497 1 d252051d497.htm 497 497
Table of Contents

Filed Pursuant to Rule 497

Registration No. 333-218114

 

PROSPECTUS

  

9,000,000 SHARES

 

LOGO

 

TCG BDC, INC.

COMMON STOCK

 

 

We are an externally managed specialty finance company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended. Our investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies, which we define as companies with approximately $10 million to $100 million of earnings before interest, taxes, depreciation and amortization. We seek to achieve this investment objective by investing primarily in first lien senior secured loans and second lien senior secured loans.

As of March 31, 2017, our investment portfolio consisted of 94 investments in 82 portfolio companies with an aggregate fair value of $1,392.5 million.

We are managed by Carlyle GMS Investment Management L.L.C., an investment adviser registered under the Investment Advisers Act of 1940, as amended. Carlyle GMS Finance Administration L.L.C. provides the administrative services necessary for us to operate. Both Carlyle GMS Investment Management L.L.C. and Carlyle GMS Finance Administration L.L.C. are wholly owned subsidiaries of Carlyle Investment Management L.L.C., a subsidiary of The Carlyle Group L.P. The Carlyle Group L.P. is a global alternative asset manager with approximately $162 billion of assets under management as of March 31, 2017.

This is an initial public offering of our shares of common stock. All of the shares of common stock offered by this prospectus are being sold by us.

Our shares of common stock have no history of public trading. The initial public offering price per share of our common stock is $18.50. Our common stock has been approved for listing on the NASDAQ Global Select Market under the symbol “CGBD”.

We are an “emerging growth company” within the meaning of the Jumpstart Our Business Startups Act of 2012, as amended.

Certain individuals affiliated with Carlyle have indicated that they intend to adopt a 10b5-1 plan (the “10b5-1 Plan”) in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We expect that under such 10b5-1 Plan the participants will buy up to $15 million in the aggregate of our common stock in the open market during the period beginning four full calendar weeks after the closing of this offering and ending on the earlier of the date on which the capital committed to the 10b5-1 Plan has been exhausted or one year after the closing of this offering, subject to certain conditions. See “Certain Relationships and Related Party Transactions.” Purchases of our common stock in the open market pursuant to the 10b5-1 Plan will be subject to certain conditions and conducted in accordance with Rule 10b-18 under the Exchange Act and other applicable securities laws and regulations that set certain restrictions on the method, timing, price and volume of stock repurchases.

Shares of closed-end investment companies, including BDCs, that are listed on an exchange frequently trade at a discount to their net asset value (“NAV”) per share. If our shares trade at a discount to our NAV per share, it may increase the risk of loss for purchasers in this offering. At the initial public offering price of $18.50 per share, purchasers in this offering will experience dilution of approximately $0.25 per share. See “Dilution” for more information.

This prospectus contains important information you should know before investing in our securities. Please read it before you invest and keep it for future reference. We file annual, quarterly and current reports, proxy statements and other information about us with the U.S. Securities and Exchange Commission (the “SEC”). You may obtain this information or make stockholder inquiries by written or oral request and free of charge by contacting us by mail at our principal executive offices located at 520 Madison Avenue, 40th Floor, New York, NY 10022, on our website at www.tcgbdc.com, or by calling us at (212) 813-4900. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider that information to be a part of this prospectus. The SEC also maintains a website at http://www.sec.gov that contains this information.

Investing in our common stock involves a high degree of risk, including credit risk and the risk of the use of leverage, and is highly speculative. Before buying any shares of our common stock, you should read the discussion of the material risks of investing in our common stock in “Risk Factors” beginning on page 27 of this prospectus.

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

 

     Per Share      Total  

Public offering price

   $ 18.50      $ 166,500,000  

Sales load (underwriting discounts and amounts) (1)

   $ 0.56      $ 4,995,000  

Proceeds, before expenses, to us (2)

   $ 17.94      $ 161,505,000  

 

(1) Our Investment Adviser will pay 50% of the total sales load $5.0 million, or $0.56 per share (or approximately $5.7 million, or $0.56 per share if the underwriters’ option to purchase additional shares is exercised in full to the underwriters, representing 50% of the total sales load), which is not reflected in the table above. The portion of the sales load not payable by our Investment Adviser will be borne by us. See “Underwriting” for a more complete description of underwriting compensation.
(2) We estimate that we will incur offering expenses of approximately $1,800,000, or approximately $0.20 per share, in connection with this offering (reflecting the 50% of the estimated offering expenses that are payable by us). Our Investment Adviser has agreed to pay 50% of the total estimated offering expenses in connection with this offering. We are not obligated to repay the expenses paid by our Investment Adviser.

We have granted the underwriters an option to purchase up to an additional 1,350,000 shares of our common stock from us, at the public offering price, less the sales load payable by us, within 30 days from the date of this prospectus. If the underwriters exercise their option to purchase additional shares in full, the total sales load payable by us will be $5.7 million and total proceeds to us, before expenses, will be $185.7 million.

 

 

The shares will be delivered on or about June 19, 2017.

 

 

Joint Book-Running Managers

 

BofA Merrill Lynch   Morgan Stanley   J.P. Morgan   Citigroup

Bookrunners

 

Keefe, Bruyette & Woods

                             A Stifel Company            

 

Wells Fargo Securities

Co-Managers

 

HSBC   Mizuho Securities

 

The date of this prospectus is June 13, 2017


Table of Contents

TCG BDC, INC.

INDEX

 

SUMMARY

     1  

THE OFFERING

     15  

FEES AND EXPENSES

     22  

SELECTED FINANCIAL AND OTHER INFORMATION

     25  

RISK FACTORS

     27  

FORWARD-LOOKING STATEMENTS

     56  

USE OF PROCEEDS

     58  

DISTRIBUTIONS

     59  

CAPITALIZATION

     61  

DILUTION

     63  

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

     65  

SENIOR SECURITIES

     100  

BUSINESS

     101  

PORTFOLIO COMPANIES

     116  

MANAGEMENT

     124  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     142  

CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS

     144  

DETERMINATION OF NET ASSET VALUE

     145  

DESCRIPTION OF CAPITAL STOCK

     148  

SHARES ELIGIBLE FOR FUTURE SALE

     155  

DIVIDEND REINVESTMENT PLAN

     157  

REGULATION

     159  

U.S. FEDERAL INCOME TAX CONSIDERATIONS

     165  

CUSTODIAN, TRANSFER AND DISTRIBUTION PAYING AGENT AND REGISTRAR

     176  

BROKERAGE ALLOCATION AND OTHER PRACTICES

     177  

UNDERWRITING

     178  

LEGAL MATTERS

     184  

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     184  

ADDITIONAL INFORMATION

     184  

INDEX TO FINANCIAL STATEMENTS

     F-1  

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information or to make any representations not contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume the information contained in this prospectus is accurate after the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

TRADEMARKS

This prospectus contains trademarks and service marks owned by Carlyle (as defined below). This prospectus may also contain trademarks and service marks owned by third parties.


Table of Contents

SUMMARY

This summary highlights some of the information contained elsewhere in this prospectus. This summary is not complete and may not contain all of the information that you should consider before investing in our common stock offered by this prospectus. You should review the more detailed information contained in this prospectus, especially the information set forth under the heading “Risk Factors” and our consolidated financial statements and related notes thereto included elsewhere in this prospectus.

Unless indicated otherwise in this prospectus or the context suggests otherwise:

 

    the terms “we,” “us,” “our,” “TCG BDC” and “Company” refer to TCG BDC, Inc. (f/k/a Carlyle GMS Finance, Inc.), a Maryland corporation and its consolidated subsidiaries;

 

    the term “SPV” refers to TCG BDC SPV LLC (f/k/a Carlyle GMS Finance SPV LLC), our wholly owned and consolidated subsidiary;

 

    the term “2015-1 Issuer” refers to Carlyle GMS Finance MM CLO 2015-1 LLC, our wholly owned and consolidated subsidiary;

 

    the term “Carlyle” refers to The Carlyle Group L.P. (NASDAQ: CG) and its affiliates and consolidated subsidiaries (other than portfolio companies of its affiliated funds);

 

    the terms “CGMSFA” and “Administrator” refer to Carlyle GMS Finance Administration L.L.C., our administrator, a wholly owned and consolidated subsidiary of Carlyle;

 

    the terms “CGMSIM” and “Investment Adviser” refer to Carlyle GMS Investment Management L.L.C., our investment adviser, a wholly owned and consolidated subsidiary of Carlyle;

 

    the term “CPC” refers to the Carlyle Private Credit platform, which is Carlyle’s direct lending business unit that operates within the broader Carlyle Global Credit platform (which in turn operates within Carlyle’s Global Market Strategies (“GMS”) segment); and

 

    the term “Credit Fund” refers to Middle Market Credit Fund, LLC, an unconsolidated limited liability company, in which we own a 50% economic interest and co-manage with Credit Partners USA LLC, and its wholly owned and consolidated subsidiary.

We have elected to be regulated as a business development company, or a “BDC,” under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In addition, for U.S. federal income tax purposes, we have elected to be treated as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended (together, with the rules and regulations promulgated thereunder, the “Code”).

Unless indicated otherwise, the information in this prospectus assumes no exercise by the underwriters of their option to purchase additional shares.

TCG BDC, Inc.

We are an externally managed specialty finance company focused on lending to middle-market companies. We are managed by our Investment Adviser, a wholly owned subsidiary of The Carlyle Group L.P. Since we commenced investment operations in May 2013 through March 31, 2017, we have invested more than $2.4 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits or repayments. Our investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies, which we define as companies with approximately $10 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”), which we believe is a useful proxy for cash flow. We seek to achieve our investment objective primarily through direct originations of

 



 

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secured debt, including first lien senior secured loans (which may include stand-alone first lien loans, first lien/last out loans and “unitranche” loans) and second lien senior secured loans (collectively, “Middle Market Senior Loans”), with the balance of our assets invested in higher yielding investments (which may include unsecured debt, mezzanine debt and investments in equities).

We generate revenues primarily in the form of interest income from the investments we hold. In addition, we generate income from dividends on direct equity investments, capital gains on the sales of loans and debt and equity securities and various loan origination and other fees.

In conducting our investment activities, we believe that we benefit from the significant scale and resources of Carlyle, including our Investment Adviser and its affiliates. We have operated our business as a BDC since we began our investment activities in May 2013, and we believe we will be one of the largest BDCs as measured by total assets at the time of such BDC’s initial public offering.

Investment Strategy

Our Investment Adviser is served by an origination, capital markets, underwriting and portfolio management team comprised of experienced investment professionals in the Carlyle Private Credit (“CPC”) platform, which is Carlyle’s direct lending business unit that operates within the broader Carlyle Global Credit platform (which in turn operates within Carlyle’s Global Market Strategies (“GMS”) segment). Our investment approach is focused on long-term credit performance and principal preservation. Our Investment Adviser’s investment team utilizes a rigorous, systematic, and consistent investment process, refined over Carlyle’s 30-year history investing in private markets across multiple cycles, designed to achieve enhanced risk-adjusted returns.

Origination Strategy

Our Investment Adviser has built a strong direct origination platform with coverage of over 200 private equity firms and over 150 lending institutions. Our Investment Adviser’s origination team sources approximately 700 opportunities per year for us with an ultimate investment rate by us of less than 10% annually. The scale of our Investment Adviser’s origination platform allows us to maximize access to investment opportunities and enhance overall investment selectivity. We further seek to reduce risk by partnering with experienced sponsors with strong track records. We believe lending to companies owned by leading private equity firms (versus non-sponsored companies) has several important and potentially defensive characteristics. Sponsor involvement provides for:

 

    maximization of investment opportunities as approximately 70% of middle market loan volume is sponsor backed as of December 31, 2016, according to the S&P Global Market Intelligence LCD Middle Market Fact Sheet;

 

    validation of enterprise value;

 

    support, as needed, in strategy, operations and governance of portfolio companies; and

 

    the potential for additional capital commitment by sponsor if company requires financial support.

Investment Approach and Risk Monitoring of Investments

Our Investment Adviser utilizes a rigorous, systematic and consistent due diligence underwriting process to evaluate all investment opportunities. Our Investment Adviser’s investment teams primarily consist of origination professionals, research analysts and underwriters. An investment team works on a particular transaction from initial screening through closing, and the same team continues to monitor the credit for the life cycle of the investment.

 



 

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During the investment process, the investment team works closely with the private equity sponsor in all aspects of due diligence, including onsite meetings, due diligence calls, and review of third party diligence reports. Our Investment Adviser also conducts an independent evaluation of the business, utilizing both internal and external sources. A key differentiator is our Investment Adviser’s integrated credit platform and collaborative efforts that leverage Carlyle’s broader resources, which include access to Carlyle’s relationships and institutional knowledge.

Diversification of our portfolio is a key tenet of our risk management strategy, including diversification by borrower, industry sector, sponsor relationships and other metrics. Additionally, we view proactive portfolio monitoring as a vital part of the investment process. Our Investment Adviser utilizes a proprietary credit surveillance report and software system, an objective rules-based Internal Risk Rating system and proprietary valuation model to assess risk in the portfolio. In addition to monthly portfolio reviews, our Investment Adviser compiles a quarterly risk report that examines, among other metrics, migration in portfolio and loan level investment mix, industry diversification, Internal Risk Ratings, revenue, EBITDA, and leverage. Our Investment Adviser supplements these policies with additional analyses and projections, including stress scenarios, to assess the potential exposure of our portfolio to variable macroeconomic factors and market conditions.

Strategic Relationships

We have established two highly differentiated strategic relationships that expand our product offering and increase our scale, enhancing our investment opportunities and optimizing selectivity rates, as we determine which credits provide the best risk adjusted returns for our stockholders. In early 2015, our Investment Adviser developed a key strategic relationship with Madison Capital Funding LLC (“Madison Capital”), a prominent non-bank finance company that is a subsidiary of New York Life Insurance Company, which has allowed us to offer various lending solutions to potential borrowers and has increased our coverage of U.S. middle market private equity firms. Additionally, in early 2016, we agreed to co-invest with Credit Partners USA LLC (“Credit Partners”), a wholly owned subsidiary of a large Canadian pension fund, to form Credit Fund, a joint venture primarily focused on investing in first lien loans to middle market companies. We and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $400 million each. See “—Competitive Strengths—Strategic Relationships.”

Investment Portfolio

As of March 31, 2017, we had 94 investments in 82 portfolio companies with an aggregate fair value of $1,392.5 million. During the three months ended March 31, 2017, we invested $152 million in new investments. During the same period, we had $183 million in exits and repayments resulting in net portfolio decline of $31 million.

As of March 31, 2017, our portfolio was invested across 30 industries. As of March 31, 2017, no single portfolio company (excluding Credit Fund) represented more than 3% of our investments at fair value and no single industry represented more than 12% of our investments at fair value. Based on fair value as of March 31, 2017, approximately 98.3% of our investments were in U.S. domestic companies. As of such date, the weighted average remaining term of our debt investments was approximately 4.4 years. Based on fair value as of March 31, 2017, our portfolio consisted of approximately 89.6% in secured debt (78.0% in first lien debt (including 12.1% in first lien/last out loans) and 11.6% in second lien debt). Based on fair value as of March 31, 2017, approximately 1% of our debt portfolio was invested in debt bearing a fixed interest rate and approximately 99% of our debt portfolio was invested in debt bearing a floating interest rate with an interest rate floor.

As of March 31, 2017, the weighted average yield of our first lien debt (including first lien/last out loans) was 8.07% and 8.09% based on the amortized cost and fair value, respectively. During that same period, the weighted average yield on our second lien debt was 10.07% and 10.09% based on the amortized cost and fair value, respectively.

 



 

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As of March 31, 2017, we and Credit Partners had each contributed $45.5 million to Credit Fund. As of March 31, 2017, Credit Fund’s portfolio was invested in companies across 19 industries. As of March 31, 2017, the Credit Fund had investments in 35 portfolio companies with an aggregate fair value of $559 million. Based on fair value as of March 31, 2017, approximately 98.1% of Credit Fund’s investments were in U.S. domestic companies, and 100% was invested in debt bearing a floating interest rate with an interest rate floor.

Competitive Strengths

Market Leading Direct Origination Platform. We have access to CPC’s strong direct origination platform, with coverage of over 200 private equity firms and over 150 lending institutions. We take a regional approach to client coverage with offices in New York City, Chicago and Los Angeles. The origination team is highly experienced, and maintains deep relationships with a broad network of financial sponsors, commercial and investment banks, and finance companies, which are expected to continue to generate a significant amount of investment opportunities.

Scaled Investment Platform and Capabilities. CPC is an established, scaled investment platform with the ability to invest across the entire capital structure. CPC’s broad capabilities and ability to offer a full financing solution give us access to a wide funnel of opportunities, allow us to select high quality credits, construct the optimal financing package as it relates to price and terms, assert greater control over documentation, and generate attractive risk-adjusted returns for our stockholders. We believe CPC’s hold sizes are among the largest in the middle market, which we believe results in the ability to generate premium economics, as sponsors are willing to pay higher spreads for financing certainty. CPC’s large hold sizes and strategic relationships enable us to provide certainty with regards to spreads, fees, structure and covenants. Furthermore, the breadth of CPC’s debt offerings also allows us to deploy capital at a measured pace across credit cycles and construct a portfolio that will perform in a broad range of economic conditions.

One Carlyle Capabilities Leading to Superior Credit Performance. We benefit from our Investment Adviser’s utilization of the broader resources of Carlyle, which includes access to Carlyle’s relationships and institutional knowledge from almost three decades of private market investing. Our underwriting process leverages Carlyle’s 625 investment professionals across multiple alternative investment asset classes, 34 operating executive consultants, information obtained through direct ownership of over 270 companies and lending relationships with over 500 companies, 11 credit industry research analysts, and in-house government affairs and economic research teams. Our systematic and consistent approach is augmented by industry expertise and tenured underwriting professionals who both lead our Investment Adviser’s investment team and serve on our Investment Adviser’s investment committee. Strong credit underwriting has been a key component of our investing process, where our Investment Adviser seeks to select borrowers whose businesses are expected to generate substantial cash flows, to have leading management teams, stable operating histories, high barriers to entry and meaningful equity value, and to retain significant value.

Experienced Investment Team and Alignment of Interests. Our Investment Adviser’s investment team comprises investment professionals in CPC who have extensive middle market lending experience. The investment team consists of 28 dedicated investment professionals. The seven members of our Investment Adviser’s investment committee have an average of 21 years of industry experience. We believe the breadth and depth of the investment team in sourcing, structuring, executing, and monitoring a broad range of private investments provides us with a significant competitive advantage in building a high quality portfolio of investments.

Certain members of the investment team, investment committee and Carlyle’s senior management team, employees and affiliates own approximately 5% of our outstanding common stock. In addition, in order to align the interests of our Investment Adviser’s investment professionals with our investors, our Investment Adviser pays a portion of the incentive fees that it receives from us to our Investment Adviser’s investment committee and certain investment team members, which may represent a significant component of such individual’s compensation.

 



 

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Carefully Constructed Portfolio of Diversified Senior Secured, Floating Rate Loans. Our portfolio has been defensively constructed, exhibits strong credit quality, generates stable risk-adjusted returns and allows us to generate meaningful investment income, and consequently dividend income, for our stockholders. We have invested approximately $2.1 billion since our inception in directly originated middle market loans. Our portfolio is highly diversified by borrower, industry sector, sponsor relationships and other metrics. As of March 31, 2017, we had a portfolio of 94 investments in 82 portfolio companies across 30 industries and 54 unique sponsors. As of March 31, 2017, approximately 99% of our debt investments bore interest at floating rates, subject to interest rate floors, and 78.0% of our portfolio was invested in first-lien debt investments (including 12.1% first lien/last out loans).

Strategic Relationships. Our strategic relationships enhance our ability to provide full financing solutions to our borrowers, which results in our being able to generate optimal economics, significant access to diligence and control over documentation terms. Additionally, these relationships further strengthen our origination platform and ability to develop creative financing solutions to invest through the capital structure based on where we believe the best risk-adjusted return opportunities reside. Our Investment Adviser’s strategic relationship with Madison Capital, a leading middle market senior lender with approximately $8.0 billion of assets under management (“AUM”) as of March 31, 2017, allows us to offer a full unitranche financing solution. This product provides middle market companies with certainty for financing without syndication risk and generates attractive risk-adjusted returns on these investments for our stockholders. Madison Capital provides the first lien/first out portion of the unitranche loan, which allows us to provide the first lien/last out portion. Collectively, we and Madison Capital have provided over $900 million (before any repayments or exits) of unitranche loans to middle market companies. The relationship has been extremely successful, and we frequently invest alongside Madison Capital on a variety of investment opportunities (in addition to unitranche loans).

Separately, Credit Fund, our strategic joint venture with a large Canadian pension fund, primarily invests in first lien loans of middle-market companies. Since its inception and through March 31, 2017, Credit Fund has provided $603 million (before any repayments or exits) of senior secured loans. This joint venture provides us with an enhanced first lien loan product for certain transactions, thus further increasing our deal flow, and results in an increased number of borrowers in our portfolio, which provides strategic benefits as we build incumbent positions for future growth and investment opportunity.

Market Opportunity

We believe the middle market lending environment provides attractive investment opportunities as a result of a combination of the following factors:

Favorable Market Environment. We believe the middle market remains one of the most attractive investment areas due to its large size, superior value relative to the broadly syndicated loan market, and supply-demand imbalance that continues to favor non-bank lenders. We believe market yields remain attractive and leverage levels at middle market companies are stable, creating a favorable investment environment.

Large and Growing U.S. Middle Market. The U.S. middle market is the largest market by many measures, which is expected to enable us to invest selectively as approximately 70% of middle market loan volume is sponsor-backed. According to S&P Capital IQ, as of December 31, 2016, there are over 70,000 U.S. middle market companies generating between $20 million and $1 billion in annual revenue, compared with approximately 3,500 companies with revenue greater than $1 billion. We believe these middle market companies, both sponsored and non-sponsored, represent a significant growth segment of the U.S. economy and often require substantial capital investments to grow.

 



 

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Leverage, Pricing and Risk. According to the S&P Global Market Intelligence LCD Quarterly Leveraged Lending Review (Q4 2016), middle market companies are less levered, have larger equity contributions, experience lower rates of default, and achieve higher recoveries versus large cap broadly syndicated loans. Middle market loans also tend to achieve more attractive pricing and structures, including documentation, covenants and information/governance, than broadly syndicated loans. Over the 3 year period from 2014 to 2016, middle market loans have exhibited an approximate 200 basis points spread premium over broadly syndicated loans according to the S&P Global Market Intelligence LCD Leveraged Loan Index.

Market Environment Favors Non-Traditional Lenders. Traditional middle-market lenders, such as commercial and regional banks and commercial finance companies, have contracted their origination and lending activities and are focusing on more liquid asset classes or have exited the business. At the same time, institutional investors have sought to invest in larger, more liquid offerings, limiting the ability of middle-market companies to raise debt capital through public capital markets. This has resulted in other capital providers, such as specialty finance companies, structured-credit vehicles such as collateralized loan obligations (“CLOs”), BDCs, and private investment funds, actively investing in the middle market. We believe the aforementioned changes and restrictions have created a large and growing market opportunity for alternative lenders such as us.

Favorable Capital Markets Trends. Current and future demand for middle market financings, driven by private equity investment and upcoming maturities are expected to provide us with ample deal flow. Current data from the Thompson Reuters LPC Middle Market Weekly Report (January 27, 2017) suggests that approximately $615 billion of upcoming loan maturities for middle market companies are due between 2017 and 2022, and the PitchBook PE & VE Fundraising and Capital Overhang Report (1H 2016) suggests that there is over $657 billion of uninvested capital in 2011–2015 vintage private equity funds. We believe these refinancings and uninvested capital will provide a steady flow of attractive opportunities for well-positioned lenders with deep and longstanding sponsor and market relationships, particularly for providers of full capital structure financing solutions.

Benefits of Traditional Middle Market Focus. We believe there are significant advantages in our focus on the traditional middle market, a market we categorize to include borrowers with EBITDA in the range of approximately $10 million to $100 million. Traditional middle market companies are generally less levered than companies with EBITDA in excess of $100 million and loans to those borrowers offer more attractive economics in the form of upfront fees, spreads, and prepayment penalties. Senior secured middle market loans typically have strong defensive characteristics: these loans have priority in payment among a portfolio company’s security holders and they carry the least risk among investments in the capital structure; these investments, which are secured by the portfolio company’s assets, typically contain carefully structured covenant packages which allow lenders to take early action in situations where obligors underperform; and these characteristics can provide protection against credit deterioration. Middle market lenders like us are often able to complete more thorough due diligence investigations prior to investment than lenders in the broadly syndicated space.

Carlyle and Our Investment Adviser

Our investment activities are managed by our Investment Adviser. Our Investment Adviser is responsible for sourcing potential investments, conducting research and due diligence on prospective investments and equity sponsors, analyzing investment opportunities, structuring our investments and monitoring our investments on an ongoing basis.

 



 

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Our Investment Adviser is an affiliate of Carlyle. Carlyle is one of the world’s largest and most diversified multi-product global alternative asset management firms. Carlyle and its affiliates advise an array of specialized investment funds and other investment vehicles that invest across a range of industries, geographies, asset classes and investment strategies. Since its founding in Washington, D.C. in 1987, Carlyle has grown to become a leading global alternative asset manager with approximately $162 billion in AUM across 287 investment vehicles as of March 31, 2017.

Carlyle Global Credit is one of the largest integrated credit platforms in the industry with approximately $29 billion in AUM and more than 120 employees with multiple offices, including New York, Chicago and Los Angeles, as of March 31, 2017. Carlyle Global Credit’s investment strategies include loans and structured credit, distressed credit, private credit (through CPC) and energy credit. CPC advises four funds, including us, totaling, in the aggregate, approximately $2 billion in AUM as of March 31, 2017.

Our Investment Adviser’s seven person investment committee is responsible for reviewing and approving our investment opportunities. The members of the investment committee have experience investing through different credit cycles. The investment committee is led by Michael A. Hart, Managing Director of Carlyle, Head of CPC, Chairman of our Board of Directors and our Chief Executive Officer and also includes Jeffrey S. Levin, Managing Director of Carlyle and our President.

Our Investment Adviser also serves, and may serve in the future, as investment adviser to other current and future affiliated business development companies that have investment objectives similar to our investment objectives.

NFIC Acquisition

On May 3, 2017, we entered into a definitive agreement (the “Merger Agreement”) under which we have agreed, subject to the satisfaction of certain closing conditions, to acquire NF Investment Corp. (“NFIC”), a Maryland corporation, in a cash and stock transaction, which we refer to as the “NFIC Acquisition.” If NFIC stockholders approve the Merger Agreement, then pursuant to the Merger Agreement, at the effective time, subject to the satisfaction of specified closing conditions, NFIC will merge with and into us with us as the surviving entity in the NFIC Acquisition.

Upon the completion of the NFIC Acquisition, each share of NFIC common stock issued and outstanding immediately prior to the effective time of the NFIC Acquisition will be converted into the right to receive a mixture of cash and our shares (such shares, the “Acquisition Shares,” and together with the cash, if any, the “Merger Consideration”) from us, in accordance with the elections of NFIC stockholders. Each NFIC stockholder is permitted to elect the percentage of the Merger Consideration such stockholder wishes to receive in the form of cash (such percentage, the “Cash Election Percentage”) with respect to all shares of NFIC common stock held by such stockholder. The Cash Election Percentage elected by an NFIC stockholder shall not exceed 95%. The net asset value of the Merger Consideration (consisting of Acquisition Shares and cash, if any) that each NFIC stockholder is entitled to under the Merger Agreement will be equal to the net asset value of such NFIC stockholder’s shares of common stock in NFIC.

As of March 31, 2017, the fair value of NFIC’s investments was approximately $267.3 million in 75 portfolio companies. The following table sets forth the capitalization of NFIC and us, in each case, as of December 31, 2016, and the pro forma combined capitalization of us as if the NFIC Acquisition had occurred on that date assuming a 95% Cash Election Percentage.

 



 

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     TCG BDC      NFIC      Adjustments     TCG BDC Pro-Forma  

(dollar amounts in thousands, except per share data)

 

Net Assets

   $ 764,137      $ 155,546      $ (11,927   $ 907,756  

Shares Outstanding

     41,702,318        8,156,316        (295,424     49,563,210  

Net Asset Value Per Share

   $ 18.32      $ 19.07        —     $ 18.32  

The actual financial positions and results of operations of NFIC and us prior to the NFIC Acquisition and that of the Company following the NFIC Acquisition may be different, possibly materially, from the unaudited pro forma metrics included in this section.

These pro forma net assets adjustments amounts include an estimated $328 thousand and $65 thousand in NFIC Acquisition expenses incurred by us and NFIC, respectively, on or before the closing of the NFIC Acquisition. Unexpected delays in completing the NFIC Acquisition or in connection with the post-merger integration process may significantly increase the related costs and expenses incurred by us and NFIC. Adjustments amounts also include net change in cash, debt and equity balances due to the NFIC Acquisition. In addition, the fair values used for valuing the portfolio of NFIC are derived using consistent valuation methodology as used to calculate the fair value of our portfolio. The change in the number of shares reflects the net result of the cancellation of NFIC’s existing shares and the issuance of additional shares by us to NFIC stockholders as consideration for the NFIC Acquisition and to our stockholders for capital calls to fund the NFIC Acquisition made prior to the date of this offering.

