10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

OR

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

FOR THE TRANSITION PERIOD FROM                      TO                     

COMMISSION FILE NUMBER: 814-01074

NexPoint Capital, Inc.

(Exact name of registrant as specified in its charter)

Delaware	38-3926499
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
300 Crescent Court, Suite 700 Dallas, Texas	75201
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (972) 628-4100

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share

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

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

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

Large accelerated filer		Accelerated filer	☐
Non-accelerated filer	☒  (Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company		Yes  ☒    No	☐

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

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

As of November 6, 2017, the Registrant had 9,296,862 shares of common stock, $0.001 par value, outstanding.

Part I – Financial Information

Item 1. Financial Statements

NexPoint Capital, Inc.

Statements of Assets and Liabilities

	September 30, 2017 (Unaudited)		December 31, 2016
Assets
Unaffiliated investments, at fair value (cost of $69,389,697 and $78,591,669, respectively)	$	69,960,861	$	78,290,596
Affiliated investments, at fair value (cost of $14,154 and $0, respectively)(1)		15,305		—
Cash and cash equivalents		6,791,502		3,948,113
Due from counterparty(2)		13,120,000		—
Receivable for common stock sold		4,385		56,890
Dividends and interest receivable		1,495,388		829,876
Receivable from Adviser(3)		—		4,096,447
Prepaid expenses		127,294		23,241
Capitalized offering costs		133,722		228,555
Total assets		91,648,457		87,473,718
Liabilities
Credit facility payable(4)		—		11,200,000
Payable for investments purchased		1,990,205		8,536,248
Payable on total return swap(2)		719,171		—
Unrealized depreciation on total return swap(2)		633,427		—
Common stock repurchased		348,982		38,533
Payable to Adviser(3)		20,092		—
Interest expense and commitment fees payable		—		21,583
Accrued expenses and other liabilities		426,575		384,400
Total liabilities		4,138,452		20,180,764
Commitments and contingencies(5)
Net assets
Preferred stock, $0.001 par value (25,000,000 shares authorized, 0 shares issued and outstanding)		—		—
Common stock, $0.001 par value (200,000,000 shares authorized, 9,156,755 and 7,102,226 shares issued and outstanding, respectively)		9,157		7,102
Paid-in capital in excess of par		81,939,104		61,925,016
Accumulated net realized gain		2,461,350		3,258,750
Undistributed net investment income		886,506		128,159
Net unrealized appreciation (depreciation) on investments and total return swaps (including net increase from amounts committed by affiliates of $2,275,000 and $2,275,000, respectively)		2,213,888		1,973,927
Total net assets	$	87,510,005	$	67,292,954
Net asset value per share of common stock	$	9.56	$	9.47

⁽¹⁾  See Note 10 for a discussion of affiliated investments.

⁽²⁾  See Note 7 for a discussion of total return swaps.

⁽³⁾  See Note 4 for a discussion of related party transactions and arrangements.

⁽⁴⁾  See Note 7 for a discussion of credit facility.

⁽⁵⁾  See Note 4 and Note 8 for a discussion of the commitments and contingencies of the Company (as defined in Note 1).

See Notes to Financial Statements

NexPoint Capital, Inc.

Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Investment income:
Interest	$	1,429,935		$	1,259,654		$	5,831,372		$	2,818,052
Dividend income from unaffiliated investments		140,991			124,376			322,131			184,166
Dividend income from affiliated investments(1)		398			—			551			—
Other fee income		173			—			8,337			—
Total investment income		1,571,497			1,384,030			6,162,391			3,002,218
Expenses:
Investment advisory fees(2)		305,288			363,595			1,106,346			797,215
Amortized offering costs		91,937			64,887			308,713			104,135
Stock transfer fee		136,158			62,989			305,530			200,123
Custodian and accounting service fees		79,982			47,140			234,276			148,357
Administration fees(2)		69,308			72,719			229,520			159,441
Audit and tax fees		58,382			38,540			161,527			157,025
Legal fees		46,772			67,623			127,296			205,324
Reports to stockholders		—			15,040			95,887			75,953
Other expenses		28,885			37,829			90,315			80,742
Interest expense and commitment fees(3)		—			50,269			50,379			106,237
Directors’ fees(2)		4,526			1,442			11,129			5,903
Capital gains incentive fees(2)		(315,928	)		313,850			(111,488	)		313,850
Total expenses		505,310			1,135,923			2,609,430			2,354,305
Expenses waived or reimbursed by the Adviser(2)		(311,621	)		(782,827	)		(1,675,809	)		(1,550,394	)
Net expenses		193,689			353,096			933,621			803,911
Net investment income		1,377,808			1,030,934			5,228,770			2,198,307
Net realized and unrealized gains (losses) on investments:
Net realized gain/(loss) on:
Unaffiliated investments and securities sold short		141,187			695,515			(272,623	)		1,197,232
Affiliated investments(1)		—			—			—			—
Total return swaps(4)		(524,777	)		—			(524,777	)		—
Net change in unrealized appreciation (depreciation) on:
Unaffiliated investments and securities sold short		(775,493	)		1,191,250			872,237			3,844,531
Affiliated investments(1)		843			—			1,151			—
Total return swaps(4)		(421,401	)		—			(633,427	)		—
Net increase from amounts committed by affiliates(2)		—			—			—			872,000
Net realized and unrealized gains (losses)		(1,579,641	)		1,886,765			(557,439	)		5,913,763
Net increase (decrease) in net assets resulting from operations	$	(201,833	)	$	2,917,699		$	4,671,331		$	8,112,070
Per share information—basic and diluted per common share
Net investment income:	$	0.15		$	0.19		$	0.63		$	0.52
Earnings per share:	$	(0.02	)	$	0.53		$	0.56		$	1.91
Weighted average shares outstanding:		8,966,250			5,507,237			8,287,409			4,250,687
Distributions declared per share:	$	0.18		$	0.18		$	0.54		$	0.53

⁽¹⁾  See Note 10 for a discussion of affiliated investments.

⁽²⁾  See Note 4 for a discussion of related party transactions and arrangements.

⁽³⁾  See Note 7 for a discussion of credit facility.

⁽⁴⁾  See Note 7 for a discussion of total return swaps.

See Notes to Financial Statements

NexPoint Capital, Inc.

Statements of Changes in Net Assets

(Unaudited)

	Nine Months Ended September 30,
	2017			2016
Increase (decrease) in net assets resulting from operations:
Net investment income	$	5,228,770		$	2,198,307
Net realized gain (loss) on investments and securities sold short		(272,623	)		1,197,232
Net realized gain (loss) on total return swaps(1)		(524,777	)		—
Net change in unrealized appreciation (depreciation) on investments and securities sold short		873,388			3,844,531
Net change in unrealized appreciation (depreciation) on total return swaps(1)		(633,427	)		—
Net increase from amounts committed by affiliates(2)		—			872,000
Net increase in net assets resulting from operations		4,671,331			8,112,070
Distributions to stockholders:
Net investment income		(4,470,423	)		(2,120,408	)
Net realized gains		—			(162,959	)
Total distributions to stockholders		(4,470,423	)		(2,283,367	)
Capital share transactions:
Issuance of common stock		18,195,548			27,972,673
Issuance of common shares pursuant to distribution reinvestment plan		2,959,396			1,726,656
Repurchase of common stock		(1,138,801	)		(43,100	)
Net increase in net assets resulting from capital transactions		20,016,143			29,656,229
Total increase in net assets		20,217,051			35,484,932
Net assets at beginning of period		67,292,954			22,298,879
Net assets at end of period	$	87,510,005		$	57,783,811
Undistributed net investment income	$	886,506		$	—
Changes in common shares
Issuance of common stock		1,870,378			3,061,301
Reinvestment of common stock		303,769			188,186
Repurchase of common stock		(119,618	)		(4,896	)
Net increase in common shares		2,054,529			3,244,591

⁽¹⁾  See Note 7 for a discussion of total return swaps.

⁽²⁾  See Note 4 for a discussion of related party transactions and arrangements.

See Notes to Financial Statements

Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2017			2016
Cash flows used in operating activities
Net increase in net assets resulting from operations	$	4,671,331		$	8,112,070
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:
Purchases of investment securities		(62,241,424	)		(63,279,264	)
Purchases of securities sold short		—			(503,860	)
Proceeds from securities sold short		—			939,022
Payment-in-kind investments		(182,695	)		—
Proceeds from sales and principal repayments of investment securities		72,746,045			27,907,573
Net realized (gain) loss on investments		272,623			(1,197,232	)
Net change in unrealized (appreciation) depreciation on investments		(873,388	)		(3,844,531	)
Net change in unrealized (appreciation) depreciation on total return swaps		633,427			—
Amortization of premium/discount, net		(1,406,731	)		(345,021	)
Amortization of capitalized offering costs		308,713			104,135
Increase (decrease) in operating assets and liabilities:
(Increase) decrease in receivable for investments sold		—			(525,153	)
(Increase) decrease in dividends and interest receivable		(665,512	)		(585,532	)
(Increase) decrease in receivable from Adviser		4,096,447			(943,712	)
(Increase) decrease in other receivables		—			81,258
(Increase) decrease in prepaid expenses		(104,053	)		(2,198	)
(Increase) decrease in due from counterparty		(13,120,000	)		—
Increase (decrease) in payable for investments purchased		(6,546,043	)		(5,712,784	)
Increase (decrease) in payable to Adviser		20,092			—
Increase (decrease) in directors’ fees payable		—			1,249
Increase (decrease) in interest expense and commitment fees payable		(21,583	)		19,516
Increase (decrease) in accrued expenses and other liabilities		42,175			124,222
Increase (decrease) in payable due on total return swap		719,171			—
Net cash flow (used in) operating activities		(1,651,405	)		(39,650,242	)
Cash flows provided by financing activities
Proceeds from issuance of common stock, net of receivable for common stock sold		18,248,053			28,156,373
Repurchase of common stock, net of payable		(828,352	)		(43,100	)
Distributions paid in cash		(1,511,027	)		(556,711	)
Offering costs paid, net of due to Adviser		(213,880	)		(317,141	)
Borrowings under credit facilities		8,700,000			14,000,000
Repayments of credit facilities		(19,900,000	)		(4,100,000	)
Net cash flow provided by financing activities		4,494,794			37,139,421
Net increase (decrease) in cash and cash equivalents		2,843,389			(2,510,821	)
Cash and cash equivalents
Beginning of the period		3,948,113			7,350,748
End of the period	$	6,791,502		$	4,839,927
Supplemental disclosure and non-cash financing activities
Paid-in-kind interest income	$	182,695		$	—
Cash paid during the period for interest	$	54,473		$	50,243
Reinvestment of distributions paid	$	2,959,396		$	1,726,656
Local and excise taxes paid	$	124,672		$	7,307

See Notes to Financial Statements

NexPoint Capital, Inc.

Schedule of Investments

As of September 30, 2017

(Unaudited)

Portfolio Company(1)(2)	Interest Rate			Base Rate Floor			Maturity Date		Principal Amount		Amortized Cost(3)		Fair Value
Senior Secured Loans – 21.4%(4)
Healthcare – 18.0%
BioClinica, Inc. (First Lien Term Loan)(5)		L + 425			1.00	%		10/20/2023	$	994,987	$	980,369	$	980,685
Quorum Health Corporation (First Lien Term Loan)(5)(6)		L + 675			1.00	%		4/29/2022		1,990,205		1,987,874		2,021,302
U.S. Renal Care, Inc. (First Lien Term Loan)(5)		L + 425			1.00	%		12/31/2022		3,979,747		3,867,954		3,863,339
U.S. Renal Care, Inc. (Second Lien Term Loan)(5)(7)		L + 800			1.00	%		12/31/2023		4,500,000		4,424,356		4,393,125
Valeant Pharmaceuticals International, Inc. (First Lien Term Loan)(8)(9)		L + 475			0.75	%		4/1/2022		4,386,924		4,459,082		4,470,078
														15,728,529
Retail – 3.4%
Toys ‘R’ Us-Delaware, Inc. (First Lien Term Loan)(10)										4,946,815		3,215,430		2,984,562
Utility – 0.0%
Texas Competitive Electric Holdings
Company LLC (TXU) (Escrow Loan)(11)										3,500,000		87,816		8,750
Total Senior Secured Loans														18,721,841
Asset-Backed Securities – 2.3%
Financials – 2.3%
Grayson Investor Corp.(9)(12)(13)(14)								11/1/2021		800		456,000		303,000
Highland Park CDO I Ltd. 2006 1A A2(5)(9)(12)(14)		L + 40						11/25/2051		1,441,371		1,190,298		1,369,303
PAMCO CLO 1997-1A B(7)(9)(10)(12)(14)(15)										559,644		321,796		288,776
														1,961,079
Total Asset-Backed Securities														1,961,079
									Shares
Closed-End Mutual Funds – 0.0%
Financials – 0.0%
NexPoint Credit Strategies Fund(9)(16)										664		14,154		15,305
Total Closed-End Mutual Funds														15,305
Portfolio Company(1)(2)	Interest Rate			Base Rate Floor			Maturity Date		Principal Amount		Amortized Cost(3)		Fair Value
Corporate Bonds – 42.9%
Financials – 2.2%
ASP AMC Merger Sub, Inc.(12)		8.000	%					5/15/2025	$	2,000,000		1,912,231		1,935,000
Healthcare – 36.6%
DJO Finance LLC / DJO Finance Corp.(12)		8.125	%					6/15/2021		2,000,000		1,896,413		1,925,000
Endo Finance LLC / Endo Finco Inc.(12)		6.000	%					7/15/2023		4,000,000		3,451,893		3,320,000
Ortho-Clinical Diagnostics(12)		6.625	%					5/15/2022		9,217,000		8,301,628		9,078,745
Quorum Health Corp.		11.625	%					4/15/2023		5,572,000		4,615,390		5,154,100
Surgery Center Holdings(9)(12)		6.750	%					7/1/2025		4,250,000		4,035,904		4,005,625
Tenet Healthcare Corp.(9)		8.125	%					4/1/2022		1,000,000		971,188		1,020,000
Valeant Pharmaceuticals International, Inc.(9)(12)		5.875	%					5/15/2023		4,000,000		3,369,539		3,545,000
Valeant Pharmaceuticals International, Inc.(9)(12)		6.125	%					4/15/2025		4,500,000		3,771,007		3,960,000
														32,008,470
Media/Telecommunications – 1.5%
iHeartCommunications, Inc.		2 12	% PIK,  % Cash					2/1/2021		9,180,900		3,478,685		1,331,231
Telecommunication Services – 2.6%
Intelsat Jackson Holdings S.A.(9)(12)		9.750	%					7/15/2025		2,254,000		2,264,199		2,282,175
Total Corporate Bonds														37,556,876
									Shares
Common Stocks – 8.2%
Chemicals – 0.1%
MPM Holdings, Inc.(9)(17)										8,500		250,750		136,000

See Notes to Financial Statements.

NexPoint Capital, Inc.

