection with the registration of shares of its common stock. Offering costs principally relate to professional fees, printing costs, direct marketing expenses, due diligence costs, fees paid to regulators and other expenses, including the salaries and/or expenses of the Adviser and its affiliates engaged in registering and marketing the Company’s common stock. Such allocated expenses of the Adviser and its affiliates may include the development of marketing materials and presentations, training and educational meetings, and generally coordinating the marketing process for the Company.

 

Pursuant to the Investment Advisory Agreement, the Company and the Adviser have agreed that the Company will not be liable for organization and offering costs, including transfer agent fees, in excess of 1.5% of the aggregate gross proceeds from the Company’s on-going offering. Should the Company resume continually offering its shares, any offering costs incurred will be capitalized and amortized as an expense on a straight-line basis over a 12-month period. For the period ended September 30, 2018 and December 31, 2017, the Company did not incur any offering costs.

 

 39 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

Deferred Financing Costs

 

Financing costs incurred in connection with the Company’s unsecured notes and revolving credit facilities with Wells Fargo, Citi, and UBS are capitalized and amortized into expense using the straight-line method, which approximates the effective yield method over the life of the respective facility. See Note 5 - Borrowings for details on the Credit Facilities and unsecured notes.

 

Distributions

 

The Company’s board of directors has authorized, and has declared, cash distributions payable on a monthly basis to stockholders of record on each day since it commenced operations. From November 2013 until July 2017, the distribution rate has been $0.002378082 per day, which is equivalent to $0.868 per annum, per share of common stock, except for 2016 where the daily distribution rate was $0.002371585 per day to accurately reflect 2016 being a leap year. In July 2017, the board of directors reduced the distribution rate with respect to the Company's cash distributions to $0.001780822 per day, which is equivalent to

$0.65 annually, per share of common stock.

 

The amount of each such distribution is subject to the discretion of the board of directors and applicable legal restrictions related to the payment of distributions. The Company calculates each stockholder’s specific distribution amount for the month using record and declaration dates and accrue distributions on the date the Company accepts a subscription for shares of the Company’s common stock. The distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month. From time to time, the Company may also pay interim distributions, including capital gains distributions, at the discretion of the Company’s board of directors. The Company’s distributions may exceed earnings, especially during the period before it has substantially invested the proceeds from the offering. As a result, a portion of the distributions made by the Company may represent a return of capital for U.S. federal income tax purposes. A return of capital is a return of each stockholder’s investment rather than earnings or gains derived from the Company’s investment activities.

 

The Company may fund cash distributions to stockholders from any sources of funds available to the Company, including advances from the Adviser that are subject to reimbursement, as well as offering proceeds, borrowings, net investment income from operations, capital gain proceeds from the sale of assets, and non-capital gain proceeds from the sale of assets. The Company has not established limits on the amount of funds it may use from available sources to make distributions. See Note 13 - Income Tax Information and Distributions to Stockholders for additional information.

 

Revenue Recognition

 

Interest Income

 

Investment transactions are accounted for on the trade date. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discount and premium on investments purchased are accreted/amortized over the expected life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discount and amortization of premium on investments.

 

The Company has a number of investments in Collateralized Securities. Interest income from investments in the “equity” class of these Collateralized Securities (in the Company's case, preferred shares or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40-35, Beneficial Interests in Securitized Financial Assets ("ASC 325-40-35"). The Company monitors the expected cash inflows from its equity investments in Collateralized Securities, including the expected principal repayments. The effective yield is determined and updated quarterly. In accordance with ASC 325-40, investments in CLOs are periodically assessed for other-than-temporary impairment ("OTTI"). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss.

 

 40 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

Fee Income

 

Fee income, such as structuring fees, origination, closing, amendment fees, commitment, termination and other upfront fees are generally non-recurring and are recognized as revenue when earned, either upon receipt or amortized into income. Upon the re-payment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment and other upfront fees are recorded as income.

 

Payment-in-Kind Interest/Dividends

 

The Company holds debt and equity investments in its portfolio that contain payment-in-kind (“PIK”) interest and dividend provisions. The PIK interest and PIK dividend, which represent contractually deferred interest or dividends that add to the investment balance that is generally due at maturity, are generally recorded on the accrual basis.

 

Non-accrual income

 

Investments may be placed on non-accrual status when principal or interest/dividend payments are past due 30 days or more and/or when there is reasonable doubt that principal or interest will be collected. Accrued interest which may include un-capitalized PIK interest is generally reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non- accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

 

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

 

Gains or losses on the sale of investments are calculated using the specific identification method. 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, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

 

Income Taxes

 

The Company has elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. Generally, a RIC is not subject to federal income taxes in respect of each taxable year if it distributes dividends for federal income tax purposes to stockholders of an amount generally equal to at least 90% of ‘‘investment company taxable income,’’ as defined in the Code, and determined without regard to any deduction for dividends paid. Distributions declared prior to the filing of the previous year's tax return and paid up to twelve months after the previous tax year can be carried back to the prior tax year in determining the distributions paid in such tax year. The Company intends to make sufficient distributions to maintain its ability to be subject to be taxed as a RIC each year. The Company may be subject to federal excise tax imposed at a rate of 4% on certain undistributed amounts. See Note 13 - Income Tax Information and Distributions to Stockholders for additional information.

 

New Accounting Pronouncements

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) which introduces new fair value disclosure requirements as well as eliminates and modifies certain existing fair value disclosure requirements. ASU 2018-13 would be effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is evaluating the impact of ASU 2018-13 on its consolidated financial statements.

 

In August 2018, the SEC released its Final Rule on Disclosure Update and Simplification (the “Final Rule”) which is intended to simplify an issuer’s disclosure compliance efforts by removing redundant or outdated disclosure requirements without significantly altering the mix of information provided to investors. The Company will adopt the Final Rule in the next reporting period with the most notable impacts being that the Company is no longer required to present the components of distributable earnings on the Consolidated Statements of Assets and Liabilities or the sources of distributions to shareholders and the amount of undistributed net investment income on the Consolidated Statements of Changes in Net Assets.

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”, which seeks to reduce diversity in how certain cash payments are presented in the Statement of Cash Flows. Under ASU 2016-15, an entity will need to conform to the presentation as prescribed for eight specific cash flow issues. ASU 2016-15 is effective for annual and interim reporting periods after December 15, 2017. The Company has evaluated the impact of ASU 2016-15 on its consolidated financial statements and disclosures and determined that the adoption of ASU 2016-15 has not had a material impact on its consolidated financial statements.

 

 41 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

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

 

In October 2016, the SEC adopted new rules and amended rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X was August 1, 2017. The application of this guidance did not have a material impact on the Company's consolidated financial statements.

 

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606 "Identifying Performance Obligations and Licensing"),” which amends the criteria for revenue recognition where an entity enters into contracts with customers to transfer goods or services or where there is a transfer of non-financial assets. Under ASU 2016-10, an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company has evaluated the impact of ASU 2016-10 on its consolidated financial statements and disclosures and determined that the adoption of ASU 2016-10 has not had a material impact on its consolidated financial statements.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. The Company has evaluated the impact of ASU 2016-01 on its consolidated financial statements and disclosures and determined that the adoption of ASU 2016-01 has not had a material impact on its consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s consolidated financial statements.

 

Note 3 — Fair Value of Financial Instruments

 

The Company’s fair value measurements are classified into a fair value hierarchy in accordance with ASC Topic 820, Fair Value Measurement, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. This alternative approach also reflects the contractual terms of the derivatives, if any, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The guidance defines three levels of inputs that may be used to measure fair value:

 

•Level 1—Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
•Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
•Level 3—Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

 

 42 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.

 

For investments for which Level 1 inputs, such as quoted prices, were not available at September 30, 2018, the investments were valued at fair value as determined in good faith using the valuation policy approved by the board of directors using Level 2 and Level 3 inputs. The Company evaluates the source of inputs, including any markets in which the Company's investments are trading, in determining fair value. Due to the inherent uncertainty in the valuation process, the estimate of fair value of the Company’s investment portfolio at September 30, 2018 may differ materially from values that would have been used had a ready market for the securities existed.

 

In addition to using the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the board of directors. Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. On a quarterly basis the Company performs an analysis of each investment to determine fair value as described below.

 

Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is readily available according to U.S. GAAP to determine the fair value of the security. If determined readily available, the Company uses the quote obtained.

 

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. 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 amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that 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, 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, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

 

For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC Topic 946, as of the Company's measurement date.

 

For investments in Collateralized Securities, the Adviser models both the assets and liabilities of each Collateralized Securities' capital structure. The model uses a waterfall engine to store the collateral data, generate cash flows from the assets, and distribute the cash flows to the liability structure based on priority of payments. The cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, the Adviser considers broker quotations and/or comparable trade activity is considered as an input to determining fair value when available.

 

As part of the Company's quarterly valuation process, the Adviser may be assisted by one or more independent valuation firms engaged by the Company. The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser and the independent valuation firm(s) (to the extent applicable).

 

 43 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

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

 

For discussion of the fair value measurement of the Company's borrowings and derivative, refer to Note 5 and Note 6, respectively.

 

The following table presents fair value measurements of investments, by major class, as of September 30, 2018, according to the fair value hierarchy:

 

   Fair Value Measurements 
   Level 1   Level 2   Level 3   Measured at
Net Asset
value (1)		   Total 
Senior Secured First Lien Debt  $—   $561,488   $1,142,375   $—   $1,703,863 
Senior Secured Second Lien Debt   —    21,792    249,808    —    271,600 
Subordinated Debt   —    21,462    114,859    —    136,321 
Collateralized Securities   —    —    158,641    —    158,641 
Equity/Other   4,686    3,701    135,285    85,880    229,552 
Total  $4,686   $608,443   $1,800,968   $85,880   $2,499,977 

 

 

(1) In accordance with ASC Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient election have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

 

The following table presents fair value measurements of investments, by major class, as of December 31, 2017, according to the fair value hierarchy:

 

   Fair Value Measurements 
   Level 1   Level 2   Level 3   Measured at
Net Asset
value (1)		   Total 
Senior Secured First Lien Debt  $—   $522,031   $1,254,503   $—   $1,776,534 
Senior Secured Second Lien Debt   —    34,632    203,881    —    238,513 
Subordinated Debt   —    33,250    61,089    —    94,339 
Collateralized Securities   —    —    160,195    —    160,195 
Equity/Other   10,716    7,843    103,738    111,645    233,942 
Total  $10,716   $597,756   $1,783,406   $111,645   $2,503,523 

 

 

(1) In accordance with ASC Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient election have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

 

 44 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the nine months ended September 30, 2018:

 

   Senior Secured
First Lien Debt		   Senior Secured
Second Lien
Debt		   Subordinated
Debt		   Collateralized
Securities		   Equity/
Other		   Total 
Balance as of December 31, 2017  $1,254,503   $203,881   $61,089   $160,195   $103,738   $1,783,406 
Net change in unrealized appreciation (depreciation) on investments   5,547    (10,065)   859    29,994    (3,878)   22,457 
Purchases and other adjustments to cost   392,901    92,604    56,674    22,048    49,843    614,070 
Sales and redemptions   (463,083)   (44,894)   (3,743)   (22,714)   (17,122)   (551,556)
Net realized gains (loss)   (5,082)   505    (20)   (30,882)   2,704    (32,775)
Transfers in   48,850    7,777    —    —    —    56,627 
Transfers out   (91,261)   —    —    —    —    (91,261)
Balance as of September 30, 2018  $1,142,375   $249,808   $114,859   $158,641   $135,285   $1,800,968 
Net change in unrealized appreciation (depreciation) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:  $(5,904)  $(10,040)  $500   $25,235   $(1,188)  $8,603 

 

Purchases represent the acquisition of new investments at cost. Redemptions represent principal payments received during the period.

 

For the nine months ended September 30, 2018, there were no transfers out of Level 1 to Level 2. For the nine months ended September 30, 2018, six investments were transferred out of Level 2 to Level 3. For the nine months ended September 30, 2018, eight investments were transferred out of Level 3 to Level 2. Transfers during the period were due to changes in management's assessment of liquidity in the underlying positions.

 

Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur.

 

 45 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended December 31, 2017:

 

   Senior Secured
First Lien Debt		   Senior Secured
Second Lien
Debt		   Subordinated
Debt		   Collateralized
Securities		   Equity/
Other		   Total 
Balance as of December 31, 2016  $916,099   $205,051   $80,540   $249,582   $56,794   $1,508,066 
Net change in unrealized appreciation (depreciation) on investments   (23,259)   (558)   (2,718)   (8,140)   13,805    (20,870)
Purchases and other adjustments to cost   427,865    79,561    3,167    161    38,817    549,571 
Sales and redemptions   (342,176)   (117,696)   (21,453)   (79,376)   (3,980)   (564,681)
Net realized gains (loss)   (11,753)   1,144    1,553    (2,032)   (1,698)   (12,786)
Transfers in   287,727    36,379    —    —    —    324,106 
Transfers out   —    —    —    —    —    — 
Balance as of December 31, 2017  $1,254,503   $203,881   $61,089   $160,195   $103,738   $1,783,406 
Net change in unrealized appreciation (depreciation) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:  $(36,523)  $(841)  $(1,678)  $(9,353)  $13,573   $(34,822)

 

Purchases represent the acquisition of new investments at cost. Redemptions represent principal payments received during the period.

 

For the year ended December 31, 2017, there were no transfers out of Level 1 to Level 2 and Level 3 to Level 2. For the year ended December 31, 2017, twenty-five investments were transferred out of Level 2 to Level 3. Transfers during the period were due to changes in management's assessment of liquidity in the underlying positions.

 

Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur.

 

The composition of the Company’s investments as of September 30, 2018, at amortized cost and fair value, was as follows:

  

           Fair Value 
   Investments at
Amortized Cost		   Investments at
Fair Value		   Percentage of
Total Portfolio		 
Senior Secured First Lien Debt  $1,789,531   $1,703,863    68.2%
Senior Secured Second Lien Debt   281,531    271,600    10.9 
Subordinated Debt   137,728    136,321    5.4 
Collateralized Securities   161,980    158,641    6.3 
Equity/Other   201,602    229,552    9.2 
Total  $2,572,372   $2,499,977    100.0%

 

 46 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

The composition of the Company’s investments as of December 31, 2017, at amortized cost and fair value, was as follows:

 

           Fair Value 
   Investments at
Amortized Cost		   Investments at
Fair Value		   Percentage of
Total Portfolio		 
Senior Secured First Lien Debt  $1,865,392   $1,776,534    71.0%
Senior Secured Second Lien Debt   239,258    238,513    9.5 
Subordinated Debt   97,916    94,339    3.8 
Collateralized Securities   193,529    160,195    6.4 
Equity/Other   202,533    233,942    9.3 
Total  $2,598,628   $2,503,523    100.0%

 

Significant Unobservable Inputs

 

The following table summarizes the significant unobservable inputs used to value the majority of the Level 3 investments as of September 30, 2018. The table is not intended to be all-inclusive, but instead identifies the significant unobservable inputs relevant to the determination of fair values.

 

             Range     
       Primary Valuation  Unobservable          Weighted 
Asset Category  Fair Value   Technique  Inputs  Minimum   Maximum   Average (a) 
Senior Secured First Lien Debt (b)  $795,056   Yield Analysis  Market Yield   6.50%   21.07%   10.55%
Senior Secured First Lien Debt (b)   6,157   Waterfall Analysis  Revenue Multiple   0.23x   0.35x   0.26x
Senior Secured First Lien Debt (b)   5,952   Waterfall Analysis  EBITDA Multiple   6.65x   7.78x   7.16x
Senior Secured Second Lien Debt (d)   224,729   Yield Analysis  Market Yield   9.75%   19.80%   12.92%
Senior Secured Second Lien Debt (d) (c)   1,956   Yield Analysis  EBITDA Multiple   11.42x   11.42x   N/A 
Subordinated Debt (e)   39,952   Yield Analysis  Market Yield   11.91%   21.63%   14.49%
Subordinated Debt (e)   15,129   Waterfall Analysis  EBITDA Multiple   5.23x   11.51x   8.58x
Subordinated Debt (e)   833   Asset Recovery  Recovery Percentage   18.75%   37.24%   19.50%
Collateralized Securities   158,641   Discounted Cash Flow  Discount Rate   5.75%   32.00%   19.50%
Equity/Other (f)   63,963   Discounted Cash Flow  Discount Rate   5.62%   16.50%   11.59%
Equity/Other (f)   32,971   Waterfall Analysis  EBITDA Multiple   3.80x   13.00x   8.25x
Equity/Other (f) (c)   656   Waterfall Analysis  Book Value Multiple   1.45x   1.45x   N/A 
Equity/Other (f) (c)   2,235   Waterfall Analysis  Appraisal Value   54,100    54,100    N/A 
Equity/Other (f) (c)   76   Option Pricing Method  Volatility   40.00%   40.00%   N/A 

  

 
(a) Weighted averages are calculated based on fair value of investments.
(b) The remaining $335.2 million of senior secured first lien debt consisted of $117.3 million which was valued using a Scenario-Based analysis technique factoring in various unobservable inputs and $217.9 million which was valued based on respective acquisition prices as the investments closed near year end.
 
(c) Weighted average not applicable as this asset category contains one investment.
(d) The remaining $23.1 million of senior secured second lien debt consisted of $13.1 million which was valued using a Scenario-Based analysis technique factoring in various unobservable inputs and $10 million which was valued based on respective acquisition prices as the investments closed near year end.
 