The following table presents the type of investments as a percentage of fair value of us, NFIC and pro forma for the combined company as of December 31, 2016:

 

As of December 31, 2016

 

     % of Fair Value  
     TCG BDC     NFIC     Combined
Pro-Forma
 

Type

      

First Lien Debt

     80.09     96.36     82.82

Second Lien Debt

     12.08     3.64     10.67

Structured Finance Obligations

     0.37     0.00     0.30

Equity Investments

     0.46     0.00     0.38

Investment Fund

     7.00     0.00     5.83
  

 

 

   

 

 

   

 

 

 

Total

     100.00     100.00     100.00
  

 

 

   

 

 

   

 

 

 

The following table summarizes the Internal Risk Ratings of us, NFIC and pro forma for the combined company as of December 31, 2016:

 

As of December 31, 2016

      
     TCG BDC     NFIC     Combined Pro-Forma  
     Fair Value      % of Fair Value     Fair Value      % of Fair Value     Fair Value      % of Fair Value  
(dollar amounts in millions)                                        

Internal Risk Rating 1

   $ 59.3        4.5   $ 11.9        4.2   $ 71.2        4.5

Internal Risk Rating 2

     1,055.7        80.5       223.0        77.9       1,278.7        80.0  

Internal Risk Rating 3

     100.9        7.7       23.2        8.1       124.1        7.8  

Internal Risk Rating 4

     75.7        5.8       22.0        7.7       97.7        6.1  

Internal Risk Rating 5

     12.2        0.9       3.5        1.2       15.7        1.0  

Internal Risk Rating 6

     7.6        0.6       2.6        0.9       10.2        0.6  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 1,311.4        100.0   $ 286.2        100.0   $ 1,597.6        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

 



 

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As of December 31, 2016, the weighted average Internal Risk Rating of our and NFIC’s debt investment portfolio was 2.2 and 2.3, respectively.

As of December 31, 2016, we had (i) total assets of approximately $1.49 billion, (ii) total liabilities of approximately $0.73 billion and (iii) a net asset value per share of $18.32. Assuming the NFIC Acquisition was completed as of December 31, 2016, the combined company would have on a pro forma basis as of December 31, 2016 (i) total assets of more than $1.78 billion, (ii) total liabilities of more than $0.87 billion, and (iii) a net asset value per share of $18.32. The industrial and geographic compositions of our portfolio will not materially change as a result of the NFIC Acquisition. As of December 31, 2016, our and NFIC’s asset coverage calculated in accordance with the Investment Company Act was 209.97% and 219.26%, respectively. Assuming the NFIC Acquisition was completed as of December 31, 2016, the combined company would have on a pro forma basis weighted average yields of 7.95% and 8.01% for our first and second lien debt based on amortized cost and fair value, respectively, as of December 31, 2016. Based on fair value as of December 31, 2016, our and NFIC’s respective debt portfolios were invested in approximately 99% and 99%, respectively, of debt bearing a floating interest rate with an interest rate floor. Assuming the NFIC Acquisition was completed as of December 31, 2016, the combined company would have on a pro forma basis 99% of its debt portfolio invested in debt bearing a floating interest rate with an interest rate floor, as of December 31, 2016. The information presented in this paragraph and the immediately preceding paragraphs is provided for illustrative purposes only and does not necessarily indicate what the future assets, liabilities, net asset value or asset mix of the combined company will be following the NFIC Acquisition. Additionally, this pro forma information does not include any estimated net increase (decrease) in stockholders’ equity resulting from operations or other asset sales and repayments that are not already reflected that may occur between December 31, 2016 and the completion of the NFIC Acquisition.

The completion of the NFIC Acquisition is subject to certain conditions, including, among others, NFIC stockholder approval and other customary closing conditions. While there can be no assurances as to the exact timing, or that the NFIC Acquisition will be completed at all, we expect to complete the NFIC Acquisition in June 2017.

We cannot assure you that the NFIC Acquisition will be completed as scheduled, or at all. See “Risk Factors—Risks Related to the NFIC Acquisition” for a description of the risks that the company may face if the NFIC Acquisition is or is not completed.

Allocation of Investment Opportunities and Potential Conflicts of Interest

Our Investment Adviser’s investment team forms the exclusive Carlyle platform for U.S. middle market debt investments. The SEC has granted us exemptive relief that permits us and certain of our affiliates to co-invest in suitable negotiated investments (the “Exemptive Relief”). If Carlyle is presented with investment opportunities that generally fall within our investment objective and that of other Carlyle funds, accounts or other similar arrangements (including other affiliated business development companies) whether focused on a debt strategy or otherwise, Carlyle allocates such opportunities among us and such other Carlyle funds, accounts or other similar arrangements in a manner consistent with the Exemptive Relief, our Investment Adviser’s allocation policies and procedures and Carlyle’s other allocation policies and procedures, where applicable, as discussed below. More specifically, investment opportunities in suitable negotiated investments for investment funds, accounts and other similar arrangements managed by our Investment Adviser are allocated in accordance with the Exemptive Relief. Investment opportunities for investment funds, accounts and other similar arrangements not managed by our Investment Adviser are allocated in accordance with our Investment Adviser’s and Carlyle’s other allocation policies and procedures. Such policies and procedures may result in certain investment opportunities that are attractive to us being allocated to other funds that are not managed by our

 



 

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Investment Adviser. Carlyle’s, including our Investment Adviser’s, allocation policies and procedures are designed to allocate investment opportunities fairly and equitably among its clients over time, taking into account the sourcing of the transaction, the nature of the investment focus of each such other Carlyle fund, accounts or other similar arrangements, the relative amounts of capital available for investment, the nature and extent of involvement in the transaction on the part of the respective teams of investment professionals, any requirements contained in the governing agreements of the Carlyle funds, accounts or other similar arrangements and other considerations deemed relevant by Carlyle in good faith, including suitability considerations and reputational matters. The application of these considerations may cause differences in the performance of different Carlyle funds, accounts and similar arrangements that have similar strategies. For a further explanation of the allocation of opportunities and other related conflicts and risks, please see “Business—Allocation of Investment Opportunities and Potential Conflicts of Interest.”

Because we are a BDC, we are not generally permitted to make loans to companies controlled by Carlyle or other funds managed by Carlyle.

We are also not permitted to make any co-investments with our Investment Adviser or its affiliates (including any fund managed by Carlyle) without exemptive relief from the SEC, subject to certain exceptions, including with respect to our downstream affiliates. The SEC has granted us Exemptive Relief that permits us and certain of our affiliates to co-invest in suitable negotiated investments. Co-investments made under the Exemptive Relief are subject to compliance with the conditions and other requirements contained in the Exemptive Relief, which could limit our ability to participate in a co-investment transaction. We may also co-invest with funds managed by Carlyle or any of its downstream affiliates, subject to compliance with applicable law and regulations, existing regulatory guidance, and our Investment Adviser’s allocation policies and procedures.

Operating and Regulatory Structure

We have elected to be treated as a BDC under the Investment Company Act. As a BDC, we are required to comply with certain regulatory requirements and are generally prohibited from acquiring assets other than qualifying assets, unless, after giving effect to any acquisition, at least 70% of our total assets are qualifying assets. Qualifying assets generally include securities of eligible portfolio companies, cash, cash equivalents, U.S. government securities and high-quality debt instruments maturing in one year or less from the time of investment. Under the rules of the Investment Company Act, “eligible portfolio companies” include (i) private U.S. operating companies, (ii) public U.S. operating companies whose securities are not listed on a national securities exchange (e.g., the New York Stock Exchange, NYSE Amex Equities and The NASDAQ Global Market) or registered under the Exchange Act and (iii) public U.S. operating companies having a market capitalization of less than $250 million.

Also, while we may borrow funds to make investments, our ability to use debt is limited in certain significant aspects. In particular, as a BDC, we must have at least 200% asset coverage calculated pursuant to the Investment Company Act in order to incur debt or issue preferred stock (which we refer to collectively as “senior securities”). In effect, we are permitted to borrow one dollar for every dollar we have in assets less all liabilities and indebtedness not represented by senior securities issued by us, which requires us to finance our investments with at least as much equity as senior securities in the aggregate. Certain of our credit facilities also require that we maintain asset coverage of at least 200%. See “—Use of Leverage” and “Regulation.”

In addition, as a consequence of our election to be treated as a RIC for U.S. federal income tax purposes, our asset growth is dependent on our ability to raise equity capital through the issuance of common stock. RICs generally must distribute substantially all of their investment company taxable income (as defined under the Code) to stockholders as dividends in order to preserve their status as a RIC and not be subject to additional U.S.

 



 

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federal corporate-level taxes. This requirement, in turn, generally prevents us from using our earnings to support our operations, including making new investments. See “U.S. Federal Income Tax Considerations.”

Use of Leverage

Leverage increases the potential for gain and loss on amounts invested and, as a result, increases the risks associated with investing in our common stock. The costs associated with our borrowings, including any increase in the fees payable to our Investment Adviser, are borne by our stockholders. Any decision on our part to use borrowings depends upon our assessment of the attractiveness of available investment opportunities in relation to the costs and perceived risks of such leverage. Through the SPV, our wholly owned subsidiary, we have a $400 million senior secured revolving credit facility with various lenders (as amended, the “SPV Credit Facility”). In addition, we have a $283 million senior secured revolving credit facility with various lenders (as amended, the “Credit Facility” and, together with the SPV Credit Facility, the “Facilities”).

On June 26, 2015, through our wholly owned subsidiary, the 2015-1 Issuer, we completed a $400 million term debt securitization (the “2015-1 Debt Securitization”), of which we retained 100% of the preferred interests (the “Preferred Interests”), or approximately $126 million at closing. For more information on our debt, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources.”

Corporate Structure

We were formed in February 2012 as a Maryland corporation structured as an externally managed, non-diversified closed-end investment company. On May 2, 2013, we elected to be regulated as a BDC and commenced substantial investment operations upon the completion of our initial closing of equity capital commitments. Effective on March 15, 2017, we changed our name from “Carlyle GMS Finance, Inc.” to “TCG BDC, Inc.”

Implications of Being an Emerging Growth Company

We currently are, and expect to remain, an “emerging growth company,” as that term is used in the JOBS Act until the earliest of:

 

    up to five years measured from the date of the first sale of common equity securities pursuant to an effective registration statement;

 

    the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more;

 

    the date on which we have, during the preceding three-year period, issued more than $1.0 billion in non-convertible debt; and

 

    the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of the common stock that is held by non-affiliates exceeds $700 million as of any June 30.

Under the JOBS Act, we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which would require that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting. This may increase the risk that material weaknesses or other deficiencies in our internal control over financial reporting go undetected. See “Risk Factors—Risks Related to Our Business and Structure—We are obligated to maintain proper and effective internal control over financial reporting. Failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and the value of our common stock.”

 



 

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In addition, Section 7(a)(2)(B) of the Securities Act and Section 13(a) of the Exchange Act, as amended by Section 102(b) of the JOBS Act, provide that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. However, pursuant to Section 107 of the JOBS Act, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Recent Developments

On May 5, 2017 and May 25, 2017, we issued a capital call and delivered capital drawdown notices totaling approximately $39.5 million and $150.0 million, respectively (the “Capital Calls”). We expect to receive the proceeds from the Capital Calls and the related issuance of 10,258,128 shares before the consummation of this offering.

On May 26, 2017, we amended the SPV Credit Facility to, among other things, extend the maturity date to May 23, 2022. In addition, Middle Market Credit Fund SPV LLC (the “Credit Fund Sub”) amended its revolving credit facility (the “Credit Fund Sub Facility”) on May 31, 2017 to, among other things, increase the size of the facility from $450 million to $565 million and extend the maturity date to May 22, 2023. On June 5, 2017, the Credit Fund amended its revolving credit facility (the “Credit Fund Facility”) to, among other things, increase the size of the facility from $100 million to $125 million, change the interest rate to LIBOR plus 9.00% and extend the maturity date to June 24, 2018.

From April 1, 2017 through June 2, 2017, we made new investment commitments of approximately $332.1 million, of which $226.3 million were funded. Of these new investment commitments, 61.3% were first lien debt, 25.4% were second lien debt, 0.5% were equity investments and 12.8% were Credit Fund investments. Of the approximately $332.1 million of new investment commitments, all of the debt investment commitments were floating rate. The weighted average yield of debt securities funded during the period at amortized cost was 8.7%.

From April 1, 2017 through June 2, 2017, we exited or were repaid approximately $134.8 million of investments. Of the exited investments, 86.0% were first lien debt, 5.5% were second lien debt and 8.5% were Credit Fund investments. Of the approximately $134.8 million of exited investments, all were floating rate. The weighted average yield of debt and other income producing securities exited or repaid during the period at amortized cost was 10.1%.

Our Board of Directors intends to declare a distribution of $0.37 per share for the quarter ending June 30, 2017 to stockholders of record as of June 30, 2017. Shares of common stock offered pursuant to this prospectus will be entitled to receive this distribution, which is expected to be paid on or about July 24, 2017. We anticipate that this distribution will be paid from taxable income generated primarily by interest income earned on our investment portfolio.

Summary Risk Factors

Investing in us involves a high degree of risk. The following is a summary of the principal risks that you should carefully consider before investing in our common stock. In addition, see “Risk Factors” beginning on page 27 for a more detailed discussion of the principal risks as well as certain other risks you should carefully consider before deciding to invest in our common stock.

 



 

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    Our operation as a BDC imposes numerous constraints on us and significantly reduces our operating flexibility. Any failure on our part to maintain our status as a BDC or RIC would reduce our operating flexibility, may hinder our achievement of our investment objective, may limit our investment choices and may subject us to greater regulation.

 

    Capital markets may experience periods of disruption and instability. These market conditions may materially and adversely affect debt and equity capital markets in the United States and abroad, which may in the future have a negative impact on our business and operations.

 

    Our financial condition, results of operations and ability to achieve our investment objective depend on our ability to source investments, access financing and manage future growth effectively.

 

    We will be subject to corporate-level income tax if we are unable to maintain our qualification as a RIC for U.S. federal income tax purposes under Subchapter M of the Code, which would have a material adverse effect on our financial performance.

 

    We are dependent upon our Investment Adviser for our future success.

 

    We may need to raise additional capital to grow because we must distribute most of our income.

 

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

 

    We operate in a highly competitive market for investment opportunities, and compete with investment vehicles sponsored or advised by our affiliates.

 

    We may experience fluctuations in our quarterly results.

 

    There are significant potential conflicts of interest, including the management of other investment funds and accounts by our Investment Adviser, which could impact our investment returns.

 

    We may be obligated to pay our Investment Adviser incentive compensation even if we incur a loss.

 

    Our Board of Directors may change our investment objective, operating policies and strategies without prior notice and without stockholder approval.

 

    A failure in our operational systems or infrastructure, or those of third parties, as well as cyber-attacks could significantly disrupt our business or negatively affect our liquidity, financial condition or results of operations.

 

    Our Investment Adviser, Administrator and sub-administrators can resign upon 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.

 

    We may not replicate our historical performance or the historical success of Carlyle.

 

    Our ability to enter into transactions with Carlyle and our other affiliates is generally restricted.

 

    Changes in interest rates may increase our cost of capital, reduce the ability of our portfolio companies to service their debt obligations and decrease our net investment income.

 

    Our investments are risky and speculative.

 

    Our portfolio securities typically do not have a readily available market price and, in such a case, we will value these securities at fair value as determined in good faith under procedures adopted by our Board of Directors, which valuation is inherently subjective and may not reflect what we may actually realize for the sale of the investment.

 

    Declines in the prices of corporate debt securities and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.

 



 

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    Economic recessions or downturns could impair our portfolio companies and harm our operating results.

 

    Our portfolio companies may incur debt that ranks equally with, or senior to, some of our investments in such companies.

 

    Because we currently do not hold, and likely will not hold, controlling interests in our portfolio companies, we may not be in a position to exercise control over those portfolio companies or prevent decisions by management of those portfolio companies that could decrease the value of our investments.

 

    The market price of our common stock may fluctuate significantly over time.

 

    Investing in our common stock involves an above average degree of risk.

 

    Non-U.S. stockholders may be subject to withholding of U.S. federal income tax on dividends we pay.

 

    We may fail to complete the NFIC Acquisition.

Corporate Information

Our principal executive offices are located at 520 Madison Ave, 40th Floor, New York, New York 10022 and our telephone number is (212) 813-4900. We maintain a website located at www.tcgbdc.com. Information on our website is not incorporated into or a part of this prospectus.

 



 

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THE OFFERING

 

Common stock offered by us    9,000,000 shares (excluding 1,350,000 shares of common stock issuable pursuant to the option to purchase additional shares granted to the underwriters).
Common stock to be outstanding after this offering    60,966,283 shares (excluding 1,350,000 shares of common stock issuable pursuant to the option to purchase additional shares granted to the underwriters and excluding 434,233 shares issued in association with the NFIC Acquisition and excluding 5,132 shares issued pursuant to the dividend reinvestment plan).
Use of proceeds   

Our net proceeds from this offering will be approximately $159.7 million (or approximately $183.9 million if the underwriters exercise in full their option to purchase additional shares of our common stock).

 

We expect to use the proceeds from the closing of this offering to repay a portion of our outstanding debt under our Facilities. See also “Use of Proceeds.”

Investment Adviser payment of sales load and offering expenses    Our Investment Adviser has agreed to pay 50% of the sales load and offering expenses in connection with this offering.
Listing    Our common stock has been approved for listing on NASDAQ Global Select Market under the symbol “CGBD”.
Distributions   

To the extent we have taxable income, we intend to continue to pay quarterly distributions to our stockholders out of assets legally available for distribution. Future quarterly distributions, if any, will be determined by our Board of Directors. All future distributions will be subject to lawfully available funds therefor, and no assurance can be given that we will be able to declare such distributions in future periods.

 

Our Board of Directors intends to declare a distribution of $0.37 per share for the quarter ending June 30, 2017 to stockholders of record as of June 30, 2017. Shares of common stock offered pursuant to this prospectus will be entitled to receive this distribution, which is expected to be paid on or about July 24, 2017. We anticipate that this distribution will be paid from taxable income generated primarily by interest income earned on our investment portfolio.

 



 

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Tax status    We are a BDC under the Investment Company Act. We have elected to be treated as a RIC under Subchapter M of the Code commencing with our taxable year ended December 31, 2013, and intend to continue to elect to be so treated annually. As a RIC, we generally will not pay corporate-level U.S. federal
  

income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To maintain our RIC status, we must meet specified source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our “investment company taxable income” as defined by the Code, which generally includes net ordinary income and net short-term capital gains in excess of net long-term capital losses, for each taxable year. See “Distributions” and “U.S. Federal Income Tax Considerations.”

 

We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. The distributions we pay to our stockholders in a year may exceed our taxable income for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. See “Distributions.”

Dividend Reinvestment Plan    Effective on July 5, 2017, we will convert our current “opt in” dividend reinvestment plan to an “opt out” dividend reinvestment plan for our stockholders. Under the new plan, if our Board of Directors authorizes, and we declare, a cash dividend or distribution, our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash dividends or distributions automatically reinvested in additional shares of our common stock, rather than receiving cash. After this offering, we intend to use primarily newly issued shares of our common stock to implement the plan so long as the market value per share is equal to or greater than the NAV per share as of the close of business on the relevant payment date for such dividend or

 



 

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   distribution. If the market value per share is less than the NAV per share as of the close of business as of the close of business on the relevant payment date, the plan administrator would purchase the common stock on behalf of participants in the open market, unless we instruct the plan administrator otherwise.
  

 

Stockholders who receive dividends and distributions in the form of stock are generally subject to the same U.S. federal, state and local tax consequences as are stockholders who receive their dividends and distributions in cash. However, since their cash dividends and distributions will be reinvested in our common stock, such stockholder will not receive cash with which to pay applicable taxes on reinvested dividends and distributions. See “Dividend Reinvestment Plan.”

 

If a stockholder elects to “opt out,” that stockholder will receive cash distributions.

Investment Advisory Fees    We pay our Investment Adviser a fee for its services under an investment advisory agreement (the “Investment Advisory Agreement”) consisting of two components—a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 1.50% based on the average value of our gross assets (adjusted for share issuances or repurchases, excluding cash but including assets acquired with leverage) at the end of the two most recently completed fiscal quarters, except for the first quarter following this offering, in which case the base management fee will be calculated based on our gross assets as of the end of such fiscal quarter. The base management fee is payable quarterly in arrears. Prior to this offering, our Investment Adviser waived its right to receive one-third (0.50%) of the 1.50% base management fee. The fee waiver was scheduled to terminate upon consummation of this offering. However, our Investment Adviser has agreed to continue the fee waiver until the completion of the first full quarter after the consummation of this offering. As a result, at the start of the second full quarter after the completion of this offering, the base management fee will return to an annual rate of 1.50% of our gross assets, and will be effectively higher than the base management fee prior to the completion of this offering.
   The incentive fee consists of two parts: one based on pre-incentive fee net investment income and one based on capital gains.

 



 

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Incentive Fee on Pre-Incentive Fee Net Investment Income

 

We pay our Investment Adviser an incentive fee quarterly in arrears with respect to our pre-incentive fee net investment income in each calendar quarter as follows (for purposes of comparing our pre-incentive fee net investment income to a “hurdle rate” of 1.50% or a “catch-up rate” of 1.875%, as applicable, our pre-incentive fee net investment income is expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter):

 

•    no incentive fee based on pre-incentive fee net investment income in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate of 1.50%;

 

•    100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net

investment income, if any that exceeds the hurdle rate but is less than 1.875% in any calendar quarter (7.50% annualized). We refer to this portion of our pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 1.875%) as the “catch-up.” The “catch-up” is meant to provide our Investment Adviser with approximately 20% of our pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeds 1.875% in any calendar quarter; and

 

•    20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 1.875% in any calendar quarter (7.50% annualized) is payable to our Investment Adviser. This reflects that once the hurdle rate is reached and the catch-up is achieved, 20% of all pre-incentive fee investment income thereafter is allocated to our Investment Adviser.

  

Incentive Fee on Capital Gains

 

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory

 



 

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   Agreement, as of the termination date), and equals 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation, less the aggregate amount of any previously paid capital gain incentive fees.
   We will defer payment of the incentive fee if, for the preceding four calendar quarters ending on or prior to
  

the date such payment is to be made, the sum of the aggregate distributions to our stockholders and the change in our net assets is less than 6% of our net assets at the beginning of such period. These calculations are adjusted for any share issuances or repurchases. Any deferred incentive fees will be carried over for payment in subsequent calculation periods when such test is met.

 

In order to align the interests of our Investment Adviser’s investment professionals with our investors, our Investment Adviser pays a portion of the incentive fees that it receives from us to our Investment Adviser’s investment committee and

certain investment team members, which may represent a significant component of such individual’s compensation.

 

Our Investment Adviser has agreed to waive 2.5% of our incentive fee and to charge 17.5% instead of 20% with respect to the entire calculation of its incentive fee beginning on the first full quarter following the consummation of this offering until the earlier of (i) October 1, 2017 and (ii) the date that our stockholders vote on the approval of a proposed amendment to our Investment Advisory Agreement described below (the “Proposed Amendment”). The Proposed Amendment would amend the Investment Advisory Agreement to make certain changes, including (i) reducing the 20% incentive fee based on pre-incentive fee net investment income and capital gains to 17.5% and (ii) deleting the deferral provision related to our incentive fee described in the immediately preceding paragraph.

   If our stockholders do not approve the Proposed Amendment, the deferral provision will remain in the Investment Advisory Agreement and the incentive fee will again be calculated based on 20% (and not 17.5%) beginning as of the end of the period described above.

 



 

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   See “Fees and Expenses” and “Management—Investment Management Agreement.”
Administration Agreement    We reimburse our Administrator for its costs and expenses and our allocable portion of overhead incurred by our Administrator in performing its obligations under an administration agreement (the “Administration Agreement”). In addition, our Administrator has entered into sub-administration agreements with certain affiliates (the “Carlyle Sub-Administration Agreements”) to have access to
  

personnel. Our Administrator has also entered into a sub-administration agreement with State Street Bank and Trust Company (the “State Street Sub-Administration Agreement” and, together with the Carlyle Sub-Administration Agreements, the “Sub-Administration Agreements”) for certain administrative and professional services.

 

See “Fees and Expenses,” “Management—Administration Agreement” and “—Sub-Administration Agreements.”

Leverage    From time to time, we may borrow funds to make additional investments. This is known as “leverage” and could increase or decrease returns to our stockholders. The use of leverage involves significant risks. As a BDC, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, equals at least 200% immediately after each time we incur indebtedness. The amount of leverage that we employ will depend on our Investment Adviser’s and our Board of Directors’ assessment of market conditions and other factors at the time of any proposed borrowing. The costs associated with our borrowings, including any increase in the fees payable to our Investment Adviser, are borne by our stockholders.
Trading at a discount    Shares of closed-end investment companies that are listed on an exchange, including BDCs, frequently trade at a discount to their NAV per share. We are not generally able to issue and sell our common stock at a price below our NAV per share unless, among other things, the requisite stockholders approve such a sale. The risk that our shares may trade at a
   discount to our NAV per share is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether our shares will trade above, at or below NAV per share. See “Risk

 



 

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   Factors—Risks Related to this Offering and our Common Stock—Prior to this Offering, there has been no public market for our common stock, and we cannot assure you that the market price of our shares will not decline following the offering.
Investment Adviser    We are externally managed by our Investment Adviser, CGMSIM, an investment adviser that is registered with the SEC under the Advisers Act. CGMSIM is a wholly owned subsidiary of Carlyle, a global alternative asset manager with approximately
   $162 billion of AUM as of March 31, 2017. See “Management—Our Investment Adviser.”
Administrator    CGMSFA, a wholly owned subsidiary of Carlyle, serves as our administrator. See “Management—Our Administrator.”
Custodian, transfer agent and dividend disbursing agent    State Street Bank and Trust Company (“State Street”) serves as our custodian. State Street also serves as our transfer and distribution payment agent and registrar. See “Custodian, Transfer and Dividend Paying Agent and Registrar.”
Risk factors    See “Risk Factors” and the other information in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.
Available information    We have filed with the SEC a registration statement on Form N-2, of which this prospectus is a part, under the Securities Act. The registration statement contains additional information about us and the shares of our common stock being offered by this prospectus. We are also required to file annual, quarterly and current reports, proxy statements and other information with the SEC. This information is available at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549 and on the SEC’s website at http://www.sec.gov. Information on the operation of the SEC’s public reference room -
   may be obtained by calling the SEC at (202) 551-8090 or (800) SEC-0330.
   We maintain a website (www.tcgbdc.com) and intend to make all of our periodic and current reports, proxy statements and other information available, free of charge, on or through our website. The information on our website is not incorporated by reference in this prospectus. You may also obtain such information by contacting us in writing at: 520 Madison Ave, 40th Floor, New York, New York 10022, or by telephone (collect) at (212) 813-4900.

 



 

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FEES AND EXPENSES

The following table is intended to assist you in understanding the costs and expenses that an investor in our common stock will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. The following table should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown. The expenses shown in the table under “estimated annual expenses” are based on estimated amounts for our current fiscal year and assume that we issue 9,000,000 shares of common stock in the offering, at the offering price. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “us,” the “Company” or says that “we” will pay fees or expenses, stockholders will indirectly bear these fees or expenses as our investors.

 

Stockholder transaction expenses (as a percentage of offering price):

  

Sales load

     6.00 %(1) 

Sales load paid by Investment Adviser

     (3.00 )%(2) 

Offering expenses

     2.16 %(3) 

Offering expenses paid by Investment Adviser

     (1.08 )%(4) 

Dividend reinvestment plan expenses

     0.00 %(5) 

Total stockholder transaction expenses

     4.08

Estimated annual expenses (as a percentage of net assets attributable to common stock): (6)

  

Base management fee payable under the Investment Advisory Agreement

     2.72 %(7) 

Incentive fee payable under the Investment Advisory Agreement (20.0% of pre-incentive fee net investment income and capital gains)

     2.36 %(8) 

Interest payments on borrowed funds

     2.67 %(9) 

Other expenses

     0.94 %(10)(12) 

Acquired fund fees and expenses

     1.54 %(11) 

Total annual expenses

     10.23 %(12) 

 

(1) The sales load (underwriting discount and commission) with respect to shares of common stock sold in this offering, which is a one-time fee paid to the underwriters, is the only sales load paid in connection with this offering.

 

(2) Our Investment Adviser has agreed to pay 50% of the sales load in connection with this offering. We are not obligated to repay the sales load paid by our Investment Adviser.

 

(3) Amount reflects estimated total offering expenses of approximately $3.6 million.

 

(4) Our Investment Adviser has agreed to pay 50% of the total offering expenses in connection with this offering. We are not obligated to repay the expenses paid by our Investment Adviser.

 

(5) The expenses of the dividend reinvestment plan are included in “Other expenses” in the table above. For additional information, see “Dividend Reinvestment Plan.”

 

(6) The net assets attributable to common stock used to calculate the percentages in this table reflect our net assets of $763.3 million as of March 31, 2017.

 

(7)

The base management fee under the Investment Advisory Agreement is calculated at an annual rate of 1.50% based on the average value of our gross assets (adjusted for share issuances or repurchases, excluding cash but including assets acquired with leverage) at the end of the two most recently completed fiscal quarters, except for the first quarter following this offering, in which case the base management fee will be

 



 

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  calculated based on our gross assets as of the end of such fiscal quarter. For purposes of the table above, the percentage reflected is calculated based on our average net assets (rather than our average gross assets) for the same period. The base management fee is payable quarterly in arrears and does not give effect to the waiver we are providing. See “Management—Investment Advisory Agreement.”