Schedule of Investments (continued)

As of September 30, 2017

(Unaudited)

Portfolio Company(1)(2)	Interest Rate			Base Rate Floor	Maturity Date		Principal Amount		Amortized Cost(3)		Fair Value
Energy – 0.7%
Energy Transfer Partners L.P.(9)								10,800	$	202,528	$	197,532
EnLink Midstream Partners L.P.(9)								13,100		202,669		219,556
Targa Resources Corp.(9)								5,000		202,844		236,500
												653,588
Healthcare – 1.5%
Forward Pharma A/S ADR(9)(17)								17,000		88,774		100,130
Kadmon Holdings, Inc.(17)								227,300		763,728		761,455
SteadyMed Ltd.(9)(17)								125,790		750,023		427,686
												1,289,271
Real Estate Investment Trusts (REITs) – 3.4%
Jernigan Capital, Inc.(9)								23,000		506,000		472,650
Independence Realty Trust, Inc.(9)								246,727		2,216,203		2,509,214
												2,981,864
Utility – 2.5%
Vistra Energy Corp.								115,000		1,776,757		2,149,358
Total Common Stocks												7,210,081
	Preferred Dividend Rate
Preferred Stocks – 2.7%
Real Estate Investment Trust (REIT) – 2.7%
RAIT Financial Trust		8.875	%			—		148,057		3,215,965		2,330,417
Total Preferred Stocks												2,330,417
Rights – 0.1%
Utility – 0.1%
Texas Competitive Electric Holdings Company, LLC (TXU)(17)								58,356		154,404		65,651
Total Rights												65,651
Warrants – 2.4%
Healthcare – 2.4%
CareDx, Inc.(15)(17)						4/14/2023		250,626		—		807,762
Galena Biopharma, Inc.(15)(17)						1/12/2021		1,500,054		—		335
Gemphire Therapeutics, Inc.(15)(17)						3/15/2022		118,796		—		922,980
Kadmon Holdings, Inc.(15)(17)						4/13/2018		119,047		—		47,924
SCYNEXIS, Inc.(15)(17)						6/21/2021		195,000		—		231,429
SteadyMed Ltd.(9)(15)(17)						4/25/2022		62,895		—		104,486
												2,114,916
Total Warrants												2,114,916
Total Investments- 80.0%									$	69,403,851	$	69,976,166
Cash Equivalents – 7.6%(18)											$	6,620,362
Other Assets & Liabilities, net- 12.4%											$	10,913,477
Net Assets- 100.0%											$	87,510,005
									Notional Amount(19)		Unrealized Depreciation
Total Return Swap – (0.7%)
BNP Paribas TRS Facility(14) (Note 7)									$	38,185,770		(633,427	)

⁽¹⁾  Unless otherwise noted, the Company did not “control” and was not an “affiliated person” of any of its portfolio companies, each as defined in the Investment Company Act of 1940, as amended (the “1940 Act”). In general, under the 1940 Act, the Company would be presumed to “control” a portfolio company if it owned 25% or more of its voting securities or had the power to exercise control over the management or policies of such portfolio company, and would be an “affiliated person” of a portfolio company if it owned 5% or more of its voting securities. Additionally, companies under common control (e.g., companies with a common owner of greater than 25% of their respective voting securities) are affiliates under the 1940 Act.

⁽²⁾  All investments are denominated in United States Dollars.

⁽³⁾  Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

See Notes to Financial Statements.

NexPoint Capital, Inc.

Schedule of Investments (continued)

As of September 30, 2017

(Unaudited)

⁽⁴⁾  Senior secured loans in which the Company invests generally pay interest at rates which are periodically determined by reference to a base lending rate plus a spread (unless otherwise identified, all senior secured loans carry a variable rate of interest). These base lending rates are generally (i) the Prime Rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Interbank Offered Rate (“LIBOR”) or (iii) the coupon rate. Rate shown represents the actual rate at September 30, 2017. Senior secured loans, while exempt from registration under the Securities Act of 1933 (the “1933 Act”), contain certain restrictions on resale and cannot be sold publicly. Senior secured floating rate loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturity shown.

⁽⁵⁾  The interest rate on these investments is subject to a base rate of 3-Month LIBOR, which at September 30, 2017 was 1.33%. The LIBOR rate used to calculate interest is the higher of the prevailing 3 month LIBOR rate in effect on the date of the quarterly reset, or the LIBOR base rate floor shown.

⁽⁶⁾  All or a portion of this position has not settled. Full contract rates do not take effect until settlement date.

⁽⁷⁾  Classified as Level 3 within the three-tier fair value hierarchy. Please see Note 2 for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments.

⁽⁸⁾  The interest rate on these investments is subject to a base rate of 1-Month LIBOR, which at September 30, 2017 was 1.23%. The LIBOR rate used to calculate interest is the higher of the prevailing 1 month LIBOR rate in effect on the date of the monthly reset, or the LIBOR base rate floor shown.

⁽⁹⁾  The investment is not a qualifying asset under Section 55 of the 1940 Act. A business development company, such as the Company, may not acquire any asset other than a qualifying asset, unless at the time the acquisition is made, qualifying assets represent at least 70% of the business development company’s total assets. Non-qualifying assets represented 29.1% of the Company’s total assets as of September 30, 2017.

⁽¹⁰⁾  The issuer is in default of its payment obligation. In some cases, partial payments are still being paid to the lenders.

⁽¹¹⁾  The investment represents value held in escrow pending future events. No interest is being accrued.

⁽¹²⁾  Securities exempt from registration under Rule 144A of the 1933 Act. These securities may only be resold in transactions exempt from registration to qualified institutional buyers. As of September 30, 2017, these securities amounted to $32,012,624, or 36.6% of net assets.

⁽¹³⁾  The investment is considered to be the equity tranche of the issuer.

⁽¹⁴⁾  Securities of collateralized loan obligations where an affiliate of the Adviser serves as collateral manager.

⁽¹⁵⁾  Represents fair value as determined by the Company’s Board of Directors (the “Board”), or its designee in good faith, pursuant to the policies and procedures approved by the Board. The Board considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of $2,403,692, or 2.7% of net assets were fair valued under the Company’s valuation procedures as of September 30, 2017.

⁽¹⁶⁾  Represents an affiliated issuer. Assets with a total aggregate market value of $15,305, or 0.0% of net assets, were affiliated with the Company as of September 30, 2017 (see Note 10).

⁽¹⁷⁾  Non-income producing security.

⁽¹⁸⁾  State Street U.S. Government Money Market Fund.

⁽¹⁹⁾  Notional value of the underlying securities in the Total Return Swap is calculated by multiplying par by the initial price.

Glossary:

^ADR  American Depositary Receipt

^PIK  Payment-in-Kind

See Notes to Financial Statements.

NexPoint Capital, Inc.

Schedule of Investments

As of December 31, 2016

Portfolio Company(1)(2)	Interest Rate		Base Rate Floor			Maturity Date		Principal Amount		Amortized Cost(3)		Fair Value
Senior Secured Loans – 61.8%(4)
Energy – 5.2%
EnergySolutions, LLC (First Lien Term Loan)(5)		L+575		1.00	%		5/29/2020	$	1,271,516	$	1,157,116	$	1,284,231
Fieldwood Energy, LLC (First Lien Term Loan)(6)		L+700		1.00	%		8/31/2020		1,800,549		1,561,679		1,717,274
Fieldwood Energy, LLC (First Lien Term Loan)(6)		L+712.5		1.25	%		9/30/2020		567,797		541,399		498,241
													3,499,746
Healthcare – 34.3%
American Renal Holdings, Inc. (First Lien Term Loan)(6)(7)		L+350		1.25	%		9/22/2019		994,684		989,745		999,036
BioScrip, Inc. (First Lien Initial Term Loan)(6)		L+525		1.25	%		7/31/2020		587,430		565,881		560,995
BioScrip, Inc. (First Lien Term Loan)(6)		L+525		1.25	%		7/31/2020		352,458		339,528		336,597
MPH Acquisition Holdings, LLC (First Lien Term Loan)(6)		L+400		1.00	%		6/7/2023		4,639,769		4,662,125		4,728,435
Onex Carestream Finance LP (Second Lien Term Loan)(6)		L+850		1.00	%		12/7/2019		819,967		826,664		676,473
Quorum Health Corp. (First Lien Term Loan)(6)		L+575		1.00	%		4/29/2022		6,446,692		6,224,337		6,336,551
Radnet, Inc. (Second Lien Term Loan)(6)		L+700		1.00	%		3/25/2021		5,457,917		5,285,401		5,406,749
U.S. Renal Care, Inc. (Second Lien Term Loan)(6)		L+800		1.00	%		12/31/2023		4,500,000		4,417,808		4,005,000
													23,049,836
Media/Telecommunications – 6.1%
iHeartCommunications, Inc. (First Lien Term Loan)(5)(8)		L+675		—			1/30/2019		5,000,000		3,956,219		4,087,500
Retail – 4.7%
Leslie’s Poolmart, Inc. (First Lien Term Loan)(6)		L+425		1.00	%		8/16/2023		564,623		561,901		572,036
Toys ‘R’ Us-Delaware, Inc. (First Lien Term Loan)(6)		L+875		1.00	%		4/24/2020		2,974,709		2,428,339		2,621,463
													3,193,499
Service – 5.6%
Advantage Sales & Marketing, Inc. (Second Lien Term Loan)(6)		L+650		1.00	%		7/25/2022		500,000		497,570		489,690
Weight Watchers International, Inc. (First Lien Term Loan)(5)(7)(9)		L+325		0.75	%		4/2/2020		3,958,869		2,762,942		3,301,420
													3,791,110
Technology – 4.4%
SkillSoft Corp. (Second Lien Term Loan)(6)(7)		L+825		1.00	%		4/28/2022		1,500,000		816,718		1,130,160
SkillSoft Corp. (First Lien Term Loan)(6)(7)		L+475		1.00	%		4/28/2021		1,986,034		1,643,329		1,820,329
													2,950,489
Utility – 1.5%
Granite Acquisition, Inc. (Second Lien Term Loan)(6)(7)		L+725		1.00	%		12/19/2022		1,000,000		946,087		965,000
Texas Competitive Electric Holdings Company LLC (TXU) (Escrow Loan)(10)									3,500,000		87,816		17,500
													982,500
Total Senior Secured Loans													41,554,680
Asset-Backed Securities – 3.9%
Financials – 3.9%
CIFC Funding Ltd. 2015-1A(7)(11)(12)							1/22/2027		550,000		437,250		490,875
Grayson Investor Corp.(7)(11)(12)(13)							11/1/2021		800		456,000		275,668
Highland Park CDO I Ltd. 2006 1A A2(6)(7)(11)(13)		L+40					11/25/2051		1,654,789		1,361,664		1,572,049
PAMCO CLO 1997-1A B(7)(11)(13)(14)(15)									559,644		321,795		275,625
													2,614,217
Total Asset-Backed Securities													2,614,217

See Notes to Financial Statements.

NexPoint Capital, Inc.

Schedule of Investments (continued)

As of December 31, 2016

Portfolio Company(1)(2)	Interest Rate			Base Rate Floor	Maturity Date		Principal Amount		Amortized Cost(3)		Fair Value
Convertible Bonds – 1.0%
Healthcare – 1.0%
Fluidigm Corp.		2.750	%			2/1/2034	$	1,000,000	$	569,431	$	700,625
Total Convertible Bonds												700,625
Corporate Bonds – 41.8%
Energy – 2.7%
GenOn Energy, Inc.(8)		7.875	%			6/15/2017		2,500,000		1,793,750		1,793,750
Healthcare – 33.1%
CHS/Community Health Systems, Inc.(7)		6.875	%			2/1/2022		4,000,000		3,523,811		2,800,000
Kindred Healthcare, Inc.(7)		8.750	%			1/15/2023		1,500,000		1,477,525		1,408,125
Ortho-Clinical Diagnostics(8)(11)		6.625	%			5/15/2022		12,717,000		11,425,209		11,318,130
Quorum Health Corp.(11)		11.625	%			4/15/2023		4,000,000		3,002,425		3,370,000
Valeant Pharmaceuticals International, Inc.(8)(7)(11)		6.125	%			4/15/2025		4,500,000		3,722,965		3,397,500
												22,293,755
Retail – 1.4%
Guitar Center, Inc.(11)		6.500	%			4/15/2019		1,000,000		886,466		912,500
Technology – 3.2%
Diamond 1 Finance Corp. / Diamond 2 Finance Corp.(11)		6.020	%			6/15/2026		2,000,000		2,052,663		2,170,446
Telecommunication Services – 1.4%
Intelsat Jackson Holdings S.A.(7)		7.250	%			10/15/2020		1,209,000		962,999		943,020
Total Corporate Bonds												28,113,471
							Shares
Common Stocks – 6.7%
Chemicals – 0.1%
MPM Holdings, Inc.(7)(16)								8,500		250,750		73,665
Healthcare – 2.0%
CareDx, Inc.(16)								501,252		1,999,995		1,353,380
Real Estate Investment Trust (REIT) – 3.3%
Independence Realty Trust, Inc.(7)								246,727		2,216,203		2,200,805
Utility – 1.3%
Vistra Energy Corp.								58,356		1,703,760		904,525
Total Common Stocks												4,532,375
Rights – 0.1%
Utility – 0.1%
Vistra Energy Corp.(16)								58,356		154,404		96,288
Total Rights												96,288
Warrants – 1.0%
Healthcare – 1.0%
CareDx, Inc.(15)(16)						6/14/2017		250,626		—		395,318
Galena Biopharma, Inc.(15)(16)						1/21/2021		1,500,054		—		23,851
SCYNEXIS, Inc.(15)(16)(17)						6/21/2021		195,000		—		259,771
												678,940
Total Warrants												678,940
Total Investments- 116.3%									$	78,591,669	$	78,290,596
Other Assets & Liabilities, net- (16.3%)											$	(10,997,642	)
Net Assets- 100.0%											$	67,292,954

See Notes to Financial Statements.

NexPoint Capital, Inc.

Schedule of Investments (continued)

As of December 31, 2016

⁽¹⁾  The Company did not “control” and was not an “affiliated person” of any of its portfolio companies, each as defined in the Investment Company Act of 1940, as amended (the “1940 Act”). In general, under the 1940 Act, the Company would be presumed to “control” a portfolio company if it owned 25% or more of its voting securities or had the power to exercise control over the management or policies of such portfolio company, and would be an “affiliated person” of a portfolio company if it owned 5% or more of its voting securities. Additionally, companies under common control (e.g., companies with a common owner of greater than 25% of their respective voting securities) are affiliates under the 1940 Act.

⁽²⁾  All investments are denominated in United States Dollars.

⁽³⁾  Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

⁽⁴⁾  Senior secured loans in which the Company invests generally pay interest at rates which are periodically determined by reference to a base lending rate plus a spread (unless otherwise identified, all senior secured loans carry a variable rate of interest). These base lending rates are generally (i) the Prime Rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Interbank Offered Rate (“LIBOR”) or (iii) the coupon rate. Rate shown represents the actual rate at December 31, 2016. Senior secured loans, while exempt from registration under the Securities Act of 1933 (the “1933 Act”), contain certain restrictions on resale and cannot be sold publicly. Senior secured floating rate loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturity shown.

⁽⁵⁾  The interest rate on these investments is subject to a base rate of 1-Month LIBOR, which at December 31, 2016 was 0.77%.The LIBOR rate used to calculate interest is the higher of the prevailing 1 month LIBOR rate in effect on the date of the monthly reset, or the LIBOR base rate floor shown.