(e) The remaining $59.0 million of subordinated debt consisted of $21.8 million which was valued using a Scenario-Based analysis technique factoring in various unobservable inputs and $37.2 million which was valued based on respective acquisition prices as the investments closed near year end.
 
(f) The remaining $35.4 million of equity/other investments consisted of $8.3 million which were valued using the Current Method, factoring in various unobservable inputs, and $27.1 million which were valued based on their respective acquisition prices.

 

 47 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

There were no significant changes in valuation approach or technique as of September 30, 2018.

 

Increases or decreases in any of the above unobservable inputs in isolation would result in a lower or higher fair value measurement for such assets.

 

The following table summarizes the significant unobservable inputs used to value the majority of the Level 3 investments as of December 31, 2017. The table is not intended to be all-inclusive, but instead identifies the significant unobservable inputs relevant to the determination of fair values.

 

             Range     
Asset Category  Fair Value   Primary Valuation
Technique		  Unobservable
Inputs		  Minimum   Maximum   Weighted
Average (a)		 
Senior Secured First Lien Debt (b)  $967,773   Yield Analysis  Market Yield   5.00%   26.75%   9.21%
Senior Secured First Lien Debt (b) (c)  $141,549   Waterfall Analysis  Discount Rate   15.00%   17.00%   N/A 
Senior Secured Second Lien Debt (d)  $184,572   Yield Analysis  Market Yield   9.25%   15.05%   11.91%
Subordinated Debt (c) (e)  $37,192   Waterfall Analysis  Discount Rate   8.20%   9.20%   N/A 
Subordinated Debt (c) (e)  $3,312   Yield Analysis  Market Yield   12.50%   14.60%   N/A 
Collateralized Securities  $160,195   Discounted Cash Flow  Discount Rate   12.35%   37.50%   20.37%
Equity/Other (f)  $51,282   Waterfall Analysis  Discount Rate   8.45%   16.00%   10.65%
Equity/Other (f)  $27,589   Discounted Cash Flow  Discount Rate   5.63%   12.19%   12.05%
Equity/Other (f)  $1,462   Waterfall Analysis  EBITDA Multiple   4.00x   10.50x   9.31x
Equity/Other (f)  $47   Option Pricing Method  Volatility   30.00%   50.00%   40.00%

 

 

(a)Weighted averages are calculated based on fair value of investments.
(b)The remaining $145.2 million of senior secured first lien debt consisted of $113.5 million which were valued using a Scenario-Based analysis technique factoring in various unobservable inputs and $31.7 million which were valued based on their respective acquisition prices as the investments closed near year end.
(c)Weighted average not applicable as this asset category contains one investment.
(d)The remaining $19.3 million of senior secured second lien debt were valued based on their respective acquisition prices as the investments closed near year end.
(e)The remaining $20.6 million of subordinated debt were valued using a Scenario-Based analysis technique factoring in various unobservable inputs.
(f)The remaining $23.2 million of equity/other investments were valued using the Current Method, factoring in various unobservable inputs and $0.2 million which were valued based on their respective acquisition prices as the investments closed near year end.

 

There were no significant changes in valuation approach or technique as of December 31, 2017.

 

Increases or decreases in any of the above unobservable inputs in isolation would result in a lower or higher fair value measurement for such assets.

 

 48 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

As of September 30, 2018, the Company had nine portfolio companies, which represented fifteen portfolio investments, on non-accrual status with a total principal amount of $171.4 million, amortized cost of $118.4 million, and fair value of $45.5 million which represented 5.6%, 4.6% and 1.8% of the investment portfolio's total principal, amortized cost and fair value, respectively. As of December 31, 2017, the Company had four portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $120.2 million, amortized cost of $97.6 million, and fair value of $21.0 million which represented 4.0%, 3.8% and 0.8% of the investment portfolio's total principal, amortized cost and fair value, respectively. Refer to Note 2 - Summary of Significant Accounting Policies for additional details regarding the Company’s non-accrual policy.

 

Note 4 — Related Party Transactions and Arrangements

 

Investment Advisory Agreement

 

Pursuant to the Investment Advisory Agreement and for the investment advisory and management services provided thereunder, the Company pays the Adviser a base management fee and an incentive fee.

 

Base Management Fee

 

The base management fee is calculated at an annual rate of 1.5% of the Company’s average gross assets. Any unrealized appreciation or depreciation associated with a derivative contract, if any, increases or decreases, respectively, the Company's gross assets. The base management fee is payable quarterly in arrears. Average gross assets is calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters. All or any part of the base management fee not taken as to any quarter may be deferred without interest and may be taken in such other quarter as the Adviser will determine within three years. The base management fee for any partial month or quarter is appropriately pro-rated.

 

As of September 30, 2018 and December 31, 2017, $10.1 million and $9.9 million was payable to the Adviser for base management fees, respectively.

 

Incentive Fees

 

The incentive fee consists of two parts. The first part is referred to as the incentive fee on income and it is calculated and payable quarterly in arrears based on the Company’s “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter. “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees, other than fees for providing managerial assistance, such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the administration agreement and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount debt instruments with payment-in-kind interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. The payment of the incentive fee on income shall be subject to payment of a preferred return to investors each quarter, expressed as a quarterly rate of return on the value of our net assets at the end of the most recently completed calendar quarter, of 1.75% (7.00% annualized), subject to a “catch up” feature (as described below). The calculation of the incentive fee on income for each quarter is as follows:

 

•No incentive fee on income shall be payable to the Adviser in any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the preferred return rate of 1.75% or 7.00% annualized (the “Preferred Return”) on net assets;
•100% of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds the preferred return but is less than or equal to 2.1875% in any calendar quarter (8.75% annualized) shall be payable to the Adviser. This portion of the Company’s incentive fee on income is referred to as the “catch up” and is intended to provide the Adviser with an incentive fee of 20% on all of the Company’s Pre-Incentive Fee Net Investment Income when the Company’s Pre-Incentive Fee Net Investment Income reaches 2.1875% (8.75% annualized) in any calendar quarter; and

 

 49 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

•For any quarter in which our Pre-Incentive Fee Net Investment Income exceeds 2.1875% (8.75% annualized), the incentive fee on income shall equal 20% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, as the Preferred Return and catch-up will have been achieved.

 

As of September 30, 2018 and December 31, 2017, $6.5 million and $4.6 million was payable to the Adviser for the incentive fee on income, respectively.

 

The second part of the incentive fee, referred to as the “incentive fee on capital gains during operations,” shall be an incentive fee on capital gains earned on liquidated investments from the portfolio during operations prior to the Company’s liquidation and shall be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, if earlier). This fee shall equal 20.0% of the Company’s incentive fee capital gains, which shall equal the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.

 

The BSP Transaction

 

On July 19, 2016, American Realty Capital II Advisors, LLC, the former parent of the Adviser, entered into a membership interest purchase agreement with a subsidiary of BSP, pursuant to which such subsidiary acquired all of the outstanding limited liability company interests of the Adviser (the “BSP Transaction”). In connection with the BSP Transaction, the Company amended the Investment Advisory Agreement, effective as of November 1, 2016, to allow the Adviser to serve as investment adviser to the Company following the closing of the BSP Transaction.

 

Administration Agreement

 

In connection with the closing of the BSP Transaction, the Company terminated the previous administration agreement and entered into a new administration agreement with BSP on November 1, 2016. In connection with the New Administration Agreement, BSP provides the Company with office facilities and administrative services. As of September 30, 2018 and December 31, 2017, $0.6 million and $0.6 million was payable to BSP under the New Administration Agreement, respectively.

 

Co-Investment Relief

 

The 1940 Act generally prohibits BDCs from entering into negotiated co-investments with affiliates absent an order from the SEC. The SEC staff has granted the Company exemptive relief that allows it to enter into certain negotiated co-investment transactions alongside with other funds managed by the Adviser or its affiliates (“Affiliated Funds”) in a manner consistent with its investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). Pursuant to the Order, the Company is permitted to co-invest with its affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of its eligible directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to the Company and our stockholders and do not involve overreaching in respect of the Company or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of the Company’s stockholders and is consistent with the Company’s investment objective and strategies.

 

Transactions with Affiliates

 

In connection with the closing of the BSP Transaction, an affiliate of BSP purchased $10.0 million of the Company’s common stock based on its net asset value per share in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"). On November 7, 2016, the Company issued approximately 1.2 million shares of its common stock to such BSP affiliate.

 

Offering Costs

 

The Company incurs certain costs in connection with the registration of shares of its common stock. Offering costs principally relate to professional fees, printing costs, direct marketing expenses, due diligence costs, fees paid to regulators and other expenses, including the salaries and/or expenses of the Adviser and its affiliates engaged in registering and marketing the Company’s common stock. Such allocated expenses of the Adviser and its affiliates may include the development of marketing materials and presentations, training and educational meetings, and generally coordinating the marketing process for the Company.

 

 50 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

Other Affiliated Parties

 

The Adviser is the investment adviser of BDCA. The Adviser is an affiliate of BSP, an SEC registered investment adviser. The Adviser and BSP are under common control. The Adviser is affiliated and under common control with Providence Equity Capital Markets L.L.C. (“PECM”), an SEC registered investment adviser on the BSP platform. The Adviser is affiliated and under common control with Providence Equity Partners L.L.C. (“PEP”), an SEC registered investment adviser. PEP is a global private equity investment adviser and maintains an information barrier between itself and the Adviser, BSP and PECM. The Adviser is affiliated and under common control with Merganser Capital Management, LLC (“Merganser”), an SEC registered investment adviser. BSP, the Adviser, PECM, Merganser and PEP’s respective Form ADV’s are publicly available for review on the SEC Investment Adviser Public Disclosure website.

 

Note 5 — Borrowings

 

Wells Fargo Credit Facility

 

On July 24, 2012, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into a revolving credit facility with Wells Fargo and U.S. Bank as collateral agent, account bank and collateral custodian (as amended from time to time, the “Wells Fargo Credit Facility”). The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013, September 9, 2013, June 30, 2014, May 29, 2015, November 4, 2015, May 18, 2017, April 3, 2018, and May 9, 2018, provides for borrowings in an aggregate principal amount of up to $500.0 million on a committed basis. The Wells Fargo Credit Facility has a maturity date of May 9, 2023.

 

The Wells Fargo Credit Facility is priced at the one-month maturity London Interbank Offered Rate (“LIBOR”), with no LIBOR floor, plus a spread ranging between 1.65% and 2.50% per annum, depending on the composition of the portfolio of loans owned by Funding I for the relevant period. Interest is payable quarterly in arrears. Funding I is subject to a non-usage fee to the extent the aggregate principal amount available under the Wells Fargo Credit Facility has not been borrowed. The non-usage fee per annum is 0.50% for the first 25% of the unused balance and 2.0% for the portion of the unused balance that exceeds 25%.

 

Borrowings under the Wells Fargo Credit Facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Funding I varies depending upon the types of loans in Funding I's portfolio. The Wells Fargo Credit Facility may be prepaid in whole or in part, subject to customary breakage costs.

 

The Wells Fargo Credit Facility contains customary default provisions for facilities of this type pursuant to which Wells Fargo may terminate the rights, obligations, power and authority of the Company, in its capacity as servicer of the portfolio assets under the Wells Fargo Credit Facility, including, but not limited to, non-performance of Wells Fargo Credit Facility obligations, insolvency, defaults of certain financial covenants and other events with respect to the Company that may be adverse to Wells Fargo and the secured parties under the Wells Fargo Credit Facility.

 

In connection with the Wells Fargo Credit Facility, Funding I has made certain representations and warranties, is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities and is subject to certain customary events of default. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and all other obligations under the Wells Fargo Credit Facility immediately due and payable. During the continuation of an event of default, Funding I must pay interest at a default rate.

 

On April 6, 2018, the Company borrowed $90.6 million under the Wells Fargo Credit Facility and used such proceeds, together with cash on hand, to repay at maturity the debt financing facility that it had entered into with UBS AG, London Branch through a wholly-owned special-purpose, bankruptcy-remote subsidiary, BDCA Helvetica Funding, Ltd.

 

 51 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

Citi Credit Facility

 

On June 27, 2014, the Company, through a wholly-owned, special purpose financing subsidiary, CB Funding, entered into a credit facility (as amended from time to time, the “Citi Credit Facility”) with Citibank, N.A. ("Citi") as administrative agent and U.S. Bank as collateral agent, account bank and collateral custodian. The Citi Credit Facility, which was subsequently amended on October 14, 2015, provides for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis, subject to the administrative agent’s right to approve the assets acquired by CB Funding and pledged as collateral under the Citi Credit Facility. The Citi Credit Facility was amended on November 28, 2017 to extend the investment period to May 31, 2019. The Citi Credit Facility has a maturity date of May 28, 2020.

 

The Citi Credit Facility is priced at three-month LIBOR, with no LIBOR floor, plus a spread of 1.60% per annum through and including the last day of the investment period and 2.00% per annum thereafter. Interest is payable quarterly in arrears. CB Funding is subject to a non-usage fee to the extent the aggregate principal amount available under the Citi Credit Facility has not been borrowed. The non-usage fee per annum is 0.50%. Any amounts borrowed under the Citi Credit Facility along with any accrued and unpaid interest thereunder will mature, and will be due and payable, in three years.

 

UBS Credit Facility

 

On April 7, 2015, the Company, through a wholly-owned, special-purpose, bankruptcy-remote subsidiary, Helvetica Funding, entered into a debt financing facility with UBS AG, London Branch (“UBS”), pursuant to which $150.0 million has been made available to the Company to fund investments in new securities and for other general corporate purposes (as amended from time to time, the “UBS Credit Facility”). The UBS Credit Facility was subsequently amended on July 10, 2015 to increase the amount of debt available to the Company under the facility from $150.0 million to $210.0 million. On June 6, 2016, the UBS Credit Facility was again amended to increase the amount of debt available from $210.0 million to $232.5 million. In addition, the amended facility increased the applicable spread over a three-month LIBOR from 3.90% to 4.05% per annum for the relevant period and increased the permissible percentage of second lien loans from 60% to 70%. Pricing under the UBS Credit Facility was based on three-month LIBOR plus a spread of 4.05% per annum for the relevant period. The maturity date of the UBS Credit Facility was April 7, 2018.

 

On April 6, 2018, the Company repaid the UBS Credit Facility and all related liens were released.

 

2020 Notes

 

On August 26, 2015, the Company entered into a Purchase Agreement with the initial purchasers, relating to the Company’s sale of $100.0 million aggregate principal amount of its 6.00% fixed rate senior notes due 2020 (the “2020 Notes”) to the initial purchasers in a private placement in reliance on Section 4(a)(2) of the Securities Act and for initial resale by the initial purchasers to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act . The Company relied upon these exemptions from registration based in part on representations made by the initial purchasers. The Purchase Agreement includes customary representations, warranties and covenants by the Company. Under the terms of the Purchase Agreement, the Company has agreed to indemnify the initial purchasers against certain liabilities under the Securities Act. The 2020 Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The net proceeds from the sale of the 2020 Notes was approximately $97.9 million, after deducting initial purchasers’ discounts and commissions of approximately $1.6 million payable by the Company and estimated offering expenses of approximately $0.5 million payable by the Company. The Company used the net proceeds to make investments in accordance with the Company’s investment objectives and for general corporate purposes.

 

The 2020 Notes were issued pursuant to the Indenture, dated as of August 31, 2015, between the Company and the Trustee. The 2020 Notes will mature on September 1, 2020, and may be redeemed in whole or in part at the Company’s option at any time, or from time to time, at the redemption prices set forth in the Indenture. The 2020 Notes bear interest at a rate of 6.00% per year payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 2016. The 2020 Notes will be general unsecured obligations of the Company that rank senior in right of payment to all of the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the 2020 Notes. The 2020 Notes will rank equally in right of payment with all of the Company’s existing and future senior liabilities that are not so subordinated, effectively junior to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness, and structurally junior to all existing and future indebtedness incurred by the Company’s subsidiaries, financing vehicles or similar facilities, including credit facilities held by the Company’s wholly owned, special purpose financing subsidiaries.

 

 52 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

The Indenture contains certain covenants, including covenants requiring the Company to: (i) comply with the asset coverage requirements of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act as in effect immediately prior to the issuance of the 2020 Notes, whether or not the Company is subject to such provisions; (ii) provide financial information to the holders of the 2020 Notes and the Trustee if the Company is no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended; and (iii) maintain total unencumbered assets, as defined in the Indenture, of at least 175% of the aggregate principal amount of all of the Company and the Company’s consolidated subsidiaries’ outstanding unsecured debt determined on a consolidated basis in accordance with U.S. GAAP. These covenants are subject to important limitations and exceptions that are described in the Indenture.

 

2022 Notes

 

On December 14, 2017, the Company entered into a Purchase Agreement (the “2022 Notes Purchase Agreement”) with Sandler O’Neill & Partners, L.P (the “Initial Purchaser”) relating to the Company's sale of $150.0 million aggregate principal amount of its 4.75% fixed rate notes due 2022 (the “2022 Notes”) to the Initial Purchaser in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933 and for initial resale by the Initial Purchaser to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act and to institutional accredited investors under Rule 501(a)(1), (2), (3) or (7) under the Securities Act. The Company relied upon these exemptions from registration based in part on representations made by the Initial Purchaser. The 2022 Notes Purchase Agreement also includes customary representations, warranties and covenants by the Company. Under the terms of the 2022 Notes Purchase Agreement, the Company has agreed to indemnify the Initial Purchaser against certain liabilities under the Securities Act. The 2022 Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration. The net proceeds from the sale of the 2022 Notes was approximately $147.0 million, after deducting an offering price discount of approximately $0.8 million, as well as Initial Purchaser’s discounts and commissions of approximately $1.7 million and offering expenses of approximately $0.6 million, each payable by the Company. The Company used the net proceeds to repay outstanding indebtedness, to make investments in portfolio companies in accordance with its investment objectives and for general corporate purposes.