 

(8) We may have capital gains and net investment income that could result in the payment of an incentive fee to the Investment Adviser in the twelve months after completion of this offering. The incentive fee payable in the example below is estimated based on annualizing our actual results for the three months ended March 31, 2017 as if they had occurred following this offering, and assumes that the incentive fee is 20% for all relevant periods. However, the incentive fee payable to the Investment Adviser is based on our performance and will not be paid unless we achieve certain goals.

The incentive fee has two parts. The first part is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. The second part is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement) in an amount equal to 20% of our realized capital gains, if any, on a cumulative basis from inception through 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. See “Management—Investment Advisory Agreement.” The incentive fee does not give effect to the Proposed Amendment. See “Management—Investment Advisory Agreement—Incentive Fee.”

 

(9) Interest payments on borrowed funds is estimated based on annualizing our interest expense for the three month period ended March 31, 2017 under our secured borrowings and 2015-1 Notes excluding fees (such as fees on undrawn amounts and amortization of upfront fees). This estimated item is based on the assumption that our borrowings and interest costs after an offering will remain similar to those prior to such offering. We may borrow additional funds from time to time to make investments to the extent we determine that the economic situation is conducive to doing so. Our stockholders indirectly bear the costs of borrowings under any debt instruments we may enter into.

 

(10) Includes our estimated overhead expenses, such as payments under the Administration Agreement for certain expenses incurred by the Investment Adviser. See “Certain Relationships and Related Party Transactions—Administration Agreement” and “—Sub-Administration Agreements.” The expenses in this table are based on our actual other expenses for the three month period ended March 31, 2017.

 

(11) Our stockholders indirectly bear the expenses of underlying funds or other investment vehicles in which we invest that (1) are investment companies or (2) would be investment companies under Section 3(a) of the Investment Company Act but for the exceptions to that definition provided for in Sections 3(c)(1) and 3(c)(7) of the Investment Company Act. This amount includes the estimated annual fees and expenses of Credit Fund, which was our only acquired fund as of March 31, 2017.

 

(12) Estimated.

 



 

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Example

The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed we would have no additional leverage and that our annual operating expenses would remain at the levels set forth in the table above. The incentive fee payable in the example below assumes that the incentive fee is 20% for all relevant periods. Transaction expenses are included in the following example.

 

     1 year      3 years      5 years      10 years  

You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return (none of which is subject to the incentive fee based on capital gains) (1)

   $ 120      $ 277      $ 434      $ 828  

You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return resulting entirely from net realized capital gains (all of which is subject to the incentive fee based on capital gains) (2)

   $ 130      $ 307      $ 484      $ 928  

 

(1) Assumes that we will not realize any capital gains computed net of all realized capital losses and unrealized capital depreciation.

 

(2) Assumes no unrealized capital depreciation and a 5% annual return resulting entirely from net realized capital gains and not otherwise deferrable under the terms of the Investment Advisory Agreement and therefore subject to the incentive fee based on capital gains. Because our investment strategy involves investments that generate primarily current income, we believe that a 5% annual return resulting entirely from net realized capital gains is unlikely.

The foregoing table is to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. Because the income portion of the incentive fee under the Investment Advisory Agreement is unlikely to be significant assuming a 5% annual return, the second example assumes that the 5% annual return will be generated entirely through net realized capital gains and, as a result, will trigger the payment of the capital gains portion of the incentive fee under the Investment Advisory Agreement. The income portion of the incentive fee under the Investment Advisory Agreement, which, assuming a 5% annual return, would either not be payable or have an immaterial impact on the expense amounts shown above, is not included in the example. If we achieve sufficient returns on our investments, including through net realized capital gains, to trigger an incentive fee of a material amount, our expenses, and returns to our investors, would be higher. In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, under certain circumstances, reinvestment of dividends and other distributions under our dividend reinvestment plan may occur at a price per share that differs from net asset value. See “Dividend Reinvestment Plan” for additional information regarding our dividend reinvestment plan.

This example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.

 



 

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SELECTED FINANCIAL AND OTHER INFORMATION

The tables below set forth our selected consolidated historical financial data for the periods indicated. The selected consolidated historical financial data as of and for the years ended December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements, which are included in “Financial Statements and Supplementary Data” of this prospectus. Interim financial information for the three months ended March 31, 2017 and 2016 has been derived from our unaudited interim financial statements, which are included in “Financial Statements and Supplementary Data” of this prospectus. Our unaudited interim financial statements were prepared on a basis consistent with our audited financial statements and, in our opinion, include all adjustments necessary for the fair statement of the results for the periods represented. Our historical results are not necessarily indicative of future results. The selected financial data in this section is not intended to replace the financial statements and is qualified in its entirety by the financial statements and related notes included in this prospectus.

The selected consolidated financial information and other data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto.

 

     For the three month
periods ended
March 31,
    For the years ended  
       December 31,  
     2017     2016     2016     2015     2014  
(dollar amounts in thousands, except per share data)                               

Consolidated Statements of Operations Data

          

Income

          

Total investment income

   $ 34,099     $ 23,110     $ 110,971     $ 69,190     $ 32,984  

Expenses

          

Net expenses

     14,992       11,150       51,350       33,666       18,724  

Net investment income (loss)

     19,107       11,960       59,621       35,524       14,260  

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

     (7,694     (3,577     (9,644     1,164       72  

Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated

     4,456       (11,091     17,560       (18,015     (8,718

Net change in unrealized appreciation (depreciation) on investments—controlled/affiliated

     304       —         2,272       —         —    

Net increase (decrease) in net assets resulting from operations

     16,173       (2,708     69,809       18,673       5,614  

Per Share Data

          

Basic and diluted net investment income

   $ 0.46     $ 0.37     $ 1.65     $ 1.43     $ 1.09  

Basic and diluted earnings

   $ 0.39     $ (0.08   $ 1.93     $ 0.75     $ 0.43  

Dividends declared (1)

   $ 0.41     $ 0.40     $ 1.68     $ 1.74     $ 1.25  

 

(1) Cumulative per share dividends declared by the Company’s Board of Directors for the three month periods ended March 31, 2017 and 2016, and years ended December 31, 2016, 2015 and 2014. Cumulative per share dividends declared by the Company’s Board of Directors for the years ended December 31, 2016 and 2015 included a special dividend of $0.07 and $0.18 per share, respectively.

 



 

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     As of and for
the three
month period
ended
    As of and for the years ended  
     March 31,     December 31,  
     2017     2016     2015     2014  
(dollar amounts in thousands, except per share data)                   

Consolidated Statements of Assets and Liabilities Data

      

Investments—non-controlled/non-affiliated, at fair value

   $ 1,258,424     $ 1,323,102     $ 1,052,666     $ 698,662  

Investments—controlled/affiliated, at fair value

     134,121       99,657       —         —    

Cash and cash equivalents

     44,874       38,489       41,837       8,754  

Total assets

     1,458,993       1,490,155       1,104,032       716,720  

Secured borrowings

     390,608       421,885       234,313       308,441  

2015-1 Notes payable

     270,900       270,849       270,644       —    

Total liabilities

     695,675       726,018       532,306       378,463  

Total net assets

     763,318       764,137       571,726       338,257  

Net assets per share

   $ 18.30     $ 18.32     $ 18.14     $ 18.86  

Other Data:

        

Number of portfolio companies/structured finance obligations/investment funds at period/year end

     82       86       85       72  

Average funded investments in new portfolio companies/structured finance obligations (1)

     9,085       12,188       12,996       10,597  

Total return based on net asset value (2) (3)

     2.14     10.25     5.41     3.55

 

(1) Average is calculated per portfolio company based on the total amount funded during the period divided by the number of portfolio companies invested/structured finance obligations made during the period.

 

(2) Total return is based on the change in net asset value per share during the period/year plus the declared dividends, assuming reinvestment of dividends in accordance with the dividend reinvestment plan, divided by the beginning net asset value for the year. For the three months ended March 31, 2017, the total return based on net asset value equaled the change in net asset value per share during the period plus the declared and payable dividends of $0.41 per share for the three months ended March 31, 2017, divided by the beginning net asset value for the period. Total return for the years ended December 31, 2016, 2015 and 2014 was inclusive of $0.01, $0.11 and $0.09, respectively, per share increase in net asset value related to the offering price of subscriptions for the Company’s common stock. Excluding the effects of the higher offering price of the Company’s common stock, total return would have been 2.14%, 10.20%, 4.83% and 3.09%, for the three month period ended March 31, 2017 and the years ended December 31, 2016, 2015 and 2014, respectively.

 

(3) Percentages do not reflect the expiration of the fee waiver that will occur after the completion of this offering. Prior to this offering, our Investment Adviser waived its right to receive one-third (0.50%) of the 1.50% base management fee. The fee waiver was scheduled to terminate upon consummation of this offering. However, our Investment Adviser has agreed to continue the fee waiver until the completion of the first full quarter after the consummation of this offering. As a result, at the start of the second full quarter after the completion of this offering, the base management fee will return to an annual rate of 1.50% of our gross assets, and will be effectively higher than the base management fee prior to the completion of this offering.

 



 

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RISK FACTORS

Potential investors should be aware that an investment in the Company involves a high degree of risk. There can be no assurance that the Company’s investment objective will be achieved or that an investor will receive a return of its capital. In addition, there will be occasions when the Investment Adviser and its affiliates may encounter potential conflicts of interest in connection with the Company. The risks set out below 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. The following considerations, in addition to the considerations set forth elsewhere herein, should be carefully evaluated before making an investment in the Company. If any of the following events occur, our business, financial condition and operating result could be materially and adversely affected. In such case, our net asset value and the trading price of our securities could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Structure

Capital markets may experience periods of disruption and instability. These market conditions may materially and adversely affect debt and equity capital markets in the United States and abroad, which may in the future have a negative impact on our business and operations.

From time to time, capital markets may experience periods of disruption and instability. During such periods of market disruption and instability, we and other companies in the financial services sector may have limited access, if available, to alternative markets for debt and equity capital. Equity capital may be difficult to raise because, subject to some limited exceptions which will apply to us as a BDC, we will generally not be able to issue additional shares of our common stock at a price less than net asset value without first obtaining approval for such issuance from our stockholders and our independent directors. In addition, our ability to incur indebtedness (including by issuing preferred stock) is limited by applicable regulations such that our asset coverage, as defined in the Investment Company Act, must equal at least 200% immediately after each time we incur indebtedness. The debt capital that will be available, if at all, may be at a higher cost and on less favorable terms and conditions in the future. Any inability to raise capital could have a negative effect on our business, financial condition and results of operations.

Given the extreme volatility and dislocation in the capital markets over the past several years, many BDCs have faced, and may in the future face, a challenging environment in which to raise or access capital. In addition, significant changes in the capital markets, including the extreme volatility and disruption over the past several years, has had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving these investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). As a result, volatility in the capital markets can adversely affect our investment valuations. Further, the illiquidity of our investments may make it difficult for us to sell such investments if required and to value such investments. As a result, we may realize significantly less than the value at which we will have recorded our investments. An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition or results of operations.

Economic recessions or downturns could impair our portfolio companies and harm our operating results.

Many of the portfolio companies in which we make investments may be susceptible to economic slowdowns or recessions and may be unable to repay the loans we made to them during these periods. Therefore, our non-performing assets may increase and the value of our portfolio may decrease during these periods as we are required to record our investments at their current fair value. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets.

 

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Unfavorable economic conditions also could increase our and our portfolio companies’ funding costs, limit our and our portfolio companies’ access to the capital markets or result in a decision by lenders not to extend credit to us or our portfolio companies. These events could prevent us from increasing investments and harm our operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations under the debt that we hold. We may incur additional expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. In addition, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we will actually provide significant managerial assistance to that portfolio company, a bankruptcy court might subordinate all or a portion of our claim to that of other creditors.

We are dependent upon our Investment Adviser for our future success.

We do not have any employees. We depend on the diligence, skill and network of business contacts of our Investment Adviser’s investment professionals and CPC to source appropriate investments for us. We depend on members of our Investment Adviser’s investment team to appropriately analyze our investments and our Investment Adviser’s investment committee to approve and monitor our middle market portfolio investments. Our Investment Adviser’s investment committee, together with the other members of its investment team, evaluate, negotiate, structure, close and monitor our investments. Our future success will depend on the continued availability of the members of our Investment Adviser’s investment committee and the other investment professionals available to our Investment Adviser. Neither we nor our Investment Adviser has employment agreements with these individuals or other key personnel, and we cannot provide any assurance that unforeseen business, medical, personal or other circumstances would not lead any such individual to terminate his or her relationship with us. The loss of Mr. Hart, or any of the other senior investment professionals to which our Investment Adviser has access, could have a material adverse effect on our ability to achieve our investment objective as well as on our financial condition and results of operations. In addition, we cannot assure you that CGMSIM will remain our investment adviser or that we will continue to have access to Carlyle’s investment professionals or its information and deal flow. Further, the can be no assurance that CGMSIM will replicate its own or Carlyle’s historical success, and we caution you that our investment returns could be substantially lower than the returns achieved by other Carlyle-managed funds.

Our financial condition, results of operations and ability to achieve our investment objective depend on our ability to source investments, access financing and manage future growth effectively.

Our ability to achieve our investment objective and to grow depends on our ability to acquire suitable investments and monitor and administer those investments, which depends, in turn, on our Investment Adviser’s ability to identify, invest in and monitor companies that meet our investment criteria.

Accomplishing this result on a cost-effective basis is largely a function of our Investment Adviser’s structuring of the investment process, its ability to provide competent, attentive and efficient services to us and its ability to access financing for us on acceptable terms. Our Investment Adviser’s investment team has substantial responsibilities under the Investment Advisory Agreement, has substantial responsibilities in connection with managing us and certain other investment funds and accounts advised by our Investment Adviser, and may also be called upon to provide managerial assistance to our portfolio companies. These demands on their time, which will increase as the number of investments grow, may distract them or slow the rate of investment. In order for us to grow, Carlyle will need to hire, train, supervise, manage and retain new employees. However, we can offer no assurance that any such investment professionals will contribute effectively to the work of our Investment Adviser. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.

 

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We may need to raise additional capital to grow because we must distribute most of our income.

We may need additional capital to fund growth in our investments, and a reduction in the availability of new capital could limit our ability to grow. We have elected to be treated, and intend to qualify annually, as a RIC for U.S. federal income tax purposes under Subchapter M of the Code. To maintain our status as a RIC, among other requirements, we must distribute on a timely basis at least 90% of our investment company taxable income to our stockholders to maintain our RIC status. As a result, any such cash earnings may not be available to fund investment originations or repay maturing debt. We have borrowed under the Facilities and through the issuance of the 2015-1 Notes and in the future may borrow under additional debt facilities from financial institutions. We must continue to issue additional debt and equity securities to fund our growth. If we fail to obtain funds from such sources or from other sources to fund our investments, it could limit our ability to grow, which may have an adverse effect on the value of our securities. We may pursue growth through acquisitions or strategic investments in new businesses. Completion and timing of any such acquisitions or strategic investments may be subject to a number of contingencies and risks. There can be no assurance that the integration of an acquired business will be successful or that an acquired business will prove to be profitable or sustainable.

In addition, as a BDC, our ability to borrow or issue preferred stock may be restricted if our total assets are less than 200% of our total borrowings and preferred stock. Furthermore, equity capital may be difficult to raise because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price per share less than NAV without first obtaining approval for such issuance from our stockholders and our Independent Directors.

Any failure on our part to maintain our status as a BDC or RIC would reduce our operating flexibility, may hinder our achievement of our investment objective, may limit our investment choices and may subject us to greater regulation.

The Investment Company Act imposes numerous constraints on the operations of BDCs and RICs that do not apply to other types of investment vehicles. For example, under the Investment Company Act, we are required as a BDC to invest at least 70% of their total assets in specified types of “qualifying assets,” primarily in private U.S. companies or thinly-traded U.S. public companies, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. In addition, in order to continue to qualify as a RIC for U.S. federal income tax purposes, we are required to satisfy certain source-of-income, diversification and distribution requirements. These constraints, among others, may hinder our ability to take advantage of attractive investment opportunities and to achieve our investment objective. See “U.S. Federal Income Tax Considerations.”

Furthermore, any failure to comply with the requirements imposed on us as a BDC by the Investment Company Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our outstanding voting securities as required by the Investment Company Act, we may elect to withdraw our status as a BDC. If we decide to withdraw our election, or if we otherwise fail to qualify, or maintain our qualification, as a BDC, we might be regulated as a closed-end investment company that is required to register under the Investment Company Act, which would subject us to additional regulatory restrictions, significantly decrease our operating flexibility and could significantly increase our cost of doing business. In addition, any such failure could cause an event of default under our outstanding indebtedness, which could have a material adverse effect on our business, financial condition or results of operations.

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

We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the

 

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Investment Company Act. In addition, we may seek to securitize certain of our loans. Under the provisions of the Investment Company Act, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset coverage ratio, as defined in the Investment Company Act, equals at least 200% of total assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test, which may prohibit us from paying dividends and could prevent us from maintaining our status as a RIC or may prohibit us from repurchasing shares of our common stock. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Accordingly, any failure to satisfy this test could have a material adverse effect on our business, financial condition or results of operations. As of March 31, 2017, our asset coverage calculated in accordance with the Investment Company Act was 215.03%. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, our common stockholders would also be exposed to typical risks associated with increased leverage, including an increased risk of loss resulting from increased indebtedness.

If we issue preferred stock, the preferred stock would rank “senior” to common stock in our capital structure, preferred stockholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in their best interest.

We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if our Board of Directors determines that such sale is in the best interests of us and our stockholders and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount). If we raise additional funds by issuing more common stock, including in connection with this offering, or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that time will decrease, and holders of our common stock might experience dilution.

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

As part of our business strategy, we, including through our wholly owned subsidiaries, borrow from and may in the future issue additional senior debt securities to banks, insurance companies and other lenders. Holders of these loans or senior securities would have fixed-dollar claims on our assets that are superior to the claims of our stockholders. If the value of our assets decreases, leverage will cause our net asset value to decline more sharply than it otherwise would have without leverage. Similarly, any decrease in our income would cause our net income to decline more sharply than it would have if we had not borrowed. This decline could negatively affect our ability to make dividend payments on our common stock.

Our ability to service our borrowings depends largely on our financial performance and is subject to prevailing economic conditions and competitive pressures. In addition, our management fees are payable based on our gross assets, including assets acquired through the use of leverage (but excluding cash and any temporary investments in cash-equivalents), which may give our Investment Adviser an incentive to use leverage to make additional investments. See —We may be obligated to pay our Investment Adviser even if we incur a loss.” The amount of leverage that we employ will depend on our Investment Adviser’s and our Board of Directors’ assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.

 

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In addition to having fixed-dollar claims on our assets that superior to the claims of our common stockholders, obligations to lenders may be secured by a first priority security interest in our portfolio of investments and cash. In the case of a liquidation event, those lenders would receive proceeds to the extent of their security interest before any distributions are made to our stockholders. In addition, as the holder of the Preferred Interests of the 2015-1 Issuer (i.e., the subordinated class of the 2015-1 Securitization), we may be required to absorb losses with respect to the 2015-1 Debt Securitization.

Our Facilities and 2015-1 Notes impose financial and operating covenants that restrict our business activities, remedies on default and similar matters. As of March 31, 2017, we were in material compliance with the operating and financial covenants of our Facilities and 2015-1 Notes. However, our continued compliance with these covenants depends on many factors, some of which are beyond our control. Accordingly, although we believe we will continue to be in compliance, we cannot assure you that we will continue to comply with the covenants in our Facilities and 2015-1 Notes. Failure to comply with these covenants could result in a default. If we were unable to obtain a waiver of a default from the lenders or holders of that indebtedness, as applicable, those lenders or holders could accelerate repayment under that indebtedness, which may result in cross-acceleration of other indebtedness. An acceleration could have a material adverse impact on our business, financial condition and results of operations. Lastly, we may be unable to obtain additional leverage, which would, in turn, affect our return on capital.

As of March 31, 2017, we had a combined $663.6 million of outstanding consolidated indebtedness under our Facilities and 2015-1 Notes. Our annualized interest cost as of March 31, 2017, was 3.09%, excluding fees (such as fees on undrawn amounts and amortization of upfront fees). Since we generally pay interest at a floating rate on our Facilities and 2015-1 Notes, an increase in interest rates will generally increase our borrowing costs.

The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns on our portfolio, net of expenses. The calculations in the table below are hypothetical, and actual returns may be higher or lower than those appearing in the table below.

 

     Assumed Return on Our
Portfolio
(Net of Expenses)
 
     (10 )%      (5 )%      0     5     10

Corresponding return to common stockholder (1)

     (21.80 )%      (12.24 )%      (2.68 )%      6.87     16.43

 

(1) Assumes, as of March 31, 2017, (i) $1,459.0 million in total assets, (ii) $663.6 million in outstanding indebtedness, (iii) $763.3 million in net assets and (iv) weighted average interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 3.09%.

Based on an outstanding indebtedness of $663.6 million as of March 31, 2017, and the weighted average effective annual interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 3.09% as of that date, our investment portfolio at fair value would have had to produce an annual return of approximately 1.40% to cover annual interest payments on the outstanding debt. For more information on our indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources.”

Our indebtedness could adversely affect our business, financial conditions or results of operations.

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our credit facilities or otherwise in an amount sufficient to enable us to repay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before it matures. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to

 

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take actions such as selling assets or seeking additional equity. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or on terms that would not be disadvantageous to our stockholders or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements.

Changes in interest rates may increase our cost of capital, reduce the ability of our portfolio companies to service their debt obligations and decrease our net investment income.

General interest rate fluctuations and changes in credit spreads on floating rate loans may have a substantial negative impact on our investments and investment opportunities and, accordingly, may have a material adverse effect on our rate of return on invested capital, our net investment income and our net asset value. Substantially all of our debt investments have variable interest rates that reset periodically based on benchmarks such as LIBOR and the prime rate, so an increase in interest rates from their historically low present levels may make it more difficult for our portfolio companies to service their obligations under the debt investments that we will hold. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults. In addition, to the extent we borrow money to make investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income to the extent we use debt to finance our investments. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income.

In addition, a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate and may result in a substantial increase of the amount of incentive fees payable to our Investment Adviser with respect to our pre-incentive fee net investment income.

We may experience fluctuations in our quarterly results.

We could experience fluctuations in our quarterly operating results due to a number of factors, including, the pace at which investments are made, the interest rate payable on the debt securities we acquire, the default rate on such securities, rates of repayment, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses and changes in unrealized appreciation or depreciation, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

There are significant potential conflicts of interest, including the management of other investment funds and accounts by our Investment Adviser, which could impact our investment returns.

Our executive officers and directors, other current and future principals of our Investment Adviser and certain members of our Investment Adviser’s investment committee may serve as officers, directors or principals of other entities and affiliates of our Investment Adviser and funds managed by our affiliates that operate in the same or a related line of business as we do. Currently, our executive officers, as well as the other principals of our Investment Adviser manage other funds affiliated with Carlyle, including other affiliated business development companies. In addition, our Investment Adviser’s investment team has responsibilities for managing U.S. middle market debt investments for certain other investment funds and accounts. Accordingly, they have obligations to investors in those entities, the fulfillment of which may not be in the best interests of, or may be adverse to the interests of, us or our stockholders. Although the professional staff of our Investment Adviser will devote as much time to our management as appropriate to enable our Investment Adviser to perform its duties in accordance with the Investment Advisory Agreement, the investment professionals of our Investment Adviser may have conflicts in allocating their time and services among us, on the one hand, and investment vehicles managed by Carlyle or one or more of its affiliates on the other hand.

 

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Our Investment Adviser may face conflicts in allocating investment opportunities between us and affiliated investment vehicles that have overlapping objectives with ours. Although our Investment Adviser will endeavor to allocate investment opportunities in a fair and equitable manner in accordance with its allocation policies and procedures, it is possible that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by our Investment Adviser or an investment manager affiliated with our Investment Adviser, including Carlyle.

We and our affiliates may own investments at different levels of a portfolio company’s capital structure or otherwise own different classes of a portfolio company’s securities, which may give rise to conflicts of interest or perceived conflicts of interest. Conflicts may also arise because portfolio decisions regarding our portfolio may benefit our affiliates. Our affiliates may pursue or enforce rights with respect to one of our portfolio companies, and those activities may have an adverse effect on us.

As a result of the expansion of Carlyle’s platform into various lines of business in the alternative asset management industry, Carlyle is subject to a number of actual and potential conflicts of interest and subject to greater regulatory oversight than that to which it would otherwise be subject if it had just one line of business. In addition, as Carlyle expands its platform, the allocation of investment opportunities among its investment funds, including us, is expected to become more complex. In addressing these conflicts and regulatory requirements across Carlyle’s various businesses, Carlyle has and may continue to implement certain policies and procedures (for example, information barriers). In addition, we may come into possession of material non-public information with respect to issuers in which we may be considering making an investment. As a consequence, we may be precluded from providing such information or other ideas to other funds affiliated with Carlyle that benefit from such information or we may be precluded from otherwise consummating a contemplated investment. To the extent we or any other funds affiliated with Carlyle fail to appropriately deal with any such conflicts, it could negatively impact our reputation or Carlyle’s reputation and our ability to raise additional funds and the willingness of counterparties to do business with us or result in potential litigation against us.

In the ordinary course of business, we may enter into transactions with affiliates and portfolio companies that may be considered related party transactions. We have implemented certain policies and procedures whereby certain of our executive officers screen each of our transactions for any possible affiliations between the proposed portfolio investment, us and other affiliated persons, including our Investment Adviser, stockholders that own more than 5% of us, employees, officers and directors of us and our Investment Adviser and certain persons directly or indirectly controlling, controlled by or under common control with the foregoing persons. We will not enter into any agreements unless and until we are satisfied that doing so will not raise concerns under the Investment Company Act or, if such concerns exist, we have taken appropriate actions to seek Board of Directors review and approval or SEC exemptive relief for such transaction.

In the course of our investing activities, we pay management and incentive fees to our Investment Adviser and reimburse our Investment Adviser for certain expenses it incurs in accordance with our Investment Advisory Agreement. As a result, investors in our common stock invest on a “gross” basis and receive distributions on a “net” basis after expenses, resulting in a lower rate of return than an investor might achieve through direct investments. Accordingly, there may be times when the senior management team of our Investment Adviser has interests that differ from those of our stockholders, giving rise to a conflict.

In addition, we pay our Administrator, an affiliate of our Investment Adviser, its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including, compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and their respective staff who provide services to us, operations staff who provide services to us, and internal audit staff in their role of performing our Sarbanes-Oxley Act internal control assessment. These arrangements create conflicts of interest that our Board of Directors monitors.

 

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We may be obligated to pay our Investment Adviser incentive compensation even if we incur a loss.

Our Investment Adviser is entitled to incentive compensation for each calendar quarter in an amount equal to a percentage of the excess of our pre-incentive fee net investment income for that quarter (before deducting incentive compensation) above a performance threshold for that quarter. In calculating our performance threshold, we use net assets which results in a lower hurdle rate than if we used gross assets like we do for determining our base management fee. Our pre-incentive fee net investment income for incentive compensation purposes excludes realized and unrealized capital losses and depreciation that we may incur in the calendar quarter, even if such capital losses or depreciation result in a net loss on our statement of operations for that quarter. Thus, we may be required to pay our Investment Adviser incentive compensation for a calendar quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter, subject to the deferral provisions.

Additionally, the fee we pay our Investment Adviser will be effectively higher after the completion of the first full quarter after the consummation of this offering. Prior to this offering, our Investment Adviser waived its right to receive one-third (0.50%) of the management fee. The fee waiver was scheduled to terminate upon consummation of this offering, but our Investment Adviser has agreed to continue the waiver until the completion of the first full quarter after the consummation of this offering.

Our fee structure may induce our Investment Adviser to pursue speculative investments and incur leverage, and investors may bear the cost of multiple levels of fees and expenses.

The incentive fees payable by us to our Investment Adviser may create an incentive for our Investment Adviser to pursue investments on our behalf that are riskier or more speculative than would be the case in the absence of such compensation arrangement. The incentive fees payable to our Investment Adviser are calculated based on a percentage of our return on invested capital. This may encourage our Investment Adviser to use leverage to increase the return on our investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of our common stock. In addition, our Investment Adviser receives the incentive fees based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fees based on income, there is no hurdle rate applicable to the portion of the incentive fees based on net capital gains. As a result, our Investment Adviser may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.

The “catch-up” portion of the incentive fees may encourage our Investment Adviser to accelerate or defer interest payable by portfolio companies from one calendar quarter to another, potentially resulting in fluctuations in timing and dividend amounts.

Moreover, because the base management fees payable to our Investment Adviser are payable based on our gross assets, including those assets acquired through the use of leverage, our Investment Adviser has a financial incentive to incur leverage which may not be consistent with our stockholders’ interests.

We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to the extent we so invest, bear our ratable share of any such investment company’s expenses, including management and performance fees. We also remain obligated to pay management and incentive fees to our Investment Adviser with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of our stockholders bear his or her share of the management and incentive fees of our Investment Adviser as well as indirectly bearing the management and performance fees and other expenses of any investment companies in which we invest.

 

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We will be subject to corporate-level income tax if we are unable to maintain our qualification as a RIC for U.S. federal income tax purposes under Subchapter M of the Code.

Although we have elected to be treated, and intend to qualify annually, as a RIC for U.S. federal income tax purposes under Subchapter M of the Code, we cannot assure you that we will be able to maintain RIC status. To maintain RIC status and be relieved of U.S. federal income taxes on income and gains distributed to our stockholders, we must, among other things, continue to qualify and have in effect an election to be treated as a BDC under the Investment Company Act at all times during each taxable year and meet the Annual Distribution Requirement, the 90% Gross Income Test and the Diversification Tests (each defined term, defined below).