⁽⁶⁾  The interest rate on these investments is subject to a base rate of 3-Month LIBOR, which at December 31, 2016 was 1.00%. The LIBOR rate used to calculate interest is the higher of the prevailing 3 month LIBOR rate in effect on the date of the quarterly reset, or the LIBOR base rate floor shown.

⁽⁷⁾  The investment is not a qualifying asset under Section 55 of the Investment Company Act of 1940, as amended (the “1940 Act”). A business development company may not acquire any asset other than a qualifying asset, unless at the time the acquisition is made, qualifying assets represent at least 70% of the business development company’s total assets. Non-qualifying assets represented 24.75% of the Company’s total assets as of December 31, 2016.

⁽⁸⁾  All or a portion of this position has not settled. Full contract rates do not take effect until settlement date.

⁽⁹⁾  The Company views Weight Watchers to be included in the Healthcare Industry as defined in the Company’s organizational documents. If this classification were reflected, value and percentage of the healthcare sector under Senior Secured Loans would increase to $26,351,256 and 39.16%, respectively.

⁽¹⁰⁾  The investment represents value held in escrow pending future events. No interest is being accrued.

⁽¹¹⁾  Securities exempt from registration under Rule 144A of the 1933 Act. These securities may only be resold in transactions exempt from registration to qualified institutional buyers. As of December 31, 2016, these securities amounted to $23,782,793, or 35.34% of net assets.

⁽¹²⁾  The investment is considered to be the equity tranche of the issuer.

⁽¹³⁾  Securities of collateralized loan obligations where an affiliate of the Adviser serves as collateral manager.

⁽¹⁴⁾  The issuer is, or is in danger of being, in default of its payment obligation.

⁽¹⁵⁾  Represents Fair Value as determined by the Company’s Board of Directors (the “Board”), or its designee in good faith, pursuant to the policies and procedures approved by the Board. The Board considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of $954,565 or 1.42% of net assets were fair valued under the Company’s valuation procedures as of December 31, 2016.

⁽¹⁶⁾  Non-income producing security.

⁽¹⁷⁾  Restricted Securities. These securities are not registered and may not be sold to the public. There are legal and/or contractual restrictions on resale. The Company does not have the right to demand that such securities be registered. The values of these securities are determined by valuations provided by pricing services, brokers, dealers, market makers, or in good faith under the procedures established by the Board.

See Notes to Financial Statements.

NexPoint Capital, Inc.

Notes To Financial Statements (Unaudited)

Note 1 — Organization

NexPoint Capital, Inc. (the “Company”) is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. The Company’s investment objective is to generate current income and capital appreciation primarily through investments in middle-market healthcare companies, middle-market companies in non-healthcare sectors, syndicated floating rate debt of large public and nonpublic companies and collateralized loan obligations. The Company has elected to be treated for federal income tax purposes, and intends to qualify annually thereafter, as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

The Company was formed in Delaware on September 30, 2013 and formally commenced operations on September 2, 2014 upon satisfying the minimum offering requirement by raising gross proceeds of $10.0 million in connection with a private placement with NexPoint Advisors, L.P. (the “Adviser”), our external advisor. In aggregate through September 30, 2017, the Adviser controls 2,117,895 total shares, including reinvestment of dividends, for a net amount of approximately $20.2 million.

The Company has retained the Adviser to manage certain aspects of its affairs on a day-to-day basis. Highland Capital Funds Distributor, Inc. (the “Dealer Manager”), an entity under common ownership with the Adviser, serves as the dealer manager of the Company’s continuous public offering. The shares are being offered on a “best efforts” basis, which means generally that the Dealer Manager is required to use only its best efforts to sell the shares and it has no firm commitment or obligation to purchase any of the shares. The Adviser and Dealer Manager are related parties and will receive fees and other compensation for services related to the investment and management of the Company’s assets and the continuous public offering.

Note 2 — Summary of Significant Accounting Policies

Basis of Accounting

The accompanying financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Additionally, the accompanying financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Certain financial information that is normally included in annual financial statements is not required for interim financial statements and has been condensed or omitted. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2017. The interim financial data as of September 30, 2017, and for the nine months ended September 30, 2017, and September 30, 2016 is unaudited. In the opinion of management, the interim financial data includes all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results for the interim periods.

Use of Estimates

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

Statements of Cash Flows

Information on financial transactions which have been settled through the receipt or disbursement of cash is presented in the Statements of Cash Flows. The cash amount shown in the Statements of Cash Flows is the amount included within the Company’s Statements of Assets and Liabilities and includes cash on hand at its custodian bank.

Cash and Cash Equivalents

The Company considers liquid assets deposited with a bank and certain short-term debt instruments with original maturities of three months or less to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Company expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. The value of cash equivalents denominated in foreign currencies is determined by converting to U.S. dollars on the date of the Statements of Assets and Liabilities. As of September 30, 2017 and December 31, 2016, the Company had cash and cash equivalents of $6,791,502 and $3,948,113, respectively. As of September 30, 2017 and December 31, 2016, $6,620,362 and $3,913,546 was held in the State Street U.S. Government Money Market Fund, and $171,140 and $34,567 was held in a custodial account with State Street Bank and Trust Company, respectively.

Securities Sold Short and Restricted Cash

The Company may sell securities short. A security sold short is a transaction in which the Company sells a security it does not own in anticipation that the market price of that security will decline. When the Company sells a security short, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon conclusion of the transaction. The Company may have to pay a fee to borrow particular securities and is often obligated to pay over any dividends or other payments received on such borrowed securities. Cash held as collateral for securities sold short is classified as restricted cash on the Statements of Assets and Liabilities. Securities held as collateral for securities sold short are shown on the Schedule of Investments for the Company, as applicable. As of September 30, 2017 and December 31, 2016, the Company did not have any securities sold short.

When securities are sold short, the Company intends to limit exposure to a possible market decline in the value of its portfolio companies through short sales of securities that the Adviser believes possess volatility characteristics similar to those being hedged. In addition, the Company may use short sales for non-hedging purposes to pursue its investment objective. Subject to the requirements of the 1940 Act and the Code, the Company will not make a short sale if, after giving effect to such sale, the market value of all securities sold short by the Company exceeds 25% of the value of its total assets.

Other Fee Income

Fee income may consist of origination/closing fees, amendment fees, administrative agent fees, transaction break-up fees and other miscellaneous fees. Origination fees, amendment fees, and other similar fees are non-recurring fee sources. Such fees are received on a transaction by transaction basis and do not constitute a regular stream of income. For the three and nine months ended September 30, 2017, the Company recognized $173 and $8,337 of fee income, respectively. For the three and nine months ended September 30, 2016, the Company did not recognize any fee income.

Fair Value of Financial Instruments

Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure (“ASC Topic 820”) defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company determines the net asset value of its investment portfolio each quarter, or more frequently as needed. Securities that are publicly-traded are valued at the reported closing price on the valuation date. Securities that are not publicly-traded are valued at fair value as determined in good faith by the board of directors of the Company (the “Board”) or by the Adviser, pursuant to board-approved procedures. In connection with that determination, the Company will provide the Board with portfolio company valuations which are based on relevant inputs, including indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by third-party valuation services.

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

• The valuation process begins with each portfolio company or investment being initially valued by investment professionals of the Adviser responsible for credit monitoring.

• Preliminary valuation conclusions are then documented and discussed with senior management of the Adviser (the “Valuation Committee”).

• The audit committee of the Board reviews these preliminary valuations.

• At least once each quarter, the valuations for approximately one quarter of the portfolio investments that have been fair valued are reviewed by an independent valuation firm such that, over the course of a year, each material portfolio investment that has been fair valued shall have been reviewed by an independent valuation firm at least once.

• Based on this information, the Board discusses valuations and determines the fair value of each investment in the portfolio in good faith.

As of September 30, 2017, the Company held the following investments for which a sufficient level of current, reliable market quotations were not available:

Instrument	Type	Market value
PAMCO CLO 1997-1A B	Asset-Backed	$	288,776
CareDx, Inc.	Warrant		807,762
Galena Biopharma, Inc.	Warrant		335
Gemphire Therapeutics, Inc.	Warrant		922,980
Kadmon Holdings, Inc.	Warrant		47,924
SCYNEXIS, Inc.	Warrant		231,429
SteadyMed Ltd.	Warrant		104,486

As of December 31, 2016, the Company held the following investments for which a sufficient level of current, reliable market quotations were not available:

Instrument	Type	Market value
CareDx, Inc.	Warrant	$	395,318
SCYNEXIS, Inc.	Warrant		259,771
PAMCO CLO 1997-1A B	Asset-Backed		275,625
Galena Biopharma, Inc.	Warrant		23,851

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to the Company’s financial statements will refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, in the Company’s financial statements. Below is a description of factors that the Valuation Committee and the Board may consider when valuing the Company’s debt and equity investments.

Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, the Company may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that the Board may consider include the borrower’s ability to adequately service its debt, the fair market value of the portfolio company in relation to the face amount of its outstanding debt and the quality of collateral securing the Company’s debt investments.

The Company’s equity investments in portfolio companies for which there is no liquid public market will be valued at fair value. The Valuation Committee and the Board, in its analysis of fair value, may consider various factors, such as multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”), cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or the Company’s actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.

The Valuation Committee and the Board may also look to private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. The Valuation Committee and the Board may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, as well as any other factors it deems relevant in assessing the value. Generally, the value of the Company’s equity interests in public companies for which market quotations are readily available will be based upon the most recent closing public market price.

If the Company receives warrants or other equity-linked securities at nominal or no additional cost in connection with an investment in a debt security, the Company will allocate the cost basis in the investment between the debt securities and any such warrants or other equity-linked securities received at the time of origination. The Valuation Committee and the Board will subsequently value these warrants or other equity-linked securities received at fair value.

As applicable, the Company values its Level 2 assets by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which is provided by an independent third-party pricing service and screened for validity by such service. For investments for which the third-party pricing service is unable to obtain quoted prices, the Company obtains bid and ask prices directly from dealers who make a market in such investments.

To the extent that the Company holds investments for which no active secondary market exists and, therefore, no bid and ask prices can be readily obtained, the Valuation Committee utilizes an independent third-party valuation service to value such investments.

The Company periodically benchmarks the bid and ask prices received from the third-party pricing service and/or dealers, as applicable, and valuations received from the third-party valuation service against the actual prices at which it purchases and sells its investments. The Company believes that these prices are reliable indicators of fair value. The Company’s Valuation Committee and the Board review and approve the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation process.

As of September 30, 2017, the Company’s investments consisted of senior secured loans, bonds, asset-backed securities, common stocks, preferred stock, a total return swap (“TRS”) and rights and warrants, which may be purchased for a fraction of the price of the underlying securities. The fair value of the Company’s loans, bonds and asset-backed securities are generally based on quotes received from brokers or independent pricing services. Loans, bonds and asset-backed securities with quotes that are based on actual trades with a sufficient level of activity on or near the measurement date are classified as Level 2 assets. Loans, bonds and asset-backed securities that are priced using quotes derived from implied values, indicative bids or a limited number of actual trades are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable.

The fair value of the Company’s common stocks and options that are not actively traded on national exchanges are generally priced using quotes derived from implied values, indicative bids, or a limited amount of actual trades and are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable. Exchange traded options are valued based on the last trade price on the primary exchange on which they trade. If an option does not trade, the mid-price is utilized to value the option.

The Company values the TRS in accordance with the agreement (the “TRS Agreement”) with BNP Paribas (“BNP Paribas”) that establishes the TRS. Pursuant to the TRS Agreement, the value of the TRS is based on the increase or decrease in the value of the loans underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The loans underlying the TRS are valued based on indicative bid prices provided by an independent third-party pricing service. Bid prices reflect the highest price that market participants may be willing to pay. These valuations are sent to the Company for review and testing. The Valuation Committee and the Board review and approve the value of the TRS, as well as the value of the loans underlying the TRS, on a quarterly basis. To the extent the Valuation Committee or the Board have any questions or concerns regarding the valuation of the loans underlying the TRS, such valuation is discussed or challenged pursuant to the terms of the TRS Agreement. For additional information on the TRS, see Note 7.

At the end of each calendar quarter, the Company evaluates the Level 2 and 3 investments for changes in liquidity, including: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, management evaluates the Level 1 and 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market price, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values the Company may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise less liquid than publicly traded securities.

The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. Transfers in and out of the levels are recognized at the fair value at the end of the period. The following are summaries of the Company’s investments categorized within the fair value hierarchy as of September 30, 2017 and December 31, 2016:

	September 30, 2017
Investments	Level 1		Level 2		Level 3			Total
Assets
Senior Secured Loans
Healthcare	$	—	$	11,335,404	$	4,393,125		$	15,728,529
Retail		—		2,984,562		—			2,984,562
Utility		—		8,750		—			8,750
Asset-Backed Securities		—		1,672,303		288,776			1,961,079
Closed-End Mutual Funds		—		15,305		—			15,305
Corporate Bonds		—		37,556,876		—			37,556,876
Common Stocks		7,210,081		—		—			7,210,081
Preferred Stocks		—		2,330,417		—			2,330,417
Rights		—		65,651		—			65,651
Warrants		—		2,114,916		—			2,114,916
Total Assets	$	7,210,081	$	58,084,184	$	4,681,901		$	69,976,166
Liabilities
Derivatives
Total Return Swap Contracts	$	—	$	—	$	(633,427	)	$	(633,427	)
Total Liabilities	$	—	$	—	$	(633,427	)	$	(633,427	)
Total Investments Net of Swap Contracts	$	7,210,081	$	58,084,184	$	4,048,474		$	69,342,739

	December 31, 2016
Investments	Level 1		Level 2		Level 3		Total
Assets
Senior Secured Loans
Energy	$	—	$	3,499,746	$	—	$	3,499,746
Healthcare		—		19,044,836		4,005,000		23,049,836
Media/Telecommunications		—		4,087,500		—		4,087,500
Retail		—		3,193,499		—		3,193,499
Service		—		3,791,110		—		3,791,110
Technology				2,950,489		—		2,950,489
Utility		—		982,500		—		982,500
Asset–Backed Securities		—		2,338,592		275,625		2,614,217
Convertible Bonds		—		700,625		—		700,625
Corporate Bonds		—		28,113,471		—		28,113,471
Common Stock
Chemicals		—		—		73,665		73,665
Healthcare		1,353,380		—		—		1,353,380
Real Estate Investment Trust (REIT)		2,200,805		—		—		2,200,805
Utility		—		904,525		—		904,525
Rights		—		96,288		—		96,288
Warrants		—		655,089		23,851		678,940
Total Assets	$	3,554,185	$	70,358,270	$	4,378,141	$	78,290,596

The table below sets forth a summary of changes in the Company’s Level 3 investments (measured at fair value using significant unobservable inputs) for the nine months ended September 30, 2017.