 

The 2022 Notes were issued pursuant to an Indenture dated as of December 19, 2017 (the “Indenture”), between the Company and U.S. Bank National Association, trustee (the “Trustee”), and a Supplemental Indenture, dated as of December 19, 2017 (the “Supplemental Indenture”), between the Company and the Trustee. The 2022 Notes will mature on December 30, 2022, unless repurchased or redeemed in accordance with their terms prior to such date. The Notes bear interest at a rate of 4.75% per year payable semi-annually on June 30 and December 30 of each year, commencing on June 30, 2018. The 2022 Notes will be general unsecured obligations of the Company that rank senior in right of payment to all of the Company's existing and future indebtedness that is expressly subordinated in right of payment to the 2022 Notes. The 2022 Notes will rank equally in right of payment with all of the Company's existing and future senior liabilities that are not so subordinated, effectively junior to any of the Company's secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness, and structurally junior to all existing and future indebtedness incurred by the Company's subsidiaries, financing vehicles or similar facilities, including credit facilities entered into by the Company's wholly owned, special purpose financing subsidiaries.

 

The Indenture contains certain covenants, including covenants requiring the Company to (i) comply with the asset coverage requirements of the 1940 Act, whether or not it is subject to those requirements, and (ii) provide financial information to the holders of the 2022 Notes and the Trustee if the Company is no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended. These covenants are subject to important limitations and exceptions that are described in the Indenture.

 

In addition, if a change of control repurchase event, as defined in the Indenture, occurs prior to maturity, holders of the 2022 Notes will have the right, at their option, to require the Company to repurchase for cash some or all of the 2022 Notes at a repurchase price equal to 100% of the principal amount of the 2022 Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

 

 53 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

2023 Notes

 

On May 11, 2018, the Company entered into a Purchase Agreement (the “2023 Notes Purchase Agreement”) with Sandler O’Neill & Partners, L.P (the “Initial Purchaser”) relating to the Company’s sale of $60 million aggregate principal amount of its 5.375% fixed rate notes due 2023 (the “Notes”) to the Initial Purchaser in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, and for initial resale by the Initial Purchaser to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act and to institutional accredited investors under Rule 501 (a)(1), (2), (3) or (7) under the Securities Act. The Company relied upon these exemptions from registration based in part on representations made by the Initial Purchaser. The 2023 Notes Purchase Agreement also includes customary representations, warranties and covenants by the Company. Under the terms of the 2023 Notes Purchase Agreement, the Company has agreed to indemnify the Initial Purchaser against certain liabilities under the Securities Act. The Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration. The net proceeds from the sale of the Notes were approximately $58.7 million, after deducting an offering price discount of approximately $0.3 million, as well as Initial Purchaser’s discounts and commissions of approximately $0.6 million and estimated offering expenses of approximately $0.4 million, each payable by the Company. The Company used the net proceeds to repay outstanding indebtedness, to make investments in portfolio companies in accordance with its investment objectives and for general corporate purposes. The Notes were issued pursuant to an Indenture dated as of December 19, 2017 (the “Base Indenture”), between the Company and U.S. Bank National Association, trustee (the “Trustee”), and a Second Supplemental Indenture, dated as of May 16, 2018 (the “Second Supplemental Indenture” and together with the Base Indenture, the “Indenture”), between the Company and the Trustee. The Notes will mature on May 30, 2023, unless repurchased or redeemed in accordance with their terms prior to such date. The Notes bear interest at a rate of 5.375% per year payable semi-annually on May 30 and November 30 of each year, commencing on November 30, 2018. The Notes will be general unsecured obligations of the Company that rank senior in right of payment to all of the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the Notes. The Notes will rank equally in right of payment with all of the Company’s existing and future senior liabilities that are not so subordinated, effectively junior to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness, and structurally junior to all existing and future indebtedness incurred by the Company’s subsidiaries, financing vehicles or similar facilities, including credit facilities entered into by the Company’s wholly owned, special purpose financing subsidiaries. The Indenture contains certain covenants, including covenants requiring the Company to (i) comply with the asset coverage requirements of the 1940 Act, whether or not it is subject to those requirements, and (ii) provide financial information to the holders of the Notes and the Trustee if the Company is no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended. These covenants are subject to important limitations and exceptions that are described in the Indenture. In addition, if a change of control repurchase event, as defined in the Indenture, occurs prior to maturity, holders of the Notes will have the right, at their option, to require the Company to repurchase for cash some or all of the Notes at a repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

 

JP Morgan Securities LLC Prime Brokerage Account

 

On January 20, 2017, the Company entered into a prime brokerage account agreement with JP Morgan Securities LLC (the “JPMC PB Account”). The JPMC PB Account provides a full suite of services around the custody of bonds and equities and also access to leverage, which is dependent on the price, credit quality and diversity of the pool of assets held within the account. The borrowing availability is recalculated daily based on changes to the assets, with margin calls issued in the morning as appropriate. The cost to borrow is 1 week LIBOR + 90 bps and there is no mandatory usage or period wherein the debt needs to be repaid.

 

On May 8, 2018 the Company fully repaid its borrowings under the JPMC PB Account and closed the account.

 

The weighted average annualized interest cost for all borrowings for the nine months ended September 30, 2018, and September 30, 2017 was 4.45% and 3.91%, respectively. The average daily debt outstanding for the nine months ended September 30, 2018, and September 30, 2017 was $1.3 billion and $968.3 million, respectively. The maximum debt outstanding for the nine months ended September 30, 2018, and September 30, 2017 was $1.5 billion and $1.1 billion, respectively.

 

 54 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

The following table represents borrowings as of September 30, 2018:

 

   Maturity Date  Total Aggregate
Borrowing
Capacity		   Total Principal
Outstanding		   Less
Deferred
Financing
Costs		   Amount
per
Balance
Sheet		 
Wells Fargo Credit Facility  5/9/2023  $500,000   $469,652   $(8,125)  $461,527 
Citi Credit Facility  5/28/2020   400,000    345,000    (1,329)   343,671 
2023 Notes  5/30/2023   60,000    59,696    (880)   58,816 
2022 Notes  12/30/2022   150,000    149,298    (1,938)   147,360 
2020 Notes  9/1/2020   100,000    99,394    (241)   99,153 
Totals     $1,210,000   $1,123,040   $(12,513)  $1,110,527 

 

The following table represents borrowings as of December 31, 2017: 

 

   Maturity Date  Total Aggregate
Borrowing
Capacity		   Total Principal
Outstanding		   Less
Deferred
Financing
Costs		   Amount
per
Balance
Sheet		 
Wells Fargo Credit Facility  5/18/2022  $400,000   $188,051   $(6,299)  $181,752 
Citi Credit Facility  5/28/2020   400,000    336,003    (1,902)   334,101 
UBS Credit Facility  4/7/2018   232,500    232,500    (110)   232,390 
2022 Notes  12/30/2022   150,000    149,175    (2,280)   146,895 
2020 Notes  9/1/2020   100,000    99,158    (335)   98,823 
JPMC PB Account  n/a   49,994    36,262    —    36,262 
Totals     $1,332,494   $1,041,149   $(10,926)  $1,030,223 

 

The following table represents interest and debt fees for the three and nine months ended September 30, 2018:

 

   Three Months Ended September 30, 2018  Nine Months Ended September 30, 2018
      Non-      Deferred          Non-      Deferred     
   Interest  Usage  Interest   Financing   Other   Interest  Usage  Interest   Financing   Other 
   Rate  Rate  Expense   Costs (3)   Fees (4)   Rate  Rate  Expense   Costs (3)   Fees (4) 
Wells Fargo Credit Facility  (1)  (2)  $4,910   $437   $120   (1)  (2)  $11,619   $1,197   $785 
Citi Credit Facility  L+1.60%  0.50%   3,719    202    42   L+1.60%  0.50%   10,323    597    192 
UBS Credit Facility  n/a  n/a   —    —    11   L+4.05%  n/a   3,696    110    57 
2023 Notes  5.38%  n/a   823    47    —   5.38%  n/a   1,234    67    — 
2022 Notes  4.75%  n/a   1,823    115    2   4.75%  n/a   5,467    341    10 
2020 Notes  6.00%  n/a   1,579    32    —   6.00%  n/a   4,736    94    — 
JPMC PB Account  n/a  n/a   —    —    —   L+0.90%  n/a   570    —    — 
Totals        $12,854   $833   $175         $37,645   $2,406   $1,044 

 

 

(1) Interest rate is priced at one-month LIBOR with no LIBOR floor, plus a spread ranging between 1.65% and 2.50% per annum, depending on the composition of the portfolio of loans owned.

(2) The non-usage fee per annum is 0.50% for the first 25% of the unused balance and 2.0% for the unused balance that exceeds 25%.

(3) Amortization of deferred financing costs.

(4) Includes non-usage fees, custody fees and trustee fees.

 

 55 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

  

The following table represents interest and debt fees for the three and nine months ended September 30, 2017:

 

   Three Months Ended September 30, 2017   Nine Months Ended September 30, 2017 
       Non-       Deferred           Non-       Deferred     
   Interest   Usage   Interest   Financing   Other   Interest   Usage   Interest   Financing   Other 
   Rate   Rate   Expense   Costs (3)   Fees (4)   Rate   Rate   Expense   Costs (3)   Fees (4) 
Wells Fargo Credit Facility  (1)  (2)  $3,212   $363   $90   (1)  (2)  $8,440   $861   $593 
Citi Credit Facility  L+1.70%   0.50%   2,339    186    137   L+1.70%   0.50%   6,634    552    401 
UBS Credit Facility  L+4.05%   n/a    3,177    104    24   L+4.05%   n/a    9,162    309    80 
Unsecured Notes  6.00%  n/a    1,580    32    —   6.00%  n/a    4,736    94    7 
JPMC PB Account  L+0.90%   n/a    204    —    —   L+0.90%   n/a    239    —    — 
Totals          $10,512   $685   $251           $29,211   $1,816   $1,081 

  

 

(1) Interest rate is priced at one-month LIBOR with no LIBOR floor, plus a spread ranging between 1.65% and 2.50% per annum, depending on the composition of the portfolio of loans owned.

(2) The non-usage fee per annum is 0.50% for the first 25% of the unused balance and 2.0% for the unused balance that exceeds 25%.

(3) Amortization of deferred financing costs.

(4) Includes non-usage fees, custody fees and trustee fees.

 

The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate fair value. The fair value of short-term financial instruments such as cash and cash equivalents, due to affiliates and accounts payable approximate their carrying value on the accompanying consolidated statements of assets and liabilities due to their short-term nature. The fair value of the Company's 2020 Notes, 2022 Notes and 2023 Notes are derived from market indications provided by Bloomberg Finance L.P. at September 30, 2018. The fair value of the Company's 2020 Notes and 2022 Notes are derived from market indications provided by Bloomberg Finance L.P. at December 31, 2017.

 

At September 30, 2018, the carrying amount of our secured borrowings approximated their fair value. The fair values of our debt obligations are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of our borrowings are estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. As of September 30, 2018 and December 31, 2017, our borrowings would be deemed to be Level 3, as defined in Note 3.

 

 56 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

 

The fair values of the Company’s remaining financial instruments that are not reported at fair value on the accompanying consolidated statements of assets and liabilities are reported below (amounts in thousands):

 

   Level  Carrying Amount at September 30, 2018   Fair Value at September 30, 2018 
Wells Fargo Credit Facility  3  $469,652   $469,652 
Citi Credit Facility  3   345,000    345,000 
2023 Notes  3   59,696    60,253 
2022 Notes  3   149,298    148,590 
2020 Notes  3   99,394    103,316 
Totals     $1,123,040   $1,126,811 

 

   Level  Carrying Amount at December 31, 2017   Fair Value at December 31, 2017 
Wells Fargo Credit Facility  3  $188,051   $188,051 
Citi Credit Facility  3   336,003    336,003 
UBS Credit Facility  3   232,500    232,500 
2022 Notes  3   149,175    148,811 
2020 Notes  3   99,158    103,276 
JPMC PB Account  3   36,262    36,262 
Totals     $1,041,149   $1,044,903 

 

Note 6 — Derivatives

 

Foreign Currency

 

The Company may enter into forward foreign currency contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies or to help mitigate the impact that an adverse change in foreign exchange rates would have on the value of the Company's investments denominated in foreign currencies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date (usually the security transaction settlement date) at a negotiated forward rate. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when contracts are settled. The Company's forward foreign currency contracts generally have terms of approximately three months. The volume of open contracts at the end of each reporting period is reflective of the typical volume of transactions during each calendar quarter. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their contracts. The Company attempts to limit this risk by dealing with creditworthy counterparties.

 

At September 30, 2018, the forward foreign currency contract was classified within Level 2 of the fair value hierarchy. The derivative held at period end was not subject to a master netting arrangement or other similar agreement.

 

 57 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

Note 7 — Commitments and Contingencies

 

Commitments

 

In the ordinary course of business, the Company may enter into future funding commitments. As of September 30, 2018, the Company had unfunded commitments on delayed draw term loans of $36.5 million, unfunded commitments on revolver term loans of $24.3 million and unfunded equity capital commitments of $0.5 million. As of December 31, 2017, the Company had unfunded commitments on delayed draw term loans of $38.7 million, unfunded commitments on revolver term loans of $19.8 million and unfunded equity capital commitments of $6.0 million. The unfunded commitments are disclosed in the Company's consolidated schedule of investments. The Company maintains sufficient cash on hand and available borrowings to fund such unfunded commitments.

 

Litigation and Regulatory Matters

 

In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.

 

Indemnifications

 

In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote.

 

Guarantees

 

The Company has provided a non-recourse carveout guarantee to its controlled portfolio company, Park Ave RE Holdings, LLC, in connection with a secured loan.  Although the loan is generally non-recourse in nature, the Company will nevertheless be responsible for liabilities of the portfolio company upon the occurrence of certain events deemed carveouts to such non-recourse nature (including fraud or misrepresentation, bankruptcy, misapplication of funds, and distributions or incurrence of additional indebtedness in violation of the terms of the loan).

 

Park Ave RE, Inc. through its wholly-owned subsidiaries (including Park Ave RE Holdings, LLC), is in the business of purchasing commercial properties from owner-operators and leasing the properties back to the original owners under long term leasing arrangements.

 

Note 8 — Economic Dependency

 

Under various agreements, the Company has engaged or will engage the Adviser and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issuance, as well as other administrative responsibilities for the Company including accounting services and investor relations.

 

As a result of these relationships, the Company is dependent upon the Adviser and its affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.

 

Note 9 — Common Stock

 

On August 25, 2011, the Company had raised sufficient funds to break escrow on its IPO. On July 1, 2014, the Company's registration statement on Form N-2 (File No.333-193241) for its Follow-on was declared effective by the SEC. Simultaneously with the effectiveness of the registration statement of the Follow-on, the Company's IPO terminated. Through September 30, 2018, the Company sold 199.4 million shares of common stock for gross proceeds of $2.1 billion, including the shares purchased by an affiliate of BSP and shares issued under the Company's DRIP. Following the time the Company's updated registration statement was declared effective on June 30, 2015, the Company issued shares for subscription agreements that had been accepted through that date. The Company is no longer issuing new shares except for DRIP shares. From inception of the Company's DRIP plan to September 30, 2018, the Company had repurchased 21.2 million shares of common stock through its share repurchase program for payments of $185.9 million.

 

 58 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

The following table reflects the common stock activity for the nine months ended September 30, 2018 (dollars in thousands except share amounts):

 

   Shares   Value 
Shares Sold   —   $— 
Shares Issued through DRIP   3,595,149    29,766 
Share Repurchases   (5,104,376)   (42,310)
    (1,509,227)  $(12,544)

 

The following table reflects the common stock activity for the year ended December 31, 2017 (dollars in thousands except share amounts):

 

   Shares   Value 
Shares Sold   —   $—  
Shares Issued through DRIP   6,162,092    52,455 
Share Repurchases   (3,548,885)   (30,212)
    2,613,207   $22,243 

 

Note 10 — Share Repurchase Program

 

The Company intends to conduct semi-annual tender offers pursuant to its share repurchase program (“SRP”). The Company’s board of directors considers the following factors in making its determination regarding whether to cause the Company to offer to repurchase shares and under what terms:

 

•the effect of such repurchases on the Company's qualification as a RIC (including the consequences of any necessary asset sales);
•the liquidity of the Company's assets (including fees and costs associated with disposing of assets);
•the Company's investment plans and working capital requirements;
•the relative economies of scale with respect to the Company's size;
•the Company's history in repurchasing shares or portions thereof;
•the condition of the securities markets.

 

On March 8, 2016, the Company's board of directors amended the Company's SRP. The Company intends to conduct tender offers on a semi-annual basis, instead of on a quarterly basis as was done previously. The Company intends to continue to limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 5.0% at each semi-annual tender offer. In addition, in the event of a stockholder’s death or disability, any repurchases of shares made in connection with a stockholder’s death or disability may be included within the overall limitation imposed on tender offers during the relevant redemption period, which provides that the Company may limit the number of shares to be repurchased during any redemption period to the number of shares of common stock the Company is able to repurchase with the proceeds received from the sale of shares of common stock under the DRIP during such redemption period. The Company's four most recent tender offers were oversubscribed.