 

    We must distribute to our stockholders on an annual basis at least 90% of our investment company taxable income (generally, our net ordinary income plus the excess of our realized net short-term capital gains over realized net long-term capital losses, determined without regard to the dividends paid deduction) for each taxable year (the “Annual Distribution Requirement”).

 

    We must derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities or foreign currencies, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to our business of investing in such stock or securities or foreign currencies (the “90% Gross Income Test”).

 

    At the end of each quarter of our taxable year, at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, or of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses, or the securities of one or more “qualified publicly traded partnerships” (the “Diversification Tests”).

If we fail to maintain our RIC status for any reason, and we do not qualify for certain relief provisions under the Code, we would be subject to corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes) regardless of whether we make any distributions to the holders of our common stock. In this event, the resulting taxes and any resulting penalties could substantially reduce our net assets, the amount of our income available for distribution and the amount of our distributions to our stockholders, which would have a material adverse effect on our financial performance. For additional discussion regarding the tax implications of a RIC, see “U.S. Federal Income Tax Considerations.”

We may have difficulty satisfying the Annual Distribution Requirement in order to maintain our RIC status if we recognize income before or without receiving cash representing such income.

We may make investments that produce income that is not matched by a corresponding cash receipt by us, such as OID, which may arise, for example, if we receive warrants in connection with the making of a loan, or PIK interest representing contractual interest added to the loan principal balance and due at the end of the loan term. Any such income would be treated as income earned by us and therefore would be subject to the Annual Distribution Requirement. Such investments may require us to borrow money or dispose of other securities in order to comply with those requirements. However, under the Investment Company Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless an “asset coverage” test is met.

If we are prohibited from making distributions or are unable to raise additional debt or equity capital or sell assets to make distributions, we may not be able to make sufficient distributions to satisfy the Annual Distribution Requirement, and therefore would not be able to maintain our qualification as a RIC. Additionally, we may make investments that result in the recognition of ordinary income rather than capital gain, or that

 

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prevent us from accruing a long-term holding period. These investments may prevent us from making capital gain distributions. See “U.S. Federal Income Tax Considerations—Taxation as a Regulated Investment Company.”

A portion of our income and fees may not be qualifying income for purposes of the income source requirement.

Some of the income and fees that we may recognize will not satisfy the income source requirement applicable to RICs. In order to ensure that such income and fees do not disqualify us as a RIC for a failure to satisfy such requirement, we may be required to recognize such income and fees indirectly through one or more entities treated as corporations for U.S. federal income tax purposes. Such corporations will be required to pay U.S. corporate income tax on their earnings, which ultimately will reduce the amount of income available for distribution.

If we are not treated as a “publicly offered regulated investment company,” as defined in the Code, certain U.S. stockholders will be treated as having received a dividend from us in the amount of such U.S. stockholders’ allocable share of the management and incentive fees paid to our Investment Adviser and certain of our other expenses, and these fees and expenses will be treated as miscellaneous itemized deductions of such U.S. stockholders.

We expect to be treated as a “publicly offered regulated investment company” as a result of shares of our common stock being treated as regularly traded on an established securities market. However, we cannot assure you that we will be treated as a publicly offered regulated investment company for all years. If we are not treated as a publicly offered regulated investment company for any calendar year, each U.S. stockholder that is an individual, trust or estate will be treated as having received a dividend from us in the amount of such U.S. stockholder’s allocable share of the management and incentive fees paid to our Investment Adviser and certain of our other expenses for the calendar year, and these fees and expenses will be treated as miscellaneous itemized deductions of such U.S. stockholder. Miscellaneous itemized deductions generally are deductible by a U.S. stockholder that is an individual, trust or estate only to the extent that the aggregate of such U.S. stockholder’s miscellaneous itemized deductions exceeds 2% of such U.S. stockholder’s adjusted gross income for U.S. federal income tax purposes, are not deductible for purposes of the alternative minimum tax and are subject to the overall limitation on itemized deductions under the Code. See “U.S. Federal Income Tax Considerations.”

Under the JOBS Act, we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which would require that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting.

While we are obligated to maintain proper and effective internal control over financial reporting, including the internal control evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”), we will not be required to comply with all of the requirements under Section 404 until the date we are no longer an emerging growth company under the JOBS Act. Accordingly, our internal controls over financial reporting do not currently meet all of the standards contemplated by Section 404 that we will eventually be required to meet.

If we are not able to implement the applicable requirements of Section 404 in a timely manner or with adequate compliance, our operations, financial reporting or financial results could be adversely affected. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules, and result in a breach of the covenants under the agreements governing any of our financing arrangements. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements could also suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in the market price of our common stock.

 

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Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed and we could fail to meet our financial reporting obligations.

Certain investors are limited in their ability to make significant investments in us.

Private funds that are excluded from the definition of “investment company” either pursuant to Section 3(c)(1) or 3(c)(7) of the Investment Company Act are restricted from acquiring directly or through a controlled entity more than 3% of our total outstanding voting stock (measured at the time of the acquisition). Investment companies registered under the Investment Company Act and BDCs, such as us, are also subject to this restriction as well as other limitations under the Investment Company Act that would restrict the amount that they are able to invest in our securities. As a result, certain investors will be limited in their ability to make significant investments in us at a time that they might desire to do so.

Our Board of Directors is authorized to reclassify any unissued shares of common stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners.

Under the Maryland General Corporation Law (“MGCL”) and our charter, our Board of Directors is authorized to classify and reclassify any authorized but unissued shares of stock into one or more classes of stock, including preferred stock. Prior to the issuance of shares of each class or series, the Board of Directors is required by Maryland law and our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. The cost of any such reclassification would be borne by our existing common stockholders. Certain matters under the Investment Company Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote separately from the holders of common stock on a proposal to cease operations as a BDC. In addition, the Investment Company Act provides that holders of preferred stock are entitled to vote separately from holders of common stock to elect two preferred stock directors. We currently have no plans to issue preferred stock, but may determine to do so in the future. The issuance of preferred stock convertible into shares of common stock might also reduce the net income per share and net asset value per share of our common stock upon conversion, provided, that we will only be permitted to issue such convertible preferred stock to the extent we comply with the requirements of Section 61 of the Investment Company Act, including obtaining common stockholder approval. In addition, under the Investment Company Act, participating preferred stock and preferred stock constitutes a “senior security” for purposes of the 200% asset coverage test. These effects, among others, could have an adverse effect on an investment in our common stock.

Provisions of the MGCL and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.

The MGCL and our charter and bylaws contain provisions that may discourage, delay or make more difficult a change in control of us or the removal of our directors. We are subject to the Maryland Business Combination Act (“MBCA”), subject to any applicable requirements of the Investment Company Act. Our Board of Directors has adopted a resolution exempting from the MBCA any business combination between us and any other person, subject to prior approval of such business combination by our Board of Directors, including approval by a majority of our Independent Directors. If the resolution exempting business combinations is repealed or our Board of Directors does not approve a business combination, the Business Combination Act may

 

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discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. Our bylaws exempt from the Maryland Control Share Acquisition Act (“Control Share Act”) acquisitions of our stock by any person. If we amend our bylaws to repeal the exemption from the Control Share Act, the Control Share Act also may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such a transaction. However, we will amend our bylaws to be subject to the Control Share Act only if our Board of Directors determines that it would be in our best interests and if the SEC staff does not object to our determination that our being subject to the Control Share Act does not conflict with the Investment Company Act.

We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of our charter classifying our Board of Directors in three classes serving staggered three-year terms, and authorizing our Board of Directors to classify or reclassify shares of our stock in one or more classes or series, to cause the issuance of additional shares of our stock, to amend our charter without stockholder approval and to increase or decrease the number of shares of stock that we have authority to issue. These provisions, as well as other provisions of our charter and bylaws, may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.

Our Board of Directors may change our investment objective, operating policies and strategies without prior notice and without stockholder approval.

Our Board of Directors has the authority to modify or, if applicable, waive our investment objectives, operating policies and strategies without prior notice (except as required by the Investment Company Act) and without stockholder approval. In addition, none of our investment policies is fundamental and any of them may be changed without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current investment objectives, operating policies or strategies would have on our business, operating results and value of our stock. Nevertheless, the effects may adversely affect our business and impact our ability to make distributions.

A failure in our operational systems or infrastructure, or those of third parties, as well as cyber-attacks could significantly disrupt our business or negatively affect our liquidity, financial condition or results of operations.

We rely heavily on our and third parties’ financial, accounting, information and other data processing systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. We face various security threats on a regular basis, including ongoing cyber-security threats to and attacks on our information technology infrastructure that are intended to gain access to our proprietary information, destroy data or disable, degrade or sabotage our systems. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships.

We operate in a business that is highly dependent on information systems and technology. Carlyle has implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber-incident, do not guarantee that a cyber-incident will not occur and/or that our financial results, operations or confidential information will not be negatively impacted by such an incident. The information systems and technology that we rely on may not continue to be able to accommodate our growth, and the cost of maintaining such systems may increase from its current level. Such a failure to accommodate growth, or an increase in costs related to such information systems, could have a material adverse effect on us.

 

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Changes in laws or regulations governing our business or the businesses of our portfolio companies, changes in the interpretation thereof or newly enacted laws or regulations, and any failure by us or our portfolio companies to comply with these laws or regulations may adversely affect our business and the businesses of our portfolio companies.

We and our portfolio companies are subject to laws and regulations at the U.S. federal, state and local levels and, in some cases, foreign levels. These laws and regulations, as well as their interpretation, may change from time to time, and new laws, regulations and interpretations may also come into effect. Any such new or changed laws or regulations could have a material adverse effect on our business or the business of our portfolio companies. The legal, tax and regulatory environment for BDCs, investment advisers and the instruments that they utilize (including derivative instruments) is continuously evolving. In addition, there is significant uncertainty regarding recently enacted legislation (including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the regulations that have recently been adopted and future regulations that may or may not be adopted pursuant to such legislation) and, consequently, the full impact that such legislation will ultimately have on us and the markets in which we trade and invest is not fully known. Such uncertainty and any resulting confusion may itself be detrimental to the efficient functioning of the markets and the success of certain investment strategies.

In addition, as private equity firms become more influential participants in the U.S. and global financial markets and economy generally, there recently has been pressure for greater governmental scrutiny and/or regulation of the private equity industry. It is uncertain as to what form and in what jurisdictions such enhanced scrutiny and/or regulation, if any, on the private equity industry may ultimately take. Therefore, there can be no assurance as to whether any such scrutiny or initiatives will have an adverse impact on the private equity industry, including our ability to effect operating improvements or restructurings of our portfolio companies or otherwise achieve our objectives.

Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact our operating results or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business.

On February 3, 2017, President Trump signed an executive order (the “Executive Order”) announcing the new Administration’s policy to regulate the U.S. financial system in a manner consistent with certain “Core Principles,” including regulation that is efficient, effective and appropriately tailored. The Executive Order directs the Secretary of the Treasury, in consultation with the heads of the member agencies of the Financial Stability Oversight Council, to report to the President on the extent to which existing laws, regulations and other government policies promote the Core Principles and to identify any laws, regulations or other government policies that inhibit federal regulation of the U.S. financial system. At this time it is unclear what impact the Executive Order in particular and the Administration’s policies in general will have on regulations that affect our and our portfolio companies’ business.

Changes in laws or regulations related to U.S. federal income taxation could affect us or the holders of our common stock.

Reform proposals have been recently put forth by members of Congress and the President which, if ultimately proposed as legislation and enacted as law, would substantially change the U.S. federal taxation of (among other things) individuals and businesses. In 2016, the Speaker of the House of Representatives and the Chairman of the House Ways and Means Committee published “A Better Way.” Separately, the then-candidate, now-President published a one-page document on tax reform. Each of these proposals sets forth a variety of principles to guide potential tax reform legislation. As of the date of this offering, no legislation in respect of

 

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either of these proposals has been introduced in the Congress. However, the principles set forth in both “A Better Way” and the President’s one-page proposal, if ultimately reduced to legislation enacted by the Congress and signed into law by the President in a form that is consistent with those principles, could change dramatically the U.S. federal taxation of us and a holder of our common stock. Under both “A Better Way” and President Trump’s proposal, individual and corporate tax rates would be meaningfully reduced. Under “A Better Way,” the U.S. federal tax system would be converted into a “destination-based cash-flow” tax system under which net interest expense would not be deductible, investment in tangible property (other than land) and intangible assets would be immediately deductible, export revenue would not be taxable, and the cost of imports would not be deductible. While it is impossible to predict whether and to what extent any tax reform legislation (or other legislative, regulatory or administrative change to the U.S. federal tax laws) will be proposed or enacted, any such change in the U.S. federal tax laws could affect materially the value of any investment in our common stock. Prospective investors should consult their tax advisors regarding possible legislative and regulatory changes and the potential effect of such changes on an investment in our common stock.

Our Investment Adviser, Administrator and sub-administrators are able to resign upon 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.

Our Investment Adviser, our Administrator and our sub-administrators have the right to resign under the Investment Advisory Agreement, the Administration Agreement and the Sub-Administration agreements, respectively, upon 60 days’ written notice, whether a replacement has been found or not. If any of them resigns, it may be difficult to find a replacement with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If a replacement is not found quickly, our business, results of operation and financial condition as well as our ability to pay distributions are likely to be adversely affected and the value of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our Investment Adviser, our Administrator and their affiliates, including certain of our sub-administrators. Even if a comparable service provider or individuals performing such services are retained, whether internal or external, their integration into our business and lack of familiarity with our investment objective may result in additional costs and time delays that may materially adversely affect our business, results of operations and financial condition. Moreover, the termination by our Investment Adviser of our Investment Advisory Agreement for any reason will be an event of default under the SPV Credit Facility, which could result in the immediate acceleration of the amounts due under the SPV Credit Facility. Similarly, it will be an event of default under the Credit Facility if our Investment Adviser or an affiliate of our Investment Adviser ceases to manage us, which could result in the immediate acceleration of the amounts due under the Credit Facility.

Our Investment Adviser’s liability is limited under the Investment Advisory Agreement, and we are required to indemnify our Investment Adviser against certain liabilities, which may lead our Investment Adviser to act in a riskier manner on our behalf than it would when acting for its own account.

Our Investment Adviser has not assumed any responsibility to us other than to render the services described in the Investment Advisory Agreement, and it will not be responsible for any action of our Board of Directors in declining to follow our Investment Adviser’s advice or recommendations. Pursuant to the Investment Advisory Agreement, our Investment Adviser and its members and their respective officers, managers, partners, agents, employees, controlling persons and members and any other person or entities affiliated with it will not be liable to us for their acts under the Investment Advisory Agreement, absent willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties. We have agreed to indemnify, defend and protect our Investment Adviser and its members and their respective officers, managers, partners, agents, employees, controlling persons and members and any other person or entities affiliated with it with respect to all damages, liabilities, costs and expenses arising out of or otherwise based upon the performance of any of our Investment Adviser’s duties or obligations under the Investment Advisory Agreement or otherwise as an

 

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Investment Adviser for us, and not arising out of willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties under the Investment Advisory and Agreement. These protections may lead our Investment Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account. See “Risk Factors—Risks Related to Our Business and Structure—Our fee structure may induce our Investment Adviser to pursue speculative investments and incur leverage, and investors may bear the cost of multiple levels of fees and expenses.”

We are subject to certain risks as a result of our direct interest in the Preferred Interests of the 2015-1 Issuer.

Because each of the SPV and the 2015-1 Issuer is disregarded as an entity separate from its owner for U.S. federal income tax purposes, the sale or contribution by SPV to us and the sale or contribution by us to the 2015-1 Issuer as part of the 2015-1 Debt Securitization did not constitute a taxable event for U.S. federal income tax purposes. If the U.S. Internal Revenue Service were to take a contrary position, there could be a material adverse effect on our business, financial condition, results of operations or cash flows.

The Preferred Interests in the 2015-1 Issuer are subordinated obligations of the 2015-1 Issuer.

The 2015-1 Issuer is the residual claimant on funds, if any, remaining after holders of all classes of 2015-1 Notes have been paid in full on each payment date or upon maturity of the 2015-1 Notes under the 2015-1 Debt Securitization documents. The Preferred Interests in the 2015-1 Issuer represent all of the equity interest in the 2015-1 Issuer and, as the holder of the Preferred Interests, we may receive distributions, if any, only to the extent that the 2015-1 Issuer makes distributions out of funds remaining after holders of all classes of 2015-1 Notes have been paid in full on each payment date any amounts due and owing on such payment date or upon maturity of the 2015-1 Notes. There is no guarantee that we will receive any distributions as the holders of the Preferred Interests.

The interests of holders of the 2015-1 Notes issued by the 2015-1 Issuer may not be aligned with our interests.

The 2015-1 Notes are the debt obligations ranking senior in right of payment to our interests. As such, there are circumstances in which the interests of holders of the 2015-1 Notes may not be aligned with our interests. For example, under the terms of the 2015-1 Issuer, holders of the 2015-1 Notes have the right to receive payments of principal and interest prior to distribution to our interests.

For as long as the 2015-1 Notes remain outstanding, holders of the 2015-1 Notes have the right to act, in certain circumstances, with respect to the portfolio loans in ways that may benefit their interests but not the interests of holders of the Preferred Interests of the 2015-1 Issuer, including by exercising remedies under the 2015-1 Indenture (as defined below).

If an event of default has occurred and acceleration occurs in accordance with the terms of the 2015-1 Indenture, the 2015-1 Notes then outstanding will be paid in full before any further payment or distribution to the Preferred Interests. In addition, if an event of default occurs, holders of a majority of the 2015-1 Notes then outstanding will be entitled to determine the remedies to be exercised under the 2015-1 Indenture, subject to the terms of the 2015-1 Indenture. For example, upon the occurrence of an event of default with respect to the notes issued by the 2015-1 Issuer, the trustee or holders of a majority of the 2015-1 Notes then outstanding may declare the principal, together with any accrued interest, of all the 2015-1 Notes to be immediately due and payable. This would have the effect of accelerating the principal on such notes, triggering a repayment obligation on the part of the 2015-1 Issuer. If at such time the portfolio loans of the 2015-1 Issuer were not performing well, the 2015-1 Issuer may not have sufficient proceeds available to enable the trustee under the 2015-1 Indenture to pay a distribution to holders of the Preferred Interests of the 2015-1 Issuer.

Remedies pursued by the holders of the 2015-1 Notes could be adverse to the interests of the holders of the Preferred Interests, and the holders of the 2015-1 Notes have no obligation to consider any possible adverse

 

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effect on such other interests. Thus, any remedies pursued by the holders of the 2015-1 Notes may not be in our best interests and we may not receive payments or distributions upon an acceleration of the 2015-1 Notes. Any failure of the 2015-1 Issuer to make distributions on Preferred Interests we hold, directly or indirectly, whether as a result of an event of default or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows and may result in an inability of us to make distributions sufficient to allow for us to qualify as a RIC for U.S. federal income tax purposes.

The 2015-1 Issuer may fail to meet certain asset coverage tests.

Under the documents governing the 2015-1 Debt Securitization, there are two coverage tests applicable to the 2015-1 Notes.

The first such test compares the amount of interest received on the portfolio loans held by the 2015-1 Issuer to the amount of interest payable in respect of the 2015-1 Notes. To meet this first test, interest received on the portfolio loans must equal at least 120% of the interest payable in respect of the 2015-1 Notes issued by the 2015-1 Issuer.

The second such test compares the adjusted collateral principal amount of the portfolio loans of the 2015-1 Debt Securitization to the aggregate outstanding principal amount of the 2015-1 Notes. To meet this second test at any time, the adjusted collateral principal amount of the portfolio loans must equal at least 140% of the outstanding principal amount of the 2015-1 Notes.

If any coverage test with respect to the 2015-1 Notes is not met, proceeds from the portfolio of loans that otherwise would have been distributed to the holders of the Preferred Interests of 2015-1 Issuer will instead be used to redeem first the 2015-1 Notes, to the extent necessary to satisfy the applicable asset coverage tests on a pro forma basis after giving effect to all payments made in respect of the 2015-1 Notes, which we refer to as a mandatory redemption, or to obtain the necessary ratings confirmation. There is no guarantee that the 2015-1 Notes will meet either of these coverage tests, and thus, we may not receive distributions as the holders of the Preferred Interests.

We may not receive cash from the 2015-1 Issuer.

We receive cash from the 2015-1 Issuer only to the extent of payments on the distributions, if any, with respect to the Preferred Interests of the 2015-1 Issuer as permitted under the 2015-1 Debt Securitization. The 2015-1 Issuer may only make payments on Preferred Interests to the extent permitted by the payment priority provisions of the indenture governing the 2015-1 Notes (the “2015-1 Indenture”), as applicable, which generally provide, distribution to Preferred Interests holder may not be made on any payment date unless all amounts owing under the 2015-1 Notes are paid in full. There is no guarantee that we will receive any distributions as the holders of the Preferred Interests.

In addition, if the 2015-1 Issuer does not meet the asset coverage tests or the interest coverage test set forth in the documents governing the 2015-1 Debt Securitization, cash would be diverted to first pay the 2015-1 Notes in amounts sufficient to cause such tests to be satisfied. Even if we do not receive cash directly from the 2015-1 Issuer, such amount will still be treated as income subject to our requirement to distribute 90% of our net investment income to our shareholders. Therefore, in the event that we fail to receive cash directly from the 2015-1 Issuer, we could be unable to make such distributions in amounts sufficient to maintain our status as a RIC for U.S. federal income tax purposes, or at all.

We may be required to assume liabilities of the 2015-1 Issuer and are indirectly liable for certain representations and warranties in connection with the 2015-1 Debt Securitization.

As part of the 2015-1 Debt Securitization, we entered into a contribution agreement under which we are required to repurchase any loan (or participation interest therein) which was sold to the 2015-1 Issuer in breach

 

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of any representation or warranty made by us with respect to such loan on the date such loan was sold. To the extent we fail to satisfy any such repurchase obligation, the trustee of the 2015-1 Debt Securitization may, on behalf of the 2015-1 Issuer, bring an action against us to enforce these repurchase obligations.

The structure of the 2015-1 Debt Securitization is intended to prevent, in the event of our bankruptcy, the consolidation of the 2015-1 Issuer with our operations. If the true sale of the assets in the 2015-1 Debt Securitization were not respected in the event of our insolvency, a trustee or debtor-in-possession might reclaim the assets of the 2015-1 Issuer for our estate. However, in doing so, we would become directly liable for all of the indebtedness then outstanding under the 2015-1 Debt Securitization, which would equal the full amount of debt of the 2015-1 Issuer reflected on our consolidated balance sheet.

In addition, in connection with 2015-1 Debt Securitization, the Company has made customary representations, warranties and covenants to the 2015-1 Issuer. We remain liable for any breach of such representations for the life of the 2015-1 Debt Securitization.

Risks Related to the NFIC Acquisition

We may fail to complete the NFIC Acquisition.

While there can be no assurances as to the exact timing, or that the NFIC Acquisition will be completed at all, we expect to complete the NFIC Acquisition in June 2017. The completion of the NFIC Acquisition is subject to certain conditions, including, among others, NFIC stockholder approval and other customary closing conditions. We intend to complete the NFIC Acquisition as soon as possible; however, we cannot assure you that the conditions required to complete the NFIC Acquisition will be satisfied or waived on the anticipated schedule, or at all. See “Summary—NFIC Acquisition” for a description of the terms of the NFIC Acquisition. Any investment decision you make should be made with the understanding that the completion of the NFIC Acquisition may not happen as scheduled, or at all.

The Merger Agreement may be terminated in accordance with its terms and the NFIC Acquisition may not be completed.

The Merger Agreement is subject to a number of conditions that must be fulfilled in order to complete the NFIC Acquisition. Those conditions include, among others: the approval of the Merger Agreement by NFIC stockholders, the accuracy of representations and warranties under the Merger Agreement in all material respects, the declaration of a dividend that will satisfy the annual distribution requirement necessary to qualify as a RIC prior to the time of valuation, and the receipt by each party of certain opinions from legal counsel. These conditions to the closing of the NFIC Acquisition may not be fulfilled in a timely manner or at all, and, accordingly, the NFIC Acquisition may be delayed or may not be completed. In addition, the parties may elect to terminate the Merger Agreement in certain circumstances.

There is a potential for conflicts of interest due to common directorship between NFIC and us.

Each of our directors is a director of NFIC. This could create various conflicts. For example, in determining the valuation of the securities involved in the NFIC Acquisition, our directors, who might otherwise demand the lowest price possible, may instead compromise on paying a higher price because they also are directors of NFIC, who have an interest in getting the highest price possible. This conflict, however, is mitigated by having an independent evaluator to review the value of a portion of the debt securities of NFIC and the Company for which market quotations are not readily available (including all such securities rated 4 through 6 by our Investment Adviser under the Internal Risk Ratings system of our Investment Adviser).

 

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Our executive officers and directors may have interests in the NFIC Acquisition other than, or in addition to, the interests of our stockholders generally.

Members of the Board and our executive officers may have interests in the NFIC Acquisition that are different from, or are in addition to, the interests of our stockholders generally. The Board was aware of these interests and considered them, among other matters, in approving the Merger Agreement.

Our stockholders will incur certain costs on or before the closing of the NFIC Acquisition.

We and NFIC will incur transaction and merger-related costs in connection with the NFIC Acquisition, which may be in excess of those anticipated by us or NFIC.

Each of us and NFIC has incurred and will incur expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement.

Many of these costs will be borne by NFIC and/or us even if the NFIC Acquisition is not completed.

Our results may suffer if we do not effectively manage our expanded portfolio following the NFIC Acquisition.

Following completion of the NFIC Acquisition, our success will depend, in part, on our ability to manage our expansion, which poses numerous risks and uncertainties, including the need to integrate the assets of NFIC into our existing portfolio in an efficient and timely manner.

Even if we and NFIC complete the NFIC Acquisition, we may fail to realize all of the anticipated benefits of the proposed NFIC Acquisition.

The success of the proposed NFIC Acquisition will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining NFIC’s and our portfolio. The anticipated benefits and cost savings of the proposed NFIC Acquisition may not be realized fully or at all, or may take longer to realize than expected or could have other adverse effects that we do not currently foresee. Some of the assumptions that we have made, such as the achievement of operating synergies and efficiencies, may not be realized.

Risks Related to Our Investments

Our portfolio companies may prepay loans, which may have the effect of reducing our investment income if the returned capital cannot be invested in transactions with equal or greater yields.

Loans are generally prepayable at any time, most of them at no premium to par. We are generally unable to predict the rate and frequency of such repayments. Whether a loan is prepaid will depend both on the continued positive performance of the portfolio company and the existence of favorable financing market conditions that allow such portfolio company the ability to replace existing financing with less expensive capital. In periods of rising interest rates, the risk of prepayment of floating rate loans may increase if other financing sources are available. As market conditions change frequently, we will often be unable to predict when, and if, this may be possible for each of our portfolio companies. In the case of some of these loans, having the loan called early may have the effect of reducing our actual investment income below our expected investment income if the capital returned cannot be invested in transactions with equal or greater yields.

The financial projections of our portfolio companies could prove inaccurate.

We generally evaluate the capital structure of portfolio companies on the basis of financial projections prepared by the management of such portfolio companies. These projected operating results are normally based primarily on judgments of the management of the portfolio companies. In all cases, projections are only estimates

 

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of future results that are based upon assumptions made at the time that the projections are developed. General economic conditions, which are not predictable with accuracy, along with other factors may cause actual performance to fall short of the financial projections that were used to establish a given portfolio company’s capital structure. Because of the leverage that is typically employed by our portfolio companies, this could cause a substantial decrease in the value of our investment in the portfolio company. The inaccuracy of financial projections could thus cause our performance to fall short of our expectations.

Our portfolio securities typically do not have a readily available market price and, in such a case, we will value these securities at fair value as determined in good faith under procedures adopted by our Board of Directors, which valuation is inherently subjective and may not reflect what we may actually realize from the sale of the investment.

Substantially all of our portfolio investments are in the form of debt investments that are not publicly traded and are less liquid than publicly traded securities. The fair value of these securities is not readily determinable, and the due diligence process that our Investment Adviser undertakes in connection with our investments may not reveal all the facts that may be relevant in connection with such investment. We value these investments on at least a quarterly basis in accordance with our valuation policy, which is at all times consistent with accounting principles generally accepted in the United States (“US GAAP”). Our Board of Directors utilizes the services of a third-party valuation firm to aid it in determining the fair value of these investments as well as the recommendations of our Investment Adviser’s investment professionals, which are based upon the most recent portfolio company financial statements available and projected financial results of each portfolio company. The Board of Directors discusses valuations and determines the fair value in good faith based on the input of our Investment Adviser and the third-party valuation firm. The participation of our Investment Adviser in our valuation process, and the indirect pecuniary interest in our Investment Adviser by the interested directors on our Board of Directors, could result in a conflict of interest, since the management fee is based on our gross assets and also because our Investment Adviser is receiving performance-based incentive fees.

The factors that are considered in the fair value pricing of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, comparisons to publicly traded companies, discounted cash flow, relevant credit market indices, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate our valuation. Because such valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Also, since these valuations are, to a large extent, based on estimates, comparisons and qualitative evaluations of private information, it could make it more difficult for investors to value accurately our investments and could lead to undervaluation or overvaluation of our common stock. In addition, the valuation of these types of securities may result in substantial write-downs and earnings volatility. If our Investment Adviser is unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Also, privately held companies frequently have less diverse product lines and smaller market presence than larger competitors.