Investments:	Balance as of December 31, 2016		Transfers into Level 3		Transfer out of Level 3			Net amortization (accretion) of premium/ (discount)		Net realized gains/ (losses)		Net change in unrealized gains/ (losses)			Purchases		(Sales and redemptions)		Balance as of September 30, 2017			Change in unrealized gain/(loss) on Level 3 securities still held at period end
Assets
Senior Secured Loans Healthcare	$	4,005,000	$	—	$	—		$	6,549	$	—	$	381,576		$	—	$	—	$	4,393,125		$	381,576
Asset-Backed Securities Financials		275,625		—		—			—		—		13,151			—		—		288,776			13,151
Common Stocks Chemicals		73,665		—		(136,000	)		—		—		62,335			—		—		—			—
Warrants Healthcare		23,851		—		(335	)		—		—		(23,516	)		—		—		—			—
Total	$	4,378,141	$	—	$	(136,335	)	$	6,549	$	—	$	433,546		$	—	$	—	$	4,681,901		$	394,727
Liabilities
Total Return Swaps(1)	$	—	$	—	$	—		$	—	$	—	$	(633,427	)	$	—	$	—	$	(633,427	)	$	(633,427	)

⁽¹⁾ During the nine months ended September 30, 2017, the Company recognized a net realized loss on the TRS amounting to $524,777. The Company received $194,394 in cash payments from the TRS during the period, with $719,171 being payable to BNP Paribas as of September 30, 2017.

The table below sets forth a summary of changes in the Company’s Level 3 investments (measured at fair value using significant unobservable inputs) for the nine months ended September 30, 2016.

Investments:	Balance as of December 31, 2015		Transfers into Level 3		Transfer out of Level 3		Net amortization (accretion) of premium/ (discount)		Net realized gains/ (losses)		Net change in unrealized gains/ (losses)			Purchases		(Sales and redemptions)		Balance as of September 30, 2016		Change in unrealized gain/(loss) on Level 3 securities still held at period end
Senior Secured Loans Healthcare	$	4,438,125	$	5,403,338	$	—	$	5,758	$	—	$	(78,883	)	$	—	$	—	$	9,768,338	$	(78,883	)
Asset-Backed Securities Financials		—		270,028		—		—		—		—			—		—		270,028		—
Common Stocks Chemicals		87,125		—		—		—		—		4,607			—		—		91,732		4,607
Warrants Healthcare		—		—		—		—		—		187,057			—		—		187,057		187,057
Total	$	4,525,250	$	5,673,366	$	—	$	5,758	$	—	$	112,781		$	—	$	—	$	10,317,155	$	112,781

Investments designated as Level 3 may include investments valued using quotes or indications furnished by brokers which are based on models or estimates and may not be executable prices. In light of the developing market conditions, the Adviser continues to search for observable data points and evaluate broker quotes and indications received for investments. Determination of fair values is uncertain because it involves subjective judgments and estimates that are unobservable. Transfers from Level 3 to Level 2 and from Level 2 to Level 1 are due to an increase in market activity (e.g. frequency of trades), which resulted in an increase of available market inputs to determine price. For the nine months ended September 30, 2017, $335 was transferred from Level 3 to Level 2, $2,149,358 was transferred from Level 2 to Level 1, and $136,000 was transferred from Level 3 to Level 1. The Company uses end of period market value in the determination of the amount associated with any transfers between levels.

The following are summaries of significant unobservable inputs used in the fair valuations of investments categorized within Level 3 of the fair value hierarchy as of September 30, 2017 and December 31, 2016:

Investment	Fair value at September 30, 2017			Valuation technique		Unobservable inputs	Range of input value(s) (weighted average)
Senior Secured Loans	$	4,393,125			Third Party Pricing Vendor	N/A	N/A
Asset-Backed Securities		288,776			Discounted Cash Flow	Discounted Rate	20.85%
Total	$	4,681,901
Total Return Swaps		(633,427	)		Third Party Pricing Vendor	N/A	N/A

Investment	Fair value at December 31, 2016		Valuation technique	Unobservable inputs	Range of input value(s) (weighted average)
Senior Secured Loans	$	4,005,000	Third Party Pricing Vendor	N/A	N/A
Common Stocks		73,665	Third Party Pricing Vendor	N/A	N/A
Warrants		23,851	Black-Scholes Option Pricing	Volatility	90%
Asset-Backed Securities		275,625	Discounted Cash Flow	Discount Rate	20.85%
Total	$	4,378,141

The Company’s determinations of fair value may differ materially from the values that would have been used if a ready market for Company’s portfolio investments existed. The determination of fair value (and thus the amount of unrealized losses the Company may incur in any year) is, to a degree, subjective, because it is based on unobservable inputs and certain assumptions.

Derivative Transactions

The Company is subject to equity price risk, interest rate risk and foreign currency exchange rate risk in the normal course of pursuing its investment objective. The Company may invest without limitation in warrants and may also use derivatives, primarily swaps (including equity, variance and volatility swaps), options and futures contracts on securities, interest rates, commodities and/or currencies, as substitutes for direct investments the Company can make. The Company may also use derivatives such as swaps, options (including options on futures), futures, and foreign currency transactions (e.g., foreign currency swaps, futures and forwards) to any extent deemed by the Adviser to be in the best interest of the Company, and to the extent permitted by the 1940 Act, to hedge various investments for risk management and speculative purposes. For additional information on the TRS, please see Note 7.

Options

The Company purchases options, subject to certain limitations. The Company may invest in options contracts to manage its exposure to the stock and bond markets and fluctuations in foreign currency values. Writing puts and buying calls tend to increase the Company’s exposure to the underlying instrument while buying puts and writing calls tend to decrease the Company’s exposure to the underlying instrument, or economically hedge other Company investments. The Company’s risks in using these contracts include changes in the value of the underlying instruments, nonperformance of the counterparties under the contracts’ terms and changes in the liquidity of the secondary market for the contracts. Options are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. As of and during the nine months ended September 30, 2017, the Company did not hold options.

The average quarterly volume of derivative activity for the nine months ended September 30, 2016, is as follows:

	Average Units/ Contracts		Total Unrealized Appreciation/ (Depreciation)		Total Realized Gain (loss)			Ending Notional Amount
Purchased Options Contracts		1,317	$	—	$	(211,941	)		—

Investment Transactions

Investment transactions are accounted for on trade date. Realized gains/(losses) on investments sold are recorded on the basis of specific identification method for both financial statement and U.S. federal income tax purposes. Payable for investments purchased and receivable for investments sold on the Statements of Assets and Liabilities, if any, represents the cost of purchases and proceeds from sales of investment securities, respectively, for trades that have been executed but not yet settled. “Due from Broker,” if any, represents certain receivables from counterparties related to principal paydowns, among other things.

Income Recognition

Corporate actions (including cash dividends from common stock and equity tranches of asset-backed securities) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after the ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. The Company does not accrue as a receivable interest or dividends on loans, asset-backed securities and other securities if there is a reason to doubt the Company’s ability to collect such income. For loans with contractual PIK (payment-in-kind) interest income, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, we will not accrue PIK interest if we believe that the PIK interest is no longer collectible. Loan origination fees, original issue discount and market discount are capitalized and such amounts are amortized as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income.

Accretion of discounts and amortization of premiums on taxable bonds, loans and asset-backed securities are computed to the call or maturity date, whichever is shorter, using the effective yield method. Withholding taxes on foreign dividends have been provided for in accordance with the Company’s understanding of the applicable country’s tax rules and rates.

Organization and Offering Costs

Organization costs are paid by the Adviser and include the cost of incorporating, such as the cost of legal services and other fees pertaining to our organization. Offering costs include legal fees, promotional costs and other costs pertaining to the public offering of our shares of common stock and are also paid by the Adviser. As we raise proceeds, these organization and offering costs are expensed and become payable to the Adviser. Organization and offering costs are limited to 1% of total gross proceeds raised and are not due and payable to the Adviser to the extent they exceed that amount. Please refer to Note 4 for additional information on Organization and Offering Costs.

Paid-in Capital

The proceeds from the issuance of common stock as presented on the Company’s Statements of Changes in Net Assets is presented net of selling commissions and fees for the nine months ended September 30, 2017 and September 30, 2016. Selling commissions and fees of $1,453,224 and $2,142,925 were paid for the nine months ended September 30, 2017 and September 30, 2016, respectively.

Earnings Per Share

In accordance with the provisions of ASC Topic 260 — Earnings per Share (“ASC 260”), basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

The following table sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations:

	Three Months Ended September 30,					Nine Months Ended September 30,
Basic and diluted	2017			2016		2017		2016
Net increase (decrease) in net assets from operations	$	(201,833	)	$	2,917,699	$	4,671,331	$	8,112,070
Weighted average common shares outstanding		8,966,250			5,507,237		8,287,409		4,250,687
Earnings (loss) per common share-basic and diluted	$	(0.02	)	$	0.53	$	0.56	$	1.91

Distributions

Distributions to the Company’s stockholders will be recorded as of the record date. Subject to the discretion of the Board and applicable legal restrictions, the Company intends to authorize and declare ordinary cash distributions on a weekly basis and pay such distributions on a monthly basis. Net realized capital gains, if any, will be distributed or deemed distributed at least every 12-month period.

Recent Accounting Pronouncements

The Company generally intends to take advantage of the extended transition period available to emerging growth companies to comply with the new or revised accounting standards below until those standards are applicable to private companies.

In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities. The amendments in this update makes improvements to the requirements for accounting for equity investments and simplifying the impairment assessment of equity investments. For public entities this update will be effective for fiscal years beginning after December 15, 2017. For all other entities, this update will be effective for fiscal years beginning after December 31, 2018, and for interim periods within fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of this new guidance on its financial statement presentation and disclosures.

In March 2016, the FASB issued Accounting Standards Update 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The amendments in this update clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. For public entities this update will be effective for interim periods and fiscal years beginning after December 15, 2016. For all other entities, this update will be effective for fiscal years beginning after December 31, 2017, and for interim periods within fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of this new guidance on its financial statement presentation and disclosures.

In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Receipts and Cash Payments. The amendments in this update address eight specific issues, where there has been diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230. For public entities this update will be effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. For all other entities, this update is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of this new guidance on its financial statement presentation and disclosures.

In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017, and the Company has implemented the applicable requirements into this report.

In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The amendments in this update require the statement of cash flows explain the change during the period in the total of cash, cash equivalents. Amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. For public entities this update will be effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. For all other entities, this update is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. In addition, Accounting Standards Update 2016-18 must be adopted at the same time as Accounting Standards Update 2016-15. The Company is currently evaluating the impact of this new guidance on its financial statement presentation and disclosures.

In December 2016, the FASB issued Accounting Standards Update 2016-19, Technical Corrections and Improvements. The amendments in this update include an amendment to FASB ASC Topic 820, Fair Value Measurement and Disclosures to clarify the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. For public entities, this update will be effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. For all other entities, this update is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of this new guidance on its financial statement presentation and disclosures.

In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this update shorten the amortization period for certain callable debt securities held at premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public entities this update will be effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. For all other entities, this update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact of this new guidance on its financial statement presentation and disclosures.

Note 3 — Investment Portfolio

The following table shows the composition of the Company’s invested assets by industry classification at fair value at September 30, 2017:

	Fair value		Percentage
Assets
Healthcare	$	51,141,186		73.1	%
Real Estate Investment Trusts (REITs)		5,312,281		7.6	%
Financials		3,911,384		5.6	%
Retail		2,984,562		4.3	%
Telecommunication Services		2,282,175		3.2	%
Utility		2,223,759		3.2	%
Media/Telecommunications		1,331,231		1.9	%
Energy		653,588		0.9	%
Chemicals		136,000		0.2	%
Total Assets	$	69,976,166		100.0	%

The following table shows the composition of the Company’s invested assets by industry classification at fair value at December 31, 2016:

	Fair value		Percentage
Assets
Healthcare	$	48,076,536		61.5	%
Energy		5,293,496		6.8	%
Technology		5,120,935		6.5	%
Retail		4,105,999		5.2	%
Media/Telecommunications		4,087,500		5.2	%
Service		3,791,110		4.8	%
Financials		2,614,217		3.3	%
Real Estate Investment Trusts (REIT)		2,200,805		2.8	%
Utility		1,983,313		2.6	%
Telecommunication Services		943,020		1.2	%
Chemicals		73,665		0.1	%
Total assets	$	78,290,596		100.0	%

The following table summarizes the amortized cost and the fair value of the Company’s invested assets by class of financial asset as of September 30, 2017:

	Amortized Cost		Fair value		Percentage of Portfolio (at Fair Value)
Assets
Senior Secured Loans - First Lien	$	14,510,709	$	14,319,966		20.5	%
Senior Secured Loans - Second Lien		4,424,356		4,393,125		6.3	%
Senior Secured Loans - Escrow Loan		87,816		8,750		0.0	%
Asset-Backed Securities		1,968,094		1,961,079		2.8	%
Closed-End Mutual Funds		14,154		15,305		0.0	%
Corporate Bonds		38,068,077		37,556,876		53.7	%
Common Stocks		6,960,276		7,210,081		10.3	%
Preferred Stocks		3,215,965		2,330,417		3.3	%
Warrants		—		2,114,916		3.0	%
Rights		154,404		65,651		0.1	%
Total Assets	$	69,403,851	$	69,976,166		100.0	%

The following table summarizes the amortized cost and the fair value of the Company’s invested assets by class of financial asset as of December 31, 2016:

	Amortized cost		Fair value		Percentage of portfolio (at fair value)
Assets
Senior Secured Loans - First Lien	$	27,394,540	$	28,864,108		36.9	%
Senior Secured Loans - Second Lien		12,790,248		12,673,072		16.2	%
Senior Secured Loans - Escrow Loan		87,816		17,500		0.0	%
Asset-Backed Securities		2,576,709		2,614,217		3.3	%
Convertible Bonds		569,431		700,625		0.9	%
Corporate Bonds		28,847,813		28,113,471		35.9	%
Common Stocks		6,170,708		4,532,375		5.8	%
Rights		154,404		96,288		0.1	%
Warrants		—		678,940		0.9	%
Total assets	$	78,591,669	$	78,290,596		100.0	%

The following table summarizes the amortized cost and the fair value of the Company’s invested assets as of September 30, 2017 to include, on a look-through basis, the investments underlying the TRS, as disclosed in Note 7. The investments underlying the TRS had a notional amount and market value of $38,185,770 and $37,463,810, respectively, as of September 30, 2017. The TRS was not in place as of December 31, 2016.

	Amortized cost		Fair value		Percentage of portfolio (at fair value)
Assets
Senior Secured Loans - First Lien	$	43,179,442	$	42,494,389		39.5	%
Senior Secured Loans - Second Lien		13,941,393		13,682,512		12.7	%
Senior Secured Loans - Escrow Loan		87,816		8,750		0.0	%
Asset-Backed Securities		1,968,094		1,961,079		1.8	%
Closed-End Mutual Funds		14,154		15,305		0.0	%
Corporate Bonds		38,068,077		37,556,876		35.0	%
Common Stocks		6,960,276		7,210,081		6.7	%
Preferred Stocks		3,215,965		2,330,417		2.2	%
Warrants		—		2,114,916		2.0	%
Rights		154,404		65,651		0.1	%
Total assets	$	107,589,621	$	107,439,976		100.0	%

The following table shows the composition of the Company’s invested assets by geographic classification at September 30, 2017:

Geography	Fair value		Percentage
Assets
Cayman Islands(1)	$	1,961,079		2.8	%
Luxembourg(1)		2,282,175		3.3	%
United States		65,732,912		93.9	%
Total Assets	$	69,976,166		100.0	%

(1) Investment denominated in USD

The following table shows the composition of the Company’s invested assets by geographic classification at December 31, 2016:

Geography	Fair value		Percentage
Assets
Cayman Islands(1)	$	2,123,342		2.7	%
Luxembourg(1)		2,950,489		3.8	%
United States		73,216,765		93.5	%
Total assets	$	78,290,596		100.0	%

(1) Investment denominated in USD

Note 4 — Related Party Transactions and Arrangements

Investment Advisory Fee

Payments for investment advisory services under the Company’s investment advisory agreement (the “Investment Advisory Agreement”) and administrative services agreement (the “Administration Agreement”) are equal to (a) a base management fee calculated at an annual rate of 2.0% of the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters and (b) an incentive fee based on the Company’s performance. Effective June 5, 2017, the Investment Advisory Agreement and the Administration Agreement were amended to exclude cash and cash equivalents from the calculation of gross assets for the purpose of calculating advisory and administration fees.