 

 59 

 

  

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

                  Aggregate 
              Repurchase   Consideration for 
      Shares   Shares   Price Per   Repurchased Shares 
Offer Date  Repurchase Date  Tendered   Repurchased   Share   (in thousands) 
September 12, 2012  October 8, 2012   —    —   $9.71   $—  
December 13, 2012  January 15, 2013   46,975    10,732   $9.90   $106.22 
March 27, 2013  April 25, 2013   29,625    29,625   $10.18   $301.58 
July 15, 2013  August 13, 2013   30,365    30,365   $10.18   $308.97 
October 22, 2013  November 21, 2013   55,255    55,255   $10.36   $572.44 
February 4, 2014  March 6, 2014   68,969    68,969   $10.36   $714.52 
June 6, 2014  July 11, 2014   117,425    117,425   $10.36   $1,216.38 
August 7, 2014  September 10, 2014   111,854    111,854   $10.36   $1,158.80 
December 19, 2014  January 23, 2015   313,101    313,101   $10.36   $3,243.73 
March 16, 2015  April 15, 2015   162,688    162,688   $10.36   $1,685.45 
June 26, 2015  July 31, 2015   533,527    533,527   $9.72   $5,185.88 
September 18, 2015  October 20, 2015   728,874    728,874   $9.53   $6,946.17 
December 23, 2015  January 25, 2016   7,375,871    3,053,869   $9.22   $28,156.67 
July 26, 2016  December 31, 2016   17,004,354    6,715,864   $8.58   $57,622.10 
June 8, 2017  July 6, 2017   11,747,753    3,433,482   $8.52   $28,576.26 
December 19, 2017  January 19, 2018   21,521,235    2,547,524   $8.31   $21,350.21 
June 15, 2018  July 16, 2018   20,864,620    2,348,835   $8.26   $19,401.38 

 

Share amounts in the table above represent amounts filed in the tender offer.

 

Through September 30, 2018, the Company had repurchased an aggregate of 21.2 million shares of common stock for payments of $185.9 million. As of December 31, 2017, the Company had repurchased 16.0 million shares of common stock for payments of $143.6 million. Amounts include additional shares tendered for death and disability as permitted.

 

Note 11 — Earnings Per Share

 

Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company had no potentially dilutive securities as of September 30, 2018 and December 31, 2017.

 

The following information sets forth the computation of the weighted average basic and diluted net increase in net assets per share resulting from operations for the three and nine months ended September 30, 2018 and September 30, 2017.

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2018   2017   2018   2017 
Basic and diluted                    
Net increase in net assets resulting from operations  $28,483   $17,288   $68,672   $51,369 
Weighted average common shares outstanding   178,984,007    179,311,957    179,087,323    179,140,235 
Net increase in net assets resulting from operations per share  $0.16   $0.10   $0.38   $0.29 

 

 60 

 

  

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited)

  

Note 12 — Distributions

 

The Company’s board of directors has authorized, and has declared, cash distributions payable on a monthly basis to stockholders of record on each day since it commenced operations. From November 2013 until July 2017, the distribution rate has been $0.002378082 per day, which is equivalent to $0.868 per annum, per share of common stock, except for 2016 where the daily distribution rate was $0.002371585 per day to accurately reflect 2016 being a leap year. In July 2017, the board of directors reduced the distribution rate with respect to the Company's cash distributions to $0.001780822 per day, which is equivalent to $0.65 annually, per share of common stock.

 

The amount of each such distribution is subject to the discretion of the board of directors and applicable legal restrictions related to the payment of distributions. The Company calculates each stockholder’s specific distribution amount for the month using record and declaration dates and accrues distributions on the date the Company accepts a subscription for shares of the Company’s common stock. The distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month.

 

From time to time, the Company may also pay interim distributions at the discretion of its board of directors. The Company may fund its cash distributions to stockholders from any sources of funds available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets and non-capital gains proceeds from the sale of assets. The Company’s distributions may exceed its earnings, especially during the period before the Company has substantially invested the proceeds from its IPO and Follow-on. As a result, a portion of the distributions the Company will make may represent a return of capital for tax purposes. As of September 30, 2018, the Company had accrued $9.5 million in stockholder distributions that were unpaid. As of December 31, 2017, the Company had accrued $9.9 million in stockholder distributions that were unpaid.

 

 61 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

The table below reflects the cash distributions per share that we have paid on our common stock since January 2016.

 

Record Date  Payment Date  Per share   Distributions Paid in
Cash		   Distributions Paid
Through the DRIP		   Total Distributions
Paid		 
2016:                       
January 31, 2016  February 3, 2016  $0.07   $8,922   $4,298   $13,220 
February 28, 2016  March 1, 2016   0.07    7,014    5,333    12,347 
March 31, 2016  April 1, 2016   0.07    7,363    5,718    13,081 
April 30, 2016  May 2, 2016   0.07    12,708    (2)   12,706 
May 31, 2016  June 2, 2016   0.07    7,582    5,539    13,121 
June 30, 2016  July 1, 2016   0.07    7,438    5,304    12,742 
July 31, 2016  August 1, 2016   0.07    7,789    5,421    13,210 
August 31, 2016  September 1, 2016   0.07    7,908    5,351    13,259 
September 30, 2016  October 3, 2016   0.07    7,745    5,127    12,872 
October 31, 2016  November 1, 2016   0.07    8,067    5,273    13,340 
November 30, 2016  December 1, 2016   0.07    7,947    5,073    13,020 
December 31, 2016  January 3, 2017   0.07    8,311    5,205    13,516 
           $98,794   $57,640   $156,434 
2017:                       
January 31, 2017  February 3, 2017  $0.07   $7,983   $5,081   $13,064 
February 28, 2017  March 1, 2017   0.07    7,250    4,612    11,862 
March 31, 2017  April 3, 2017   0.07    8,135    5,060    13,195 
April 30, 2017  May 1, 2017   0.07    7,942    4,881    12,823 
May 31, 2017  June 1, 2017   0.07    8,270    4,995    13,265 
June 30, 2017  July 3, 2017   0.07    8,064    4,813    12,877 
July 31, 2017  August 3, 2017   0.06    6,307    3,692    9,999 
August 31, 2017  September 1, 2017   0.06    6,223    3,622    9,845 
September 30, 2017  October 2, 2017   0.05    6,060    3,477    9,537 
October 31, 2017  November 1, 2017   0.06    6,303    3,574    9,877 
November 30, 2017  December 1, 2017   0.05    6,140    3,443    9,583 
December 31, 2017  January 2, 2018   0.06    6,388    3,535    9,923 
           $85,065   $50,785   $135,850 
2018:                       
January 31, 2018  February 1, 2018  $0.06   $6,443   $3,503   $9,946 
February 28, 2018  March 1, 2018   0.05    5,809    3,129    8,938 
March 31, 2018  April 1, 2018   0.06    6,436    3,407    9,843 
April 30, 2018  May 1, 2018   0.05    6,288    3,255    9,543 
May 31, 2018  June 1, 2018   0.06    6,577    3,309    9,886 
June 29, 2018  July 2, 2018   0.05    6,405    3,182    9,587 
July 31, 2018  August 1, 2018   0.06    6,670    3,258    9,928 
August 31, 2018  September 4, 2018   0.06    6,687    3,188    9,875 
September 28, 2018  October 1, 2018   0.05    6,459    3,061    9,520 
           $57,774   $29,292   $87,066 

 

 62 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

The Company has not established any limit on the extent to which it may use borrowings, if any, or proceeds from its IPO and Follow-on to fund distributions (which may reduce the amount of capital it ultimately invests in assets). There can be no assurance that the Company will be able to sustain distributions at any particular level.

 

Note 13 — Income Tax Information and Distributions to Stockholders

 

The Company has elected to be treated for federal income tax purposes as a RIC under the Code. Generally, a RIC is exempt from federal income taxes if it meets, certain quarterly asset diversification requirements, annual income tests, and distributes to stockholders its ‘‘investment company taxable income,’’ as defined in the Code, each taxable year. Distributions declared prior to the filing of the previous year's tax return and paid up to one year after the previous tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. The Company intends to make sufficient distributions to maintain its RIC status each year. The Company may also be subject to federal excise taxes of 4%.

 

A RIC is limited in its ability to deduct expenses in excess of its “investment company taxable income” (which is, generally, ordinary income plus net realized short-term capital gains in excess of net realized long-term capital losses). If the Company's expenses in a given taxable year exceed gross taxable income (e.g., as the result of large amounts of equity-based compensation), it would incur a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent taxable years and such net operating losses do not pass through to the RIC’s stockholders. In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, realized capital losses in excess of realized capital gains) to offset the RIC’s investment company taxable income, but may carry forward such net capital losses, and use them to offset capital gains indefinitely. Due to these limits on the deductibility of expenses and net capital losses, the Company may for tax purposes have aggregate taxable income for several taxable years that it is required to distribute and that is taxable to stockholders even if such taxable income is greater than the aggregate net income the Company actually earned during those taxable years. Such required distributions may be made from the Company cash assets or by liquidation of investments, if necessary. The Company may realize gains or losses from such liquidations. In the event the Company realizes net capital gains from such transactions, the Company may receive a larger capital gain distribution than it would have received in the absence of such transactions.

 

Depending on the level of taxable income earned in a tax year, for excise tax purposes the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and incur a 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned.

 

The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes (“ASC Topic 740”), nor did the Company have any unrecognized tax benefits as of the periods presented herein. The Company's 2017, 2016, 2015 and 2014 federal tax returns remain subject to examination by the Internal Revenue Service.

 

As of September 30, 2018, the Company had a deferred tax asset of $1.3 million and a deferred tax liability of $(4.5) million. Given the losses generated by certain entities, deferred tax assets have been offset by valuation allowances of $1.3 million. As of December 31, 2017, the Company had a deferred tax asset of $1.6 million and a deferred tax liability of $(3.6) million. Given the losses generated by certain entities, deferred tax assets have been offset by valuation allowances of $1.6 million.

 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Tax Act”) was signed into law. The Tax Act reduced the statutory income tax rate applicable to corporations from 35 percent to 21 percent. Additionally, the Tax Act makes changes regarding the use of net operating losses, repeals the corporate alternative minimum tax, restricts corporate deductibility of interest expense, and makes significant changes to the U.S. international tax rules. These changes affect the Company’s estimates of the current income tax expense and the deferred tax asset and liability balances used in the calculation of its net asset value.

 

The Company has assessed that the reduction in the corporate tax rate did not have a significant impact on the Company’s net asset value. The Company will continue to assess the effects of the Tax Act on the deferred tax asset and liability balances and valuation allowances and continually assess the recoverability of their deferred tax assets based upon the weight of available evidence.

 

The deferred tax asset valuation allowance has been determined pursuant to the provisions of ASC Topic 740, including the Company's estimation of future taxable income, if necessary, and is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized.

 

 63 

 

 

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

Note 14 — Financial Highlights

 

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

 

   For the Nine Months   For the Nine Months 
   Ended September 30,   Ended September 30, 
   2018   2017 
Per share data:          
Net asset value, beginning of period  $8.30   $8.62 
Results of operations (1)          
Net investment income   0.43    0.45 
Net realized and unrealized loss, net of deferred taxes   (0.05)   (0.16)
Net increase in net assets resulting from operations   0.38    0.29 
Stockholder distributions (2)          
Distributions from net investment income   (0.49)   (0.60)
Net decrease in net assets resulting from stockholder distributions   (0.49)   (0.60)
Capital share transactions          
Issuance of common stock (3)   —    — 
Repurchases of common stock   0.01    — 
Net increase in net assets resulting from capital share transactions   0.01    — 
Net asset value, end of period  $8.20   $8.31 
Shares outstanding at end of period   178,224,771    178,476,800 
Total return (4)   4.71%   3.36%
Ratio/Supplemental data:          
Net assets, end of period (in thousands)  $1,463,846   $1,486,921 
Ratio of net investment income to average net assets (6) (7)   7.39%   7.43%
Ratio of total expenses to average net assets (6) (7)   8.54%   7.32%
Portfolio turnover rate (5)   36.37%   29.13%

 

 

(1)The per share data were derived by using the weighted average shares outstanding during the period.
(2)The per share data for distributions reflect the actual amount of distributions declared per share during the period.
(3)The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock mainly from the Company's DRIP.
(4)Total return is calculated assuming a purchase of shares of common stock at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the DRIP.

(5)Portfolio turnover rate is calculated using the lesser of year-to-date purchases or sales over the average of the invested assets at fair value. Not annualized.

(6)Ratios are annualized, except for incentive fees.
(7)There were no offering costs during the period.

 

 64 

 

  

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

Note 15 — Schedules of Investments and Advances to Affiliates

 

The following table presents the Schedule of Investments and Advances to Affiliates as of September 30, 2018:

 

            Amount of     Beginning                                
            dividends     Fair Value                             Fair Value  
            and interest     at                 Realized     Change in     at  
            included in     December     Gross     Gross     Gain/     Unrealized     September  
Portfolio Company (1)   Type of Asset   Industry   income     31, 2017     additions*     reductions**     (Loss)     Gain (Loss) (6)     30, 2018  
Control Investments                                                                
California Resources Development JV, LLC - Preferred Equity - 9.1 %(11)   Equity/Other   Metals & Mining   $ 3,292     $ 26,984     $ 11,899     $ (5,370 )   $ —     $ 571     $ 34,084  
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (4) (10) (11)   Equity/Other   Food Products     —       —       —       —       —       —       —  
Capstone Nutrition (fka Integrity Nutraceuticals) - L+12.50% (14.84%), 9/25/2020 (4) (8) (11)   Senior Secured First Lien Debt   Food Products     —       —       2,829       —       —       273       3,102  
Capstone Nutrition (fka Integrity Nutraceuticals) - L+12.50% (14.84%), 9/25/2020 (4) (8) (11)   Senior Secured First Lien Debt   Food Products     —       4,096       —       —       —       (763 )     3,333  
Capstone Nutrition (fka Integrity Nutraceuticals) - L+12.50% (14.84%), 9/25/2020 (4) (8)   Senior Secured First Lien Debt   Food Products     —       9,467       —       —       —       (2,055 )     7,412  
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (4) (10) (11)   Equity/Other   Food Products     —       —       —       —       —       —       —  
CRS-SPV, Inc.   Equity/Other   Business Services     —       —       2,219       —       —       20       2,239  
Kahala Ireland OpCo Designated Activity Company - L+5.00% (13.00%), 12/23/2028 (3) (8) (11)   Senior Secured First Lien Debt   Aerospace & Defense     13,449       141,549       —       (20,000 )     —       —       121,549  
Kahala Ireland OpCo Designated Activity Company - Common Equity (3) (10) (11)   Equity/Other   Aerospace & Defense     —       11,709       —       —       —       2,692       14,401  
Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (3) (10) (11)   Equity/Other   Aerospace & Defense     —       3,250       —       (20 )     —       20       3,250  
Kahala US OpCo LLC - Class A Preferred Units - 13.00% (3) (10) (11)   Equity/Other   Aerospace & Defense     —       —       —       —       —       —       —  
NexSteppe Inc. - Series C Preferred Stock Warrant (10) (11)   Equity/Other   Chemicals     —       —       —       —       —       —       —  
NexSteppe Inc. - 12.00%, 9/30/2018 (8) (11)   Senior Secured First Lien Debt   Chemicals     —       —       250       —       —       (250 )     —  
NexSteppe Inc. - 12.00%, 9/30/2018 (8) (11)   Senior Secured First Lien Debt   Chemicals     —       —       —       —       —       —       —  
NMFC Senior Loan Program I, LLC   Equity/Other   Diversified Investment Vehicles     4,626       50,805       —       —       —       (434 )     50,371  
Park Ave RE Holdings, LLC - 13.00%, 12/31/2021 (2) (8) (9) (11)   Subordinated Debt   Real Estate & Management Development     3,666       37,192       —       —       —       —       37,192  
Park Ave RE Holdings, LLC - Common Shares (2) (10) (11)   Equity/Other   Real Estate & Management Development     —       12,678       —       102       —       2,535       15,315  
Park Ave RE Holdings, LLC -Preferred Shares - 8.00% (2) (10) (11)   Equity/Other   Real Estate Management & Development     —       23,645       —       —       —       —       23,645  
South Grand MM CLO I, LLC   Equity/Other   Diversified Investment Vehicles     —       28,904       —       (22,833 )     —       648       6,719  
Total Control Investments           $ 25,033     $ 350,279     $ 17,197     $ (48,121 )   $ —     $ 3,257     $ 322,612  

 

 65 

 

  