Decreases in the market values or fair values of our investments are recorded as unrealized depreciation. The effect of all of these factors on our portfolio can reduce our net asset value by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we could incur substantial realized losses and may suffer unrealized losses, which could have a material adverse impact on our business, financial condition and results of operations.

Our net asset value as of a particular date may be materially greater than or less than the value that would be realized if our assets were to be liquidated as of such date. For example, if we were required to sell a certain asset or all or a substantial portion of its assets on a particular date, the actual price that we would realize upon the

 

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disposition of such asset or assets could be materially less than the value of such asset or assets as reflected in our net asset value. Volatile market conditions could also cause reduced liquidity in the market for certain assets, which could result in liquidation values that are materially less than the values of such assets as reflected in our net asset value.

Our investments are risky and speculative.

We invest primarily in loans to middle market companies whose debt, if rated, is rated below investment grade and, if not rated, would likely be rated below investment grade if it were rated. Investments rated below investment grade are generally considered higher risk than investment grade instruments. Bonds that are rated below investment grade are sometimes referred to as “high yield bonds” or “junk bonds.” In our first lien senior secured loans, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies. To the extent we hold second lien senior secured loans and junior debt investments, holders of first lien loans may be repaid before us in the event of a bankruptcy or other insolvency proceeding. This may result in an above average amount of risk and loss of principal. Unitranche loans generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a heightened risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. When we invest in loans, we may acquire equity securities as well. However, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.

In addition, investing in middle market companies involves a number of significant risks, including:

 

    these companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing on any guarantees or security we may have obtained in connection with our investment;

 

    they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;

 

    they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on a portfolio company and, in turn, on us;

 

    there is generally little public information about these companies. These companies and their financial information are usually not subject to the Exchange Act and other regulations that govern public companies, and we may be unable to uncover all material information about these companies, which may prevent us from making a fully informed investment decision and cause us to lose money on our investments;

 

    they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, directors and our Investment Adviser may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies;

 

    changes in laws and regulations, as well as their interpretations, may adversely affect their business, financial structure or prospects; and

 

    they may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.

 

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We operate in a highly competitive market for investment opportunities, and compete with investment vehicles sponsored or advised by our affiliates.

A number of entities compete with us to make the types of investments that we target in middle market companies. We compete with other BDCs, public and private funds, commercial and investment banks, commercial finance companies, and, to the extent they provide an alternative form of financing, private equity funds, some of which may be affiliates of us. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. Furthermore, many of our competitors are not subject to the regulatory restrictions that the Investment Company Act and the Code impose on us. The competitive pressures we face may have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.

We do not seek to compete primarily based on the interest rates we offer, and we believe that some of our competitors may make loans with interest rates that are comparable to or lower than the rates we offer. We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. However, if we match our competitors’ pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss.

We may not replicate our historical performance or the historical success of Carlyle.

We cannot provide any assurance that we will replicate our own historical performance, the historical success of Carlyle or the historical performance of other companies that our Investment Adviser and our investment team advised in the past. Accordingly, our investment returns could be substantially lower than the returns achieved by the Company in the past, other Carlyle managed funds or by other clients of our Investment Adviser. We can offer no assurance that our Investment Adviser will be able to continue to implement our investment objective with the same degree of success as it has had in the past.

Our ability to enter into transactions with Carlyle and our other affiliates is restricted.

We and certain of our controlled affiliates are prohibited under the Investment Company Act from knowingly participating in certain transactions with our upstream affiliates, or our Investment Adviser and its affiliates, without the prior approval of our Independent Directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities is our upstream affiliate for purposes of the Investment Company Act, and we are generally prohibited from buying or selling any security (other than our securities) from or to such affiliate, absent the prior approval of our Independent Directors. The Investment Company Act also prohibits “joint” transactions with an upstream affiliate, or our Investment Adviser or its affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our Independent Directors. In addition, we and certain of our controlled affiliates are prohibited from buying or selling any security from or to, or entering into joint transactions with, our Investment Adviser and its affiliates, or any person who owns more than 25% of our voting securities or is otherwise deemed to control, be controlled by, or be under common control with us, absent the prior approval of the SEC through an exemptive order (other than in certain limited situations pursuant to current regulatory guidance as described below). The analysis of whether a particular transaction constitutes a joint transaction requires a review of the relevant facts and circumstances then existing.

As a BDC, we are required to comply with certain regulatory requirements. For example, we are not generally permitted to make loans to companies controlled by Carlyle or other funds managed by Carlyle. We are also not permitted to make any co-investments with our Investment Adviser or its affiliates (including any fund managed by Carlyle) without exemptive relief from the SEC, subject to certain exceptions. The SEC has granted us the Exemptive Relief that permits us and certain present and future funds advised by our Investment Adviser

 

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(or a future investment adviser controlling, controlled by or under common control with our Investment Adviser) to co-invest in suitable negotiated investments. Co-investments made under the Exemptive Relief are subject to compliance with the conditions and other requirements contained in the Exemptive Relief, which could limit our ability to participate in a co-investment transaction. We may also co-invest with funds managed by Carlyle or any of its downstream affiliates, subject to compliance with applicable law and regulations, existing regulatory guidance, our Investment Adviser’s allocation procedures and Carlyle’s other allocation policies and procedures, where applicable.

In addition to co-investing pursuant to our Exemptive Relief, we may invest alongside affiliates or their affiliates in certain circumstances where doing so is consistent with applicable law and current regulatory guidance. For example, we may invest alongside such investors consistent with guidance promulgated by the SEC staff permitting us and an affiliated person to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that we negotiate no term other than price. We may, in certain cases, also make investments in securities owned by affiliates that we acquire from non-affiliates. In such circumstances, our ability to participate in any restructuring of such investment or other transaction involving the issuer of such investment may be limited, and as a result, we may realize a loss on such investments that might have been prevented or reduced had we not been restricted in participating in such restructuring or other transaction.

To the extent we make investments in restructurings and reorganizations they may be subject to greater regulatory and legal risks than other traditional direct investments in portfolio companies.

We may make investments in restructurings that involve, or otherwise invest in the debt securities of, companies that are experiencing or are expected to experience severe financial difficulties. These severe financial difficulties may never be overcome and may cause such companies to become subject to bankruptcy proceedings. As such, these investments could subject us to certain additional potential liabilities that may exceed the value of our original investment therein. The level of analytical sophistication, both financial and legal, necessary for successful financing to companies experiencing significant business and financial difficulties is unusually high.

Our ability to extend financial commitments may be limited.

The SEC has proposed a new Rule 18f-4 under the Investment Company Act that, if enacted in the form proposed, could adversely impact the way we and other BDCs do business. In addition to imposing restrictions on the use of derivatives, the rule would generally limit our financial commitments to portfolio companies, together with our exposure to other transactions involving senior securities entered into by us other than in reliance of the rule, to not more than 150 percent of our net asset value. We cannot assure you when or if the proposed rule will be adopted by the SEC, and if adopted, whether the final rule will constrain our ability to extend financial commitments.

Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.

We are classified as a non-diversified investment company within the meaning of the Investment Company Act, which means that we are not limited by the Investment Company Act with respect to the proportion of our assets that we may invest in securities of a single issuer, excluding limitations on investments in other investment companies. Although we do not intend to focus our investments in any specific industries, our portfolio may be concentrated in a limited number of portfolio companies and industries. Beyond the asset diversification requirements associated with our qualification as a RIC under Subchapter M of the Code and under the Facilities and 2015-1 Notes, we do not have fixed guidelines for diversification, and while we do not target any specific industries, our investments may be concentrated in relatively few industries. As a result, the aggregate returns we will realize may be significantly adversely affected if a small number of investments perform poorly or if we

 

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need to write down the value of one or more investments. Additionally, a downturn in any particular industry in which we are invested could also significantly impact our aggregate returns.

Our portfolio companies may be highly leveraged.

Some of our portfolio companies may be highly leveraged, which may have adverse consequences to these companies and to us as an investor. These companies may be subject to restrictive financial and operating covenants and the leverage may impair these companies’ ability to finance their future operations and capital needs. As a result, these companies’ flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used. Leveraged companies may enter into bankruptcy proceedings at higher rates than companies that are not leveraged.

Our failure to make follow-on investments in our portfolio companies could impair the value of our investments.

Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments to:

 

    increase or maintain in whole or in part our equity ownership percentage;

 

    exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or

 

    attempt to preserve or enhance the value of our investment.

We may elect not to make follow-on investments, may be constrained in our ability to employ available funds, or otherwise may lack sufficient funds to make those investments. We have the discretion to make any follow-on investments, subject to the availability of capital resources. However, doing so could be placing even more capital at risk in existing portfolio companies.

The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful investment. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities or because we are inhibited by compliance with BDC requirements or the desire to maintain our tax status.

Declines in the prices of corporate debt securities and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.

As a BDC, we are required to account for our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by or under the direction of our Board of Directors. Decreases in the market values or fair values of our investments are recorded as unrealized depreciation. Depending on market conditions, we may face similar losses, which could reduce our net asset value and have a material adverse impact on our business, financial condition and results of operations.

Because we generally do not hold controlling equity interests in our portfolio companies, we may not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.

Although we may do so in the future, currently we do not intend to hold controlling equity positions in our portfolio companies. Accordingly, we may not be able to control decisions relating to a minority equity

 

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investment, including decisions relating to the management and operation of the portfolio company and the timing and nature of any exit. As a result, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity of the investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company and may therefore suffer a decrease in the value of our investments. If any of the foregoing were to occur, our financial condition, results of operations and cash flow could suffer as a result.

Our portfolio companies may incur debt that ranks equally with, or senior to, some of our investments in such companies.

To the extent we invest in second lien, mezzanine or other instruments, our portfolio companies typically may be permitted to incur other debt that ranks equally with, or senior to, such debt instruments. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we will be entitled to receive payments in respect of the debt securities in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. In such cases, after repaying such senior creditors, such portfolio company may not have sufficient remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt securities in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

The rights we may have with respect to the collateral securing the debt investments we make in our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.

We may also make unsecured loans to portfolio companies. Liens on such portfolio companies’ collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured loan agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured loan obligations after payment in full of all secured loan obligations. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any.

We may expose ourselves to risks if we engage in hedging transactions.

If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forward contracts, credit default swaps, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates, credit risk premiums, and market interest rates. Hedging

 

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against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. It may not be possible to hedge against an exchange rate or interest rate fluctuation at an acceptable price that is generally anticipated. The success of any hedging transactions we may enter into will depend on our ability to correctly predict movements in currencies and interest rates. Therefore, while we may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the effect of the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. Income derived from hedging transactions is generally not eligible to be distributed to non-U.S. stockholders free from U.S. withholding tax. We may determine not to hedge against particular risks, including if we determine that available hedging transactions are not available at an appropriate price.

There are certain risks associated with holding debt obligations that have original issue discount or payment-in-kind interest.

OID may arise if we hold securities issued at a discount or in certain other circumstances. OID and PIK create the risk that incentive fees will be paid to the Investment Adviser based on non-cash accruals that ultimately may not be realized, while the Investment Adviser will be under no obligation to reimburse us for these fees.

The higher interest rates of OID instruments reflect the payment deferral and increased credit risk associated with these instruments, and OID instruments generally represent a significantly higher credit risk than coupon loans. Even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is supposed to occur at the maturity of the obligation.

OID instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. OID income may also create uncertainty about the source of our cash dividends.

For accounting purposes, any cash dividends to stockholders representing OID income are not treated as coming from paid-in capital, even if the cash to pay them comes from the proceeds of issuances of our common stock. As a result, despite the fact that a dividend representing OID income could be paid out of amounts invested by our stockholders, the Investment Company Act does not require that stockholders be given notice of this fact by reporting it as a return of capital.

PIK interest has the effect of generating investment income at a compounding rate, thereby further increasing the incentive fees payable to the Investment Adviser. Similarly, all things being equal, the deferral associated with PIK interest also increases the loan-to-value ratio at a compounding rate.

Risks Related to this Offering and our Common Stock

Investing in our common stock may involve a high degree of risk.

The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and volatility or loss of principal. Our investments in portfolio companies

 

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may be highly speculative and aggressive, and therefore an investment in our common stock may not be suitable for someone with lower risk tolerance.

The market price of our common stock may fluctuate significantly.

The market price and liquidity of the market for shares of our common stock that will prevail in the market after this offering may be higher or lower than the price you pay and may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:

 

    significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are not necessarily related to the operating performance of these companies;

 

    price and volume fluctuations in the overall stock market from time to time;

 

    the inclusion or exclusion of our stock from certain indices;

 

    changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;

 

    any loss of RIC or BDC status;

 

    changes in earnings or perceived changes or variations in operating results;

 

    changes or perceived changes in the value of our portfolio of investments;

 

    changes in accounting guidelines governing valuation of our investments;

 

    any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

 

    the inability of our Investment Adviser to employ additional experienced investment professionals or the departure of any of our Investment Adviser’s key personnel;

 

    short-selling pressure with respect to shares of our common stock or BDCs generally;

 

    future sales of our securities convertible into or exchangeable or exercisable for our common stock or the conversion of such securities;

 

    uncertainty surrounding the strength of the U.S. economic recovery and the policies of the new presidential administration;

 

    concerns regarding European sovereign debt;

 

    fluctuations in base interest rates, such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate;

 

    operating performance of companies comparable to us;

 

    general economic trends and other external factors; and

 

    loss of a major funding source.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price fluctuates significantly, we may be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.

Prior to this offering, there has been no public market for our common stock, and we cannot assure you that the market price of our shares will not decline following the offering.

We cannot assure you that a trading market will develop for our common stock after this offering or, if one develops, that such trading market can be sustained. In addition, we cannot predict the prices at which our

 

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common stock will trade. The initial public offering price for our common stock will be determined through our negotiations with the underwriters and may not bear any relationship to the market price at which it may trade after this offering. Shares of companies offered in an initial public offering often trade at a discount to the initial offering price due to underwriting discounts and related offering expenses. Also, shares of closed-end investment companies, including BDCs, frequently trade at a discount from NAV and our common stock may also be discounted in the market. This characteristic of closed-end investment companies is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether our common stock will trade at, above or below NAV. The risk of loss associated with this characteristic of closed-end management investment companies may be greater for investors expecting to sell shares of common stock purchased in the offering soon after the offering. In addition, if our common stock trades below its NAV, we will generally not be able to sell additional shares of our common stock to the public at its market price without, among other things, the requisite stockholders approve such a sale.

Investors in this offering may experience immediate dilution upon the closing of the offering.

If you purchase shares of our common stock in this offering, you may experience immediate dilution if the price that you pay is greater than the pro forma NAV per share of the common stock you acquire. Investors in this offering could pay a price per share of common stock that exceeds the tangible book value per share after the closing of the offering. At the initial public offering price of $18.50 per share purchasers in this offering will experience immediate dilution of approximately $0.25 per share. See “Dilution.”

Purchases of our common stock under the 10b5-1 Plan may result in the price of our common stock being higher than the price that otherwise might exist in the open market.

Certain individuals affiliated with Carlyle have indicated that they intend to adopt the 10b5-1 Plan in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act, under which the participants will buy up to $15 million in the aggregate of our common stock in the open market during the period beginning four full calendar weeks after the closing of this offering and ending on the earlier of the date on which the capital committed to the 10b5-1 Plan has been exhausted or one year after the closing of this offering, subject to certain conditions. See “Certain Relationships and Related Party Transactions” for additional details regarding the 10b5-1 Plan. Whether purchases will be made pursuant to the 10b5-1 Plan and how much will be purchased at any time is uncertain, dependent on prevailing market prices and trading volumes, all of which we cannot predict. These activities may have the effect of maintaining the market price of our common stock or retarding a decline in the market price of the common stock, and, as a result, the price of our common stock may be higher than the price that otherwise might exist in the open market.

Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.

Upon completion of this offering, we will have 60,966,283 shares of common stock outstanding (or 62,316,283 shares of common stock if the underwriters’ option to purchase additional shares is fully exercised), excluding 434,233 shares issued in association with the NFIC Acquisition and excluding 5,132 shares issued pursuant to the dividend reinvestment plan. Following this offering and the expiration of applicable lock-up periods, sales of substantial amounts of our common stock, or the availability of such shares for sale, could adversely affect the prevailing market prices for our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of equity securities should we desire to do so.

Our stockholders will experience dilution in their ownership percentage if they opt out of our dividend reinvestment plan.

Effective on July 5, 2017, we will convert our current “opt in” dividend reinvestment plan to an “opt out” dividend reinvestment plan, pursuant to which all dividends declared in cash payable to stockholders that do not elect to receive their distributions in cash will be automatically reinvested in shares of our common stock, rather

 

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than receiving cash. As a result, our stockholders that “opt out” of our dividend reinvestment plan will experience dilution in their ownership percentage of our common stock over time. See “Distributions” and “Dividend Reinvestment Plan” for a description of our dividend policy and obligations.

There is a risk that our stockholders may not receive distributions or that our distributions may not grow over time and a portion of our distributions to you may be a return of capital for U.S. federal income tax purposes.

We intend to make distributions on a quarterly basis to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. If we declare a dividend and if enough stockholders opt to receive cash distributions rather than participate in our dividend reinvestment plan, we may be forced to sell some of our investments in order to make cash dividend payments. In addition, due to the asset coverage test applicable to us as a BDC, we may be limited in our ability to make distributions. The Facilities may also limit our ability to declare dividends if we default under certain provisions. Further, if we invest a greater amount of assets in equity securities that do not pay current dividends, it could reduce the amount available for distribution. See “Distributions.” The above referenced restrictions on distributions may also inhibit our ability to make required interest payments to holders of our debt, which may cause a default under the terms of our debt agreements. Such a default could materially increase our cost of raising capital, as well as cause us to incur penalties under the terms of our debt agreements.

Our stockholders may be required to pay federal income taxes in excess of the cash dividends they receive.

We may distribute taxable dividends that are payable in cash or shares of our common stock at the election of each stockholder. If too many stockholders elect to receive cash, each stockholder electing to receive cash would receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event would any stockholder electing to receive cash receive less than 20% of his or her entire distribution in cash. For U.S. federal income tax purposes, the amount of a dividend paid in stock would be equal to the amount of cash that could have been received instead of stock.

Stockholders receiving dividends in shares of our common stock would be required to include the full amount of the dividend (including the portion payable in stock) as ordinary income (or, in certain circumstances, long-term capital gain) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the common stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock. In addition, if a significant number of our stockholders were to determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price (if any) of our common stock. It is unclear whether and to what extent we will be able to pay taxable dividends of the type described in this paragraph.

We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash representing such income.

For U.S. federal income tax purposes, we will include in our taxable income certain amounts that we have not yet received in cash, such as OID or accruals on a contingent payment debt instrument, which may occur if we receive warrants in connection with the origination of a loan or possibly in other circumstances or contracted PIK interest, which generally represents contractual interest added to the loan balance and due at the end of the loan term. Such OID and PIK interest will be included in our taxable income before we receive any corresponding cash payments. We also may be required to include in our taxable income certain other amounts that we will not receive in cash. The credit risk associated with the collectability of deferred payments may be

 

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increased as and when a portfolio company increases the amount of interest on which it is deferring cash payment through deferred interest features. Our investments with a deferred interest feature may represent a higher credit risk than loans for which interest must be paid in full in cash on a regular basis. For example, even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is scheduled to occur upon maturity of the obligation.

Because in certain cases we may recognize taxable income before or without receiving cash representing such income, we may have difficulty making distributions to our stockholders that will be sufficient to enable us to meet the Annual Distribution Requirement necessary for us to maintain our status as a RIC. Accordingly, we may need to sell some of our assets at times and/or at prices that we would not consider advantageous, we may need to raise additional equity or debt capital, or we may need to forego new investment opportunities or otherwise take actions that are disadvantageous to our business (or be unable to take actions that are advantageous to our business) to enable us to make distributions to our stockholders that will be sufficient to enable us to meet the Annual Distribution Requirement. If we are unable to obtain cash from other sources to meet the Annual Distribution Requirement, we may fail to qualify for the U.S. federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes). Alternatively, we may, with the consent of all our shareholders, designate an amount as a consent dividend (i.e., a deemed dividend). In that case, although we would not distribute any actual cash to our shareholders, the consent dividend would be treated like an actual dividend under the Code for all U.S. federal income tax purposes. This would allow us to deduct the amount of the consent dividend and our shareholders would be required to include that amount in income as if it were actually distributed. For additional discussion regarding the tax implications of a RIC, see “U.S. Federal Income Tax Considerations.”

Non-U.S. stockholders may be subject to withholding of U.S. federal income tax on dividends we pay.

Distributions of our “investment company taxable income” to a non-U.S. stockholder that are not effectively connected with the non-U.S. stockholder’s conduct of a trade or business within the United States will be subject to withholding of U.S. federal income tax at a 30% rate (or lower rate provided by an applicable income tax treaty) to the extent of our current or accumulated earnings and profits. Certain properly designated dividends are generally exempt from withholding of U.S. federal income tax, including certain dividends that are paid in respect of our (i) “qualified net interest income” (generally, our U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which we or the non-U.S. stockholder are at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) “qualified short-term capital gains” (generally, the excess of our net short-term capital gain over our long-term capital loss for such taxable year), and certain other requirements were satisfied. No assurance can be given as to whether any of our distributions will be eligible for this exemption from withholding of U.S. federal income tax or, if eligible, will be designated as such by us. See “U.S. Federal Income Tax Considerations—Taxation of Non-U.S. stockholders.”

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forward-looking terminology such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may,” “plans,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “targets,” “projects,” “outlook,” “potential,” “predicts” and variations of these words and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. Our forward-looking statements include information in this prospectus regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a BDC and the expected performance of, and the yield on, our portfolio companies. In particular, there are forward-looking statements under “Summary—TCG BDC, Inc.,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under “Risk Factors,” as well as any cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this prospectus could have a material adverse effect on our business, results of operation and financial position. You should not place undue reliance on these forward-looking statements, which speak only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Under Sections 27A(b)(2) of the Securities Act and Section 21E(b)(2) of the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with any offering of securities pursuant to this prospectus or in a beneficial ownership report we file under the Exchange Act.

The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

 

    our, or our portfolio companies’, future business, operations, operating results or prospects;

 

    the return or impact of current and future investments;

 

    the impact of any protracted decline in the liquidity of credit markets on our business;

 

    the impact of fluctuations in interest rates on our business;

 

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

 

    our future operating results;

 

    the impact of changes in laws, policies or regulations (including the interpretation thereof) affecting our operations or the operations of our portfolio companies;

 

    the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

 

    our ability to recover unrealized losses;

 

    market conditions and our ability to access alternative debt markets and additional debt and equity capital;

 

    our contractual arrangements and relationships with third parties;

 

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    the general economy and its impact on the industries in which we invest;

 

    the financial condition of and ability of our current and prospective portfolio companies to achieve their objectives;

 

    competition with other entities and our affiliates for investment opportunities;

 

    the speculative and illiquid nature of our investments;

 

    the use of borrowed money to finance a portion of our investments;

 

    our expected financings and investments;

 

    the adequacy of our cash resources and working capital;

 

    the costs associated with being a publicly traded company;

 

    the loss of key personnel;

 

    the timing, form and amount of any dividend distributions;

 

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

 

    the ability of our Investment Adviser to locate suitable investments for us and to monitor and administer our investments;

 

    the ability of Carlyle Employee Co. and CELF to attract and retain highly talented professionals that can provide services to our Investment Adviser and administrator;

 

    our ability to maintain our status as a BDC;

 

    our intent to satisfy the requirements of a regulated investment company under Subchapter M of the Code; and

 

    the NFIC Acquisition.

Our actual results and condition could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in this prospectus.

 

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USE OF PROCEEDS

We estimate that the net proceeds we will receive from the sale of 9,000,000 shares of our common stock in this offering will be approximately $159.7 million (or approximately $183.9 million if the underwriters exercise in full their option to purchase additional shares of our common stock), after deducting the underwriting discounts and commissions paid by us to the underwriters and including estimated offering expenses of approximately $1.8 million payable by us. Such estimate is subject to change and no assurances can be given that actual expenses will not exceed such amount.

We expect to use 100% of the net proceeds from the closing of this offering to repay a portion of our outstanding debt under our Facilities. As of March 31, 2017, we had $201.1 million and $189.5 million outstanding under our SPV Credit Facility and Credit Facility, respectively, and the average interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), was 3.05% and 3.11%, respectively. The expected maturity date of the SPV Credit Facility and the Credit Facility is May 23, 2022 and March 21, 2022, respectively. After giving effect to the use of proceeds to pay down a portion of the outstanding balance under the SPV Credit Facility and the Credit Facility, approximately $201.1 million and $29.8 million, respectively will remain outstanding under the SPV Credit Facility and the Credit Facility assuming that we choose to solely pay down the Credit Facility. These numbers are subject to change depending on how we ultimately decide to allocate the proceeds from this offering between our two Facilities. We may re-borrow the amount we repay under our Facilities, subject to certain conditions, for general corporate purposes, which include making investments in accordance with our investment objective.

Affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BofA Merrill Lynch”), Citigroup Global Markets Inc. (“Citigroup”) and Mizuho Securities USA LLC (“Mizuho”) are lenders under the SPV Credit Facility and affiliates of BofA Merrill Lynch, Morgan Stanley & Co. L.L.C. (“Morgan Stanley”), J.P. Morgan Securities LLC (“J.P. Morgan”) and HSBC Securities (USA) Inc. (“HSBC”) are lenders under the Credit Facility. Accordingly, if we used 100% of the proceeds to repay a portion of our outstanding debt under the SPV Credit Facility or 100% of the proceeds to repay a portion of our outstanding debt under the Credit Facility, it is expected that the highest percentage that could be received by affiliates of BofA Merrill Lynch would be approximately 20% of the net proceeds of the offering, the highest percentage that could be received by affiliates of Morgan Stanley would be approximately 10% of the net proceeds of the offering, the highest percentage that could be received by affiliates of J.P. Morgan would be approximately 18% of the net proceeds of the offering, the highest percentage that could be received by affiliates of Citigroup would be approximately 38% of the net proceeds of the offering, the highest percentage that could be received by affiliates of HSBC would be approximately 18% of the net proceeds of the offering and the highest percentage that could be received by affiliates of Mizuho would be approximately 13% of the net proceeds of the offering, based upon the total public offering price set forth on the cover page of this prospectus. These numbers are subject to change depending on how we ultimately decide to allocate the proceeds from this offering between our two Facilities.

 

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DISTRIBUTIONS

To the extent that we have taxable income available, we intend to distribute quarterly dividends to our stockholders. The amount of our dividends, if any, will be determined by our Board of Directors. Any dividends to our stockholders will be declared out of assets legally available for distribution. We anticipate that our distributions will generally be paid from taxable earnings, including interest and capital gains generated by our investment portfolio, and any other income, including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees, that we receive from portfolio companies. However, if we do not generate sufficient taxable earnings during a year, all or part of a distribution may constitute a return of capital. The specific tax characteristics of our dividends and other distributions will be reported to stockholders after the end of each calendar year. See “U.S. Federal Income Tax Considerations” for further information regarding the tax treatment of our distributions and the tax consequences of our retention of net capital gains.

We have elected to be treated, and intend to continue to qualify annually, as a RIC. To maintain our qualification as a RIC, we must, among other things, distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, to our stockholders on an annual basis. In order to avoid certain excise taxes imposed on RICs, we intend to distribute during each calendar year an amount at least equal to the sum of: (1) 98% of our ordinary income for the calendar year; (2) 98.2% of our capital gain net income (both long-term and short-term) for the one-year period ending on October 31 of the calendar year; and, (3) any undistributed ordinary income and capital gain net income for preceding years that were not distributed during such years and on which we paid no U.S. federal income tax less certain over-distributions in prior years. In addition, although we currently intend to distribute realized net capital gains (i.e., net long term capital gains in excess of short term capital losses), if any, at least annually, we may in the future decide to retain such capital gains for investment, pay U.S. federal income tax on such amounts at regular corporate tax rates, and elect to treat such gains as deemed distributions to stockholders. As a BDC, we must have at least 200% asset coverage calculated pursuant to the Investment Company Act immediately after each time we issue senior securities. Certain of our credit facilities also require that we maintain asset coverage of at least 200%. As of March 31, 2017, our asset coverage calculated in accordance with the Investment Company Act was 215.03%. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, to the extent that we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the Investment Company Act or if distributions are limited by the terms of any of our borrowings. See “Risk Factors—Risks Related to this Offering and our Common Stock—There is a risk that our stockholders may not receive distributions or that our distributions may not grow over time and a portion of our distributions to you may be a return of capital for U.S. federal income tax purposes.”

Unless you elect to receive your distributions in cash, we intend to make distributions in additional shares of our common stock under our dividend reinvestment plan. Stockholders who “opt out” of our dividend reinvestment plan receive cash distributions. See “Dividend Reinvestment Plan.” We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the Investment Company Act or if distributions are limited by the terms of any of our borrowings.

 

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Our Board of Directors intends to declare a distribution of $0.37 per share for the quarter ending June 30, 2017 to stockholders of record as of June 30, 2017. Shares of common stock offered pursuant to this prospectus will be entitled to receive this distribution, which is expected to be paid on or about July 24, 2017. We anticipate that this distribution will be paid from taxable income generated primarily by interest income earned on our investment portfolio.