For the three and nine months ended September 30, 2017, the Company incurred investment advisory fees payable to the Adviser of $305,288 and $1,106,346, respectively, which were voluntarily waived. For the three and nine months ended September 30, 2016, the Company incurred investment advisory fees payable to the Adviser of $363,595 and $797,215, respectively, which were voluntarily waived. Amounts waived for management fees or administrative services expenses pertaining to periods prior to June 10, 2016 are not recoupable, but amounts waived for management fees or administrative services expenses pertaining to periods from and after June 10, 2016 are subject to recoupment by the Adviser within three years from the date that such fees were otherwise payable, provided that the recoupment will be limited to the amount of such voluntarily waived fees from and after June 10, 2016 and will not cause the sum of the Company’s advisory fees, administration fees, Other Expenses (as defined under “Expense Limits and Reimbursements” below), and any recoupment to exceed the annual rate of 3.40% of average gross assets.

Incentive Fee

The incentive fee consists of two parts. The first part, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears, and equals 20.0% of “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on the Company’s net assets, as defined in the Investment Advisory Agreement, equal to 1.875% per quarter. As a result, the Adviser will not earn this incentive fee for any quarter until the Company’s pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once the Company’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, the Adviser will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Company’s pre-incentive fee net investment income for such quarter equals 2.34375% of the Company’s net assets at the end of such quarter. This “catch-up” feature allows the Adviser to recoup the fees foregone as a result of the existence of the hurdle rate in that quarter. Thereafter, the Adviser will receive 20.0% of the Company’s pre-incentive fee net investment income from the quarter.

The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which will equal the Company’s realized capital gains on a cumulative basis from formation, calculated as of the end of the applicable period, computed net of all realized capital losses (proceeds less amortized cost) and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. The Company will accrue for the capital gains incentive fee, which, if earned, will be paid annually. The Company will accrue for the capital gains incentive fee based on net realized and unrealized gains; however, under the terms of the Investment Advisory Agreement, the fee payable to the Adviser will be based on realized gains and no such fee will be payable with respect to unrealized gains unless and until such gains are actually realized.

For the three and nine months ended September 30, 2017, the Company recognized reductions of $(315,928) and $(111,488) to its incentive fees on capital gains, respectively. For the three and nine months ended September 30, 2016, the Company accrued $313,850 and $313,850 of incentive fees on capital gains, respectively. Since inception, the Company has accrued $64,079 of incentive fees on capital gains in aggregate, all of which was voluntarily waived.

Administration Fee

Pursuant to the Administration Agreement with the Adviser, the Company also reimburses the Adviser for expenses necessary for its performance of services related to the Company’s administration and operations. The amount of the reimbursement will be the lesser of (1) the Company’s allocable portion of overhead and other expenses incurred by the Adviser in performing its obligations under the Administration Agreement and (2) 0.40% of the Company’s average gross assets, (excluding cash and cash equivalents). The Adviser is required to allocate the cost of such services to the Company based on objective factors such as assets, revenues, time allocations and/or other reasonable metrics. The Board assesses the reasonableness of such reimbursements based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining similar services from third-party service providers known to be available. In addition, the Board will consider whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Board will compare the total amount paid to the Adviser for such services as a percentage of the Company’s net assets to the same ratio as reported by other comparable BDCs.

For the three and nine months ended September 30, 2017, the Company incurred administration fees payable to the Adviser of $69,308 and $229,520, respectively, which were voluntarily waived. For the three and nine months ended September 30, 2016, the Company incurred administration fees payable to the Adviser of $72,719 and $159,441, respectively, which were voluntarily waived. Amounts waived for management fees or administrative services expenses pertaining to periods prior to June 10, 2016 are not recoupable, but amounts waived for management fees or administrative services, expenses pertaining to periods from and after June 10, 2016 are subject to recoupment by the Adviser within three years from the date that such fees were otherwise payable, provided that the recoupment will be limited to the amount of such voluntarily waived fees from and after June 10, 2016 and will not cause the sum of the Company’s advisory fees, administration fees, Other Expenses, and any recoupment to exceed the annual rate of 3.40% of average gross assets.

Investment Advisory and Administration Fees Table

Amounts waived and subject to recoupment pertaining to advisory and administrator fees are shown below.

Period ended	Advisory fees waived and subject to recoupment(1)		Administration fees waived and subject to  recoupment(1)		Recoupment eligibility expiration
September 30, 2017	$	305,288	$	69,308		September 30, 2020
June 30, 2017		389,733		77,947		June 30, 2020
March 31, 2017		390,969		78,194		March 31, 2020
December 31, 2016		366,861		73,372		December 31, 2019
September 30, 2016		343,320		68,664		September 30, 2019
June 30, 2016		74,421		14,884		June 30, 2019
Total	$	1,870,592	$	382,369

(1) The Advisor has permanently waived the recoupment of any advisory fees or administration fees calculated on the portion of gross assets attributable to the receivable from Adviser balance on the Statements of Assets and Liabilities. The amounts shown have been reduced by this waiver.

In addition, cumulatively since inception through to June 10, 2016, the Company has voluntarily waived $930,143 and $186,042 of advisory fees and administration fees, respectively, all of which are not recoupable.

Organization and Offering Costs

Organization costs include the cost of incorporating, such as the cost of legal services and other fees pertaining to our organization and are paid by the Adviser, are expensed as we raise proceeds and become payable to the Adviser. For the three and nine months ended September 30, 2017 and for the three and nine months ended September 30, 2016, the Adviser did not incur or pay organization costs on our behalf.

Offering costs include legal fees, promotional costs and other costs pertaining to the public offering of our shares of common stock, and are capitalized and amortized to expense over one year. For the three and nine months ended September 30, 2017, the Adviser incurred offering costs of $167,797 and $898,423, respectively, on our behalf. For the three and nine months ended September 30, 2016, the Adviser incurred offering costs of $275,719 and $732,086, respectively, on our behalf. For the three and nine months ended September 30, 2017, the Company capitalized $41,632 and $213,880 of offering costs, respectively. For the three and nine months ended September 30, 2016, the Company capitalized $117,192 and $317,141 of offering costs, respectively. Of the capitalized offering costs, $91,937 and $308,713 were amortized to expense during the three and nine months ended September 30, 2017, respectively. Of the capitalized offering costs, $64,887 and $104,135 were amortized to expense during the three and nine months ended September 30, 2016, respectively. As of September 30, 2017 and September 30, 2016, $133,722 and $213,006 remained on the Statements of Assets and Liabilities, respectively.

Organization costs and offering costs are limited to 1% of total gross proceeds raised in this offering and are not due and payable to the Adviser to the extent they exceed that amount. Currently, the cumulative aggregate amount of $5,032,664 of organization and offering costs exceeds 1% of total proceeds raised. To the extent the Company is unable to raise sufficient capital such that the expenses paid by the Adviser on behalf of the Company are more than 1% of total proceeds at the end of the Offering, the Adviser will forfeit the right to reimbursement of the remaining $4,139,919 of these costs.

Fees Paid to Officers and Directors

Each director who is not an “interested person” of the Company as defined in the 1940 Act (the “Independent Directors”) receives an annual retainer of $150,000 payable in quarterly installments and allocated among each portfolio in the Highland Fund Complex based on relative net assets. The “Highland Fund Complex” consists of all of the registered investment companies advised by the Adviser and any affiliates as of the period covered by this report. The Company pays no compensation to any of its officers, all of whom are employees of an affiliate of the Adviser. Although the Company believes that Mr. Powell is technically no longer an “interested person” of the Company, in light of his previous employment with affiliates of the Adviser, as well as the possibility that he may provide consulting services to affiliates of the Adviser, it is possible that the SEC might in the future determine Mr. Powell to be an “interested person” of the Company. Therefore, the Company intends to treat Mr. Powell as an “interested person” of the Company for all purposes other than compensation and the code of ethics (Mr. Powell will be compensated at the same rate as the Independent Directors) from December 16, 2015 until December 4, 2017 (the second anniversary of his resignation from an affiliate of the Adviser).

For the three and nine months ended September 30, 2017, the Company recorded an expense relating to director fees of $4,526 and $11,129, respectively. For the three and nine months ended September 30, 2016, the Company recorded an expense relating to director fees of $1,442 and $5,903, respectively, which represents the allocation of the director fees to the Company. As of September 30, 2017, there was no expense payable relating to director fees.

Expense Limits and Reimbursements

Pursuant to an expense limitation agreement, the Adviser is contractually obligated to waive fees and, if necessary, pay or reimburse certain other expenses to limit the ordinary “Other Expenses” to 1.0% of the quarter-end value of the Company’s gross assets through the one year anniversary of the effective date of the registration statement (the “Expense Limitation Agreement”). Under the Expense Limitation Agreement, “Other Expenses” are all expenses with the exception of advisor and administration fees, organization and offering costs and the following: (i) interest, taxes, dividends tied to short sales, brokerage commissions, and other expenditures which are capitalized in accordance with U.S. GAAP; (ii) expenses incurred indirectly as a result of investments in other investment companies and pooled investment vehicles; (iii) other expenses attributable to, and incurred as a result of, our investments; (iv) expenses payable to the Adviser, as administrator, for providing significant managerial assistance to our portfolio companies; and (v) other extraordinary expenses (including litigation expenses) not incurred in the ordinary course of our business. The obligation will automatically renew for one-year terms unless it is terminated by the Company or the Adviser upon written notice within 120 days of the end of the current term or upon termination of the Investment Advisory Agreement. The Expense Limitation Agreement will continue through at least April 30, 2018.

Any expenses waived or reimbursed by the Adviser pursuant to the Expense Limitation Agreement are subject to possible recoupment by the Adviser within three years from the date of the waiver or reimbursement. The recoupment by the Adviser will be limited to the amount of previously waived or reimbursed expenses and cannot cause the Company’s expenses to exceed any expense limitation in place at the time of recoupment or waiver.

Reimbursable Expenses Table

The cumulative total of fees waived by the Adviser under the Expense Limitation Agreement, which are recoupable as of September 30, 2017 is $2,332,396. This balance, and the balances in the tables below, only include amounts pertaining to the Expense Limitation Agreement, and do not include waived advisory and administration fees subject to recoupment discussed earlier in Note 4. The following table reflects the fee waivers and expense reimbursements due from the Adviser as of September 30, 2017, June 30, 2017 and March 31, 2017, which may become subject to recoupment by the Adviser.

Period ended	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable amount		Recoupment eligibility expiration
September 30, 2017	$	983,110	$	531,679	$	451,431	$	252,935		September 30, 2020
June 30, 2017		631,906		433,428		198,478		50,913		June 30, 2020
March 31, 2017		329,791		182,226		147,565		147,565		March 31, 2020

The following table reflects the fee waivers and expense reimbursements due from the Adviser as of December 31, 2016, September 30, 2016, June 30, 2016 and March 31, 2016, which may become subject to recoupment by the Adviser.

Period ended	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable amount		Recoupment eligibility expiration
December 31, 2016	$	1,263,735	$	835,904	$	427,831	$	147,943		December 31, 2019
September 30, 2016		803,909		524,021		279,888		32,663		September 30, 2019
June 30, 2016		567,248		320,023		247,225		90,124		June 30, 2019
March 31, 2016		259,420		102,319		157,101		157,101		March 31, 2019

The following table reflects the fee waivers and expense reimbursements due from the Adviser as of December 31, 2015, September 30, 2015, June 30, 2015 and March 31, 2015, which may become subject to recoupment by the Adviser.

Period ended	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable amount		Recoupment eligibility expiration
December 31, 2015	$	1,440,686	$	309,265	$	1,131,421	$	23,484		December 31, 2018
September 30, 2015		1,272,439		164,502		1,107,937		434,917		September 30, 2018
June 30, 2015		771,350		98,330		673,020		414,551		June 30, 2018
March 31, 2015		353,760		95,291		258,469		258,469		March 31, 2018

The following table reflects the fee waivers and expense reimbursements due from the Adviser as of December 31, 2014 and September 30, 2014, which may become subject to recoupment by the Adviser.

Period ended	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable amount		Recoupment eligibility expiration
December 31, 2014	$	463,303	$	56,948	$	406,355	$	321,713		December 31, 2017
September 30, 2014		98,723		14,081		84,642		—		Expired

During the three and nine months ended September 30, 2017, $84,642 of expense reimbursements that were eligible for recoupment by the Adviser expired.

There can be no assurance that the Expense Limitation Agreement will remain in effect or that the Adviser will reimburse any portion of the Company’s expenses in future quarters not covered by the Expense Limitation Agreement. Amounts shown do not include the amounts committed by the Adviser to voluntarily reimburse the Company for unrealized losses, all of which are not recoupable.

Net Increase from Amounts Committed by Affiliates

For the nine months ended September 30, 2017 and September 30, 2016, the Adviser committed $0 and $872,000, respectively, to the Company to voluntarily reimburse the Company for unrealized losses sustained. Cumulatively since inception, the Adviser has committed $2,275,000 to voluntarily reimburse the Company for such losses. Had these commitments not been made, the net asset value (“NAV”) as of September 30, 2017 would have been lower by approximately this amount. These commitments are shown in the Statements of Operations as net increase from amounts committed by affiliates and are not recoupable.

Amounts committed and paid by the Adviser to reimburse for unrealized losses are nonrecurring, and investors should not expect the Adviser to make similar commitments or payments in the future.

Receivable from Adviser / Payable to Adviser

As of September 30, 2017, there were no amounts owed from the Adviser to the Company. On May 11, 2017, the Adviser paid in full the outstanding balance of $4,177,196 payable to the Company as of March 31, 2017, together with interest of $56,480. As of December 31, 2016, the Receivable from Adviser balance shown on the Statements of Assets and Liabilities was made up of the amounts shown in the table below.

Description	December 31, 2016
Amounts committed by affiliates	$	2,275,000
Fees waived under the Expense Limitation Agreement		1,965,606
Organization and offering costs paid directly by the Company, to be reimbursed by Adviser		405,913
Commissions paid in excess of maximum, reimbursed by Adviser		128,793
Payable to Adviser for reimbursement of organization and offering costs		(678,865	)
Totals	$	4,096,447

As of September 30, 2017, the Company owed $20,092 to the Adviser.

Indemnification

Under the Company’s organizational documents, the officers and Directors have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Company. Additionally, in the normal course of business, the Company may enter into contracts with service providers that contain a variety of indemnification clauses. The Company’s maximum exposure under these arrangements is dependent on future claims that may be made against the Company and, therefore, cannot be estimated.