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

            Amount of     Beginning                                
            dividends     Fair Value                             Fair Value  
            and interest     at                 Realized     Change in     at  
            included in     December     Gross     Gross     Gain/     Unrealized     September  
Portfolio Company (1)   Type of Asset   Industry   income     31, 2017     additions*     reductions**     (Loss)     Gain (Loss) (6)     30, 2018  
Affiliate Investments                                                  
Answers Corporation - Common Equity (10) (11)   Equity/Other   Technology   $ —     $ 14,231     $ —     $ —     $ —     $ (9,686 )   $ 4,545  
Answers Corporation (7) (11)   Senior Secured First Lien Debt   Technology     82       2,916       7       (3,007 )     55       29       —  
Answers Corporation - L+7.90% (9.00%), 9/15/2021 (11)   Senior Secured Second Lien Debt   Technology     432       4,371       118       (35 )     4       (50 )     4,408  
B&M CLO 2014-1, LTD. Subordinated Notes - 11.61%, 4/16/2026 (11)   Collateralized Securities   Diversified Investment Vehicles     1,049       12,804       —       (1,851 )     (1,857 )     1,585       10,681  
Basho Technologies, Inc. (7)   Senior Secured First Lien Debt   Software     —       —       —       (1,238 )     (5,247 )     6,485       —  
Basho Technologies, Inc. (7)   Senior Secured First Lien Debt   Software     —       —       —       —       (2,550 )     2,550       —  
Basho Technologies, Inc. - Series G Senior Participating Preferred Stock Warrant (7)   Equity/Other   Software     —       —       —       —       (2,000 )     2,000       —  
CVP Cascade CLO, LTD. Subordinated Notes - 62.02%, 1/16/2026 (11)   Collateralized Securities   Diversified Investment Vehicles     798       4,121       —       (832 )     (5,500 )     4,107       1,896  
Danish CRJ LTD. - Common Equity (10) (11)   Equity/Other   Aerospace & Defense     —       605       —       (1 )     —       (441 )     163  
Figueora - Class F Notes - 12.34%, 1/15/2027 (11)   Collateralized Securities   Diversified Investment Vehicles     211       —       8,000       —       —       —       8,000  
Figueroa CLO 2014-1, LTD. Subordinated Notes - 18.83%, 1/15/2027   Collateralized Securities   Diversified Investment Vehicles     1,449       12,508       —       (481 )     (4,000 )     3,989       12,016  
Frank Entertainment Group, LLC - 6.00%, 6/1/2022   Senior Secured First Lien Debt   Media Entertainment     —       —       1,650       —       —       (236 )     1,414  
Frank Entertainment Group, LLC - 2.50%, 6/1/2022   Senior Secured Second Lien Debt   Media Entertainment     —       —       —       —       —       —       —  
Frank Entertainment Group, LLC   Equity/Other   Media Entertainment     —       —       —       —       —       —       —  
Frank Entertainment Group, LLC   Equity/Other   Media Entertainment     —       —       —       —       —       —       —  
Frank Entertainment Group, LLC   Equity/Other   Media Entertainment     —       —       —       —       —       —       —  
Frontstreet Facility Solutions,Inc.   Equity/Other   Telecom     —       —       —       —       —       —       —  
Frontstreet Facility Solutions,Inc. -13.00%, 3/1/2021   Subordinated Debt   Telecom     —       —       227       —       —       (38 )     189  
MidOcean Credit CLO II, LLC Income Notes - 12.13%, 1/29/2025 (11)   Collateralized Securities   Diversified Investment Vehicles     1,506       20,651       —       —       —       137       20,788  
MidOcean Credit CLO III, LLC Subordinated Notes - 15.05%, 7/21/2026 (11)   Collateralized Securities   Diversified Investment Vehicles     1,841       17,508       1,739       (1,092 )     (3,300 )     3,481       18,336  
MidOcean Credit CLO IV, LLC Income Notes - 10.02%, 4/15/2027 (11)   Collateralized Securities   Diversified Investment Vehicles     1,408       12,212       —       (222 )     —       162       12,152  
NewStar Arlington Senior Loan Program LLC Class FR Notes - 18.47%, 7/25/2025 (11)   Collateralized Securities   Diversified Investment Vehicles     3,134       25,439       —       (1,875 )     —       4,110       27,674  
NewStar Arlington Senior Loan Program LLC Class FR Notes - 13.34%, 4/25/2031   Collateralized Securities   Diversified Investment Vehicles     287       —       4,528       —       —       2       4,530  

  

 66 

 

  

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

            Amount of     Beginning                                
            dividends     Fair Value                             Fair Value  
            and interest     at                 Realized     Change in     at  
            included in     December     Gross     Gross     Gain/     Unrealized     September  
Portfolio Company (1)   Type of Asset   Industry   income     31, 2017     additions*     reductions**     (Loss)     Gain (Loss) (6)     30, 2018  
NewStar Exeter Fund CLO   Debt - 9.85%, 1/20/2027 (11)   Collateralized Securities   Diversified Investment Vehicles   $ 902     $ 8,660     $ 121     $ —     $ —     $ 294     $ 9,075  
NewStar Exeter Fund CLO   Equity - 17.24%, 1/19/2027 (11)   Collateralized Securities   Diversified Investment Vehicles     304       13,089       —       (1,704 )     (7,000 )     6,304       10,689  
OFSI Fund VI, Ltd. - Subordinated Notes - 0.00%, 3/20/2025 (11)   Collateralized Securities   Diversified Investment Vehicles     183       10,162       —       (2,285 )     (1,000 )     (151 )     6,726  
PennantPark Credit Opportunities Fund II, LP   Equity/Other   Diversified Investment Vehicles     1,031       10,136       —       —       —       70       10,206  
Related Fee Agreements (5)   Collateralized Securities   Diversified Investment Vehicles     67       3,917       —       (2,119 )     (343 )     550       2,005  
Silver Spring CLO, Ltd. - 4.84%, 10/16/2026 (11)   Collateralized Securities   Diversified Investment Vehicles     384       10,363       —       (8,241 )     (6,882 )     4,760       —  
Tax Defense Network, LLC - L +6.00% (10.00%), 8/27/2019 (8) (11)   Senior Secured First Lien Debt   Diversified Consumer Services     157       7,477       —       —       —       325       7,802  
Tax Defense Network, LLC - Common Equity (10) (11)   Equity/Other   Diversified Consumer Services     —       —       —       —       —       —       —  
Tax Defense Network, LLC - Preferred Equity    Equity/Other   Diversified Consumer Services     —       —       —       —       —       —       —  
Team Waste, LLC - Preferred Units   Equity/Other   Industrials     —       —       2,234       —       —       1       2,235  
Tennenbaum Waterman Fund, L.P.   Equity/Other   Diversified Investment Vehicles     1,034       10,427       —       —       —       (327 )     10,100  
THL Credit Greenway Fund II LLC   Equity/Other   Diversified Investment Vehicles     893       11,373       856       (4,540 )     —       795       8,484  
TwentyEighty, Inc. - Class A Common Equity (10) (11)   Equity/Other   Media     —       —       —       —       —       —       —  
TwentyEighty, Inc. - L+8.00% (10.33%), 3/31/2020 (8) (11)   Senior Secured First Lien Debt   Media     289       2,853       125       (2,584 )     333       (392 )     335  
TwentyEighty, Inc. - 4.00%, 3/31/2020 (8) (11)   Senior Secured First Lien Debt   Media     865       4,719       674       —       —       1,012       6,405  
TwentyEighty, Inc. - 0.25%, 3/31/2020 (8) (11)   Senior Secured First Lien Debt   Media     831       3,739       819       —       —       1,508       6,066  
WhiteHorse VIII, Ltd. CLO Subordinated Notes - 6.89%, 5/1/2026 (11)   Collateralized Securities   Diversified Investment Vehicles     (30 )     8,761       —       (2,013 )     (1,000 )     731       6,479  
World Business Lenders, LLC - Preferred Stock (10) (11)   Equity/Other   Consumer Finance     —       3,759       —       —       —       —       3,759  
Total Affiliate Investments           $ 19,107     $ 236,801     $ 21,098     $ (34,120 )   $ (40,287 )   $ 33,666     $ 217,158  
Total Control & Affiliate Investments           $ 44,140     $ 587,080     $ 38,295     $ (82,241 )   $ (40,287 )   $ 36,923     $ 539,770  

   

 

* Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

 

** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category. During the period the cost basis for certain CLO positions was reduced due to the realization of an other than temporary impairment. Amounts realized were reserved against fair value in prior periods.

 

 67 

 

  

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

(1)The principal amount and ownership detail are shown in the consolidated schedules of investments.
(2)This investment was not deemed significant under Regulation S-X as of September 30, 2018.
(3)This investment was not deemed significant under Regulation S-X as of September 30, 2018.
(4)This investment was not deemed significant under Regulation S-X as of September 30, 2018.
(5)Not all Related Fee Agreements shown on the consolidated schedules of investments are Affiliated Investments.
(6)Gross of deferred taxes in the amount of $0.9 million.
(7)Investment no longer held as of September 30, 2018.
(8)Investment paid or has the option to pay all or a portion of interest and dividends via payment-in-kind.
(9)Portfolio company elected to pay cash interest, noting the company has the option to elect a portion of the interest to be payment-in-kind.
(10)Investment is non-income producing at September 30, 2018.
(11)The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's board of directors as required by the 1940 Act. Such investments are valued using significant unobservable inputs (See Note 3 to the consolidated financial statements).

 

Dividends and interest for the nine months ended September 30, 2018 and September 30, 2017 attributable to Controlled and Affiliated investments no longer held as of September 30, 2018 and September 30, 2017 was $0.5 million and $0.0 million, respectively.

 

Realized gain (loss) for the nine months ended September 30, 2018 and September 30, 2017 attributable to Controlled and Affiliated investments no longer held as of September 30, 2018 and September 30, 2017 was $(16.6) million and $0.0 million, respectively.

 

Change in unrealized gain (loss) for the nine months ended September 30, 2018 and September 30, 2017 attributable to Controlled and Affiliated investments no longer held as of September 30, 2018 and September 30, 2017 was $15.8 million and $0.0 million, respectively.

 

The following table presents the Schedule of Investments and Advances to Affiliates as of December 31, 2017:

 

            Amount of     Beginning                                
            dividends     Fair Value                             Fair  
            and interest     at                 Realized     Change in     Value at  
            included in     December     Gross     Gross     Gain/     Unrealized     December  
Portfolio Company (1)   Type of Asset   Industry   income     31, 2016     additions*     reductions**     (Loss)     Gain (Loss) (6)     31, 2017  
Control Investments                                                                
California Resources Development JV, LLC - Preferred Equity - 9.00% (11)   Equity/Other   Metals & Mining   $ 1,987     $ —     $ 26,182     $ —     $ —     $ 802     $ 26,984  
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) - L+12.50% (13.88%), 4/28/2019 (4) (8) (11)   Senior Secured First Lien Debt   Food Products     —       19,708       —       —       —       (6,145 )     13,563  
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (4) (10) (11)   Equity/Other   Food Products     —       —       —       —       —       —       —  
Capstone Nutrition Class B and C Common Stock (fka Integrity Nutraceuticals, Inc.) (4) (10)(11)   Equity/Other   Food Products     —       —       —       —       —       —       —  
Kahala Ireland OpCo Designated Activity Company - L+8.00% (13.00%), 12/23/2028 (3) (8) (11)   Senior Secured First Lien Debt   Aerospace & Defense     19,245       149,409       140       (8,000 )     —       —       141,549  
Kahala Ireland OpCo Designated Activity Company - Common Equity (3) (10) (11)   Equity/Other   Aerospace & Defense     —       8,180       —       —       —       3,529       11,709  
Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (3) (10) (11)   Equity/Other   Aerospace & Defense     —       3,250       —       (48 )     —       48       3,250  
Kahala US OpCo LLC (4) (7)   Senior Secured First Lien Debt   Aerospace & Defense     120       2,690       —       (2,690 )     —       —       —  
Kahala US OpCo LLC - Class A Preferred Units - 13.00% (4) (10) (11)   Equity/Other   Aerospace & Defense     —       4,000       —       (2,491 )     (1,702 )     193       —  
NexSteppe Inc. - 12.00%, 9/30/2018 (8) (11)   Senior Secured First Lien Debt   Chemicals     381       —       8,250       (185 )     —       (8,065 )     —  

 

 68 

 

  

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

            Amount of     Beginning                                
            dividends     Fair Value                             Fair  
            and interest     at                 Realized     Change in     Value at  
            included in     December     Gross     Gross     Gain/     Unrealized     December  
Portfolio Company (1)   Type of Asset   Industry   income     31, 2016     additions*     reductions**     (Loss)     Gain (Loss) (6)     31, 2017  
NexSteppe Inc. - 12.00%, 9/30/2018 (8) (11)   Senior Secured First Lien Debt   Chemicals   $ —     $ —     $ 1,500     $ —     $ —     $ (1,500 )   $ —  
NexSteppe Inc. - Series C Preferred Stock Warrant (10) (11)   Equity/Other   Chemicals     —       —       1,280       (1,000 )     —       (280 )     —  
NMFC Senior Loan Program I, LLC   Equity/Other   Diversified Investment Vehicles     6,782       —       47,057       —       —       3,748       50,805  
Park Ave RE Holdings, LLC - L +8.00% (13.00%), 12/31/2021 (2) (8) (9) (11)   Subordinated Debt   Real Estate Management & Development     4,902       37,192       —       —       —       —       37,192  
Park Ave RE Holdings, LLC - Common Shares (2) (10) (11)   Equity/Other   Real Estate Management & Development     —       6,564       —       —       —       6,114       12,678  
Park Ave RE Holdings, LLC - Preferred Shares - 8.00% (2) (10) (11)   Equity/Other   Real Estate Management & Development     946       23,645       —       —       —       —       23,645  
South Grand MM CLO I, LLC   Equity/Other   Diversified Investment Vehicles     2,223       —       28,382       —       —       522       28,904  
Total Control Investments           $ 36,586     $ 254,638     $ 112,791     $ (14,414 )   $ (1,702 )   $ (1,034 )   $ 350,279  
                                                                 
Affiliate Investments                                                                
Answers Corporation - L+5.00% (6.57%), 4/15/2021 (11)   Senior Secured First Lien Debt   Technology   $ 151     $ —     $ 2,967     $ (23 )   $ 1     $ (29 )   $ 2,916  
Answers Corporation - L+5.00% (6.57%), 4/15/2021 (11)   Senior Secured First Lien Debt   Technology     (1 )     —       17,064       (15,365 )     (18,223 )     16,524       —  
Answers Corporation - L+5.00% (6.57%), 4/15/2021 (11)   Senior Secured First Lien Debt   Technology     1       —       2,954       (2,954 )     —       —       —  
Answers Corporation - L+7.90% (9.00%), 9/15/2021 (11)   Senior Secured Second Lien Debt   Technology     418       —       4,118       (35 )     4       284       4,371  
Answers Corporation - Common Equity (10) (11)   Equity/Other   Technology     —       —       11,361       —       —       2,870       14,231  
B&M CLO 2014-1, LTD. Subordinated Notes - 0.00%, 4/16/2026 (11)   Collateralized Securities   Diversified Investment Vehicles     277       16,772       —       (4,946 )     —       978       12,804  
Basho Technologies, Inc. - 17.00%, 5/31/2018 (8) (9) (11)   Senior Secured First Lien Debt   Software     72       —       3,904       (3,967 )     69       (6 )     —  
Basho Technologies, Inc. - 17.00%, 5/31/2018 (8) (9) (11)   Senior Secured First Lien Debt   Software     —       —       918       —       —       (918 )     —  
Basho Technologies, Inc. - Series G Senior Participating Preferred Stock Warrant - Expire 3/9/2025 (10) (11)   Equity/Other   Software     —       —       —       —       —       —       —  
Basho Technologies, Inc. - Series G Senior Preferred Stock (10) (11)   Equity/Other   Software     —       —       —       —       —       —       —  
CVP Cascade CLO, LTD. Subordinated Notes - 0.00%, 1/16/2026 (11)   Collateralized Securities   Diversified Investment Vehicles     3       8,868       —       (2,934 )     —       (1,813 )     4,121  
CVP Cascade CLO-2, LTD. Subordinated Notes (7)(11)   Collateralized Securities   Diversified Investment Vehicles     191       11,593       —       (10,837 )     (2,829 )     2,073       —  
Danish CRJ LTD. (7)   Senior Secured First Lien Debt   Aerospace & Defense     —       20       —       (7 )     —       (13 )     —  
Danish CRJ LTD. - Common Equity (10) (11)   Equity/Other   Aerospace & Defense     —       407       —       —       —       198       605  
Figueroa CLO 2014-1, LTD. Subordinated Notes - 0.00%, 1/15/2027 (11)   Collateralized Securities   Diversified Investment Vehicles     (103 )     16,101       —       (3,520 )     —       (73 )     12,508  

  

 69 

 

  