The following table summarizes the Company’s dividends declared and payable since inception through May 10, 2017:

 

Date    Record    Payment    Per Share  

Declared(1)

   Date    Date    Amount  

March 13, 2014

   March 31, 2014    April 14, 2014    $ 0.19  

June 26, 2014

   June 30, 2014    July 14, 2014    $ 0.27  

September 12, 2014

   September 18, 2014    October 9, 2014    $ 0.44  

December 19, 2014

   December 29, 2014    January 26, 2015    $ 0.35  
        

 

 

 

Total Dividend for 2014

         $ 1.25  

March 11, 2015

   March 13, 2015    April 17, 2015    $ 0.37  

June 24, 2015

   June 30, 2015    July 22, 2015    $ 0.37  

September 24, 2015

   September 24, 2015    October 22, 2015    $ 0.42  

December 29, 2015

   December 29, 2015    January 22, 2016    $ 0.40  

December 29, 2015

   December 29, 2015    January 22, 2016    $ 0.18 (2) 
        

 

 

 

Total Dividend for 2015

         $ 1.74  

March 10, 2016

   March 14, 2016    April 22, 2016    $ 0.40  

June 8, 2016

   June 8, 2016    July 22, 2016    $ 0.40  

September 28, 2016

   September 28, 2016    October 24, 2016    $ 0.40  

December 29, 2016

   December 29, 2016    January 24, 2017    $ 0.41  

December 29, 2016

   December 29, 2016    January 24, 2017    $ 0.07 (2) 
        

 

 

 

Total Dividend for 2016

         $ 1.68  

March 20, 2017

   March 20, 2017    April 24, 2017    $ 0.41  
        

 

 

 

 

(1) During the period ended December 31, 2013, no dividend was declared.
(2) Represents a special dividend.

 

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CAPITALIZATION

The following table sets forth (i) our capitalization as of March 31, 2017, (ii) our capitalization on a pro forma basis at March 31, 2017 to give effect to our Capital Calls for $189.5 million (See “Summary—Recent Developments”) and (iii) on an as-adjusted pro forma basis to give effect to this offering (assuming no exercise of the underwriters’ option to purchase additional shares) at the public offering price of $18.50 per share after deducting the underwriting discounts and commissions of approximately $5.0 million (reflecting 50% of the sales load payable by us) and estimated offering expenses of approximately $1.8 million (reflecting the 50% of the estimated offering expenses that are payable by us).

You should read this table together with “Use of Proceeds” and the financial statements and the related notes thereto included elsewhere in this prospectus.

 

     As of March 31, 2017  
     Actual
(in thousands)
     Pro Forma (1)(2)
(in thousands)
     As Adjusted
Pro Forma (2)(3)
(in thousands)
 

Assets

        

Cash and cash equivalents

   $ 44,874      $ 234,359      $ 234,359  

Investments, at fair value

     1,392,545        1,392,545        1,392,545  

Other assets

     21,574        21,574        21,574  
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,458,993      $ 1,648,478      $ 1,648,478  
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Secured borrowings(4)

   $ 390,608      $ 390,608      $ 230,903  

2015-1 Notes payable, net of unamortized debt issuance costs of $2,100

     270,900        270,900        270,900  

Other liabilities

     34,167        34,167        34,167  
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 695,675      $ 695,675      $ 535,970  
  

 

 

    

 

 

    

 

 

 

Net assets:

        

Common stock, $0.01 par value; 200,000,000
shares authorized; 41,708,155 shares issued and outstanding, actual; 51,966,283 shares issued and outstanding, pro forma; 60,966,283 shares issued and outstanding, as adjusted pro forma

   $ 417      $ 520      $ 610  

Paid-in capital in excess of par value

     799,688        989,070        1,148,685  

Pre-IPO offering costs

     (74      (74      (74

Accumulated net investment income (loss), net cumulative dividends of $146,165

     (33,051      (33,051      (33,051

Accumulated net realized gain (loss)

     (1,200      (1,200      (1,200

Accumulated net unrealized appreciation (depreciation)

     (2,462      (2,462      (2,462
  

 

 

    

 

 

    

 

 

 

Total net assets

     763,318        952,803        1,112,508  
  

 

 

    

 

 

    

 

 

 

Total liabilities and net assets

   $ 1,458,993      $ 1,648,478      $ 1,648,478  
  

 

 

    

 

 

    

 

 

 

Net asset value per share

   $ 18.30      $ 18.34        18.25  
  

 

 

    

 

 

    

 

 

 

 

(1)

Does not reflect adjustments for the NFIC Acquisition. The NFIC Acquisition was completed on June 9, 2017, and each share of NFIC common stock issued and outstanding immediately prior to the effective time of the NFIC Acquisition was converted into the right to receive a mixture of cash and our shares from us, in accordance with the elections of individual NFIC stockholders. In accordance with such elections, we paid approximately $145.6 million in cash and issued 434,233 shares to the NFIC stockholders. As of March 31,

 

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  2017, NFIC had total assets of $274.0 million, with $267.3 million in investments at fair value, and total liabilities of $118.9 million. If the NFIC Acquisition is consummated, all of the assets and liabilities of NFIC immediately before the NFIC Acquisition will become our assets and liabilities, as the surviving entity, immediately after the NFIC Acquisition.
(2) Does not reflect investment activity since March 31, 2017 and related deployment of Capital Calls. See “Summary—Recent Developments.”
(3) The above table reflects indebtedness outstanding as of March 31, 2017. However, as of May 25, 2017, our total outstanding indebtedness was approximately $745.3 million. The net proceeds from this offering are expected to be used to pay down outstanding indebtedness.
(4) Represents the outstanding amount under the Facilities.

 

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DILUTION

The dilution to investors in this offering is represented by the difference between the offering price per share of our common stock and the pro forma NAV per share of our common stock after this offering. NAV per share is determined by dividing our NAV, which is our total tangible assets less total liabilities, by the number of outstanding shares of common stock.

As of March 31, 2017, we had 41,708,155 shares of common stock outstanding and our NAV was $763.3 million, or approximately $18.30 per share. After giving effect to the Capital Calls for $189.5 million, our pro forma net asset value before completion of this offering as of March 31, 2017 would have been $952.8 million or $18.34 per share. We refer to these items as the “as-adjusted” items in the table below. The as-adjusted items do not include adjustments for the NFIC Acquisition.

After giving effect to the sale of the shares of common stock to be sold in this offering, the Capital Calls, and the deduction of discounts and estimated offering expenses, our as-adjusted NAV as of March 31, 2017 would be approximately $1,112.5 million, or $18.25 per share, representing an immediate dilution of $0.25 per share, or 1.35%, to shares sold in this offering. The following illustration assumes no exercise of the underwriters’ option to purchase additional shares. If the underwriters’ option to purchase additional shares is exercised in full, there would be an immediate dilution to the NAV of $0.26 per share, or 1.41%, to the shares sold in this offering.

The following table illustrates the dilution to the shares on a per share basis:

 

The initial public offering price per share

   $ 18.50  

March 31, 2017 NAV per share

   $ 18.30  

Increase attributable to as-adjusted items described above

   $ 0.04  
  

 

 

 

As-adjusted NAV per share without giving effect to this offering

   $ 18.34  

Decrease in NAV per share immediately after this offering

   $ 0.09  
  

 

 

 

As-adjusted NAV per share immediately after this offering

   $ 18.25  

Dilution per share to stockholders participating in this offering (without exercise of the option to purchase additional shares)

   $ 0.25  

 

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The following table summarizes, as of March 31, 2017, on the as-adjusted basis as described above, the total cash consideration paid to us and the average price per share paid by (i) our existing stockholders prior to this offering, (ii) by certain of our existing investors in the Capital Calls at the per share price of $18.47 per share, and (iii) by the new investors in this offering at an initial public offering price of $18.50 per share and prior to deducting the estimated underwriting discount and offering expenses (without exercise of the underwriters’ option to purchase additional shares). The table does not reflect adjustments for the NFIC Acquisition. The NFIC Acquisition was completed on June 9, 2017, and each share of NFIC common stock issued and outstanding immediately prior to the effective time of the NFIC Acquisition was converted into the right to receive a mixture of cash and our shares from us, in accordance with the elections of individual NFIC stockholders. In accordance with such elections, we paid approximately $145.6 million in cash and issued 434,233 shares to the NFIC stockholders. The table also does not reflect 5,132 shares issued pursuant to the dividend reinvestment plan.

 

     Shares     Total Consideration
(in thousands)
    Average
Price
Per
Share
 
     Number      %     Amount      %    

Shares outstanding as of March 31, 2017

     41,708,155        68.4   $ 763,318        68.6   $ 18.30  

Shares sold in the Capital Calls

     10,258,128        16.8   $ 189,485        17.0   $ 18.47  

Shares to be sold in this offering

     9,000,000        14.8   $ 159,705        14.4   $ 18.50  
  

 

 

      

 

 

      

 

 

 

Total

     60,966,283        100   $ 1,112,508        100   $ 18.25  

The as-adjusted NAV upon completion of this offering is calculated as follows (without exercise of the underwriters’ option to purchase additional shares):

 

Numerator (in thousands):

  

NAV

   $ 952,803  

Assumed proceeds from this offering (after deduction of sales load and offering expenses payable by us)

     159,705  
  

 

 

 

NAV upon completion of this offering

   $ 1,112,508  

Denominator:

  

Shares outstanding as of March 31, 2017

     41,708,155  

Shares sold in the Capital Calls

     10,258,128  

Shares to be sold in this offering

     9,000,000  
  

 

 

 

Total shares outstanding upon completion of this offering

     60,966,283  

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollar amounts are in thousands, except per share data, unless otherwise indicated)

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Financial Data and Other Information” and our consolidated financial statements and related notes appearing elsewhere in this prospectus. The information in this section contains forward-looking information that involves risks and uncertainties. Please see “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with this discussion and analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Risk Factors” and “Forward-Looking Statements” appearing elsewhere in this prospectus.

OVERVIEW

We are a Maryland corporation formed on February 8, 2012, and structured as an externally managed, non-diversified closed-end investment company. We have elected to be regulated as a BDC under the Investment Company Act. We have elected to be treated, and intend to continue to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Code.

Our investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies, which we define as companies with approximately $10 million to $100 million of EBITDA. We seek to achieve our investment objective primarily through direct originations of Middle Market Senior Loans, with the balance of our assets invested in higher yielding investments (which may include unsecured debt, mezzanine debt and investments in equities). We generally make Middle Market Senior Loans to private U.S. middle market companies that are, in many cases, controlled by private equity firms. Depending on market conditions, we expect that between 70% and 80% of the value of our assets will be invested in Middle Market Senior Loans. We expect that the composition of our portfolio will change over time given our Investment Adviser’s view on, among other things, the economic and credit environment (including with respect to interest rates) in which we are operating.

We are externally managed by our Investment Adviser, an investment adviser registered under the Advisers Act. Prior to this offering, our Investment Adviser waived its right to receive one-third (0.50%) of the 1.50% base management fee. The fee waiver was scheduled to terminate upon consummation of this offering. However, our Investment Adviser has agreed to continue the fee waiver until the completion of the first full quarter after the consummation of this offering. Thus the management fee we pay to our Investment Adviser will be effectively higher after the first full quarter period following this offering. If the management fee waiver had not been in place for the three months ended March 31, 2017 and the years ended December 31, 2016 and 2015, our management fees would have increased by $1,708, $6,180 and $4,454, respectively.

Our Administrator provides the administrative services necessary for us to operate. Both our Investment Adviser and our Administrator are wholly owned subsidiaries of Carlyle Investment Management L.L.C., a subsidiary of Carlyle.

In conducting our investment activities, we believe that we benefit from the significant scale and resources of Carlyle, including our Investment Adviser and its affiliates. We have operated our business as a BDC since we began our investment activities in May 2013.

KEY COMPONENTS OF OUR RESULTS OF OPERATIONS

Investments

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt available to middle market companies, the general economic environment and the competitive environment for the type of investments we make.

 

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Revenue

We generate revenue primarily in the form of interest income on debt investments we hold. In addition, we generate income from dividends on direct equity investments, capital gains on the sales of loans and debt and equity securities and various loan origination and other fees. Our debt investments generally have a stated term of five to eight years and generally bear interest at a floating rate usually determined on the basis of a benchmark such as LIBOR. Interest on these debt investments is generally paid quarterly. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. We may also generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees.

Expenses

Our primary operating expenses include the payment of: (i) investment advisory fees, including base management fees and incentive fees, to our Investment Adviser pursuant to an investment advisory agreement (the “Investment Advisory Agreement”) between us and our Investment Adviser; (ii) costs and other expenses and our allocable portion of overhead incurred by our Administrator in performing its administrative obligations under an administration agreement (the “Administration Agreement”) between us and our Administrator; and (iii) other operating expenses as detailed below:

 

    the costs associated with the private offering of our common stock prior to this offering;

 

    the costs of this offering and any other offerings of our common stock and other securities, if any;

 

    calculating individual asset values and our net asset value (including the cost and expenses of any independent valuation firms);

 

    expenses, including travel expenses, incurred by our Investment Adviser, or members of our Investment Adviser team managing our investments, or payable to third parties, performing due diligence on prospective portfolio companies and, if necessary, expenses of enforcing our rights;

 

    the base management fee and any incentive fee payable under our Investment Advisory Agreement;

 

    certain costs and expenses relating to distributions paid on our shares;

 

    administration fees payable under our Administration Agreement and sub-administration agreements, including related expenses;

 

    debt service and other costs of borrowings or other financing arrangements;

 

    the allocated costs incurred by our Investment Adviser in providing managerial assistance to those portfolio companies that request it;

 

    amounts payable to third parties relating to, or associated with, making or holding investments;

 

    the costs associated with subscriptions to data service, research-related subscriptions and expenses and quotation equipment and services used in making or holding investments;

 

    transfer agent and custodial fees;

 

    costs of hedging;

 

    commissions and other compensation payable to brokers or dealers;

 

    federal and state registration fees;

 

    any U.S. federal, state and local taxes, including any excise taxes;

 

    independent director fees and expenses;

 

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    costs of preparing financial statements and maintaining books and records, costs of preparing tax returns, costs of Sarbanes-Oxley Act compliance and attestation and costs of filing reports or other documents with the SEC (or other regulatory bodies), and other reporting and compliance costs, including registration and listing fees, and the compensation of professionals responsible for the preparation or review of the foregoing;

 

    the costs of any reports, proxy statements or other notices to our stockholders (including printing and mailing costs), the costs of any stockholders’ meetings and the compensation of investor relations personnel responsible for the preparation of the foregoing and related matters;

 

    the costs of specialty and custom software for monitoring risk, compliance and overall portfolio, including any development costs incurred prior to the filing of our election to be regulated as a BDC;

 

    our fidelity bond;

 

    directors and officers/errors and omissions liability insurance, and any other insurance premiums;

 

    indemnification payments;

 

    direct fees and expenses associated with independent audits, agency, consulting and legal costs; and

 

    all other expenses incurred by us or our Administrator in connection with administering our business, including our allocable share of certain officers and their staff compensation.

We expect our general and administrative expenses to be relatively stable or to decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines.

PORTFOLIO AND INVESTMENT ACTIVITY

As of March 31, 2017, the fair value of our investments was approximately $1,392,545, comprised of 94 investments in 82 portfolio companies/structured finance obligations/investment fund across 30 industries with 54 sponsors. As of December 31, 2016, the fair value of our investments was approximately $1,422,759, comprised of 98 investments in 86 portfolio companies/structured finance obligations/investment fund across 29 industries with 57 sponsors. As of December 31, 2015, the fair value of our investments was approximately $1,052,666, comprised of 85 portfolio companies/structured finance obligations. The fair value of our investments was approximately $698,662, comprised of 72 portfolio companies/structured finance obligations as of December 31, 2014.

Based on fair value as of March 31, 2017, our portfolio consisted of approximately 89.6% in secured debt (78.0% in first lien debt (including 12.1% in first lien/last out loans) and 11.6% in second lien debt), 9.6% in Credit Fund, 0.2% in structured finance obligations and 0.6% in equity investments. Based on fair value as of March 31, 2017, approximately 1% of our debt portfolio was invested in debt bearing a fixed interest rate and approximately 99% of our debt portfolio was invested in debt bearing a floating interest rate with an interest rate floor.

Based on fair value as of December 31, 2016, our portfolio consisted of approximately 92.2% in secured debt (80.1% in first lien debt (including 12.9% in first lien/last out loans) and 12.1% in second lien debt), 7% in Credit Fund, 0.37% in structured finance obligations and 0.46% in equity investments. Based on fair value as of December 31, 2016, approximately 1% of our debt portfolio was invested in debt bearing a fixed interest rate and approximately 99% of our debt portfolio was invested in debt bearing a floating interest rate with an interest rate floor.

Based on fair value as of December 31, 2015, our portfolio consisted of approximately 95.5% in secured debt (75.5% in first lien debt (including 11.7% in first lien/last out loans) and 20.0% in second lien debt), 4.3% in structured finance obligations and 0.2% in equity investments. Based on fair value as of December 31, 2015, approximately 3% of our debt portfolio was invested in debt bearing a fixed interest rate and approximately 97% of our debt portfolio was invested in debt bearing a floating interest rate with an interest rate floor.

 

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Our investment activity for the three month periods ended March 31, 2017 and 2016 and the years ended December 31, 2016, 2015 and 2014 is presented below (information presented herein is at amortized cost unless otherwise indicated):

 

     For the three month periods ended     For the years ended December 31,  
         March 31,    
2017
        March 31,    
2016
    December 31,
2016
    December 31,
2015
    December 31,
2014
 

Investments:

          

Total investments, beginning of period

   $  1,429,981     $  1,079,720     $ 1,079,720     $ 707,701     $ 213,128  

New investments purchased

     152,235       132,291       755,654       597,811       614,622  

Net accretion of discount on investments

     3,576       611       5,605       3,035       1,108  

Net realized gain (loss) on investments

     (7,694     (3,577     (9,644     1,164       72  

Investments sold or repaid

     (183,091     (26,159     (401,354     (229,991     (121,229
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments, end of period

   $ 1,395,007     $ 1,182,886     $ 1,429,981     $ 1,079,720     $ 707,701  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Principal amount of investments funded:

          

First Lien Debt

   $  94,929     $  100,556     $ 604,514     $ 481,510     $ 457,212  

Second Lien Debt

     1,800       34,000       38,950       115,250       80,790  

Structured Finance Obligations

     —         —         —         15,760       115,638  

Equity Investments

     1,552       —         2,856       1,507       —    

Investment Fund

     56,160       1       119,785       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $  154,441     $ 134,557     $ 766,105     $ 614,027     $ 653,640  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Principal amount of investments sold or repaid:

          

First Lien Debt

   $  (154,003   $ (5,629   $ (254,921   $ (191,718   $ (77,040

Second Lien Debt

     (13,000     (11,000     (83,279     (8,000     (9,500

Structured Finance Obligations

     (5,000     (14,200     (81,442     (39,475     (31,363

Investment Fund

     (22,000     —         (22,400     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $  (194,003   $  (30,829   $ (442,042   $ (239,193   $ (117,903
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Number of new funded investments

     17       11       62       46       58  

Average new funded investment amount

   $ 9,085     $ 12,032     $ 12,188     $ 12,996     $ 10,597  

Percentage of new funded debt investments at floating interest rates

     91     100     100     98     98

Percentage of new funded debt investments at fixed interest rates

     9     0     0     2     2

As of March 31, 2017 and December 31, 2016, investments consisted of the following:

 

     March 31, 2017      December 31, 2016  
     Amortized
Cost
     Fair Value      Amortized
Cost
     Fair Value  

First Lien Debt

   $  1,088,396      $  1,085,554      $ 1,145,326      $ 1,139,548  

Second Lien Debt

     161,912        161,643        172,960        171,864  

Structured Finance Obligations

     6,582        2,776        9,239        5,216  

Equity Investments

     6,572        8,451        5,071        6,474  

Investment Fund

     131,545        134,121        97,385        99,657  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,395,007      $ 1,392,545      $ 1,429,981      $ 1,422,759  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The weighted average yields (1) for our first and second lien debt, based on the amortized cost and fair value as of March 31, 2017 and December 31, 2016, were as follows:

 

     March 31, 2017     December 31, 2016  
     Amortized
Cost
    Fair Value     Amortized
Cost
    Fair Value  

First Lien Debt (excluding First Lien/Last Out)

     7.35     7.37     7.09     7.15

First Lien/Last Out Unitranche

     12.00     11.99     12.33     12.12
  

 

 

   

 

 

   

 

 

   

 

 

 

First Lien Debt Total

     8.07     8.09     7.92     7.96

Second Lien Debt

     10.07     10.09     9.97     10.04
  

 

 

   

 

 

   

 

 

   

 

 

 

First and Second Lien Debt Total

     8.33     8.35     8.19     8.23
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Weighted average yields include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of March 31, 2017 and December 31, 2016. Weighted average yield on debt and income producing securities at fair value is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at fair value included in such securities. Weighted average yield on debt and income producing securities at amortized cost is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at amortized cost included in such securities. Actual yields earned over the life of each investment could differ materially from the yields presented above.

Total weighted average yields (which includes the effect of accretion of discount and amortization of premiums) of our first and second lien debt investments as measured on an amortized cost basis, increased from 8.19% to 8.33% from December 31, 2016 to March 31, 2017. The increase in weighted average yields was mainly due to the increase in 90-day LIBOR from 1.00% to 1.15% and from originations of new investments with higher weighted average yields of 9.22% and sales/repayments of existing investments with lower weighted average yields of 8.45%.

The following table summarizes the fair value of our performing and non-performing investments as of March 31, 2017 and December 31, 2016.

 

     March 31, 2017     December 31, 2016  
     Fair Value      Percentage     Fair Value      Percentage  

Performing

   $  1,383,687        99.36   $ 1,415,131        99.46

Non-accrual(1)

     8,858        0.64     7,628        0.54  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $  1,392,545        100.00   $ 1,422,759        100.00
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest has been paid current and, in management’s judgment, likely to remain current. Management may not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. See “—Critical Accounting Policies—Revenue Recognition.”

See the Consolidated Schedules of Investments as of March 31, 2017 and December 31, 2016 in our consolidated financial statements for more information on these investments, including a list of companies and type and amount of investments.

 

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As part of the monitoring process, our Investment Adviser has developed risk policies pursuant to which it regularly assesses the risk profile of each of our debt investments and rates each of them based on the following categories, which we refer to as “Internal Risk Ratings”:

Internal Risk Ratings Definitions

 

Rating

  

Definition

1    Performing—Low Risk: Borrower is operating more than 10% ahead of the base case.
2    Performing—Stable Risk: Borrower is operating within 10% of the base case (above or below). This is the initial rating assigned to all new borrowers.
3    Performing—Management Notice: Borrower is operating more than 10% below the base case. A financial covenant default may have occurred, but there is a low risk of payment default.
4    Watch List: Borrower is operating more than 20% below the base case and there is a high risk of covenant default, or it may have already occurred. Payments are current although subject to greater uncertainty, and there is moderate to high risk of payment default.
5    Watch List—Possible Loss: Borrower is operating more than 30% below the base case. At the current level of operations and financial condition, the borrower does not have the ability to service and ultimately repay or refinance all outstanding debt on current terms. Payment default is very likely or may have occurred. Loss of principal is possible.
6    Watch List—Probable Loss: Borrower is operating more than 40% below the base case, and at the current level of operations and financial condition, the borrower does not have the ability to service and ultimately repay or refinance all outstanding debt on current terms. Payment default is very likely or may have already occurred. Additionally, the prospects for improvement in the borrower’s situation are sufficiently negative that impairment of some or all principal is probable.

Our Investment Adviser’s risk rating model is based on evaluating portfolio company performance in comparison to the base case when considering certain credit metrics including, but not limited to, adjusted EBITDA and net senior leverage as well as specific events including, but not limited to, default and impairment.

Our Investment Adviser monitors and, when appropriate, changes the investment ratings assigned to each debt investment in our portfolio. In connection with our quarterly valuation process, our Investment Adviser reviews our investment ratings on a regular basis. The following table summarizes the Internal Risk Ratings as of March 31, 2017 and December 31, 2016:

 

     March 31, 2017     December 31, 2016  
     Fair Value      % of
Fair
Value
    Fair Value      % of
Fair
Value
 
(dollar amounts in millions)                           

Internal Risk Rating 1

   $ 27.5        2.20   $ 59.3        4.52

Internal Risk Rating 2

     1,023.2        82.05       1,055.7        80.50  

Internal Risk Rating 3

     93.7        7.51       100.9        7.70  

Internal Risk Rating 4

     89.4        7.17       75.7        5.77  

Internal Risk Rating 5

     13.4        1.07       12.2        0.93  

Internal Risk Rating 6

     —          —         7.6        0.58  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $  1,247.2        100.00   $ 1,311.4        100.00
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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As of March 31, 2017 and December 31, 2016, the weighted average Internal Risk Rating of our debt investment portfolio was 2.2. As of March 31, 2017, nine of our debt investments, with an aggregate fair value of $102.8 million, were assigned an Internal Risk Rating of 4-6. As of December 31, 2016, 8 of our debt investments, with an aggregate fair value of $95.5 million, were assigned an Internal Risk Rating of 4-6. As of March 31, 2017 and December 31, 2016, one first lien debt investment in the portfolio with a fair value of $8.9 million and $7.6 million, respectively, was on non-accrual status, which represented approximately 0.71% and 0.58%, respectively, of total first and second lien investments at fair value. The remaining first and second lien debt investments were performing and current on their interest payments as of March 31, 2017 and December 31, 2016. During the period ended March 31, 2017, one investment with fair value of $9.8 million was downgraded to an Internal Risk Rating of 4 due to changes in financial condition and performance of the respective portfolio company; the other changes in Internal Risk Rating 4 were due to immaterial investments. Effective January 31, 2017, TwentyEighty, Inc. (fka Miller Heiman, Inc.) completed a restructuring whereby the first lien debt held by us, which carried an Internal Risk Rating of 6 as of December 31, 2016, was converted into new term loans and equity. As of March 31, 2017, the fair value of such new term loans with an Internal Risk Rating of 3 was $2.8 million, an Internal Risk Rating of 4 was $3.8 million, and an Internal Risk Rating of 5 was $2.3 million.

CONSOLIDATED RESULTS OF OPERATIONS

For the three month periods ended March 31, 2017 and 2016

The net increase or decrease in net assets from operations may vary substantially from period to period as a result of various factors, including the recognition of realized gains and losses and net change in unrealized appreciation and depreciation. As a result, quarterly comparisons may not be meaningful.

Investment Income

Investment income for the three month periods ended March 31, 2017 and 2016 were as follows:

 

     For the three month
periods ended
 
     March 31, 2017      March 31, 2016  

First Lien Debt

   $ 26,701      $ 16,198  

Second Lien Debt

     4,169        6,424  

Structured Finance Obligations

     —          485  

Equity Investments

     1        —    

Investment Fund

     3,209        —    

Cash

     19        3  
  

 

 

    

 

 

 

Total investment income

   $ 34,099      $ 23,110  
  

 

 

    

 

 

 

The increase in investment income for the three month period ended March 31, 2017 from the comparable period in 2016 was primarily driven by our increasing invested balance, increased fees and other income from amendments and prepayments, and interest and dividend income from Credit Fund. As of March 31, 2017, the size of our portfolio increased to $1,395,007 from $1,182,886 as of March 31, 2016, at amortized cost, and total principal amount of investments outstanding increased to $1,427,572 from $1,246,092 as of March 31, 2016. As of March 31, 2017, the weighted average yield of our first and second lien debt increased to 8.33% from 8.14% as of March 31, 2016, on amortized cost.

Interest income on our first and second lien debt investments is dependent on the composition and credit quality of the portfolio. Generally, we expect the portfolio to generate predictable quarterly interest income based on the terms stated in each loan’s credit agreement. As of March 31, 2017, one first lien debt investment in the portfolio was non-performing. The fair value of the loan in the portfolio on non-accrual status was $8,858, which represents approximately 0.71% of total first and second lien investments at fair value. The remaining first and

 

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second lien debt investments were performing and current on their interest payments as of March 31, 2017. All first and second lien debt investments were performing and current on their interest payments as of March 31, 2016. Interest income from structured finance obligations is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows. The effective yield is updated at least quarterly based on payments received and expected future payments. In estimating these cash flows, there are a number of assumptions that are subject to uncertainties, including the amount and timing of principal payments which are impacted by prepayments, repurchases, defaults, delinquencies and liquidations of or within the CLO funds that issued the structured finance obligations. These uncertainties are difficult to predict and are subject to future events that could have impacted our estimates if the information was known at the time of such estimates. As a result, actual results may differ significantly from these estimates.

For the three month periods ended March 31, 2017 and 2016, we earned $2,536 and $999, respectively, in other income. The increase in other income for the three month period ended March 31, 2017 from March 31, 2016 was primarily due to higher syndication fees and prepayment fees resulting from full paydowns on select investments.

Our total dividend and interest income from investments in Credit Fund totaled $3,209 for the three month period ended March 31, 2017. We did not receive any dividend or interest income from investments in Credit Fund for the three month period ended March 31, 2016. We made our first investment in Credit Fund in February 2016.