Note 5 — U.S. Federal Income Tax Information

The Company has elected to be treated for federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. To maintain its qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements and distribute to its stockholders, for each taxable year, at least 90% of its “investment company taxable income,” which is generally the Company’s net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. As a RIC, the Company will not be subject to corporate-level federal income taxes on any income that it timely distributes to its stockholders. The Company intends to make distributions in an amount sufficient to maintain its RIC status each year and to avoid any federal income taxes on income so distributed. The Company will also be subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years on which it paid no federal income taxes.

The character of income and capital gains to be distributed is determined in accordance with the Code, U.S. Treasury regulations, and other applicable authority, which may differ from U.S. GAAP. These differences include (but are not limited to) investments organized as partnerships for tax purposes, defaulted bonds, losses deferred to off-setting positions, and losses deferred due to wash sale transactions. Reclassifications are made to the Company’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under the Code, U.S. Treasury regulations, and other applicable authority. These reclassifications have no impact on net investment income, realized gains or losses, or net asset value of the Company. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments.

Uncertainty in Income Taxes

The Company will evaluate its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in the financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Company’s tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in the Statements of Operations. During the nine months ended September 30, 2017 and the nine months ended September 30, 2016, the Company did not incur any interest or penalties. Furthermore, the company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next 12 months.

Note 6 — Share Repurchase Program

On a quarterly basis, the Company intends to offer to repurchase shares of common stock on such terms as may be determined by the Board in its complete and absolute discretion unless, in the judgment of the Independent Directors of the Board, such repurchases would not be in the best interests of the Company’s stockholders or would violate applicable law. The Company will

conduct such repurchase offers in accordance with the requirements of Rule 13e-4 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the 1940 Act. In months in which the Company repurchases shares of common stock, it will conduct repurchases on the same date that it holds its first weekly closing for the sale of shares of common stock in its public offering. Any offer to repurchase shares of common stock will be conducted solely through tender offer materials mailed to each stockholder.

The Company currently intends to limit the number of shares of common stock to be repurchased during any calendar year to the number of shares of common stock it can repurchase with the proceeds it receives from the sale of shares of common stock under its distribution reinvestment plan. At the discretion of the Board, the Company may also use cash on hand, cash available from borrowings and cash from liquidation of securities investments as of the end of the applicable period to repurchase shares of common stock. In addition, the Company will limit the number of shares of common stock to be repurchased in any calendar year to 10.0% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each quarter, though the actual number of shares of common stock that the Company offers to repurchase may be less in light of the limitations noted above. The Company intends to offer to repurchase such shares of common stock at a price equal to 90% of the offering price in effect on each date of repurchase. The Board may amend, suspend or terminate the share repurchase program at any time, upon 30 days’ notice.

The Company conducted its quarterly tender offer from March 1, 2017, until expiration of March 31, 2017 at 5:00p.m. New York City time, during which the Company offered to purchase for cash up to 2.5% of its outstanding shares of common stock. During the first quarter tender offer, 58,893 shares of the Company were tendered for repurchase, constituting approximately 0.74% of the Company’s outstanding shares.

The Company conducted its quarterly tender offer from June 5, 2017, until expiration of June 30, 2017 at 5:00p.m. New York City time, during which the Company offered to purchase for cash up to 2.5% of its outstanding shares of common stock. During the second quarter tender offer, 23,441 shares of the Company were tendered for repurchase, constituting approximately 0.27% of the Company’s outstanding shares.

The Company conducted its quarterly tender offer from August 31, 2017, until expiration of September 29, 2017 at 5:00p.m. New York City time, during which the Company offered to purchase for cash up to 2.5% of its outstanding shares of common stock. During the second quarter tender offer, 37,284 shares of the Company were tendered for repurchase, constituting approximately 0.41% of the Company’s outstanding shares.

For the nine months ended September 30, 2017, the Company did not repurchase any shares as part of its death and disability repurchase program. For the nine months ended September 30, 2016, the Company repurchased 1,664 shares as part of its death and disability repurchase program.

Note 7 — Financing Arrangements

Credit Facility

On January 6, 2015, the Company entered into a senior, secured revolving credit facility (the “Credit Facility”) with State Street Bank and Trust Company (“State Street”), as lender and agent. Under the Credit Facility, State Street had agreed to extend credit to the Company in an aggregate principal amount of up to $25 million at a rate of L + 1.15%, subject to borrowing base availability and restrictions on the Company’s total outstanding debt.

On January 5, 2016, the Company entered into an amendment to the Credit Facility to, among other things, increase the unused commitment fee from 0.15% to 0.25% and extend the final maturity date to January 3, 2017.

On January 3, 2017, the Company entered into an amendment to the Credit Facility to extend the final maturity date to March 20, 2017. The Credit Facility was fully paid down on February 24, 2017, and expired on March 20, 2017.

For the three and nine months ended September 30, 2017 and September 30, 2016, the components of total interest expense were as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
Direct interest expense	$	—	$	40,511		$	42,325		$	69,759
Commitment fees		—		9,758			8,054			36,478
Amortization of financing costs		—		—			—			—
Total interest expense	$	—	$	50,269		$	50,379		$	106,237
Average daily amount outstanding		—		9,726,087			2,909,158			5,682,847
Weighted average interest rate		—		1.66	%		1.95	%		1.64	%

The Company was required to maintain 300% asset coverage with respect to amounts outstanding under the Credit Facility. Asset coverage was calculated by subtracting the Company’s total liabilities, not including any amount representing bank loans and senior securities, from the Company’s total assets and dividing the result by the principal amount of the borrowings outstanding.

BNP Paribas Total Return Swap

On June 13, 2017, the Company, entered into the TRS with BNP Paribas over one or more loans, with a maximum aggregate notional amount of the portfolio debt securities subject to the TRS of $40 million. The agreements between the Company and BNP Paribas, which collectively establish the TRS, are referred to herein as the “TRS Agreement.”

A TRS is a contract in which one party agrees to make payments to another party based on the increase, if any, in the market value of the asset(s) underlying the TRS, which may include a specified security, basket of securities or securities indices during a specified period, and the other party agrees to make payments to the first party based on the decrease, if any, in the market value of such underlying assets plus periodic payments based on a fixed or variable interest rate. A TRS effectively adds leverage to a portfolio by providing investment exposure to an underlying asset without owning or taking physical custody of the underlying asset. A TRS often offers lower financing costs than are offered through more traditional borrowing arrangements.

Each individual security subject to the TRS, and the portfolio of securities taken as a whole, must meet certain criteria described in the TRS Agreement, including a requirement that the securities underlying the TRS be rated by either Moody’s or S&P, and, if rated by Moody’s, have a rating of at least Caa3 and, if rated by S&P, have a rating of at least CCC-. Under the terms of the TRS, BNP Paribas determines whether there has been a failure to satisfy the portfolio criteria in the TRS but may, in its sole discretion, permit assets that do not meet the minimum portfolio criteria set forth in the TRS. If BNP Paribas determines that an asset has failed to meet the minimum portfolio criteria, BNP Paribas may exercise certain rights, including increasing the amount of collateral the Company is required to provide to it or terminating all or part of the TRS, subject to certain conditions. The Company receives from BNP Paribas interest and fees payable to holders of the securities included in the portfolio. The Company pays interest to BNP Paribas generally based on a percentage of the notional amount of the securities subject to the TRS. In addition, upon the termination or repayment of any security subject to the TRS, the Company will either receive from BNP Paribas the appreciation in the value of such security or pay to BNP Paribas any depreciation in the value of such security.

Under the terms of the TRS, the Company or BNP Paribas may be required to post additional collateral, on a dollar-for-dollar basis, in certain circumstances, including in the event of depreciation or appreciation in the value of the underlying loans. The limit on the additional collateral that the Company may be required to post pursuant to the TRS is equal to the difference between the full notional amount of the loans underlying the TRS and the amount of cash collateral already posted by the Company. The amount of collateral required to be posted is determined primarily on the basis of the aggregate value of the underlying securities.

The Company may terminate the TRS at any time more than one month prior to the TRS’s scheduled termination date upon providing no less than 30 days’ prior notice to BNP Paribas. Any termination prior to December 10, 2017 will result in payment of an early termination fee to BNP Paribas that is generally based on the net present value of the underutilization fee through the scheduled TRS termination date.

Included among the customary events of default and termination events in the TRS Agreement are: bankruptcy or insolvency of a party, failure to satisfy any obligations under the TRS (including payment of collateral), and misrepresentation. BNP Paribas also has the right to terminate the TRS in certain circumstances, including if the relevant loans fail to meet the agreed-upon criteria specified in the TRS Agreement or if certain credit events with respect to the “reference entity” specified with respect to a security occur, and the Company declines to provide additional collateral to BNP Paribas upon request.

Upon any termination of the TRS, the Company will be required to pay BNP Paribas the amount of any decline in the aggregate value of the securities subject to the TRS or, alternatively, will be entitled to receive the amount of any appreciation in the aggregate value of such securities. In the event that BNP Paribas chooses to exercise its termination rights, it is possible that the Company will owe more to BNP Paribas or, alternatively, will be entitled to receive less from BNP Paribas than the Company would have if it controlled the timing of such termination, due to the existence of adverse market conditions at the time of such termination.

For purposes of the asset coverage ratio test applicable to the Company as a BDC, the Company treats the outstanding notional amount of the TRS, less the initial amount of any cash collateral required to be posted by the Company under the TRS, as a senior security for the life of that instrument. The Company may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the SEC.

Further, for purposes of Section 55(a) under the 1940 Act, the Company treats each security underlying the TRS as a qualifying asset if such security is a loan and the obligor on such loan is an eligible portfolio company, and as a non-qualifying asset if the obligor is not an eligible portfolio company. The Company may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the SEC.

The following is a summary of the underlying loans subject to the TRS as of September 30, 2017:

Underlying Loan	Industry	Interest		Base Rate Floor			Maturity Date		Notional Amount(1)		Market Value		Unrealized Appreciation (Depreciation)
Advantage Sales & Marketing, Inc. (Second Lien Term Loan)	Service		L + 650		1.00	%		7/25/2022	$	2,853,750	$	2,685,000	$	(168,750	)
Avaya, Inc. (First Lien Term Loan)	Technology		L + 750		1.00	%		1/24/2018		2,212,225		2,156,050		(56,175	)
DJO Finance, LLC (First Lien Term Loan)	Healthcare		L + 325		1.00	%		6/16/2020		4,000,000		3,990,000		(10,000	)
Fieldwood Energy, LLC (First Lien Term Loan)	Energy		L + 700		1.00	%		8/31/2020		1,728,527		1,575,480		(153,047	)
Fieldwood Energy, LLC (First Lien Term Loan)	Energy		L + 712.5		1.25	%		9/30/2020		478,369		390,361		(88,008	)
Granite Acquisition, Inc. (Second Lien Term Loan)	Utility		L + 725		1.00	%		12/19/2022		3,736,725		3,708,864		(27,861	)
iHeartCommunications, Inc. (First Lien Loan)	Media/ Telecommunications		L + 675		—			1/30/2019		4,112,500		3,850,000		(262,500	)
Kindred Healthcare, Inc. (First Lien Term Loan)	Healthcare		L + 350		1.00	%		4/09/2021		6,520,000		6,500,000		(20,000	)
Lanai Holdings II, Inc. (First Lien Term Loan)	Healthcare		L + 475		1.00	%		8/28/2022		2,503,122		2,418,750		(84,372	)
Quorum Health Corp. (First Lien Term Loan)	Healthcare		L + 675		1.00	%		4/29/2022		5,246,549		5,448,339		201,790
SkillSoft Corp. (First Lien Term Loan)	Technology		L + 475		1.00	%		4/28/2021		1,867,441		1,845,443		(21,998	)
SkillSoft Corp. (Second Lien Term Loan)	Technology		L + 825		1.00	%		4/28/2022		1,259,895		1,220,523		(39,372	)
Truck Hero, Inc. (Second Lien Term Loan)	Manufacturing		L + 825		1.00	%		5/10/2025		1,666,667		1,675,000		8,333
										Total			$	(721,960	)
										Accrued income and lliabilities				88,533
										Total TRS Fair Value			$	(633,427	)

⁽¹⁾  Notional value of the underlying securities in the TRS is calculated by multiplying par by the initial price.

As of September 30, 2017, the Company had posted $13,120,000 of cash collateral against the TRS held in an account at the Company’s custodian bank, which is shown as due from counterparty on the Statements of Assets and Liabilities.

During the nine months ended September 30, 2017, the Company recognized a net realized loss on the TRS amounting to $524,777. The Company received $194,394 in cash payments from the TRS during the period, with $719,171 being payable to BNP Paribas as of September 30, 2017.

Note 8 — Economic Dependency and Commitments and Contingencies

Under various agreements, the Company has engaged the Adviser and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issue, as well as other administrative responsibilities for the Company including accounting services and investor relations. Additionally, the Adviser pays all of the Company’s organization and offering costs subject to reimbursement to the extent organization and offering costs paid by the Adviser do not exceed 1% of gross proceeds raised.

The Company’s organization and offering costs together are limited to 1% of total proceeds raised and are not due and payable to the Adviser to the extent they exceed that amount. Currently, the cumulative aggregate amount of organization and offering costs exceeds 1% of total proceeds raised. As of September 30, 2017, $4,139,919 of organization and offering costs could become payable to the Adviser contingent upon the amount of future proceeds raised. See Note 4 for a discussion of Related Party Transactions and Arrangements, including a description of amounts waived and subject to recoupment.

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

From time to time, the Company may be involved in legal proceedings in the normal course of its business. Although the outcome of such litigation cannot be predicted with any clarity, management is of the opinion, based on the advice of legal counsel, that final dispositions of any litigation should not have a material adverse effect on the financial position of the Company as of September 30, 2017.

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnification. The Company’s maximum exposure under these agreements is unknown, as this would involve future claims that may be made against the Company that have not occurred. The Company believes the risk of material obligations under these indemnities to be low.

Note 9 — Market and Other Risk Factors

The primary risks of investing in the Company are described below in alphabetical order:

Concentration Risk

The Company is classified as a non-diversified investment company within the meaning of the 1940 Act, which means that it is not limited by the 1940 Act with respect to the proportion of the Company’s assets that it may invest in securities of a single issuer. To the extent that the Company assumes large positions in the securities of a small number of issuers, the Company’s net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. The Company may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond the asset diversification requirements associated with the Company’s qualification as a RIC under the Code and certain contractual diversification requirements under a credit facility or other agreements, the Company does not have fixed guidelines for diversification, and its investments could be concentrated in relatively few portfolio companies. As a result, the aggregate returns the Company realizes may be significantly adversely affected if a small number of investments perform poorly or if the Company needs to write down the value of any one investment. Additionally, the Company’s investments may be concentrated in relatively few industries. As a result, a downturn in any particular industry in which the Company is invested could also significantly impact the aggregate returns realized.

Counterparty Credit Risk

Counterparty credit risk is the potential loss the Company may incur as a result of the failure of a counterparty or an issuer to make payments according to the terms of a contract. Counterparty credit risk is measured as the loss the Company would record if its counterparties failed to perform pursuant to the terms of their obligations to the Company. Because the Company may enter into over-the-counter forwards, options, swaps and other derivative financial instruments, the Company may be exposed to the credit risk of its counterparties. To limit the counterparty credit risk associated with such transactions, the Company conducts business only with financial institutions judged by the Adviser to present acceptable credit risk.