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

            Amount of     Beginning                                
            dividends     Fair Value                             Fair  
            and interest     at                 Realized     Change in     Value at  
            included in     December     Gross     Gross     Gain/     Unrealized     December  
Portfolio Company (1)   Type of Asset   Industry   income     31, 2016     additions*     reductions**     (Loss)     Gain (Loss) (6)     31, 2017  
MidOcean Credit CLO II, LLC Income Notes -15.75%, 1/29/2025 (11)   Collateralized Securities   Diversified Investment Vehicles   $ 2,380     $ 22,419     $ —     $ (2,216 )   $ —     $ 448     $ 20,651  
MidOcean Credit CLO III, LLC Subordinated Notes - 1.31%, 7/21/2026 (11)   Collateralized Securities   Diversified Investment Vehicles     715       23,341       —       (3,674 )     —       (2,159 )     17,508  
MidOcean Credit CLO IV, LLC Income Notes - 1.44%, 4/15/2027 (11)   Collateralized Securities   Diversified Investment Vehicles     689       15,505       —       (1,871 )     —       (1,422 )     12,212  
NewStar Arlington Senior Loan Program LLC Subordinated Notes - 12.62%, 7/25/2025 (11)   Collateralized Securities   Diversified Investment Vehicles     4,930       24,491       —       (1,945 )     —       2,893       25,439  
NewStar Exeter Fund CLO   Debt - L+7.50% (8.86%), 1/19/2027 (11)   Collateralized Securities   Diversified Investment Vehicles     1,106       8,455       162       —       —       43       8,660  
NewStar Exeter Fund CLO   Equity - 3.45%, 1/19/2027 (11)   Collateralized Securities   Diversified Investment Vehicles     1,645       20,579       —       (2,609 )     —       (4,881 )     13,089  
NMFC Senior Loan Program I, LLC   Equity/Other   Diversified Investment Vehicles     —       47,057       —       (47,057 )     —       —       —  
Ocean Trails CLO V, LTD. (7)   Collateralized Securities   Diversified Investment Vehicles     48       29,144       —       (29,128 )     906       (922 )     —  
OFSI Fund VI, Ltd. Subordinated Notes - 0.00%, 3/20/2025 (11)   Collateralized Securities   Diversified Investment Vehicles     617       17,354       —       (5,007 )     —       (2,185 )     10,162  
PennantPark Credit Opportunities Fund II, LP   Equity/Other   Diversified Investment Vehicles     705       9,788       2,691       (2,691 )     10       338       10,136  
Related Fee Agreements (5)   Collateralized Securities   Diversified Investment Vehicles     922       9,647       —       (3,607 )     42       (2,165 )     3,917  
Silver Spring CLO, Ltd. Subordinated Notes - 0.00%, 10/16/2026 (11)   Collateralized Securities   Diversified Investment Vehicles     94       12,007       —       (3,554 )     —       1,910       10,363  
South Grand MM CLO I, LLC   Equity/Other   Diversified Investment Vehicles     —       28,382       —       (28,382 )     —       —       —  
Squan Holding Corp. - L+4.50% (6.20%), 10/10/2019 (11)   Senior Secured First Lien Debt   Diversified Telecommunication Services     —       6,895       —       (6,895 )     —       —       —  
Squan Holding Corp. - Class A Common Stock (10) (11)   Equity/Other   Diversified Telecommunication Services     —       —       —       —       —       —       —  
Squan Holding Corp. - Series A Preferred Stock (10) (11)   Equity/Other   Diversified Telecommunication Services     —       —       —       —       —       —       —  
Tax Defense Network, LLC - L +13.00% (14.70%), 8/28/2019 (8) (11)   Senior Secured First Lien Debt   Diversified Consumer Services     1,075       —       18,682       (117 )     1       (11,089 )     7,477  
Tax Defense Network, LLC - Common Equity (10) (11)   Equity/Other   Diversified Consumer Services     —       —       —       —       —       —       —  
Tennenbaum Waterman Fund, L.P.   Equity/Other   Diversified Investment Vehicles     1,270       —       10,169       —       —       258       10,427  
TwentyEighty, Inc. - First Lien Debt - L+8.00% (9.42%), 3/31/2020 (8) (11)   Senior Secured First Lien Debt   Media     378       —       2,426       —       —       427       2,853  
TwentyEighty, Inc. - First Lien Debt - 8.00%, 3/31/2020 (8) (11)   Senior Secured First Lien Debt   Media     928       —       4,535       —       —       184       4,719  
TwentyEighty, Inc. - First Lien Debt - 9.00%, 3/31/2020 (8) (11)   Senior Secured First Lien Debt   Media     881       —       4,164       —       —       (425 )     3,739  
TwentyEighty, Inc. - Class A Common Equity (10) (11)   Equity/Other   Media     —       —       —       —       —       —       —  

  

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BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

            Amount of     Beginning                                
            dividends     Fair Value                             Fair  
            and interest     at                 Realized     Change in     Value at  
            included in     December     Gross     Gross     Gain/     Unrealized     December  
Portfolio Company (1)   Type of Asset   Industry   income     31, 2016     additions*     reductions**     (Loss)     Gain (Loss) (6)     31, 2017  
TwentyEighty, Inc. - Revolver (7)   Senior Secured First Lien Debt   Media   $ 2     $ —     $ —     $ —     $ —     $ —     $ —  
THL Credit Greenway Fund II LLC   Equity/Other   Diversified Investment Vehicles     957       12,850       —       (1,849 )     —       372       11,373  
WhiteHorse VIII, Ltd. CLO Subordinated Notes - 10.03%, 5/1/2026 (11)   Collateralized Securities   Diversified Investment Vehicles     712       12,563       —       (2,859 )     —       (943 )     8,761  
World Business Lenders, LLC - Preferred Stock (10) (11)   Equity/Other   Consumer Finance     —       —       4,441       —       —       (682 )     3,759  
Total Affiliate Investments           $ 21,063     $ 354,238     $ 90,556     $ (188,049 )   $ (20,019 )   $ 75     $ 236,801  
Total Control & Affiliate Investments           $ 57,649     $ 608,876     $ 203,347     $ (202,463 )   $ (21,721 )   $ (959 )   $ 587,080  

 

 

*       Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

 

** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

 

(1)The principal amount and ownership detail are shown in the consolidated schedules of investments.
(2)This investment was not deemed significant under Regulation S-X as of December 31, 2017.
(3)For the year ended December 31, 2017, the Company had determined that it must include audited financial statements of Kahala Ireland Opco Designated Activity Company because it was a controlled investment and was required to do so under SEC Rule 3-09. The audited financial statements were attached as Exhibit 99.1 in the Company's 2017 Form 10-K.
(4)This investment was not deemed significant under Regulation S-X as of December 31, 2017.
(5)Not all Related Fee Agreements shown on the consolidated schedules of investments are Affiliated Investments.
(6)Gross of deferred taxes.
(7)Investment no longer held as of December 31, 2017.
(8)Investment paid or has the option to pay all or a portion of interest and dividends via payment-in-kind.
(9)Portfolio company elected to pay cash interest, noting the company has the option to elect a portion of the interest to be payment-in-kind.
(10)Investment is non-income producing at December 31, 2017.
(11)The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's board of directors as required by the 1940 Act. Such investments are valued using significant unobservable inputs (See Note 3 to the consolidated financial statements).

 

Dividends and interest for the year ended December 31, 2017 attributable to Controlled and Affiliated investments no longer held as of December 31, 2017 was $49 thousand.

 

Realized gain (loss) for the year ended December 31, 2017 attributable to Controlled Affiliated investments no longer held as of December 31, 2017 was $0.9 million.

 

Change in unrealized gain (loss) for the year ended December 31, 2017 attributable to Controlled and Affiliated investments no longer held as of December 31, 2017 was $(0.9) million, respectively.

 

Note 16 — Subsequent Events

 

The Company has evaluated subsequent events through the filing of this Form 10-Q and determined that there have been no events that have occurred that would require adjustments to the Company’s disclosures in the consolidated financial statements except for the following:

 

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BUSINESS DEVELOPMENT CORPORATION OF AMERICA

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

For the period ended September 30, 2018

(Unaudited) 

 

DRIP Sales

 

From October 1, 2018 through the filing of this Form 10-Q, the Company has issued 0.8 million shares of common stock including shares issued pursuant to the DRIP. Total gross proceeds from these issuances including proceeds from shares issued pursuant to the DRIP were $6.2 million.

 

Franklin Templeton Transaction

 

On October 24, 2018, BSP entered into a definitive agreement with Franklin Resources, Inc. (“FRI”) and Templeton International, Inc. (collectively with FRI, “Franklin Templeton”), whereby Franklin Templeton has agreed, subject to the satisfaction of the closing conditions contained in the agreement, to acquire BSP (the “Franklin Templeton Transaction”), including BSP’s 100% ownership interest in the Adviser. Upon consummation of the Franklin Templeton Transaction, key senior management of BSP are expected to continue to operate in the same professional capacity as prior to the Franklin Templeton Transaction.

 

Due to the change of control of BSP, if the Franklin Templeton Transaction is consummated, it will result in an assignment of the current investment advisory agreement between the Company and the Adviser under the 1940 Act and, as a result, the immediate termination of such investment advisory agreement. Since the current investment advisory agreement will terminate upon completion of the Franklin Templeton Transaction, the Company has filed a definitive proxy statement on November 5, 2018 to inform shareholders of a special meeting to approve a new investment advisory agreement between the Company and the Adviser (the “Stockholder Approval”), which new agreement was approved by the Company’s Board of Directors on October 22, 2018. All terms will remain unchanged from the current investment advisory agreement. The consummation of the Franklin Templeton Transaction is expected to occur in early 2019 and is subject to customary closing conditions, including receipt of the Stockholder Approval, as well as the receipt of any required regulatory approvals.

 

In connection with the Franklin Templeton Transaction, on November 1, 2018, FRI and BSP purchased 6,097,561 and 4,878,049 shares of the Company’s common stock, respectively, for which the Company received aggregate cash proceeds of $90 million. The offers and sales of such shares were exempt from registration under the Securities Act under Section 4(a)(2) and Regulation D thereunder.

 

Wells Fargo Credit Facility Amendment

 

As disclosed in Note 5, on July 24, 2012, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into the Wells Fargo Credit Facility. On November 8, 2018, the Company, through a wholly-owned consolidated special purpose financing subsidiary, Funding I, entered into an Amendment to the Wells Fargo Credit Facility (the “Amendment”) which (1) increases the size of the Wells Fargo Credit Facility from $500.0 to $520.0 million and (2) permits the inclusion of Second Lien Loans as part of the borrowing base, which are not to exceed 10% of the outstanding balance of all Loan Assets (each a defined term in the Amendment).

 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Business Development Corporation of America and the notes thereto, and other financial information included elsewhere in this Quarterly Report on Form 10-Q. We are externally managed by our adviser, BDCA Adviser, LLC (the “Adviser”).

 

The forward-looking statements contained in this Quarterly Report on Form 10-Q may include statements as to:

 

•our future operating results;
•our business prospects and the prospects of our portfolio companies;
•the impact of the investments that we expect to make;
•the ability of our portfolio companies to achieve their objectives;
•our contractual arrangements and relationships with third parties;
•our expected financings and investments;
•the adequacy of our cash resources and working capital;
•the timing of cash flows, if any, from the operations of our portfolio companies;
•our repurchase of shares;
•actual and potential conflicts of interest with our Adviser and its affiliates;
•the dependence of our future success on the general economy and its effect on the industries in which we invest;
•the ability to qualify and maintain our qualifications as a regulated investment company (“RIC”) and a business development company (“BDC”);
•the timing, form and amount of any distributions;
•the impact of fluctuations in interest rates on our business;
•the valuation of any investments in portfolio companies, particularly those having no liquid trading market;
•the impact of changes to generally accepted accounting principles, and the impact to BDCA; and
•the impact of changes to tax legislation and, generally, our tax position.

 

In addition, words such as "anticipate," "believe," "expect" and "intend" indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward- looking statements for any reason, including the factors discussed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K. Other factors that could cause actual results to differ materially include:

 

•changes in the economy;
•risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; and
•future changes in laws or regulations and conditions in our operating areas.

 

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligations to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

 

Overview

 

We are an externally managed, non-diversified closed-end management investment company incorporated in Maryland in May 2010 that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (“the 1940 Act”). In addition, we have elected to be treated for tax purposes as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Our investment activities are managed by the Adviser, a subsidiary of Benefit Street Partners L.L.C. (“BSP”) and supervised by our board of directors, a majority of whom are independent of the Adviser and its affiliates. As a BDC, we are required to comply with certain regulatory requirements.

 

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Our investment objective is to generate both current income and to a lesser extent long-term capital appreciation through debt and equity investments. We invest primarily in senior secured loans, and to a lesser extent, mezzanine loans, unsecured loans and equity of predominantly private U.S. middle-market companies. We define middle market companies as those with annual revenues of less than $1 billion, although we may invest in larger or smaller companies. We may also purchase interests in loans or corporate bonds through secondary market transactions. We expect that each investment generally will range between approximately 0.5% and 3.0% of our total assets. As of September 30, 2018, 79.1% of our portfolio was invested in senior secured loans.

 

Senior secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in priority of payments and are generally secured by liens on the operating assets of a borrower which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. We may also invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles (“Collateralized Securities” or “CLO's”).

 

Financial and Operating Highlights

 

(Dollars in millions, except per share amounts)    
At September 30, 2018:     
Investment Portfolio  $2,500.0 
Net Assets attributable to Business Development Corporation of America   1,460.8 
Debt (net of deferred financing costs)   1,110.5 
Net Asset Value per share   8.20 
      
Portfolio Activity for the Nine Months Ended September 30, 2018:     
Cost of investments purchased during period, including PIK   913.5 
Sales, repayments and other exits during the period   915.7 
Number of portfolio companies at end of period   221 
      
Operating results for the Nine Months Ended September 30, 2018:     
Net investment income per share   0.43 
Distributions declared per share   (0.49)
Net increase in net assets resulting from operations per share   0.38 
Net investment income   77.8 
Net realized and unrealized gain (loss) net of deferred taxes   (9.1)
Net increase in net assets resulting from operations   68.7 

 

Portfolio and Investment Activity

 

During the nine months ended September 30, 2018, we made $909.8 million of investments in new and existing portfolio companies and had $915.7 million in aggregate amount of exits and repayments, resulting in net investments of $(5.9) million for the period. The portfolio composition by loan market consisted of 76.0% Middle Market (1), 13.0% Large Corporate (2), and 11.0% Other (3) investments. In addition, the total portfolio of debt investments at fair value consisted of 87.8% bearing variable interest rates and 12.2% bearing fixed interest rates.

 

 

(1)Middle market represents companies with annual revenues of less than $1 billion.
(2)Large corporate represents companies with annual revenues exceeding $1 billion.
(3)Other represents collateralized securities and equity investments.

 

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Our portfolio composition, based on fair value at September 30, 2018 was as follows:

 

   September 30, 2018 
       Weighted Average 
   Percentage of   Current Yield for 
   Total Portfolio   Total Portfolio (1) (2) 
Senior Secured First Lien Debt   68.2%   9.2%
Senior Secured Second Lien Debt   10.9    11.4 
Subordinated Debt   5.4    10.5 
Collateralized Securities (3)   6.3    12.4 
Equity/Other   9.2    — 
Total   100.0%   8.9%

 

 

(1)Includes the effect of the amortization or accretion of loan premiums or discounts.
(2)The weighted average current yield including the effect of the amortization or accretion of loan premiums or discounts on income producing securities is 9.8%.
(3)Weighted average current yield for Collateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).

 

During the year ended December 31, 2017, we made $1,102.0 million of investments in new and existing portfolio companies and had $980.9 million in aggregate amount of exits and repayments, resulting in net investments of $121.1 million for the period. The portfolio composition by loan market consisted of 75.3% Middle Market (1), 8.9% Large Corporate (2), and 15.8% Other (3) investments. In addition, the total portfolio of debt investments at fair value consisted of 92.7% bearing variable interest rates and 7.3% bearing fixed interest rates.

 

 

(1)Middle market represents companies with annual revenues of less than $1 billion.
(2)Large corporate represents companies with annual revenues exceeding $1 billion.
(3)Other represents collateralized securities and equity investments.

 

Our portfolio composition, based on fair value at December 31, 2017 was as follows:

 

   December 31, 2017 
       Weighted Average 
   Percentage of   Current Yield for 
   Total Portfolio   Total Portfolio (1) (2) 
Senior Secured First Lien Debt   71.0%   8.7%
Senior Secured Second Lien Debt   9.5    10.4 
Subordinated Debt   3.8    13.0 
Collateralized Securities (3)   6.4    6.3 
Equity/Other   9.3    — 
Total   100.0%   8.1%

 

 

(1)Includes the effect of the amortization or accretion of loan premiums or discounts.
(2)The weighted average current yield including the effect of the amortization or accretion of loan premiums or discounts on income producing securities is 8.9%.
(3)Weighted average current yield for Collateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).

 

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Portfolio Asset Quality

 

Our Adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Adviser grades the credit risk of all debt investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio debt investment relative to the inherent risk at the time the original debt investment was made (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company's business, the collateral coverage of the investment and other relevant factors.

 

Loan Rating   Summary Description
     
1   Debt investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since the time of investment are favorable.
     
2   Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable. All investments are initially rated a “2”.
     
3   Performing debt investment requiring closer monitoring. Trends and risk factors show some deterioration.
     
4   Underperforming debt investment. Some loss of interest or dividend expected, but still expecting a positive return on investment. Trends and risk factors are negative.
     
5   Underperforming debt investment with expected loss of interest and some principal.

 

The weighted average risk ratings of our investments based on fair value was 2.44 and 2.33 as of September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018, we had nine portfolio companies, which represented fifteen portfolio investments, on non-accrual status with a total principal amount of $171.4 million, amortized cost of $118.4 million, and fair value of $45.5 million, which represented 5.6%,4.6% and 1.8% of the investment portfolio's total principal, amortized cost and fair value, respectively. As of December 31, 2017, we had four portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $120.2 million, amortized cost of $97.6 million, and fair value of $21.0 million which represented 4.0%, 3.8% and 0.8% of the investment portfolio's total principal, amortized cost and fair value, respectively. Refer to Note 2 - Summary of Significant Accounting Policies in our consolidated financial statements included in this report for additional details regarding our non-accrual policy.