Net investment income for the three month periods ended March 31, 2017 and 2016 was as follows:

 

     For the three month
periods ended
 
     March 31, 2017      March 31, 2016  

Total investment income

   $ 34,099      $ 23,110  

Net expenses

     (14,992      (11,150
  

 

 

    

 

 

 

Net investment income (loss)

   $ 19,107      $ 11,960  
  

 

 

    

 

 

 

Expenses

 

     For the three month
periods ended
 
     March 31,
2017
     March 31,
2016
 

Base management fees

   $ 5,125      $ 4,140  

Incentive fees

     4,777        2,990  

Professional fees

     443        431  

Administrative service fees

     173        148  

Interest expense

     5,034        3,599  

Credit facility fees

     503        599  

Directors’ fees and expenses

     103        120  

Other general and administrative

     542        503  
  

 

 

    

 

 

 

Total expenses

     16,700        12,530  

Waiver of base management fees

     (1,708      (1,380
  

 

 

    

 

 

 

Net expenses

   $ 14,992      $ 11,150  
  

 

 

    

 

 

 

 

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Interest expense and credit facility fees for the three month periods ended March 31, 2017 and 2016 were comprised of the following:

 

     For the three month
periods ended
 
     March 31, 2017      March 31, 2016  

Interest expense

   $ 5,034      $ 3,599  

Facility unused commitment fee

     292        361  

Amortization of deferred financing costs

     181        213  

Other fees

     30        25  
  

 

 

    

 

 

 

Total interest expense and credit facility fees

   $ 5,537      $ 4,198  
  

 

 

    

 

 

 

Cash paid for interest expense

   $ 4,952      $ 3,227  

The increase in interest expense for the three month period ended March 31, 2017 compared to the comparable period in 2016 was driven by increased drawings under the Facilities related to increased deployment of capital for investments. For the three month period ended March 31, 2017, the average interest rate increased to 3.12% from 2.70% for the comparable period in 2016, and average principal debt outstanding increased to $649,532 from $530,170 for the comparable period in 2016.

The increase in base management fees (and related waiver of base management fees) and incentive fees related to pre-incentive fee net investment income for the three month period ended March 31, 2017 from the comparable period in 2016 were driven by our deployment of capital and increasing invested balance. For the three month periods ended March 31, 2017 and 2016, base management fees were $3,417 and $2,760, respectively, (net the waiver of $1,708 and $1,380, respectively), incentive fees related to pre-incentive fee net investment income were $4,777 and $2,990, respectively, and there were no incentive fees related to realized capital gains. The accrual for any capital gains incentive fee under accounting principles generally accepted in the United States (“US GAAP”) in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual.

Professional fees include legal, rating agencies, audit, tax, valuation, technology and other professional fees incurred related to the management of us. Administrative service fees represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers and their respective staff. Other general and administrative expenses include insurance, filing, research, subscriptions and other costs.

Net Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) on Investments

During the three months ended March 31, 2017 and 2016, we had realized gains on 4 and 3 investments, respectively, totaling approximately $186 and $11, respectively, which was offset by realized losses on 3 and 3 investments, respectively, totaling approximately $7,880 and $3,588, respectively. During the three month periods ended March 31, 2017 and 2016, we had a change in unrealized appreciation on 57 and 34 investments, respectively, totaling approximately $17,492 and $8,051, respectively, which was offset by a change in unrealized depreciation on 41 and 67 investments, respectively, totaling approximately $12,732 and $19,142, respectively. In particular, effective January 31, 2017, TwentyEighty, Inc. (fka Miller Heiman, Inc.) completed a restructuring whereby the first lien debt held by us was converted into new term loans and equity. As a result, $10,943 of unrealized depreciation was reversed and we realized a loss of $7,738 during the period.

 

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Net realized gain (loss) and net change in unrealized appreciation (depreciation) by the type of investments for the three month periods ended March 31, 2017 and 2016 were as follows:

 

     For the three month
periods ended
 
     March 31, 2017     March 31, 2016  

Net realized gain (loss) on investments

   $ (7,694   $ (3,577

Net change in unrealized appreciation (depreciation) on investments

     4,760       (11,091
  

 

 

   

 

 

 

Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments

   $ (2,934   $ (14,668
  

 

 

   

 

 

 

Net realized gain (loss) and net change in unrealized appreciation (depreciation) by the type of investments for the three month periods ended March 31, 2017 and 2016 were as follows:

 

     For the three month periods ended  
     March 31, 2017      March 31, 2016  

Type

   Net realized
gain (loss)
    Net change in
unrealized
appreciation
(depreciation)
     Net realized
gain (loss)
    Net change in
unrealized
appreciation
(depreciation)
 

First Lien Debt

   $ (7,552   $ 2,935      $ 4     $ (5,166

Second Lien Debt

     (3     827        —         (5,256

Structured Finance Obligations

     (139     217        (3,581     (1,040

Equity Investments

     —         477        —         371  

Investment Fund

     —         304        —         —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ (7,694   $ 4,760      $ (3,577   $ (11,091
  

 

 

   

 

 

    

 

 

   

 

 

 

Net change in unrealized depreciation in our investments for the three months ended March 31, 2017 compared to the comparable period in 2016 was primarily due to changes in various inputs utilized under our valuation methodology, including, but not limited to, market spreads, leverage multiples and borrower ratings.

For the years ended December 31, 2016, 2015 and 2014

The net increase or decrease in net assets from operations may vary substantially from period to period as a result of various factors, including the recognition of realized gains and losses and net change in unrealized appreciation and depreciation. As a result, quarterly comparisons may not be meaningful.

Investment Income

Investment income for the years ended December 31, 2016, 2015 and 2014, was as follows:

 

     For the years ended December 31,  
     2016      2015      2014  

Investment income:

        

First Lien Debt

   $ 83,713      $ 45,654      $ 18,028  

Second Lien Debt

     23,190        15,357        5,716  

Structured Finance Obligations

     887        8,160        9,233  

Equity Investments

     13        12        —    

Investment Fund

     3,140        —          —    

Cash

     28        7        7  
  

 

 

    

 

 

    

 

 

 

Total investment income

   $ 110,971      $ 69,190      $ 32,984  
  

 

 

    

 

 

    

 

 

 

 

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The increase in investment income for the year ended December 31, 2016 from the comparable period in 2015 was primarily driven by our deployment of capital, increasing invested balance, increased fees and other income from syndications, amendments and prepayments, and dividends declared by Credit Fund. The size of our portfolio increased to $1,429,981 as of December 31, 2016 from $1,079,720 as of December 31, 2015, at amortized cost, and total principal amount of investments outstanding increased to $1,467,133 as of December 31, 2016 from $1,142,364 as of December 31, 2015. The increase in interest income was also due to the increase in the weighted average yield. As of December 31, 2016, the weighted average yield of our first and second lien debt increased to 8.19% from 7.93% as of December 31, 2015, on amortized cost.

The increase in investment income for the year ended December 31, 2015 from the comparable period in 2014 was primarily driven by our deployment of capital and increasing invested balance. The size of our portfolio increased to $1,079,720 as of December 31, 2015 from $707,701 as of December 31, 2014, at amortized cost, and total principal amount of investments outstanding increased to $1,142,364 as of December 31, 2015 from $767,530 as of December 31, 2014. The increase in interest income was also due to the increase in the weighted average yield. As of December 31, 2015, the weighted average yield of our first and second lien debt increased to 7.93% from 6.70% as of December 31, 2014, on amortized cost.

Interest income on our first and second lien debt investments is dependent on the composition and credit quality of the portfolio. Generally, we expect the portfolio to generate predictable quarterly interest income based on the terms stated in each loan’s credit agreement. As of December 31, 2016, one first lien debt investment in the portfolio was non-performing. The fair value of the loan in the portfolio on non-accrual status was $7,628, which represents approximately 0.5% of total investments at fair value. The remaining first and second lien debt investments were performing and current on their interest payments as of December 31, 2016 and for the year then ended. As of December 31, 2015 and 2014 and for the years then ended, all of our first and second lien debt investments were performing and current on their interest payments. Interest income from structured finance obligations is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows. The effective yield is updated periodically based on payments received and expected future payments. In estimating these cash flows, there are a number of assumptions that are subject to uncertainties, including the amount and timing of principal payments which are impacted by prepayments, repurchases, defaults, delinquencies and liquidations of or within the CLO funds. These uncertainties are difficult to predict and are subject to future events that could have impacted our estimates if the information was known at the time. As a result, actual results may differ significantly from these estimates.

For the years ended December 31, 2016, 2015 and 2014, we earned $6,635, $834 and $244, respectively, in other income. The increase in other income for the year ended December 31, 2016 from December 31, 2015 was primarily due to higher syndication and prepayment fees resulting from partial and/or full paydowns on select investments.

Our total dividend and interest income from investments in Credit Fund totaled $3,140 for the year ended December 31, 2016. We made our first investment in Credit Fund in February 2016.

Net investment income (loss) for the years ended December 31, 2016, 2015 and 2014 was as follows:

 

     For the years ended December 31,  
     2016      2015      2014  

Total investment income

   $ 110,971      $ 69,190      $ 32,984  

Net expenses

     (51,350      (33,666      (18,724
  

 

 

    

 

 

    

 

 

 

Net investment income (loss)

   $ 59,621      $ 35,524      $ 14,260  
  

 

 

    

 

 

    

 

 

 

 

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Expenses

 

     For the years ended December 31,  
     2016      2015      2014  

Base management fees

   $ 18,539      $ 13,361      $ 6,559  

Incentive fees

     14,905        8,881        3,578  

Professional fees

     2,103        1,845        2,169  

Administrative service fees

     703        595        626  

Interest expense

     16,462        9,582        3,648  

Credit facility fees

     2,573        1,898        3,052  

Directors’ fees and expenses

     553        419        395  

Other general and administrative

     1,692        1,539        883  

Waiver of base management fees

     (6,180      (4,454      (2,186
  

 

 

    

 

 

    

 

 

 

Net expenses

   $ 51,350      $ 33,666      $ 18,724  
  

 

 

    

 

 

    

 

 

 

Interest expense and credit facility fees for the years ended December 31, 2016, 2015 and 2014 were comprised of the following:

 

     For the years ended December 31,  
     2016      2015      2014  

Interest expense

   $ 16,462      $ 9,582      $ 3,648  

Facility unused commitment fee

     1,253        847        1,129  

Amortization of deferred financing costs

     1,213        945        1,820  

Other fees

     107        106        103  
  

 

 

    

 

 

    

 

 

 

Total interest expense and credit facility fees

   $ 19,035      $ 11,480      $ 6,700  
  

 

 

    

 

 

    

 

 

 

Cash paid for interest expense

   $ 15,267      $ 8,083      $ 2,882  

The increase in interest expense for the year ended December 31, 2016 compared to the comparable period in 2015 was driven by increased drawings under the Facilities related to increased deployment of capital for investments, and additional debt issued through the securitization in the form of the 2015-1 Notes. For the year ended December 31, 2016, the average interest rate increased to 2.81% from 2.31% for the comparable period in 2015, and average principal debt outstanding increased to $580,734 from $406,638 for the comparable period in 2015.

The increase in interest expense for the year ended December 31, 2015 compared to the comparable period in 2014 was driven by increased drawings under the Facilities related to increased deployment of capital for investments. For the year ended December 31, 2015, the average interest rate increased to 2.31% from 2.18% for the comparable period in 2014, and average principal debt outstanding increased to $406,638 from $164,980 for the comparable period in 2014.

The increase in base management fees (and related waiver of base management fees) and incentive fees related to pre-incentive fee net investment income for the year ended December 31, 2016 from the comparable period in 2015 and for the year ended December 31, 2015 from the comparable period in 2014 was driven by our deployment of capital and our increasing invested balance. For the years ended December 31, 2016, 2015 and 2014, base management fees were $12,359, $8,907 and $4,373, respectively (net of waiver of $6,180, $4,454 and $2,186, respectively); incentive fees related to pre-incentive fee net investment income were $14,905, $8,881 and $3,578, respectively, and there were no incentive fees related to realized capital gains. For the year ended December 31, 2016, 2015 and 2014 we recorded no accrued capital gains incentive fees based upon our cumulative net realized and unrealized appreciation (depreciation) as of December 31, 2016, 2015 and 2014, respectively. The accrual for any capital gains incentive fee under accounting principles generally accepted in the

 

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United States (“US GAAP”) in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual.

Professional fees include legal, rating agencies, audit, tax, valuation, technology and other professional fees incurred related to the management of us. Administrative service fees represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers and their respective staff. Other general and administrative expenses include insurance, filing, research, subscriptions and other costs. The increase in other general and administrative expenses for the year ended December 31, 2016 from the comparable period in 2015 and for the year ended in December 31, 2015 from the comparable period in 2014 was primarily driven by the increased deployment of capital.

Net Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) on Investments

During the years ended December 31, 2016, 2015 and 2014, we had realized gains on 10, 8, and 4, investments, respectively, totaling approximately $864, $1,622, and $391, respectively, which was offset by realized losses on 14, 6, and 3, investments, respectively, totaling approximately $10,508, $458, and $319, respectively. During the years ended December 31, 2016, 2015 and 2014, we had a change in unrealized appreciation on 104, 48, and 25 investments, respectively, totaling approximately $41,130, $8,597, and $2,931, respectively, which was offset by a change in unrealized depreciation on 24, 71, and 65 investments, respectively, totaling approximately $21,298, $26,612, and $11,649, respectively.

Net realized gain (loss) and net change in unrealized appreciation (depreciation) for the years ended December 31, 2016, 2015 and 2014, were as follows:

 

     For the years ended December 31,  
     2016      2015      2014  

Net realized gain (loss) on investments

   $ (9,644    $ 1,164      $ 72  

Net change in unrealized appreciation (depreciation) on investments

     19,832        (18,015      (8,718
  

 

 

    

 

 

    

 

 

 

Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments

   $ 10,188      $ (16,851    $ (8,646
  

 

 

    

 

 

    

 

 

 

Net realized gain (loss) and net change in unrealized appreciation (depreciation) by the type of investments for the years ended December 31, 2016, 2015 and 2014 were as follows:

 

     For the years ended December 31,  
     2016      2015     2014  

Type

   Net
realized
gain
(loss)
    Net change in
unrealized
appreciation
(depreciation)
     Net
realized
gain
(loss)
     Net change in
unrealized
appreciation
(depreciation)
    Net
realized
gain
(loss)
    Net change in
unrealized
appreciation
(depreciation)
 

First Lien Debt

   $ 383     $ 46      $ 208      $ (3,160   $ —       $ (2,829

Second Lien Debt

     275       5,216        —          (2,925     120       (2,518

Structured Finance Obligations

     (10,302     11,105        956        (12,139     (48     (3,371

Equity Investments

     —         1,193        —          209       —         —    

Investment Fund

     —         2,272        —          —         —         —    
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ (9,644   $ 19,832      $ 1,164      $ (18,015   $ 72     $ (8,718
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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Net change in unrealized appreciation in our investments for the year ended December 31, 2016 compared to the comparable period in 2015 was primarily due to a tightening spread environment during the year. Net change in unrealized depreciation in our investments for the year ended December 31, 2015 compared to the comparable period in 2014 was primarily due to a widening spread environment during the last six months of the year.

MIDDLE MARKET CREDIT FUND, LLC

Overview

On February 29, 2016, we and Credit Partners entered into an amended and restated limited liability company agreement, which was subsequently amended on June 24, 2016 (as amended, the “Limited Liability Company Agreement”) to co-manage Credit Fund, an unconsolidated Delaware limited liability company. Credit Fund primarily invests in first lien loans of middle market companies. Credit Fund is managed by a six-member board of managers, on which we and Credit Partners each have equal representation. Establishing a quorum for Credit Fund’s board of managers requires at least four members to be present at a meeting, including at least two of our representatives and two of Credit Partners’ representatives. We and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $400,000 each. Funding of such commitments generally requires the approval of the board of Credit Fund, including the board members appointed by us. By virtue of its membership interest, we and Credit Partners each indirectly bear an allocable share of all expenses and other obligations of Credit Fund.

Together with Credit Partners, we co-invest through Credit Fund. Investment opportunities for Credit Fund are sourced primarily by us and our affiliates. Portfolio and investment decisions with respect to Credit Fund must be unanimously approved by a quorum of Credit Fund’s investment committee consisting of an equal number of representatives of us and Credit Partners. Therefore, although we own more than 25% of the voting securities of Credit Fund, we do not believe that we have control over Credit Fund (other than for purposes of the Investment Company Act). The Credit Fund Sub, a Delaware limited liability company, was formed on April 5, 2016. Credit Fund Sub primarily invests in first lien loans of middle market companies. Credit Fund Sub is a wholly owned subsidiary of Credit Fund and is consolidated in Credit Fund’s consolidated financial statements commencing from the date of its formation. Credit Fund follows the same Internal Risk Rating system as us.

Credit Fund, we and Credit Partners entered into an administration agreement with Carlyle GMS Finance Administration L.L.C., the administrative agent of Credit Fund (in such capacity, the “Administrative Agent”), pursuant to which the Administrative Agent is delegated certain administrative and non-discretionary functions, is authorized to enter into sub-administration agreements at our expense with the approval of the board of managers of Credit Fund, and is reimbursed by Credit Fund for its costs and expenses and Credit Fund’s allocable portion of overhead incurred by the Administrative Agent in performing its obligations thereunder.

Selected Financial Data

Since inception of Credit Fund and through March 31, 2017 and December 31, 2016, we and Credit Partners each made capital contributions of $1 in members’ equity and $45,500 and $35,000, respectively, in subordinated loans to Credit Fund. As of March 31, 2017 and December 31, 2016, Credit Fund had net borrowings of $86,044 and $62,384, respectively, in mezzanine loans under the Credit Fund Facility. As of March 31, 2017 and December 31, 2016, Credit Fund had subordinated loans and members’ capital of $96,155 and $74,547, respectively. The interest rate for Credit Fund’s mezzanine loans is LIBOR plus 9.50% with a maturity date of June 24, 2017. The interest rate for Credit Fund’s subordinated loans was 0.001% with a maturity date of March 1, 2021. As of March 31, 2017 and December 31, 2016, our ownership interest in such subordinated loans and members’ capital was $48,077 and $37,273, respectively, and in such mezzanine loans was $86,044 and $62,384, respectively.

 

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As of March 31, 2017 and December 31, 2016, Credit Fund held cash and cash equivalents totaling $10,533 and $6,103, respectively.

As of March 31, 2017 and December 31, 2016, Credit Fund had total investments at fair value of $558,694 and $437,829, respectively, which was comprised of first lien senior secured loans and second lien senior secured loans to 35 and 28 portfolio companies, respectively. As of March 31, 2017 and December 31, 2016, no loans in Credit Fund’s portfolio were on non-accrual status or contained PIK provisions. All investments in the portfolio were floating rate debt investments. The portfolio companies in Credit Fund are U.S. middle market companies in industries similar to those in which we may invest directly. Additionally, as of March 31, 2017 and December 31, 2016, Credit Fund had commitments to fund various undrawn revolvers and delayed draw investments to its portfolio companies totaling $32,012 and $30,361, respectively.

Below is a summary of Credit Fund’s portfolio, followed by a listing of the loans in Credit Fund’s portfolio as of March 31, 2017 and December 31, 2016:

 

     As of
March 31,
2017
    As of
December 31,
2016
 

Senior secured loans (1)

   $ 560,196     $ 439,086  

Weighted average yields of senior secured loans based on amortized cost (2)

     6.53     6.47

Weighted average yields of senior secured loans based on fair value (2)

     6.46     6.41

Number of portfolio companies in Credit Fund

     35       28  

Average amount per portfolio company (1)

   $ 16,006     $ 15,682  

Weighted average Internal Risk Rating

     2.0       2.0  

 

(1) At par/principal amount.
(2) Weighted average yields include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of March 31, 2017 and December 31, 2016. Weighted average yield on debt and income producing securities at fair value is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at fair value included in such securities. Weighted average yield on debt and income producing securities at amortized cost is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at amortized cost included in such securities. Actual yields earned over the life of each investment could differ materially from the yields presented above.

 

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Consolidated Schedule of Investments as of March 31, 2017 (unaudited)

 

 

Investments (1)

  Industry   Interest
Rate
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (5)
    Fair
Value (6)
 

First Lien Debt (99.42% of fair value)

         

Advanced Instruments, LLC (2) (3) (4) (10) (11)

  Healthcare &
Pharmaceuticals
   

L + 5.25%

(1.00% Floor)

 

 

    10/31/2022     $ 12,000     $ 11,867     $ 11,972  

AM Conservation Holding Corporation (2) (3) (4)

  Energy: Electricity    
L + 4.75%
(1.00% Floor)
 
 
    10/31/2022       29,925       29,657       30,185  

Anaren, Inc. (2) (3) (4)

  Telecommunications    
L + 4.50%
(1.00% Floor)
 
 
    2/18/2021       6,963       6,935       6,963  

Borchers, Inc. (2) (3) (4) (7) (10) (11)

  Chemicals,
Plastics & Rubber
   
L + 4.75%
(1.00% Floor)
 
 
    1/13/2024       8,142       8,096       8,170  

Datapipe, Inc. (2) (3) (4) (11)

  Telecommunications    
L + 4.75%
(1.00% Floor)
 
 
    3/15/2019       9,725       9,650       9,753  

DBI Holding LLC (2) (3) (4)

  Business Services    
L + 5.25%
(1.00% Floor)
 
 
    8/1/2021       19,950       19,774       19,754  

Dent Wizard International Corporation (2) (3) (4) (11)

  Automotive    
L + 4.75%
(1.00% Floor)
 
 
    4/7/2020       15,000       14,861       14,984  

Dimora Brands, Inc. (fka TK USA Enterprises,
Inc.) (2) (3) (4) (11)

  Construction &
Building
   
L + 4.50%
(1.00% Floor)
 
 
    4/4/2023       19,800       19,539       19,743  

Diversitech Corporation (2) (4) (10)

  Capital Equipment     P + 3.50%       11/19/2021       14,766       14,589       14,766  

DTI Holdco, Inc. (2) (3) (4) (7)

  High Tech
Industries
   
L + 5.25%
(1.00% Floor)
 
 
    9/30/2023       19,900       19,704       19,639  

EAG, Inc. (2) (3) (4) (11)

  Business Services    
L + 4.25%
(1.00% Floor)
 
 
    7/28/2018       8,440       8,430       8,469  

EIP Merger Sub, LLC (Evolve IP) (2) (3) (4) (8) (11)

  Telecommunications    
L + 6.25%
(1.00% Floor)
 
 
    6/7/2021       22,894       22,280       22,539  

EIP Merger Sub, LLC (Evolve IP) (2) (3) (4) (9) (11)

  Telecommunications    
L + 6.25%
(1.00% Floor)
 
 
    6/7/2021       1,500       1,458       1,475  

Empower Payments Acquisitions, Inc. (2) (3) (7)

  Media: Advertising,
Printing &
Publishing
   
L + 5.50%
(1.00% Floor)
 
 
    11/30/2023       17,456       17,115       17,411  

Jensen Hughes,
Inc. (2) (3) (4) (10) (11)

  Utilities: Electric    
L + 5.00%
(1.00% Floor)
 
 
    12/4/2021       20,408       20,197       20,275  

Kestra Financial,
Inc. (2) (3) (4)

  Banking, Finance,
Insurance & Real
Estate
   
L + 5.25%
(1.00% Floor)
 
 
    6/24/2022       19,850       19,593       19,725  

MSHC, Inc. (2) (3) (4) (10)

  Construction &
Building
   

L + 5.00%

(1.00% Floor)

 

 

    7/19/2021     $ 13,543     $ 13,440     $ 13,423  

PAI Holdco, Inc. (Parts Authority) (2) (3) (4)

  Automotive    
L + 4.75%
(1.00% Floor)
 
 
    12/30/2022       9,925       9,864       9,925  

Paradigm Acquisition Corp. (2) (3) (4)

  Business Services    
L + 5.00%
(1.00% Floor)
 
 
    6/2/2022       11,970       11,874       11,970  

Pasternack Enterprises, Inc. (Infinite RF) (2) (3) (4)

  Capital Equipment    
L + 5.00%
(1.00% Floor)
 
 
    5/27/2022       11,910       11,817       11,885  

PSI Services
LLC (2) (3) (4) (7) (10)

  Business Services    
L + 5.00%
(1.00% Floor)
 
 
    1/19/2023       29,623       29,052       29,333  

 

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Investments (1)

  Industry     Interest
Rate
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (5)
    Fair
Value (6)
 

Q Holding Company (2) (3) (4)

    Automotive      
L + 5.00%
(1.00% Floor)
 
 
    12/18/2021       13,929       13,798       13,958  

QW Holding Corporation (Quala) (2) (3) (4) (7) (10)

   
Environmental
Industries
 
 
   
L + 6.75%
(1.00% Floor)
 
 
    8/31/2022       10,983       10,447       11,121  

Ramundsen Public Sector, LLC (2) (3) (4)

   
Sovereign & Public
Finance
 
 
   
L + 4.25%
(1.00% Floor)
 
 
    2/1/2024       4,000       3,983       4,008  

RelaDyne Inc. (2) (3) (4) (10)

    Wholesale      
L + 5.25%
(1.00% Floor)
 
 
    7/22/2022       26,228       25,834       25,978  

Restaurant Technologies, Inc. (2) (3) (4)

    Retail      
L + 4.75%
(1.00% Floor)
 
 
    11/23/2022       14,000       13,876       14,021  

Systems Maintenance Services Holding, Inc. (2) (3) (4) (11)

    High Tech Industries      
L + 5.00%
(1.00% Floor)
 
 
    10/30/2023       24,439       24,266       24,561  

T2 Systems Canada,
Inc. (2) (3) (4)

   
Transportation:
Consumer
 
 
   
L + 6.75%
(1.00% Floor)
 
 
    9/28/2022       2,693       2,630       2,696  

T2 Systems, Inc. (2) (3) (4) (10)

   
Transportation:
Consumer
 
 
   
L + 6.75%
(1.00% Floor)
 
 
    9/28/2022       15,262       14,865       15,282  

Teaching Strategies,
LLC (2) (3) (4) (10)

   
Media: Advertising,
Printing & Publishing
 
 
   
L + 4.75%
(1.00% Floor)
 
 
    2/27/2023       18,100       17,915       17,980  

The Original Cakerie, Ltd. (Canada) (2) (3) (4) (10) (11)

   
Beverage, Food &
Tobacco
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    7/20/2021       6,992       6,932       6,992  

The Original Cakerie, Co. (Canada) (2) (3) (4) (11)

   
Beverage, Food &
Tobacco
 
 
   
L + 5.50%
(1.00% Floor)
 
 
    7/20/2021       3,612       3,585       3,612  

U.S. Acute Care Solutions, LLC (2) (3) (4)

   
Healthcare &
Pharmaceuticals
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    5/15/2021       26,334       26,099       26,275  

U.S. Anesthesia Partners,
Inc. (2) (3) (4) (11)

   
Healthcare &
Pharmaceuticals
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    12/31/2019       10,348       10,257       10,366  

Vantage Specialty

Chemicals, Inc. (2) (3) (4) (11)

   
Chemicals,
Plastics & Rubber
 
 
   
L + 4.50%
(1.00% Floor)
 
 
    2/5/2021       17,865       17,748       17,775  

WIRB—Copernicus Group, Inc. (2) (3) (4)

   
Healthcare &
Pharmaceuticals
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    8/12/2022       12,315       12,232       12,281  

Zest Holdings, LLC (2) (3) (4)

   
Durable Consumer
Goods
 
 
   
L + 4.75%
(1.00% Floor)
 
 
    8/16/2020       8,700       8,661       8,693  

Zywave, Inc. (2) (3) (4) (7) (10)

    High Tech Industries      

L + 5.00%

(1.00% Floor)

 

 

    11/17/2022       17,456       17,279       17,494  
         

 

 

   

 

 

 

First Lien Debt Total

          $ 550,199     $ 555,452  
         

 

 

   

 

 

 

Second Lien Debt (0.58% of fair value)

 

Ramundsen Public Sector,
LLC (2) (3) (4) (7)

   
Sovereign & Public
Finance
 
 
   

L + 8.50%

(1.00% Floor)

 

 

    1/31/2025     $ 200     $ 198     $ 200  

Vantage Specialty

Chemicals, Inc. (2) (3) (4) (11)

   
Chemicals,
Plastics & Rubber
 
 
   
L + 8.75%
(1.00% Floor)
 
 
    2/5/2022       2,000       1,969       1,992  

Zywave, Inc. (2) (3) (4)

    High Tech Industries      
L + 9.00%
(1.00% Floor)
 
 
    11/17/2023       1,050       1,035       1,050  
         

 

 

   

 

 

 

Second Lien Debt Total

          $ 3,202     $ 3,242  
         

 

 

   

 

 

 

Total Investments

          $   553,401     $   558,694  
         

 

 

   

 

 

 

 

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(1) Unless otherwise indicated, issuers of investments held by Credit Fund are domiciled in the United States. As of March 31, 2017, the geographical composition of investments as a percentage of fair value was 1.90% in Canada and 98.10% in the United States.
(2) Variable rate loans to the portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate (“P”)), which generally resets quarterly. For each such loan, Credit Fund has provided the interest rate in effect as of March 31, 2017. As of March 31, 2017, all of Credit Fund’s LIBOR loans were indexed to the 90-day LIBOR rate at 1.15%, except for those loans as indicated in Note 11 below, and the U.S. Prime Rate loan was indexed at 4.00%.
(3) Loan includes interest rate floor feature.
(4) Denotes that all or a portion of the assets are owned by Credit Fund Sub. The lenders of the Credit Fund Sub Facility have a first lien security interest in substantially all of the assets of Credit Fund Sub. Accordingly, such assets are not available to creditors of Credit Fund.
(5) Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.
(6) Fair value is determined in good faith by or under the direction of the board of managers of Credit Fund, pursuant to Credit Fund’s valuation policy, which is substantially similar to the valuation policy of the Company provided in Note 3, Fair Value Measurements.
(7) Denotes that all or a portion of the assets are owned by Credit Fund. Credit Fund has entered into the Credit Fund Facility. The lenders of the Credit Fund Facility have a first lien security interest in substantially all of the assets of Credit Fund. Accordingly, such assets are not available to creditors of Credit Fund Sub.
(8) Credit Fund receives less than the stated interest rate of this loan as a result of an agreement among lenders. The interest rate reduction is 1.25% on EIP Merger Sub, LLC (Evolve IP). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.
(9) In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, the Company is entitled to receive additional interest as a result of an agreement among lenders as follows: EIP Merger Sub, LLC (Evolve IP) (3.91%). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.