Credit Risk

Investments rated below investment grade are commonly referred to as high-yield, high risk or “junk debt.” They are regarded as predominantly speculative with respect to the issuing company’s continuing ability to meet principal and/or interest payments. Investments in high yield debt and high yield senior loans may result in greater net asset value fluctuation than if the Company did not make such investments. Corporate debt obligations, including senior loans, are subject to the risk of non-payment of scheduled interest and/or principal.

Non-payment would result in a reduction of income to the Company, a reduction in the value of the corporate debt obligation experiencing non-payment and a potential decrease in the net asset value of the Company. Some of the loans the Company makes or acquires may provide for the payment by borrowers of Payment-In-Kind (“PIK”) interest or accreted original issue discount at maturity. Such loans have the effect of deferring a borrower’s payment obligation until the end of the term of the loan, which may make it difficult for the Company to identify and address developing problems with borrowers in terms of their ability to repay debt. Particularly in a rising interest rate environment, loans containing PIK and original issue discount provisions can give rise to negative amortization on a loan, resulting in a borrower owing more at the end of the term of a loan than what it owed when the loan was originated. Any such developments may increase the risk of default on the Company’s loans by borrowers.

Because loans are not ordinarily registered with the SEC or any state securities commission or listed on any securities exchange, there is usually less publicly available information about such instruments. In addition, loans may not be considered “securities” for purposes of the anti-fraud protections of the federal securities laws and, as a result, as a purchaser of these instruments, the Company may not be entitled to the anti-fraud protections of the federal securities laws. In the course of investing in such instruments, the Company may come into possession of material nonpublic information and, because of prohibitions on trading in securities of issuers while in possession of such information, the Company may be unable to enter into a transaction in a publicly-traded security of that issuer when it would otherwise be advantageous for us to do so. Alternatively, the Company may choose not to receive material nonpublic information about an issuer of such loans, with the result that the Company may have less information about such issuers than other investors who transact in such assets.

Foreign Securities Risk

Investments in foreign securities involve certain factors not typically associated with investing in U.S. securities, such as risks relating to (i) currency exchange matters, including fluctuations in the rate of exchange between the U.S. dollar (the currency in which the books of the Company are maintained) and the various foreign currencies in which the Company’s portfolio securities will be denominated and costs associated with conversion of investment principal and income from one currency into another; (ii) differences between the U.S. and foreign securities markets, including the absence of uniform accounting, auditing and financial reporting standards and practices and disclosure requirements, and less government supervision and regulation; (iii) political, social or economic instability; and (iv) the extension of credit, especially in the case of sovereign debt.

Illiquid Securities Risk

The Company will generally make investments in private companies. Substantially all of these investments will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of the Company’s investments may make it difficult for the Company to sell such investments if the need arises. In addition, if it is required to liquidate all or a portion of its portfolio quickly, the Company may realize significantly less than the value at which it has previously recorded its investments. In addition, it may face other restrictions on its ability to liquidate an investment in a portfolio company to the extent that it has material non-public information regarding such portfolio company or if an investment is held by one of its subsidiaries and is subject to contractual limitations on sale, such as the limitations on transfer of assets under certain circumstances under a credit facility.

Because loan transactions often take longer to settle than transactions in other securities, the Company may not receive the proceeds from the sale of a loan for a significant period of time. As a result, the Company may maintain higher levels of cash and short-term investments than funds that invest in securities with shorter settlement cycles and/or may use the Credit Facility to permit the Company to meet its obligations pending settlement of the sale of portfolio securities, each of which may adversely affect the Company’s performance.

The company seeks to address its short-term liquidity needs by carefully managing the settlements of its portfolio transactions, including transactions in loans, by maintaining short-term liquid assets sufficient to meet reasonably anticipated obligations, and by maintaining the Credit Facility.

Investments in Foreign Markets Risk

Investments in foreign markets involve special risks and considerations not typically associated with investing in the United States. These risks include revaluation of currencies, high rates of inflation, restrictions on repatriation of income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, tariffs and taxes, subject to delays in settlements, and their prices may be more volatile. The Company may be subject to capital gains and repatriation taxes imposed by certain countries in which they invest. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based upon net investment income, net realized gains and net unrealized appreciation as income and/or capital gains are earned.

Leverage Risk

The Company may use leverage in its investment program, including the use of borrowed funds and investments in certain types of options, such as puts, calls and warrants, which may be purchased for a fraction of the price of the underlying securities. While such strategies and techniques increase the opportunity to achieve higher returns on the amounts invested, they also increase the risk of loss. To the extent the Company purchases securities with borrowed funds, its net assets will tend to increase or decrease at a greater rate than if borrowed funds are not used. If the interest expense on borrowings were to exceed the net return on the portfolio securities purchased with borrowed funds, the Company’s use of leverage would result in a lower rate of return than if the Company were not leveraged.

Options Risk

There are several risks associated with transactions in options on securities. For example, there are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A transaction in options or securities may be unsuccessful to some degree because of market behavior or unexpected events.

When the Company writes a covered call option, the Company forgoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but retains the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation and once an option writer has received an exercise notice, it must deliver the underlying security in exchange for the strike price.

When the Company writes a covered put option, the Company bears the risk of loss if the value of the underlying stock declines below the exercise price minus the put premium. If the option is exercised, the Company could incur a loss if it is required to purchase the stock underlying the put option at a price greater than the market price of the stock at the time of exercise plus the put premium the Company received when it wrote the option. While the Company’s potential gain in writing a covered put option is limited to distributions earned on the liquid assets securing the put option plus the premium received from the purchaser of the put option, the Company risks a loss equal to the entire exercise price of the option minus the put premium.

Short-Selling Risk

Short sales by the Company that are not made where there is an offsetting long position in the asset that it is being sold short theoretically involve unlimited loss potential since the market price of securities sold short may continuously increase. Short selling allows the Company to profit from declines in market prices to the extent such decline exceeds the transaction costs and costs of borrowing the securities. However, since the borrowed securities must be replaced by purchases at market prices in order to close out the short position, any appreciation in the price of the borrowed securities would result in a loss. Purchasing securities to close out the short position can itself cause the price of securities to rise further, thereby exacerbating the loss. The Company may mitigate such losses by replacing the securities sold short before the market price has increased significantly. Under adverse market conditions, the Company might have difficulty purchasing securities to meet margin calls on its short sale delivery obligations, and might have to sell portfolio securities to raise the capital necessary to meet its short sale obligations at a time when fundamental investment considerations would not favor such sales.

Total Return Swap Risk

The TRS with BNP Paribas enables us to obtain the economic benefit of owning the securities subject to the TRS without actually owning such securities, in return for making periodic interest-type payments to BNP Paribas plus an amount equal to the depreciation in value of the securities. The TRS is subject to market risk, liquidity risk and risk of imperfect correlation between the value of the TRS and the securities underlying the TRS. In addition, we may incur certain costs in connection with the TRS, including an underutilization fee in the event that we utilize less than 80% of the amount of the TRS. Costs associated with the TRS could, in the aggregate, be significant. Because this arrangement is not an acquisition of the underlying securities, we have no right to enforce contractual provisions that stem from ownership in the securities and have no voting or other rights of ownership. In the event of insolvency of BNP Paribas, we expect that we would be treated as a general creditor of BNP Paribas and would have no claim of title with respect to the underlying securities.

A TRS is also subject to the risk that a counterparty will default on its payment obligations thereunder or that we will not be able to meet our obligations to the counterparty. In the case of the TRS with BNP Paribas, we are required to post collateral to secure our obligations to BNP Paribas under the TRS. BNP Paribas, however, is not required to collateralize any of its obligations to us under the TRS. We bear the risk of depreciation with respect to the value of the securities underlying the TRS and are required under the terms of the TRS to post additional collateral on a dollar-for-dollar basis in the event of depreciation in the value of the underlying securities after such value decreases below a specified amount. The amount of collateral required to be posted by us is determined primarily on the basis of the aggregate value of the underlying securities.

In addition, because a TRS is a form of leverage, such arrangements are subject to risks similar to those associated with the use of leverage.

Note 10 — Affiliated Investments

Under Section 2(a)(3) of the Investment Company Act of 1940, as amended, a portfolio company is defined as “affiliated” if a fund owns five percent or more of its outstanding voting securities or if the portfolio company is under common control. The table below shows affiliated issuers of the Company as of September 30, 2017:

Affiliated investments	Fair value as of January 1, 2017		Purchases		Sales		Realized gains (losses)		Change in unrealized gains (losses)		Fair value as of September 30, 2017		Dividend income
NexPoint Credit Strategies Fund	$	—	$	14,154	$	—	$	—	$	1,151	$	15,305	$	551
Total Affiliated investments	$	—	$	14,154	$	—	$	—	$	1,151	$	15,305	$	551

As of September 30, 2016, the Company did not have any affiliated investments.

Note 11 — Financial Highlights

Selected data for a share outstanding throughout the nine months ended September 30, 2017 and September 30, 2016 is as follows:

	For the Nine Months Ended			For the Nine Months Ended
	September 30, 2017 (Unaudited)			September 30, 2016 (Unaudited)
Common shares per share operating performance:
Net asset value, beginning of period	$	9.47		$	8.02
Income from investment operations:
Net investment income(1)		0.63			0.52
Net realized and unrealized gain (loss)		(0.02	)		1.34
Commitments by affiliates		—			0.21
Total from investment operations		0.61			2.07
Less distribution declared to common shareholders:
From net investment income		(0.54	)		(0.49	)
From net realized gains		—			(0.04	)
Total distributions declared to common shareholders		(0.54	)		(0.53	)
Capital share transactions
Issuance of common stock(2)		0.02			0.03
Shares tendered(1)		0.00	(3)		0.00	(3)
Net asset value, end of period	$	9.56		$	9.59
Net asset value total return(4)(6)		6.68	%		26.77	%(5)
Ratio and supplemental data:
Net assets, end of period (in 000’s)	$	87,510		$	57,784
Shares outstanding, end of period		9,156,755			6,023,972
Common share information at end of period:
Ratios based on weighted average net assets of common shares:
Gross operating expenses(7)		4.35	%		8.18	%
Fees and expenses waived or reimbursed(7)		(2.79	)%		(5.38	)%
Net operating expenses(7)		1.56	%		2.79	%
Net investment income (loss) before fees waived or reimbursed(7)		5.93	%		2.25	%
Net investment income (loss) after fees waived or reimbursed(7)		8.72	%		7.63	%
Ratio of interest and credit facility expenses to average net assets		0.08	%		0.37	%
Ratio of incentive fees to average net assets(7)(8)		(0.19	)%		1.09	%
Portfolio turnover rate(6)		91	%		66	%
Asset coverage ratio		449	%		684	%

⁽¹⁾  Per share data was calculated using weighted average shares outstanding during the period.

⁽²⁾  The continuous issuance of common stock may cause an incremental increase in net asset value per share due to the sale of shares at the then prevailing public offering price and the receipt of net proceeds per share by the Company in excess of net asset value per share on each subscription closing date. The per share data was derived by computing (i) the sum of (A) the number of shares issued in connection with subscriptions and/or distribution reinvestment on each share transaction date times (B) the differences between the net proceeds per share and the net asset value per share on each share transaction date, divided by (ii) the total shares outstanding at the end of the period.

⁽³⁾  Amount rounds to less than $0.005 per share.

⁽⁴⁾  Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains distributions, and assume no sales charge. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s Dividend Reinvestment Plan. Had the Adviser not absorbed a portion of expenses, total returns would have been lower.

⁽⁵⁾  For the nine months ended September 30, 2016, 1.91% of the fund’s total return consists of a voluntary reimbursement by the adviser for unrealized investment losses, and is included in Net realized and unrealized gain (loss). Excluding this item, total return would have been 24.86%.

⁽⁶⁾  Not annualized.

⁽⁷⁾  Annualized.

⁽⁸⁾  All incentive fees were waived for the nine months ended September 30, 2017 and September 30, 2016.

Note 12 — Subsequent Events

The Company has evaluated subsequent events through the date on which these financial statements were issued.

On September 15, 2017 the Board declared a cash distribution of $0.013846 per share of the Company’s common stock, par value $0.001 per share, paid on November 1, 2017, to the stockholders of record on October 2, 2017, October 9, 2017, October 16, 2017, October 23, 2017, and October 30, 2017.

On October 12, 2017, the Board declared a cash distribution of $0.013846 per share of the Company’s common stock, par value $0.001 per share, to be paid on November 29, 2017, to the stockholders of record on November 6, 2017, November 13, 2017, November 20, 2017, and November 27, 2017.

On October 19, 2017, the Company entered into a financing arrangement (the “Financing Arrangement”) with BNP Paribas Prime Brokerage International, Ltd., BNP Prime Brokerage, Inc., and BNP Paribas (together, the “BNPP Entities”). Under the Financing Agreement, the BNPP Entities may make margin loans to the Company at a rate of one-month LIBOR + 1.60%. The BNPP Entities have the right to cap the amount of margin loans with prior notice to the Company. The Financing Arrangement may be terminated by either the Company or the BNPP Entities with 179 days’ notice.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information contained in this section should be read in conjunction with our unaudited financial statements and related notes thereto included elsewhere in this quarterly report on Form 10-Q. In this report, “we,” “us” and “our” refer to NexPoint Capital, Inc.

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:

• our future operating results;

• changes in healthcare technologies, finance and regulations adversely affecting our portfolio companies or financing model;

• changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes to the value of our assets;

• our business prospects and the prospects of the companies in which we may invest;

• the impact of the investments that we expect to make;

• the impact of increased competition;

• our contractual arrangements and relationships with third parties;

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

• the ability of our portfolio companies to achieve their objectives;

• our current and expected financings and investments;

• the adequacy of our cash resources, financing sources and working capital;

• the timing and amount of cash flows, distributions and dividends, if any, from our portfolio companies;

• our use of financial leverage;

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

• the ability of the Adviser or its affiliates to attract and retain highly talented professionals;

• our ability to maintain our qualification as a regulated investment company, or RIC, and as a business development company, or BDC;

• the impact on our business of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations issued thereunder;

• the effect of changes to tax legislation and our tax position; and

• the tax status of the enterprises in which we may invest.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,” “plan” or similar words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth elsewhere in this quarterly report on Form 10-Q and as “Risk Factors” in the prospectus relating to the continuous public offering of our common stock.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the U.S. Securities and Exchange Commission, or the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This quarterly report on Form 10-Q may contain statistics and other data that have been obtained from or compiled from information made available by third-party service providers. We have not independently verified such statistics or data.

Overview

We were formed in Delaware on September 30, 2013 and formally commenced operations on September 2, 2014. We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for U.S. federal income tax purposes, we have elected to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) with retroactive effect to the date we elected to be treated as a BDC. As a BDC, we are also subject to certain constraints, including limitations imposed by the 1940 Act and the Code.

Our investment activities are managed by NexPoint Advisors, L.P. (our “Adviser”) and supervised by our board of directors (the “Board”) a majority of the members of which are independent of us.