 

RESULTS OF OPERATIONS

 

Operating results for the three and nine months ended September 30, 2018 and September 30, 2017 were as follows (dollars in thousands):

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2018   2017   2018   2017 
Total investment income  $59,182   $54,845   $176,609   $167,776 
Total expenses   33,616    28,242    98,540    86,437 
Income tax expense, including excise tax   (270)   79    270    1,349 
Net investment gain (loss) attributable to non-controlling interests   37    (6)   32    — 
Net investment income  $25,799   $26,530   $77,767   $79,990 

 

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Investment Income

 

For the three and nine months ended September 30, 2018, total investment income was $59.2 million and $176.6 million, respectively and was primarily attributable to interest income from investments in portfolio companies with an average portfolio fair value of $2.5 billion and a weighted average current yield of 8.9%. Included within total investment income was $0.6 million and $3.4 million, respectively, of fee income for the three and nine months ended September 30, 2018. Fee income consists primarily of prepayment and amendment fees. For the three and nine months ended September 30, 2017, total investment income was $54.8 million and $167.8 million, respectively, and was primarily attributable to interest income from investments in portfolio companies with an average portfolio fair value of $2.4 billion and a weighted average current yield of 8.9%. Included within total investment income was $0.8 million and $5.9 million, respectively, of fee income for the three and nine months ended September 30, 2017. Fee income consists primarily of prepayment and amendment fees.

 

Operating Expenses

 

The composition of our operating expenses for the three and nine months ended September 30, 2018 and September 30, 2017 was as follows (dollars in thousands):

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2018   2017   2018   2017 
Management fees  $10,082   $9,907   $30,117   $29,136 
Incentive fee on income   6,450    3,834    15,992    15,149 
Interest and debt fees   13,862    11,448    41,095    32,108 
Professional fees   1,639    1,249    4,475    4,073 
Other general and administrative   1,161    1,334    5,504    4,679 
Administrative services   195    203    594    608 
Insurance   —    2    3    9 
Directors' fees   227    265    760    675 
Total operating expenses  $33,616   $28,242   $98,540   $86,437 

 

For the three and nine months ended September 30, 2018, we incurred $10.1 million and $30.1 million, respectively, of management fees, of which the Adviser did not waive any such fees. For the three and nine months ended September 30, 2018, we incurred $6.5 million and $16.0 million, respectively, of incentive fees on income, of which the Adviser did not waive any such fees. For the three and nine months ended September 30, 2017, we incurred $9.9 million and $29.1 million, respectively, of management fees, of which the Adviser did not waive any such fees. For the three and nine months ended September 30, 2017, we incurred $3.8 million and $15.1 million, respectively, of incentive fees on income, of which the Adviser did not waive any such fees.

 

For the three and nine months ended September 30, 2018, we incurred interest and debt fees of $13.9 million and $41.1 million, respectively. For the three and nine months ended September 30, 2017, we incurred interest and debt fees of $11.4 million and $32.1 million, respectively. Interest and debt fees are comprised of interest expense, non-usage fees, custody fees, trustee fees, amortization of deferred financing costs and amortization of discount if applicable related to the Wells Fargo Credit Facility, Citi Credit Facility, UBS Credit Facility, 2023 Notes, 2022 Notes, 2020 Notes and the JPMC PB Account. The increase in debt fees for the three and nine months ended September 30, 2018 as compared to the same period in 2017 is a result of the issuance of the 2023 Notes, 2022 Notes, an increase in average debt outstanding under the Company's credit facilities and an increase in LIBOR rates.

 

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Net Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) on Investments, foreign currency transactions and forward currency exchange contracts

 

Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments and foreign currency transactions, net of deferred taxes for the three and nine months ended September 30, 2018 and September 30, 2017 were as follows (dollars in thousands):

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2018   2017   2018   2017 
                 
Net realized gain (loss)                    
Control investments  $—   $—   $—   $— 
Affiliate investments   503    (2,809)   (40,287)   (20,031)
Non-affiliate investments   (178)   2,113    9,889    (15,647)
Net realized gain (loss) on foreign currency transactions   —    —    17    — 
Total net realized gain (loss)   325    (696)   (30,381)   (35,678)
Net change in unrealized appreciation (depreciation) on investments, net of deferred taxes                    
Control investments   4,441    2,178    2,371    (3,017)
Affiliate investments   (5,508)   3,214    33,666    15,227 
Non-affiliate investments   4,268    (13,680)   (14,213)   (4,590)
Total net change in unrealized appreciation (depreciation) on investments, net of deferred taxes   3,201    (8,288)   21,824    7,620 
Net change in unrealized depreciation attributable to non-controlling interests   (567)   (258)   (236)   (563)
Net change in unrealized depreciation from forward currency exchange contracts   (275)   —    (302)   — 
Net realized and unrealized losses  $2,684   $(9,242)  $(9,095)  $(28,621)

 

Net realized and unrealized loss on investments and foreign currency transactions, net of deferred taxes, resulted in a net gain (loss) of $2.7 million and $(9.1) million for the three and nine months ended September 30, 2018 compared to a net loss of $9.2 million and $28.6 million, respectively, for the same period in 2017. We look at net realized gains (losses) and change in unrealized appreciation (depreciation) together, as movement in unrealized appreciation or depreciation can be the result of realizations.

 

The net realized and unrealized gain for the three months ended September 30, 2018 and the net realized and unrealized loss for the nine months ended September 30, 2018 were the result of approximately $30.0 million of realized loss on CLOs as a result of the Company's assessment for other than temporary impairment ("OTTI") in accordance with ASC 325-40. As this OTTI was previously reserved for as part of unrealized depreciation on CLOs, the movement between unrealized and realized gain (loss) during the period relates to the approximately $30.0 million realization and the offsetting reversal of approximately $30.0 million of previously reported unrealized depreciation of approximately $30.0 million. The remaining loss was driven by net unrealized depreciation on investments.

 

Changes in Net Assets from Operations

 

For the three and nine months ended September 30, 2018, we recorded a net increase in net assets resulting from operations of $28.5 million and $68.7 million, respectively, versus a net increase in net assets resulting from operations of $17.3 million and $51.4 million for the three and nine months ended September 30, 2017. The increase is primarily attributable to an increase in investment income. Based on the weighted average shares of common stock outstanding for the three and nine months ended September 30, 2018, our per share net increase in net assets resulting from operations was $0.16 and $0.38, respectively, for the three and nine months ended September 30, 2018, versus a net increase in net assets resulting from operations of $0.10 and $0.29, respectively, for the three and nine months ended September 30, 2017.

 

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Cash Flows

 

For the nine months ended September 30, 2018, net cash provided by operating activities was $47.7 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio investments. The increase in cash flows provided by operating activities for the nine months ended September 30, 2018 was primarily the result of purchases of investments of $909.8 million, offset by sales and repayments of investments of $915.7 million and further offset by other miscellaneous operating activities.

 

Net cash used in financing activities of $22.2 million during the nine months ended September 30, 2018 primarily related to net proceeds from the Wells Fargo Credit Facility, Citi Credit Facility, and the JPMC PB Account of $634.3 million offset by payments on debt of $552.8 million, net repurchases of common stock of $42.3 million and payments of stockholder distributions of $57.7 million.

 

For the nine months ended September 30, 2017, net cash used in operating activities was $37.3 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio investments, among other factors. Net cash used in operating activities was primarily a result of purchases of investments of $787.3 million as well as an increase in receivable for unsettled trades of $28.3 million and a decrease in payable for unsettled trades of $10.3 million, partially offset by sales and repayments of investments of $706.7 million.

 

Net cash used in financing activities of $61.7 million during the nine months ended September 30, 2017 primarily related to net repurchases of common stock of $87.8 million and payments of stockholder distributions of $68.5 million, partially offset by net proceeds from the Wells Fargo Credit Facility, Citi Credit Facility, UBS Credit Facility and the JPMC PB Account of $98.7 million.

 

Recent Developments

 

Distribution Reinvestment Plan (“DRIP”) Sales

 

From October 1, 2018 through the filing of this Form 10-Q, we issued 0.8 million shares of common stock including shares issued pursuant to the DRIP. Total gross proceeds from these issuances including proceeds from shares issued pursuant to the DRIP were $6.2 million.

 

Franklin Templeton Transaction

 

On October 24, 2018, BSP entered into a definitive agreement with Franklin Resources, Inc. (“FRI”) and Templeton International, Inc. (collectively with FRI, “Franklin Templeton”), whereby Franklin Templeton has agreed, subject to the satisfaction of the closing conditions contained in the agreement, to acquire BSP (the “ Franklin Templeton Transaction”), including BSP’s 100% ownership interest in the Adviser. Upon consummation of the Franklin Templeton Transaction, key senior management of BSP are expected to continue to operate in the same professional capacity as prior to the Franklin Templeton Transaction.

 

Due to the change of control of BSP, if the Franklin Templeton Transaction is consummated, it will result in an assignment of the current investment advisory agreement between the Company and the Adviser under the 1940 Act and, as a result, the immediate termination of such investment advisory agreement. Since the current investment advisory agreement will terminate upon completion of the Franklin Templeton Transaction, the Company filed a definitive proxy statement on November 5, 2018 to inform shareholders of a special meeting to approve a new investment advisory agreement between the Company and the Adviser (the “Stockholder Approval”), which new agreement was approved by the Company’s Board of Directors on October 22, 2018. All terms will remain unchanged from the current investment advisory agreement. The consummation of the Franklin Templeton Transaction is expected to occur in early 2019 and is subject to customary closing conditions, including receipt of the Stockholder Approval, as well as the receipt of any required regulatory approvals.

 

In connection with the Franklin Templeton Transaction, on November 1, 2018, FRI and BSP purchased 6,097,561 and 4,878,049 shares of the Company’s common stock, respectively, for which the Company received aggregate cash proceeds of $90 million. The offers and sales of such shares were exempt from registration under the Securities Act under Section 4(a)(2) and Regulation D thereunder.

 

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Wells Fargo Credit Facility Amendment

 

As disclosed below under “Borrowing - Wells Fargo Credit Facility”, on November 8, 2018, the Company, through a wholly-owned consolidated special purpose financing subsidiary, Funding I, entered into an Amendment to the Wells Fargo Credit Facility (the “Amendment”) which (1) increases the size of the Wells Fargo Credit Facility from $500.0 to $520.0 million and (2) permits the inclusion of Second Lien Loans as part of the borrowing base which are not to exceed 10% of the outstanding balance of all Loan Assets (each as defined in the Amendment).

 

Liquidity and Capital Resources

 

We generate cash flows from fees, interest and dividends earned from our investments, as well as proceeds from sales of our investments and, previously, from the net proceeds of our Offering. As of September 30, 2018, we had issued 199.4 million shares of our common stock for gross proceeds of $2.1 billion, including the shares purchased by affiliates and shares issued pursuant to the DRIP.

 

Our principal demands for funds in both the short-term and long-term are for portfolio investments, for the payment of operating expenses, distributions to our investors, repurchases under our share repurchase program, and for the payment of principal and interest on our outstanding indebtedness. We may also from time to time enter into other agreements with third parties whereby third parties will contribute to specific investment opportunities. Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from private offerings, proceeds from the sale of investments and undistributed funds from operations. However, our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to raise proceeds in our public offering will be dependent on a number of factors as well, including general market conditions for BDCs.

 

We intend to conduct semi-annual tender offers pursuant to our share repurchase program. Our board of directors will consider the following factors, among others, in making its determination regarding whether to cause us to offer to repurchase shares and under what terms:

 

•the effect of such repurchases on our qualification as a RIC (including the consequences of any necessary asset sales);
•the liquidity of our assets (including fees and costs associated with disposing of assets);
•our investment plans and working capital requirements;
•the relative economies of scale with respect to our size;
•our history in repurchasing shares or portions thereof; and
•the condition of the securities markets.

 

On March 8, 2016, our board of directors amended our share repurchase program. We intend to conduct tender offers on a semi-annual basis, instead of on a quarterly basis as was done previously. We intend to continue to limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 5.0% at each semi-annual tender offer. In addition, in the event of a stockholder’s death or disability, any repurchases of shares made in connection with a stockholder’s death or disability may be included within the overall limitation imposed on tender offers during the relevant redemption period, which provides that we may limit the number of shares to be repurchased during any redemption period to the number of shares of common stock we are able to repurchase with the proceeds received from the sale of shares of common stock under the DRIP during such redemption period.

 

Distributions

 

Our board of directors has authorized, and has declared, cash distributions payable on a monthly basis to stockholders of record on each day since it commenced operations. From November 2013 until July 2017, the distribution rate has been $0.002378082 per day, which is equivalent to $0.868 per annum, per share of common stock, except for 2016, where the daily distribution rate was $0.002371585 per day to accurately reflect 2016 being a leap year. In July 2017, the board of directors reduced the distribution rate with respect to our cash distributions to $0.001780822 per day, which is equivalent to $0.65 annually, per share of common stock.

 

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The amount of each such distribution is subject to the discretion of our board of directors and applicable legal restrictions related to the payment of distributions. We calculate each stockholder’s specific distribution amount for the month using record and declaration dates and accrue distributions on the date we accept a subscription for shares of our common stock. The distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month.

 

From time to time, we may also pay interim distributions at the discretion of our board of directors. Our distributions may exceed our earnings, and as a result, a portion of the distributions we make may represent a return of capital for tax purposes.

 

The table below shows the components of the distributions we have declared and/or paid during the nine months ended September 30, 2018 and 2017 (dollars in thousands).

 

   For the Nine Months
Ended September 30,		   For the Nine Months
Ended September 30,		 
   2018   2017 
Distributions declared  $87,066   $106,467 
Distributions paid  $87,469   $110,446 
Portion of distributions paid in cash  $57,703   $68,485 
Portion of distributions paid in DRIP shares  $29,766   $41,961 

 

As of September 30, 2018, we had $9.5 million of distributions accrued and unpaid. As of December 31, 2017, we had $9.9 million of distributions accrued and unpaid.

 

We may fund our cash distributions to stockholders from any sources of funds available to us, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets and non-capital gains proceeds from the sale of assets. We have not established limits on the amount of funds we may use from available sources to make distributions. We may have distributions which could be characterized as a return of capital for tax purposes. During the nine months ended September 30, 2018 and 2017, no portion of our distributions was characterized as return of capital for tax purposes. The specific tax characteristics of our distributions made in respect of our anticipated fiscal year ending December 31, 2018 will be reported to stockholders shortly after the end of the calendar year 2018 as well as in our periodic reports with the SEC. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gains. Moreover, you should understand that any such distributions were not based on our investment performance and can only be sustained if we achieve positive investment performance in future periods and/or our Adviser continues to make such reimbursements. There can be no assurance that we will achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at all.

 

The following table sets forth the distributions made during the nine months ended September 30, 2018 and 2017 (dollars in thousands):

 

   For the Nine Months   For the Nine Months 
   Ended September 30,   Ended September 30, 
   2018   2017 
Monthly distributions  $87,066   $106,467 
Total distributions  $87,066   $106,467 

 

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Taxation as a RIC

 

We have elected to be treated as a RIC under Subchapter M of the Code commencing with our tax year ended December 31, 2011, and intend to maintain our qualification as a RIC thereafter. As a RIC, we generally will not be subject to corporate-level U.S. federal income taxes on any income that we distribute as dividends for U.S. federal income tax purposes to our stockholders. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must distribute to our stockholders, for each tax year, an amount equal to at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss and determined without regard to any deduction for dividends paid, or the annual distribution requirement. Even if we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax on our undistributed taxable income and could be subject to state, local and foreign taxes.

 

Additionally, in order to avoid the imposition of a U.S. federal excise tax, we are required to distribute, in respect of each calendar year, dividends to our stockholders of an amount at least equal to the sum of 98% of our calendar year net ordinary income (taking into account certain deferrals and elections); 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the one year period ending on October 31 of such calendar year; and any net ordinary income and capital gain net income for preceding calendar years that were not distributed during such calendar years and on which we previously did not incur any U.S. federal income tax. If we fail to qualify as a RIC for any reason and become subject to corporate tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on us and our stockholders. In addition, we could be required to recognize unrealized gains, incur substantial taxes and interest and make substantial distributions in order to re-qualify as a RIC. We cannot assure stockholders that they will receive any distributions.

 

Related Party Transactions and Agreements

 

The BSP Transaction

 

On July 19, 2016, American Realty Capital II Advisors, LLC, the former parent of the Adviser, entered into a membership interest purchase agreement with a subsidiary of BSP, pursuant to which such subsidiary acquired all of the outstanding limited liability company interests of the Adviser (the “BSP Transaction”). In connection with the BSP Transaction, we amended the Investment Advisory Agreement, effective as of November 1, 2016, to allow the Adviser to serve as investment adviser to us following the closing of the BSP Transaction.

 

The Franklin Templeton Transaction

 

In connection with the Franklin Templeton Transaction, on November 1, 2018, FRI and BSP purchased 6,097,561 and 4,878,049 shares of the Company’s common stock, respectively, for which the Company received aggregate cash proceeds of $90 million. The offers and sales of such shares were exempt from registration under the Securities Act under Section 4(a)(2) and Regulation D thereunder.