 

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(10) As of March 31, 2017, Credit Fund had the following unfunded commitments to fund delayed draw and revolving senior secured loans:

 

First Lien Debt —unfunded delayed draw and revolving term
loans commitments

   Type      Unused
Fee
    Par/
Principal
Amount
     Fair
Value
 

Advanced Instruments, LLC

     Revolver        0.50   $ 1,333      $ (3

Borchers, Inc.

     Revolver        0.50     1,858        5  

Diversitech Corporation

     Delayed Draw        1.00     5,000        —    

Jensen Hughes, Inc.

     Delayed Draw        0.50     1,461        (8

Jensen Hughes, Inc.

     Revolver        0.50     2,000        (11

MSHC, Inc.

     Delayed Draw        1.50     1,399        (11

PSI Services LLC

     Revolver        0.50     377        (4

QW Holding Corporation (Quala)

     Delayed Draw        1.00     4,762        33  

QW Holding Corporation (Quala)

     Revolver        1.00     4,234        29  

RelaDyne Inc.

     Delayed Draw        0.50     135        (1

RelaDyne Inc.

     Revolver        0.50     2,433        (21

T2 Systems, Inc.

     Revolver        1.00     1,955        2  

Teaching Strategies, LLC

     Revolver        0.50     1,900        (11

The Original Cakerie, Ltd. (Canada)

     Revolver        0.50     1,665        —    

Zywave, Inc.

     Revolver        0.50     1,500        3  
       

 

 

    

 

 

 

Total unfunded commitments

        $ 32,012      $ 2  
       

 

 

    

 

 

 

 

(11) As of March 31, 2017, this LIBOR loan was indexed to the 30-day LIBOR rate at 0.98%.

Consolidated Schedule of Investments as of December 31, 2016

 

 

Investments (1)

  Industry   Interest
Rate (2)
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (5)
    Fair
Value (6)
 

First Lien Debt (99.31% of fair value)

         

AM Conservation Holding Corporation (2) (3) (4)

  Energy: Electricity    
L + 4.75%
(1.00% Floor)
 
 
    10/31/2022     $ 30,000     $ 29,721     $ 29,925  

Datapipe, Inc. (2) (3) (4) (11)

  Telecommunications    
L + 4.75%
(1.00% Floor)
 
 
    3/15/2019       9,750       9,654       9,764  

Dimora Brands, Inc. (fka TK USA Enterprises, Inc.) (2) (3) (4) (11)

  Construction &
Building
   
L + 4.50%
(1.00% Floor)
 
 
    4/4/2023       19,850       19,580       19,723  

Diversitech
Corporation (2) (4) (10) (11)

  Capital Equipment     P + 3.50%       11/19/2021       14,803       14,617       14,803  

DTI Holdco, Inc. (2) (3) (4) (7)

  High Tech
Industries
   
L + 5.25%
(1.00% Floor)
 
 
    9/30/2023       19,950       19,751       19,651  

DYK Prime Acquisition LLC (2) (3) (4)

  Chemicals, Plastics
& Rubber
   
L + 4.75%
(1.00% Floor)
 
 
    4/1/2022       5,775       5,735       5,775  

EAG, Inc. (2) (3) (4) (11)

  Business Services    
L + 4.25%
(1.00% Floor)
 
 
    7/28/2018       8,713       8,686       8,720  

EIP Merger Sub, LLC (Evolve IP) (2) (3) (4)  (8)

  Telecommunications    
L + 6.25%
(1.00% Floor)
 
 
    6/7/2021       22,971       22,323       22,509  

EIP Merger Sub, LLC (Evolve IP) (2) (3) (4) (9)

  Telecommunications    
L + 6.25%
(1.00% Floor)
 
 
    6/7/2021       1,500       1,455       1,468  

Empower Payments Acquisitions, Inc. (2) (3) (7)

  Media: Advertising,
Printing &
Publishing
   
L + 5.50%
(1.00% Floor)
 
 
    11/30/2023       17,500       17,154       17,279  

 

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Investments (1)

  Industry     Interest
Rate (2)
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (5)
    Fair
Value (6)
 

Generation Brands Holdings, Inc. (2) (3) (4)

   
Durable Consumer
Goods
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    6/10/2022     $ 19,900     $ 19,712     $ 20,099  

Jensen Hughes, Inc. (2) (3) (4)  (10)

    Utilities: Electric      
L + 5.00%
(1.00% Floor)
 
 
    12/4/2021       20,409       20,188       20,327  

Kestra Financial, Inc. (2) (3) (4)

   

Banking, Finance,
Insurance & Real
Estate
 
 
 
   
L + 5.25%
(1.00% Floor)
 
 
    6/24/2022       19,900       19,632       19,814  

MSHC, Inc. (2) (3) (4) (10)

   
Construction &
Building
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    7/19/2021       13,177       13,062       13,003  

PAI Holdco, Inc. (Parts Authority) (2) (3) (4)

    Automotive      
L + 4.75%
(1.00% Floor)
 
 
    12/30/2022       9,950       9,886       9,950  

Pasternack Enterprises, Inc.
(Infinite RF) (2) (3) (4)

    Capital Equipment      
L + 5.00%
(1.00% Floor)
 
 
    5/27/2022       11,941       11,844       11,941  

Q Holding Company (2) (3) (4)

    Automotive      
L + 5.00%
(1.00% Floor)
 
 
    12/18/2021       13,964       13,828       13,941  

QW Holding Corporation
(Quala) (2) (3) (4) (7)  (10)

   
Environmental
Industries
 
 
   
L + 6.75%
(1.00% Floor)
 
 
    8/31/2022       8,975       8,413       9,030  

Restaurant Technologies, Inc. (2) (3) (4)

    Retail      
L + 4.75%
(1.00% Floor)
 
 
    11/23/2022       23,514       23,117       23,443  

RelaDyne Inc. (2) (3) (4) (10)

    Wholesale      
L + 5.25%
(1.00% Floor)
 
 
    7/22/2022       14,000       13,871       13,969  

Systems Maintenance Services Holding, Inc. (2) (3) (4)

   
High Tech
Industries
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    10/30/2023       12,000       11,885       12,001  

T2 Systems Canada, Inc. (2) (3) (4) (11)

   
Transportation:
Consumer
 
 
   
L + 6.75%
(1.00% Floor)
 
 
    9/28/2022       2,700       2,635       2,727  

T2 Systems, Inc. (2) (3) (4) (10) (11)

   
Transportation:
Consumer
 
 
   
L + 6.75%
(1.00% Floor)
 
 
    9/28/2022       15,300       14,888       15,473  

The Original Cakerie, Ltd.
(Canada) (2) (3) (4) (10)

   
Beverage, Food &
Tobacco
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    7/20/2021       7,009       6,946       7,009  

The Original Cakerie, Co. (Canada) (2) (3) (4)

   
Beverage, Food &
Tobacco
 
 
   
L + 5.50%
(1.00% Floor)
 
 
    7/20/2021       3,621       3,591       3,621  

U.S. Acute Care Solutions, LLC (2) (3) (4)

   
Health &
Pharmaceuticals
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    5/15/2021       26,400       26,154       26,336  

U.S. Anesthesia Partners, Inc. (2) (3) (4)

   
Health &
Pharmaceuticals
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    12/31/2019       10,374       10,275       10,362  

Vantage Specialty Chemicals, Inc. (2) (3) (4) (11)

   
Chemicals, Plastics
& Rubber
 
 
   
L + 4.50%
(1.00% Floor)
 
 
    2/5/2021       17,910       17,786       17,903  

WIRB—Copernicus Group, Inc. (2) (3) (4)

   
Health &
Pharmaceuticals
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    8/12/2022       7,980       7,916       8,050  

Zest Holdings, LLC (2) (3) (4)

   
Durable Consumer
Goods
 
 
   
L + 4.75%
(1.00% Floor)
 
 
    8/16/2020       8,700       8,658       8,749  

Zywave, Inc. (2) (3) (4) (7) (10)

   
High Tech
Industries
 
 
   
L + 5.00%
(1.00% Floor)
 
 
    11/17/2022       17,500       17,315       17,434  
         

 

 

   

 

 

 

First Lien Debt Total

          $ 430,278     $ 434,799  
         

 

 

   

 

 

 

 

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Investments (1)

  Industry     Interest
Rate (2)
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (5)
    Fair
Value (6)
 

Second Lien Debt (0.69% of fair value)

 

         

Vantage Specialty Chemicals, Inc. (2) (3) (4) (11)

   
Chemicals, Plastics
& Rubber
 
 
   
L + 8.75%
(1.00% Floor)
 
 
    2/5/2022     $ 2,000     $ 1,960     $ 1,987  

Zywave, Inc. (2) (3) (4)

   
High Tech
Industries
 
 
   
L + 9.00%
(1.00% Floor)
 
 
    11/17/2023       1,050       1,034       1,043  
         

 

 

   

 

 

 

Second Lien Debt Total

          $ 2,994     $ 3,030  
         

 

 

   

 

 

 

Total Investments

          $ 433,272     $ 437,829  
         

 

 

   

 

 

 

 

(1) Unless otherwise indicated, issuers of investments held by Credit Fund are domiciled in the United States. As of December 31, 2016, the geographical composition of investments as a percentage of fair value was 2.43% in Canada and 97.57% in the United States.
(2) Variable rate loans to the portfolio companies bear interest at a rate that may be determined by reference to either LIBOR (“L”) or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate (“P”)), which generally resets quarterly. For each such loan, Credit Fund has provided the interest rate in effect as of December 31, 2016. As of December 31, 2016, all of Credit Fund’s LIBOR loans were indexed to the 90-day LIBOR rate at 1.00%, except for those loans as indicated in Note 11 below, and the U.S. Prime Rate loan was indexed at 3.75%.
(3) Loan includes interest rate floor feature.
(4) Denotes that all or a portion of the assets are owned by Credit Fund Sub. Credit Fund Sub has entered into a revolving credit facility (the “Credit Fund Sub Facility”). The lenders of the Credit Fund Sub Facility have a first lien security interest in substantially all of the assets of Credit Fund Sub. Accordingly, such assets are not available to creditors of Credit Fund.
(5) Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.
(6) Fair value is determined in good faith by or under the direction of the board of managers of Credit Fund, pursuant to Credit Fund’s valuation policy, which is substantially similar to the valuation policy of the Company provided in “—Critical Accounting Policies—Fair Value Measurements.”
(7) Denotes that all or a portion of the assets are owned by Credit Fund. Credit Fund has entered into the Credit Fund Facility. The lenders of the Credit Fund Facility have a first lien security interest in substantially all of the assets of Credit Fund. Accordingly, such assets are not available to creditors of Credit Fund Sub.
(8) Credit Fund receives less than the stated interest rate of this loan as a result of an agreement among lenders. The interest rate reduction is 1.25% on EIP Merger Sub, LLC (Evolve IP). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.
(9) In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, the Company is entitled to receive additional interest as a result of an agreement among lenders as follows: EIP Merger Sub, LLC (Evolve IP) (3.84%). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.

 

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(10) As of December 31, 2016, Credit Fund had the following unfunded commitments to fund delayed draw and revolving senior secured loans:

 

First Lien Debt—unfunded delayed draw and
revolving term loans commitments

   Type      Unused
Fee
    Par/
Principal
Amount
     Fair
Value
 

Diversitech Corporation

     Delayed Draw        1.00   $ 5,000      $ —    

Jensen Hughes, Inc.

     Revolver        0.50     2,000        (7

Jensen Hughes, Inc.

     Delayed Draw        0.50     1,461        (5

MSHC, Inc.

     Delayed Draw        1.50     1,790        (21

QW Holding Corporation (Quala)

     Revolver        1.00     5,086        14  

QW Holding Corporation (Quala)

     Delayed Draw        1.00     5,918        17  

RelaDyne Inc.

     Revolver        0.50     2,162        (6

RelaDyne Inc.

     Delayed Draw        0.50     1,824        (5

T2 Systems, Inc.

     Revolver        1.00     1,955        20  

The Original Cakerie, Ltd. (Canada)

     Revolver        0.50     1,665        —    

Zywave, Inc.

     Revolver        0.50     1,500        (5
       

 

 

    

 

 

 

Total unfunded commitments

        $ 30,361      $ 2  
       

 

 

    

 

 

 

 

(11) As of December 31, 2016, this LIBOR loan was indexed to the 30-day LIBOR rate at 0.77%.

Below is certain summarized consolidated financial information for Credit Fund as of March 31, 2017 and December 31, 2016, respectively. Credit Fund commenced operations in May 2016.

 

     March 31,
2017
     December 31,
2016
 

Selected Consolidated Balance Sheet Information

     (unaudited   

ASSETS

     

Investments, at fair value (amortized cost of $553,401 and $433,272, respectively)

   $ 558,694      $ 437,829  

Cash and other assets

     15,088        11,326  
  

 

 

    

 

 

 

Total assets

   $ 573,782      $ 449,155  
  

 

 

    

 

 

 

LIABILITIES AND MEMBERS’ EQUITY

     

Secured borrowings

   $ 367,375      $ 248,540  

Mezzanine loans

     86,044        62,384  

Other liabilities

     24,208        63,684  

Subordinated loans and members’ equity

     96,155        74,547  
  

 

 

    

 

 

 

Liabilities and members’ equity

   $ 573,782      $ 449,155  
  

 

 

    

 

 

 

 

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Table of Contents
     For the
three month
period ended
March 31, 2017
 

Selected Consolidated Statement of Operations Information:

     (unaudited

Total investment income

   $ 8,182  
  

 

 

 

Expenses

  

Interest and credit facility expenses

     5,473  

Other expenses

     318  
  

 

 

 

Total expenses

     5,791  
  

 

 

 

Net investment income (loss)

     2,391  
  

 

 

 

Net realized gain (loss) on investments

     —    

Net change in unrealized appreciation (depreciation) on investments

     737  
  

 

 

 

Net increase (decrease) resulting from operations

   $ 3,128  
  

 

 

 

Debt

Credit Fund Facility

On June 24, 2016, Credit Fund entered into the Credit Fund Facility with us pursuant to which Credit Fund may from time to time request mezzanine loans from us. The maximum principal amount of the Credit Fund Facility is $100,000. The maturity date of the Credit Fund Facility is June 24, 2017. Amounts borrowed under the Credit Fund Facility bear interest at a rate of LIBOR plus 9.50%.

During the three months ended March 31, 2017, there were mezzanine loan borrowings of $45,660 and repayments of $22,000 under the Credit Fund Facility. As of March 31, 2017 and December 31, 2016, there were $86,044 and $62,384 in mezzanine loans outstanding, respectively.

Credit Fund Sub Facility

On June 24, 2016, Credit Fund Sub closed on the Credit Fund Sub Facility with lenders. The Credit Fund Sub Facility provides for secured borrowings during the applicable revolving period up to an amount equal to $450,000. The maturity date of the Credit Fund Sub Facility is June 24, 2022. Amounts borrowed under the Credit Fund Sub Facility bear interest at a rate of LIBOR plus 2.50%.

The facility is secured by a first lien security interest in substantially all of the portfolio investments held by Credit Fund Sub and the Company’s and Credit Partners’ unfunded capital commitments. Pursuant to a pledge, security agreement and assignment of capital commitments, dated June 24, 2016 (the “Pledge Agreement”), Credit Fund assigned to the collateral agent under the Credit Fund Sub Facility the right under the Limited Liability Company Agreement to call capital commitments from members of Credit Fund when an event of default has occurred and is continuing under the Credit Fund Sub Facility, subject to certain limitations. Pursuant to and subject to the terms of the Pledge Agreement, the collateral agent under the Credit Fund Sub Facility may call capital commitments from members of Credit Fund, including the Company, without the approval of the board of Credit Fund. The Credit Fund Sub Facility contains a provision that permits the Company and Credit Partners to request a reduction of the amount of the Company’s and Credit Partners’ unfunded capital commitments that can be called by the collateral agent thereunder to zero, in effect “unwinding” the Company’s and Credit Partners’ obligations under the Pledge Agreement. The Company and Credit Partners intend to exercise that provision to unwind their obligations under the Pledge Agreement prior to the completion of this initial public offering.

 

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During the three month period ended March 31, 2017, there were secured borrowings of $118,835 under the Credit Fund Sub Facility. As of March 31, 2017 and December 31, 2016, there was $367,375 and $248,540 in secured borrowings outstanding, respectively. As of March 31, 2017 and December 31, 2016, Credit Fund Sub had assets of $521,408 and $365,101, respectively, all of which were pledged as collateral for the Company’s indebtedness under the Credit Fund Sub Facility. As a result of the overcollateralization, if an event of default had occurred under the Credit Fund Sub Facility on March 31, 2017 and December 31, 2016, respectively, the potential net liability of the Company pursuant to the Pledge Agreement would be zero.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We generate cash from the net proceeds of offerings of our common stock and through cash flows from operations, including investment sales and repayments as well as income earned on investments and cash equivalents. We may also fund a portion of our investments through borrowings under the Facilities, as well as through securitization of a portion of our existing investments.

The SPV closed on May 24, 2013 on the SPV Credit Facility, which was subsequently amended on June 30, 2014, June 19, 2015 and June 9, 2016. The SPV Credit Facility provides for secured borrowings during the applicable revolving period up to an amount equal to the lesser of $400,000 (the borrowing base as calculated pursuant to the terms of the SPV Credit Facility) and the amount of net cash proceeds and unpledged capital commitments the Company has received, with an accordion feature that can, subject to certain conditions, increase the aggregate maximum credit commitment up to an amount not to exceed $750,000, subject to restrictions imposed on borrowings under the Investment Company Act and certain restrictions and conditions set forth in the SPV Credit Facility, including adequate collateral to support such borrowings. The SPV Credit Facility imposes financial and operating covenants on us and the SPV that restrict our and its business activities. Continued compliance with these covenants will depend on many factors, some of which are beyond our control.

We closed on March 21, 2014 on the Credit Facility, which was subsequently amended on January 8, 2015, May 25, 2016 and March 22, 2017. The maximum principal amount of the Credit Facility is $283,000. subject to availability under the Credit Facility, which is based on certain advance rates multiplied by the value of our portfolio investments (subject to certain concentration limitations) net of certain other indebtedness that we may incur in accordance with the terms of the Credit Facility. Proceeds of the Credit Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Credit Facility may be increased, subject to certain conditions, to $550,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Credit Facility includes a $20,000 limit for swingline loans and a $5,000 limit for letters of credit. Subject to certain exceptions, the Credit Facility is secured by a first lien security interest in substantially all of the portfolio investments held by the Company. The Credit Facility includes customary covenants, including certain financial covenants related to asset coverage, shareholders’ equity and liquidity, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance covenants, as well as usual and customary events of default for senior secured revolving credit facilities of this nature.

As of March 31, 2017, we were in material compliance with the financial and operating covenants of our Facilities and 2015-1 Notes. Although we believe that we and the SPV will remain in compliance, there are no assurances that we or the SPV will continue to comply with the covenants in the Credit Facility and SPV Credit Facility, as applicable. Failure to comply with these covenants could result in a default under the Credit Facility and/or the SPV Credit Facility that, if we or the SPV were unable to obtain a waiver from the applicable lenders, could result in the immediate acceleration of the amounts due under the Credit Facility and/or the SPV Credit Facility, and thereby have a material adverse impact on our business, financial condition and results of operations.

The primary use of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders and for other general corporate purposes.

 

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On June 26, 2015, we completed the 2015-1 Debt Securitization. The 2015-1 Notes were issued by the 2015-1 Issuer, our wholly owned and consolidated subsidiary, and are secured by a diversified portfolio of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. The 2015-1 Debt Securitization was executed through a private placement of the 2015-1 Notes, consisting of $160,000 of Aaa/AAA Class A-1A Notes, which bear interest at the three-month London Interbank Offered Rate (“LIBOR”) plus 1.85%; $40,000 of Aaa/AAA Class A-1B Notes, which bear interest at the three-month LIBOR plus 1.75% for the first 24 months and the three-month LIBOR plus 2.05% thereafter; $27,000 of Aaa/AAA Class A-1C Notes, which bear interest at 3.75%; and $46,000 of Aa2 Class A-2 Notes which bear interest at the three-month LIBOR plus 2.70%. The 2015-1 Notes were issued at par and are scheduled to mature on July 15, 2027. We received 100% of the Preferred Interests issued by the 2015-1 Issuer on the closing date of the 2015-1 Debt Securitization in exchange for our contribution to the Issuer of the initial closing date loan portfolio. The Preferred Interests do not bear interest and had a nominal value of $125,900 at closing. In connection with the contribution, we have made customary representations, warranties and covenants to the 2015-1 Issuer. The Class A-1A, Class A-1B and Class A-1C and Class A-2 Notes are included in the consolidated financial statements. The Preferred Interests were eliminated in consolidation.

As of March 31, 2017 and December 31, 2016, we had $44,874 and $38,489, respectively, in cash and cash equivalents. The Facilities consisted of the following as of March 31, 2017 and December 31, 2016:

 

     March 31, 2017  
     Total
Facility
     Borrowings
Outstanding
     Unused
Portion (1)
     Amount
Available (2)
 

SPV Credit Facility

   $ 400,000      $ 201,108      $ 198,892      $ 10,476  

Credit Facility

     283,000        189,500        93,500        93,500  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 683,000      $ 390,608      $ 292,392      $ 103,976  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2016  
     Total
Facility
     Borrowings
Outstanding
     Unused
Portion (1)
     Amount
Available (2)
 

SPV Credit Facility

   $ 400,000      $ 252,885      $ 147,115      $ 5,988  

Credit Facility

     220,000        169,000        51,000        51,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 620,000      $ 421,885      $ 198,115      $ 56,988  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The unused portion is the amount upon which commitment fees are based.
(2) Available for borrowing based on the computation of collateral to support the borrowings and subject to compliance with applicable covenants and financial ratios.

The following were the carrying values (before debt issuance costs) and fair values of our 2015-1 Notes as of March 31, 2017 and December 31, 2016.

 

     March 31, 2017      December 31, 2016  
     Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

Aaa/AAA Class A-1A Notes

   $ 160,000      $ 160,110      $ 160,000      $ 160,072  

Aaa/AAA Class A-1B Notes

     40,000        40,001        40,000        39,960  

Aaa/AAA Class A-1C Notes

     27,000        27,030        27,000        26,951  

Aa2 Class A-2 Notes

     46,000        46,027        46,000        45,784  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 273,000      $ 273,168      $ 273,000      $ 272,767  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Equity Activity

There were $51,816 and $14,300 of commitments made to us during the three month periods ended March 31, 2017 and 2016, respectively. As of March 31, 2017 and December 31, 2016, we had $1,274,174 and $1,222,358, respectively, in total capital commitments from stockholders, of which $473,514 and $421,698, respectively, was unfunded, and subject to call by the Company. As of March 31, 2017 and December 31, 2016, current directors had committed $821 in capital commitments to us.

Shares issued as of March 31, 2017 and December 31, 2016 were 41,708,155 and 41,702,318, respectively.

The following table summarizes activity in the number of shares of our common stock outstanding during the three month periods ended March 31, 2017 and 2016:

 

     For the three month periods ended  
     March 31, 2017      March 31, 2016  

Shares outstanding, beginning of period

     41,702,318        31,524,083  

Common stock issued

     —          1,815,181  

Reinvestment of dividends

     5,837        3,885  
  

 

 

    

 

 

 

Shares outstanding, end of period

     41,708,155        33,343,149  
  

 

 

    

 

 

 

Contractual Obligations

A summary of our significant contractual payment obligations was as follows as of December 31, 2016:

 

     Payments Due by Period  

Contractual Obligations

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

SPV Credit Facility and Credit Facility

   $ 421,885      $ —        $ —        $ 421,885      $ —    

2015-1 Notes

     273,000        —          —          —          273,000  

Total

   $ 694,885      $ —        $ —        $ 421,885      $ 273,000  

As of March 31, 2017 and December 31, 2016, $201,108 and $252,885, respectively, of secured borrowings were outstanding under the SPV Credit Facility, $189,500 and $169,000, respectively, were outstanding under the Credit Facility and $273,000 and $273,000, respectively, of 2015-1 Notes were outstanding. For the three month periods ended March 31, 2017 and 2016, we incurred $5,034 and $3,599, respectively, of interest expense and $292 and $361, respectively, of unused commitment fees.

OFF BALANCE SHEET ARRANGEMENTS

In the ordinary course of our business, we enter into contracts or agreements that contain indemnifications or warranties. Future events could occur which may give rise to liabilities arising from these provisions against us. We believe that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in these consolidated financial statements as of March 31, 2017 and December 31, 2016 for any such exposure.

We have in the past and may in the future become obligated to fund commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments.

 

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We had the following unfunded commitments to fund delayed draw and revolving senior secured loans as of the indicated dates:

 

     Principal Amount as of  
     March 31, 2017      December 31, 2016  

Unfunded delayed draw commitments

   $ 44,541      $ 35,704  

Unfunded revolving term loan commitments

     26,517        24,063  
  

 

 

    

 

 

 

Total unfunded commitments

   $ 71,058      $ 59,767  
  

 

 

    

 

 

 

Pursuant to an undertaking by us in connection with the 2015-1 Debt Securitization, we agreed to hold on an ongoing basis Preferred Interests with an aggregate dollar purchase price at least equal to 5% of the aggregate outstanding amount of all collateral obligations by the 2015-1 Issuer for so long as any securities of the 2015-1 Issuer remains outstanding. As of March 31, 2017, we were in compliance with this undertaking.

As of March 31, 2017, in addition to the amounts in the table above, we had remaining commitments to fund, from time to time, capital to Credit Fund of up to $354,499. As of March 31, 2017, we had remaining commitments to fund, from time to time, mezzanine loans to Credit Fund of up to $13,956, of which $10,438 was available for borrowing based on the computation of collateral to support the borrowings.

DIVIDENDS AND DISTRIBUTIONS TO COMMON STOCKHOLDERS

Effective on July 5, 2017, the Company will convert its current “opt in” dividend reinvestment plan to an “opt out” dividend reinvestment plan that provides for reinvestment of any distributions on behalf of its stockholders that have not “opted out” of the plan. As a result of adopting such a plan, if the Board of Directors authorizes, and the Company declares, a cash dividend or distribution, the stockholders who have not “opted out” of the dividend reinvestment plan would have their cash dividends or distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash. Prior to this offering, the Company used primarily newly issued shares of its common stock to implement the plan issued at the net asset value per share most recently determined by the Board of Directors. After this offering, the Company intends to use primarily newly issued shares to implement the plan so long as the market value per share is equal to or greater than the net asset value per share as of the close of business on the relevant payment date for such dividend or distribution. If the market value per share is less than the net asset value per share as of the close of business on the relevant payment date, the plan administrator would purchase the common stock on behalf of participants in the open market, unless the Company instructs the plan administrator otherwise.

 

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The following table summarizes our dividends declared and payable since inception through May 10, 2017:

 

Date

Declared

  

Record

Date

  

Payment

Date

   Per Share
Amount
    Total
Amount
     Annualized
Dividend
Yield (1)
 

March 13, 2014

  

March 31, 2014

  

April 14, 2014

   $ 0.19     $ 2,449        4.76

June 26, 2014

  

June 30, 2014

  

July 14, 2014

   $ 0.27     $ 3,481        5.52

September 12, 2014

  

September 18, 2014

  

October 9, 2014

   $ 0.44     $ 5,956        9.23

December 19, 2014

  

December 29, 2014

  

January 26, 2015

   $ 0.35     $ 6,276        8.17

March 11, 2015

  

March 13, 2015

  

April 17, 2015

   $ 0.37     $ 7,833        8.58

June 24, 2015

  

June 30, 2015

  

July 22, 2015

   $ 0.37     $ 9,902        9.03

September 24, 2015

  

September 24, 2015

  

October 22, 2015

   $ 0.42     $ 11,670        8.91

December 29, 2015

  

December 29, 2015

  

January 22, 2016

   $ 0.40     $ 12,610        8.97

December 29, 2015

  

December 29, 2015

  

January 22, 2016

   $ 0.18 (2)    $ 5,674        4.03

March 10, 2016

  

March 14, 2016

  

April 22, 2016

   $ 0.40     $ 13,337        9.26

June 8, 2016

  

June 8, 2016

  

July 22, 2016

   $ 0.40     $ 13,943        9.23

September 28, 2016

  

September 28, 2016

  

October 24, 2016

   $ 0.40     $ 15,917        9.37

December 29, 2016

  

December 29, 2016

  

January 24, 2017

   $ 0.41     $ 17,098        9.09

December 29, 2016

  

December 29, 2016

  

January 24, 2017

   $ 0.07 (2)    $ 2,919        1.55

March 20, 2017

  

March 20, 2017

  

April 24, 2017

   $ 0.41     $ 17,100        9.07

 

(1)    Annualized dividend yield is calculated by dividing the declared dividend by the weighted average of the net asset value at the beginning of the quarter and the capital called during the quarter and annualizing over 4 quarterly periods.
(2)    Represents a special dividend.

Following the consummation of this offering, we intend to make distributions on a quarterly basis to our stockholders but we cannot assure you that such distributions will continue at the same historical levels.

CRITICAL ACCOUNTING POLICIES