 

Investment Advisory Agreement

 

We entered into an Investment Advisory Agreement on November 1, 2016 under which the Adviser, subject to the overall supervision of our board of directors manages the day-to-day operations of, and provides investment advisory services to us. The Board most recently re-approved the Investment Advisory Agreement in August 2018. The Adviser and its affiliates also provide investment advisory services to other funds that have investment mandates that are similar, in whole and in part, with ours. The Adviser and its affiliates serve as investment adviser or sub-adviser to private funds and registered open-end funds, and serves as an investment adviser to a public real estate investment trust. The Adviser’s policies are designed to manage and mitigate the conflicts of interest associated with the allocation of investment opportunities. In addition, any affiliated fund currently formed or formed in the future and managed by the Adviser or its affiliates may have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. However, in certain instances due to regulatory, tax, investment, or other restrictions, certain investment opportunities may not be appropriate for either us or other funds managed by the Adviser or its affiliates.

 

Due to the change of control of BSP, if the Franklin Templeton Transaction is consummated, it will result in an assignment of the Investment Advisory Agreement under the 1940 Act and, as a result, the immediate termination of the Investment Advisory Agreement. See “Recent Developments — The Franklin Templeton Transaction” above for further details.

 

Administration Agreement

 

On November 1, 2016, we entered into the Administration Agreement with BSP, pursuant to which BSP provides us with office facilities and administrative services. The Administration Agreement may be terminated by either party without penalty upon not less than 60 days’ written notice to the other. We paid BSP $584,725 and $2,600,000 in fees under the Administration Agreement for the quarter ended September 30, 2018 and the year ended December 31, 2017, respectively.

 

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Co-Investment Relief

 

The 1940 Act generally prohibits BDCs from entering into negotiated co-investments with affiliates absent an order from the SEC permitting the BDC to do so. The SEC staff has granted us exemptive relief that allows it to enter into certain negotiated co-investment transactions alongside other funds managed by the Adviser or its affiliates (“Affiliated Funds”) in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). Pursuant to the Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our eligible directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

 

Transactions with Affiliates

 

In connection with the closing of the BSP Transaction, an affiliate of BSP purchased $10.0 million of our common stock based on our net asset value per share as of September 30, 2016 in a private placement in reliance on Section 4(a)(2) of the Securities Act. On November 7, 2016, we issued approximately 1.2 million shares of our common stock to such BSP affiliate.

 

As described in greater detail above under “Related Party Transactions and Agreements — The Franklin Templeton Transaction.” on November 1, 2018, we issued 4,878,049 shares of our Common Stock to BSP in connection with the Franklin Templeton Transaction.

 

Borrowings

 

We are only allowed to borrow money such that our asset coverage, which, as defined in the 1940 Act, measures the ratio of total assets less total liabilities not represented by senior securities to total borrowings, equals at least 200% after such borrowing, with certain limited exceptions. The Company is continually exploring additional forms of alternative debt financing, which could include new or expanded credit facilities or the issuance of debt securities. We may use borrowed funds, known as “leverage,” to make investments and to attempt to increase returns to our stockholders by reducing our overall cost of capital. We currently have credit facilities with Wells Fargo and Citi, and have sold $310.0 million in aggregate principal of unsecured notes.

 

Wells Fargo Credit Facility

 

On July 24, 2012, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into a revolving credit facility with Wells Fargo and U.S. Bank as collateral agent, account bank and collateral custodian (as amended from time to time, the “Wells Fargo Credit Facility”). The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013, September 9, 2013, June 30, 2014, May 29, 2015, November 4, 2015, May 18, 2017 and April 3, 2018, May 9, 2018 and November 8, 2018 provides for borrowings in an aggregate principal amount of up to $500.0 million on a committed basis (which was increased to $520.0 million effective November 8, 2018), subject to compliance with a borrowing base. The Wells Fargo Credit Facility has a maturity date of May 9, 2023.

 

The Wells Fargo Credit Facility is priced at the one-month maturity London Interbank Offered Rate (“LIBOR”), with no LIBOR floor, plus a spread ranging between 1.65% and 2.50% per annum, depending on the composition of the portfolio of loans owned by Funding I for the relevant period. Interest is payable quarterly in arrears. Funding I is subject to a non-usage fee to the extent the aggregate principal amount available under the Wells Fargo Credit Facility has not been borrowed. The non-usage fee per annum is 0.50% for the first 25% of the unused balance and 2.0% for the portion of the unused balance that exceeds 25%.

 

In connection with the Wells Fargo Credit Facility, Funding I has made certain representations and warranties, is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities and is subject to certain customary events of default. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and all other obligations under the Wells Fargo Credit Facility immediately due and payable. During the continuation of an event of default, Funding I must pay interest at a default rate.

 

On November 8, 2018, the Company entered into an amendment to the Wells Fargo Credit Facility to (1)  increase the size of the Wells Fargo Credit Facility from $500.0 to $520.0 million and (2) permit the inclusion of Second Lien Loans as part of the borrowing base, which are not to exceed 10% of the outstanding balance of all Loan Assets (each as defined in the Amendment). See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments” of this Quarterly Report on Form 10-Q for further details.

 

Citi Credit Facility

 

On June 27, 2014, the Company, through a wholly-owned, special purpose financing subsidiary, CB Funding, entered into a credit facility (as amended from time to time, the “Citi Credit Facility”) with Citibank, N.A. as administrative agent and U.S. Bank as collateral agent, account bank and collateral custodian. The Citi Credit Facility, which was subsequently amended on October 14, 2015, provides for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis, subject to the administrative agent’s right to approve the assets acquired by CB Funding and pledged as collateral under the Citi Credit Facility. The Citi Credit Facility was amended on November 28, 2017 to extend the investment period to May 31, 2019. The Citi Credit Facility has a maturity date of May 28, 2020.

 

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The Citi Credit Facility is priced at three-month LIBOR, with no LIBOR floor, plus a spread of 1.60% per annum through and including the last day of the investment period and 2.00% per annum thereafter. Interest is payable quarterly in arrears. CB Funding is subject to a non-usage fee to the extent the aggregate principal amount available under the Citi Credit Facility has not been borrowed. The non-usage fee per annum is 0.50%. Any amounts borrowed under the Citi Credit Facility along with any accrued and unpaid interest thereunder will mature, and will be due and payable, in three years.

 

UBS Credit Facility

 

On April 7, 2015, the Company, through a wholly-owned, special-purpose, bankruptcy-remote subsidiary, Helvetica Funding, entered into a debt financing facility with UBS AG, London Branch (“UBS”), pursuant to which $150.0 million has been made available to the Company to fund investments in new securities and for other general corporate purposes (as amended from time to time, the “UBS Credit Facility”). The UBS Credit Facility was subsequently amended on July 10, 2015 to increase the amount of debt available to the Company under the facility from $150.0 million to $210.0 million. On June 6, 2016, the UBS credit facility was again amended to increase the amount of debt available from $210.0 million to $232.5 million. In addition, the amended facility increased the applicable spread over a three-month LIBOR from 3.90% to 4.05% per annum for the relevant period and increased the permissible percentage of second lien loans from 60% to 70%. Pricing under the transaction is based on three-month LIBOR plus a spread of 4.05% per annum for the relevant period. The maturity date of the UBS Credit Facility was April 7, 2018.

 

On April 6, 2018, the Company repaid the UBS Credit Facility and all related liens were released.

 

2020 Notes

 

On August 26, 2015, the Company entered into a Purchase Agreement relating to the Company’s sale of $100.0 million aggregate principal amount of its 6.00% fixed rate senior notes due September 1, 2020 (the “2020 Notes”). The 2020 Notes are subject to customary indemnification provisions and representations, warranties and covenants. The net proceeds from the sale of the 2020 Notes were approximately $97.9 million. The 2020 Notes bear interest at a rate of 6.00% per year payable semi-annually.

 

2022 Notes

 

On December 14, 2017, the Company entered into a Purchase Agreement relating to the Company's sale of $150.0 million aggregate principal amount of its 4.75% fixed rate notes due December 30, 2022 (the “2022 Notes”). The 2022 Notes are subject to customary indemnification provisions and representations, warranties and covenants. The net proceeds from the sale of the 2022 Notes was approximately $147.0 million. The Notes bear interest at a rate of 4.75% per year payable semi-annually.

 

2023 Notes

 

On May 11, 2018, the Company entered into a Purchase Agreement relating to the Company's sale of $60.0 million aggregate principal amount of its 5.375% fixed rate notes due May 30, 2023 (the “2023 Notes”). The 2023 Notes are subject to customary indemnification provisions and representations, warranties and covenants. The net proceeds from the sale of the 2023 Notes was approximately $58.7 million. The Notes bear interest at a rate of 5.375% per year payable semi-annually.

 

JP Morgan Securities LLC Prime Brokerage Account

 

On January 20, 2017, the Company entered into a prime brokerage account agreement with JP Morgan Securities LLC (the “JPMC PB Account”). The JPMC PB Account provides a full suite of services around the custody of bonds and equities and also access to leverage, which is dependent on the price, credit quality and diversity of the pool of assets held within the account. The borrowing availability is recalculated daily based on changes to the assets, with margin calls issued in the morning as appropriate. The cost to borrow is 1 week LIBOR + 90 bps and there is no mandatory usage or period wherein the debt needs to be repaid.

 

On May 8, 2018 the Company fully repaid its borrowings under the JPMC PB Account and closed the account.

 

See Note 5 to our consolidated financial statements contained in this Quarterly Report on Form 10-Q for a more detailed discussion of our borrowings.

 

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Contractual Obligations

 

The following table shows our payment obligations for repayment of debt and other contractual obligations at September 30, 2018 (dollars in thousands):

 

       Payment Due by Period 
   Total Principal   Less than 1           More than 5 
   Outstanding   year   1 - 3 years   3- 5 years   years 
Wells Fargo Credit Facility (1)  $469,652   $—   $—   $469,652   $— 
Citi Credit Facility (2)   345,000    —    345,000    —    — 
2023 Notes (3)   59,696    —    —    59,696    — 
2022 Notes (4)   149,298    —    —    149,298    — 
2020 Notes (5)   99,394    —    99,394    —    — 
Total contractual obligations  $1,123,040   $—   $444,394   $678,646   $— 

 

 

(1)As of September 30, 2018, we had $30.3 million of unused borrowing capacity under the Wells Fargo Credit Facility, subject to borrowing base limits.
(2)As of September 30, 2018, we had $55.0 million of unused borrowing capacity under the Citi Credit Facility, subject to borrowing base limits.

(3)As of September 30, 2018, we had no unused borrowing capacity under the 2023 Notes.
(4)As of September 30, 2018, we had no unused borrowing capacity under the 2022 Notes.
(5)As of September 30, 2018, we had no unused borrowing capacity under the 2020 Notes.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Commitments

 

In the ordinary course of business, we may enter into future funding commitments. As of September 30, 2018, we had unfunded commitments on delayed draw term loans of $36.5 million, unfunded commitments on revolver term loans of $24.3 million and unfunded equity capital commitments of $0.5 million. As of December 31, 2017, we had unfunded commitments on delayed draw term loans of $38.7 million, unfunded commitments on revolver term loans of $19.8 million and unfunded equity capital commitments of $6.0 million. The unfunded commitments are disclosed in our consolidated schedule of investments. We believe we maintain sufficient cash on hand and available borrowing capacity to fund such unfunded commitments.

 

Significant Accounting Estimates and Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

While our significant accounting policies are more fully described in Note 2 of notes to consolidated financial statements appearing elsewhere in this report, we believe the following accounting policies require the most significant judgment in the preparation of our consolidated financial statements.

 

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Valuation of Portfolio Investments

 

Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. On a quarterly basis we perform an analysis of each investment to determine fair value as follows:

 

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

 

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. 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 amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, 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, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

 

For an investment in an investment fund that does not have a readily determinable fair value, we measure the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC 946, as of our measurement date.

 

For investments in Collateralized Securities, both the assets and liabilities of each Collateralized Securities' capital structure are modeled. The model uses a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distribute the cash flows to the liability structure based on the priority of payments. The waterfall cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, broker quotations and/or comparable trade activity is considered as an input to determining fair value when available.

 

As part of our quarterly valuation process the Adviser may be assisted by one or more independent valuation firms engaged by us. The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser and the independent valuation firm(s) (to the extent applicable).

 

With respect to investments for which market quotations are not readily available, the Adviser undertakes a multi-step valuation process each quarter, as described below:

 

•Each portfolio company or investment will be valued by the Adviser, potentially with assistance from one or more independent valuation firms engaged by our board of directors;
•The independent valuation firm(s), if involved, will conduct independent appraisals and make an independent assessment of the value of each investment; and
•The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser, independent valuation firm (to the extent applicable) and the audit committee of the board of directors.

 

Because there is not a readily available market value for most of the investments in its portfolio, we value substantially all of our portfolio investments at fair value as determined in good faith by our board of directors, as described herein. 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 our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.

 

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Revenue Recognition

 

Interest Income

 

Investment transactions are accounted for on the trade date. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discount and premium on investments purchased are accreted/amortized over the expected life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discount and amortization of premium on investments.

 

The Company has a number of investments in Collateralized Securities. Interest income from investments in the “equity” class of these Collateralized Securities (in the Company's case, preferred shares or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40-35, Beneficial Interests in Securitized Financial Assets ("ASC 325-40-35"). The Company monitors the expected cash inflows from its equity investments in Collateralized Securities, including the expected principal repayments. The effective yield is determined and updated quarterly. In accordance with ASC 325-40, investments in CLOs are periodically assessed for other-than-temporary impairment ("OTTI"). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss.

 

Fee Income

 

Fee income, such as structuring fees, origination, closing, amendment fees, commitment and other upfront fees are generally non-recurring and are recognized as revenue when earned, either upfront or amortized into income. Upon the payment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment and other upfront fees are recorded as income.

 

Payment-in-Kind Interest/Dividends

 

We hold debt and equity investments in its portfolio that contain PIK interest and dividend provisions. The PIK interest and PIK dividend, which represent contractually deferred interest or dividends that add to the investment balance that is generally due at maturity, are generally recorded on the accrual basis.

 

Non-accrual income

 

Investments are placed on non-accrual status when principal or interest/dividend payments are past due 30 days or more and/or when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest is generally reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

 

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

 

Gains or losses on the sale of investments are calculated using the specific identification method. We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

 

See Note 2 to the consolidated financial statements for a description of other accounting policies and recently issued accounting pronouncements.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements, subject to the requirements of the 1940 Act, in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. During the periods covered by this report, we did not engage in interest rate hedging activities. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

 

As of September 30, 2018, our debt included variable-rate debt, bearing a weighted average interest rate of LIBOR plus 2.02% and fixed rate debt, bearing a weighted average interest rate of 5.27% with a total carrying value of $1,110.5 million. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase by 100 or 200 basis points or decrease by 100 basis points assuming that our current statement of assets and liabilities was to remain constant and no actions were taken to alter our existing interest rate sensitivity.

 

   Estimated Percentage 
   Change in Interest 
   Income net of Interest 
Change in Interest Rates  Expense 
(-) 100 Basis Points   (8.20)%
Base Interest Rate   —%
(+) 100 Basis Points   8.20%
(+) 200 Basis Points   16.41%

 

Because we may borrow money to make investments, our net investment income may be dependent on the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of increasing interest rates, our cost of funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were (a) designed to ensure that the information we are required to disclose in our reports under the Exchange Act is recorded, processed and reported in an accurate manner and on a timely basis and the information that we are required to disclose in our Exchange Act reports is accumulated and communicated to management to permit timely decisions with respect to required disclosure and (b) operating in an effective manner.

 

Change in Internal Control Over Financial Reporting

 

No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

As of September 30, 2018, we were not defendants in any material pending legal proceeding, and no such material proceedings are known to be contemplated. However, from time to time, we may be party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under the contracts with our portfolio companies. Third parties may also seek to impose liability on us in connection with the activities of our portfolio companies.

 

ITEM 1A. RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I., “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2017 and our subsequent Quarterly Reports on Form 10-Q.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Issuer Purchases of Equity Securities

 

Repurchases of our common stock pursuant to our tender offer are as follows:

 

           Cumulative     
           Number of Shares   Maximum Number (or 
           Purchased as Part   Approximate Dollar Value) 
   Total Number   Average   of Publicly   of Shares that May Yet Be 
   of Shares   Price per   Announced Plans   Purchased Under the Plans 
Period  Purchased   Share   or Programs   or Programs (in millions) 
July 1, 2018 through July 31, 2018   2,348,835   $8.26    2,348,835    — 
August 1, 2018 through August 31, 2018   —   $—    —    — 
September 1, 2018 through September 30, 2018   —   $—    —    — 

 

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

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ITEM 6. EXHIBITS

 

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the nine months ended September 30, 2018 (and are numbered in accordance with Item 601 of Regulation S-K).

 

Exhibit No.   Description
     
10.1   Amendment No. 12 to Loan and Servicing Agreement, dated as of November 8, 2018, by and among BDCA Funding I, LLC, the Company, Wells Fargo Bank, National Association, each of the Lenders and Lender Agents party thereto and U.S. Bank National Association (filed as exhibit 10.1 to the Company’s Current Report on form 8-K on November 13, 2018 and herein incorporated by reference).
     
11   Computation of Per Share Earnings (included in the notes to the unaudited consolidated financial statements contained in this report).
     
31.1   Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
     
31.2   Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
     
32   Written statement of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

Signature   Title   Date  
           
/s/ Richard J. Byrne   Chief Executive Officer, President and   November 14, 2018  
Richard J. Byrne   Chairman of the Board of Directors      
    (Principal Executive Officer)      
           
/s/ Corinne D. Pankovcin   Chief Financial Officer and Treasurer   November 14, 2018  
Corinne D. Pankovcin   (Principal Financial and Accounting      
    Officer)      

 

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