Our investment objective is to generate high current income and long-term capital appreciation. We seek to achieve our objective by using the experience of the healthcare, credit and structured products teams of Highland Capital Management, L.P. (“Highland”) to source, evaluate and structure investments, identify attractive investment opportunities that are primarily debt investments that generate high income without creating undue risk for the portfolio, make equity investments where we believe there will be attractive risk-adjusted returns that compensate for the lack of current income, and make investments in debt and equity tranches of collateralized loan obligations, or CLOs, that deliver income and high relative value. We will focus on companies that are stable, have positive cash flow and the ability to grow their business model.

Our investment policy is to invest, under normal circumstances, at least 80% of our total assets in debt and equity of middle-market companies, with an emphasis on healthcare companies, syndicated floating rate debt of large public and nonpublic companies and mezzanine and equity tranches of CLOs. Middle-market companies include companies with annual revenues between $50,000,000 and $2,500,000,000 and syndicated floating rate debt refers to loans and other instruments originated by a bank to a corporation that are sold off, or syndicated, to investors in pieces. We consider a healthcare company to be a company that is engaged in the design, development, production, sale, management or distribution of products, services or facilities used for or in connection with the healthcare industry. Additionally, we consider companies that are materially impacted by the healthcare industry (such as a contractor that derives significant revenue or profit from the construction of hospitals) as being engaged in the healthcare industry. We may invest without limit in companies that are not in the healthcare sector.

We will leverage the expertise of Highland with regard to distressed investing and restructuring to make opportunistic investments in distressed companies. We will utilize the Highland credit underwriting capability to identify the types of companies we believe will provide high current income and/or long-term capital appreciation. In addition to the investments in the healthcare industry, we may invest a portion of our capital in other opportunistic investments in which the Adviser has expertise and where we believe an opportunity exists to achieve above average risk adjusted yields and returns. These types of opportunities may include: (1) direct lending or origination investments, (2) investments in stressed or distressed situations, (3) structured product investments, (4) equity investments and (5) other investment opportunities not typically available in other BDCs. Opportunistic investments may range from broadly syndicated deals to direct lending deals in both private and public companies and may include foreign investments. We believe this is the best approach to achieving our dual mandate of attempting to generate a high yield while also attempting to produce capital appreciation.

We seek to invest primarily in securities deemed by the Adviser to be high income generating debt investments and income generating equity securities of privately held companies in the United States. We expect the portfolio will be concentrated primarily in senior floating rate debt securities, although we may invest without limit in securities which rank lower than senior secured instruments and may invest without limit in investments with a fixed rate of interest. We will buy syndicated loans, various tranches of CLOs and other debt instruments in the secondary market as well as originate debt so we can tailor the investment parameters more precisely to our needs. We also intend to invest a portion of the portfolio in equity securities that are non-income producing, when doing so will help us achieve our objective of long-term capital appreciation. We expect the size of our positions will range from $2,000,000 to $25,000,000, although investments may be larger as our asset base increases. We may selectively make investments in amounts larger than $25,000,000 in some of our portfolio companies. While our asset base increases, we may make smaller investments.

We expect that many of the securities in which we invest will be rated below investment grade by independent rating agencies or would be rated below investment grade if they were rated. These securities, which may be referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. In addition, we expect that many of our debt investments will include floating interest rates that reset on a periodic basis and typically will not require the borrowers to pay down the outstanding principal of such debt prior to maturity.

Public Offering

We are offering on a continuous basis up to $1.6 billion of our common stock, inclusive of shares already sold, based on an offering price of $10.40 as of September 30, 2017, and a par value of $0.001 per share, pursuant to a registration statement on Form N-2 filed with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act. The SEC declared our registration statement effective on May 12, 2017, as supplemented. We are also authorized to issue 25,000,000 shares of preferred stock, par value $0.001 per share. However, we currently do not anticipate issuing any preferred stock.

As a result of a series of private placements to the Adviser, we successfully satisfied the minimum offering requirement and officially commenced operations on September 2, 2014. In connection with the satisfaction of the minimum offering requirement and the commencement of our operations, the Investment Advisory Agreement became effective and the base management fee and any incentive fees, as applicable, payable to the Adviser under the Investment Advisory Agreement began to accrue. In aggregate through September 30, 2017 the Adviser controls 2,117,895 shares, including reinvestment of dividends, for a net total of approximately $20.2 million.

The Dealer Manager, an entity under common ownership with the Adviser, serves as the dealer manager of our continuous public offering. The shares are being offered on a “best efforts” basis, which means generally that the Dealer Manager is required to use only its best efforts to sell the shares and it has no firm commitment or obligation to purchase any of the shares. The Adviser and the Dealer Manager are related parties and will receive fees, distributions and other compensation for services related to our public offering and the management of our assets.

We, Highland and the Adviser have obtained an exemptive order dated April 19, 2016 from the SEC to permit co-investments among the Company and certain other accounts managed by the Adviser or its affiliates, subject to certain conditions.

On August 28, 2015, the Company filed its application with the SEC pursuant to Section 6(c) of the 1940 Act, requesting exemptions from Sections 18(c), 18(i) and 61(a) of the 1940 Act and pursuant to Sections 17(d) and 57(i) of the 1940 Act and Rule 17d-1 under the 1940 Act, to permit the Company to offer investors multiple classes of shares, interests or units, as the case may be, with varying sales loads and asset-based service and/or distribution fees (the “Multi-Class Application”). The Company may revise the Multi-Class Application in response to comments from the SEC staff.

Revenues

We generate a significant portion of our total revenue in the form of interest on the debt securities that we hold. We expect that the senior debt we invest in will generally have stated terms of 3 to 5 years and that the subordinated debt we invest in will generally have stated terms of 5 to 7 years. Our senior and subordinated debt investments bear interest at a fixed or floating rate. Interest on debt securities is generally payable monthly, quarterly or semiannually. In addition, some of our investments provide for deferred interest payments or payment-in-kind, or PIK, interest. We may also generate revenues in the form of dividends and other distributions on the equity or other securities we may hold. In addition, we may generate revenues in the form of commitment, closing, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees. Any such fees generated in connection with our investments will be recognized as earned.

Expenses

We expect that our primary operating expenses will include the payment of fees to the Adviser under the Investment Advisory Agreement, our allocable portion of overhead expenses under the Administration Agreement and other operating costs described below. However, at this time our Adviser is waiving most fees, subject to possible recoupment for expenses pertaining to periods from and after June 10, 2016. We bear all out-of-pocket costs and expenses of our operations and transactions, including:

• our organization (expenses initially paid by the Adviser until sufficient equity proceeds are raised);

• calculating our net asset value and net asset value per share (including the costs and expenses of independent valuation firms);

• fees and expenses, including travel expenses, incurred by the Adviser or payable to third parties in performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;

• interest payable on debt, if any, incurred to finance our investments;

• the costs of this and all future offerings of common shares and other securities, and other incurrence of debt;

• the base management fee and any incentive fee;

• distributions on our shares;

• administration fees payable to the Adviser under the Administration Agreement;

• transfer agent and custody fees and expenses;

the actual costs incurred by the Adviser as our administrator in providing managerial assistance to those portfolio companies that request it;

• amounts payable to third parties relating to, or associated with, evaluating, making and disposing of investments;

• brokerage fees and commissions;

• registration fees;

• listing fees;

• taxes;

• independent director fees and expenses;

• costs associated with our reporting and compliance obligations under the 1940 Act and applicable U.S. federal and state securities laws;

• the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;

• costs of holding stockholder meetings;

• our fidelity bond;

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

• litigation, indemnification and other non-recurring or extraordinary expenses;

• direct costs and expenses of administration and operation, including audit and legal costs;

• fees and expenses associated with marketing efforts, including deal sourcing fees and marketing to financial sponsors;

• dues, fees and charges of any trade association of which we are a member; and

• all other expenses reasonably incurred by us or the Adviser in connection with administering our business.

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

Expense Limitation

Pursuant to an expense limitation agreement (the “Expense Limitation Agreement”), the Adviser is contractually obligated to waive fees and, if necessary, pay or reimburse certain other expenses to limit ordinary “Other Expenses” to 1.0% of the quarter-end value of the Company’s gross assets through the one year anniversary of the effective date of the registration statement. Under the Expense Limitation Agreement, “Other Expenses” are all expenses with the exception of advisor and administration fees, organization and offering costs and the following: (i) interest, taxes, dividends tied to short sales, brokerage commissions, and other expenditures which are capitalized in accordance with U.S. GAAP; (ii) expenses incurred indirectly as a result of investments in other investment companies and pooled investment vehicles; (iii) other expenses attributable to, and incurred as a result of, our investments; (iv) expenses payable to the Adviser, as administrator, for providing significant managerial assistance to our portfolio companies; and (v) other extraordinary expenses (including litigation expenses) not incurred in the ordinary course of our business. The obligation will automatically renew for one-year terms unless it is terminated by the Company or the Adviser upon written notice within 120 days of the end of the current term or upon termination of the Investment Advisory Agreement. The Expense Limitation Agreement will continue through at least April 30, 2018.

Any expenses waived or reimbursed by the Adviser pursuant to the Expense Limitation Agreement are subject to possible recoupment by the Adviser within three years from the date of the waiver or reimbursement. The recoupment by the Adviser will be limited to the amount of previously waived or reimbursed expenses and cannot cause the Company’s expenses to exceed any expense limitation in place at the time of recoupment or waiver.

Reimbursable Expenses Table

The cumulative total of fees waived by the Adviser under the Expense Limitation Agreement which are recoupable as of September 30, 2017 are $2,332,396. This balance, and the balances in the tables below, only include amounts pertaining to the Expense Limitation Agreement, and do not include waived advisory and administration fees subject to recoupment discussed elsewhere herein.

The following table reflects the 2017 quarterly fee waivers and expense reimbursements due from the Adviser as of September 30, 2017, June 30, 2017 and March 31, 2017, which are subject to recoupment by the Adviser.

Period Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Limitation		Quarterly Recoupable Amount		Recoupment Eligibility Expiration
September 30, 2017	$	983,110		531,679		451,431		252,953		September 30, 2020
June 30, 2017		631,906		433,428		198,478		50,913		June 30, 2020
March 31, 2017		329,791		182,226		147,565		147,565		March 31, 2020

The following table reflects the 2016 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2016, September 30, 2016, June 30, 2016 and March 31, 2016, which are subject to recoupment by the Adviser.

Quarter Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Reimbursement		Quarterly Recoupable Amount		Recoupment Eligibility Expiration
December 31, 2016	$	1,263,735	$	835,904	$	427,831	$	147,943		December 31, 2019
September 30, 2016		803,909		524,021		279,888		32,663		September 30, 2019
June 30, 2016		567,248		320,023		247,225		90,124		June 30, 2019
March 31, 2016		259,420		102,319		157,101		157,101		March 31,2019

The following table reflects the 2015 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2015, September 30, 2015, June 30, 2015, and March 31, 2015, which are subject to recoupment by the Adviser.

Quarter Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Reimbursement		Quarterly Recoupable Amount		Recoupment Eligibility Expiration
December 31, 2015	$	1,440,686	$	309,265	$	1,131,421	$	23,484		December 31, 2018
September 30, 2015		1,272,439		164,502		1,107,937		434,917		September 30, 2018
June 30, 2015		771,350		98,330		673,020		414,551		June 30, 2018
March 31, 2015		353,760		95,291		258,469		258,469		March 31,2018

The following table reflects the 2014 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2014 and September 30, 2014, which are subject to recoupment by the Adviser.

Quarter Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Reimbursement		Quarterly Recoupable Amount		Recoupment Eligibility Expiration
December 31, 2014	$	463,303	$	56,948	$	406,355	$	321,713		December 31, 2017
September 30, 2014		98,723		14,081		84,642		—		Expired

During the three and nine months ended September 30, 2017, $84,642 of expense reimbursements that were eligible for recoupment by the Adviser expired.

There can be no assurance that the Expense Limitation Agreement will remain in effect beyond April 30, 2018 or that the Adviser will reimburse any portion of our expenses in future quarters not covered by the Expense Limitation Agreement. Amounts shown do not include the amounts committed by the Adviser to voluntarily reimburse the Company for unrealized losses, all of which are not recoupable.

Portfolio Investment Activity for the three and nine months ended September 30, 2017 and September 30, 2016.

During the nine months ended September 30, 2017, we made long investments in portfolio companies and other investments totaling $62,241,424. During the same period, we generated proceeds from sales and principal repayments on long investments of $72,746,045. As of September 30, 2017, our investment portfolio, with a total fair value of $69,976,166, consisted of 40 interests in portfolio companies (calculated as a percentage of total invested assets: 20.5% in first lien senior secured loans, 6.3% in second lien senior secured loans, 0.0% in escrow loans, 53.7% in corporate bonds, 2.8% in asset-backed securities, 0.0% in closed-end mutual funds, 3.0% in warrants, 10.3% in common stock, 3.3% in preferred stock, and 0.1% in rights). As of September 30, 2017, including investments underlying the TRS on a look-through basis, the investments in our portfolio were purchased at a weighted average price of 87.51% of par or stated value, as applicable, and our estimated gross annual portfolio yield (which represents the expected yield to be generated by us on our investment portfolio based on the composition of our portfolio as of such date), prior to leverage, was 8.49% based upon the amortized cost of our investments. The portfolio yield does not represent an actual investment return to stockholders and does not include income from CLO equity.

During the nine months ended September 30, 2016, we made investments in portfolio companies and other investments totaling $63,279,264. During the same period, we sold investments for proceeds of $27,907,573. As of September 30, 2016 our investment portfolio, with a total fair value of $62,927,137, consisted of interests in 38 portfolio companies (33.2% in first lien senior secured loans, 20.4% in second lien senior secured loans, 33.3% in corporate bonds, 6.3% in common stocks, 4.8% in asset-backed securities and 2.0% in warrants). As of September 30, 2016, the investments in our portfolio were purchased at a weighted average price of 86.43% of par or stated value, as applicable, and our estimated gross annual portfolio yield (which represents the expected yield to be generated by us on our investment portfolio based on the composition of our portfolio as of such date), prior to leverage, was 7.63% based upon the amortized cost of our investments. The portfolio yield does not represent an actual investment return to stockholders and does not include income from CLO equity.

Total Portfolio Activity

The following table’s present selected information regarding our portfolio investment activity for the three and nine months ended September 30, 2017 and September 30, 2016:

Net Investment Activity	For the Three Months Ended September 30, 2017			For the Nine Months Ended September 30, 2017
Purchases		8,886,781			62,241,424
Proceeds from Securities Sold Short		—			—
Purchases of Securities Sold Short		—			—
Sales and Principal Repayments		(2,004,759	)		(72,746,045	)
Net Portfolio Activity		6,882,022			(10,504,621	)

Net Investment Activity	For the Three Months Ended September 30, 2016			For the Nine Months Ended September 30, 2016
Purchases	$	10,450,173		$	63,279,264
Proceeds from Securities Sold Short		(176,203	)		(939,022	)
Purchases of Securities Sold Short		134,935			503,860
Sales and Principal Repayments		(8,034,499	)		(27,907,573	)
Net Portfolio Activity	$	2,374,406		$	34,936,529

	For the Three Months Ended September 30, 2017					For the Nine Months Ended September 30, 2017
New Investment Activity by Asset Class	Purchases		Percentage			Purchases		Percentage
Senior Secured Loans—First Lien	$	3,214,502		36.2	%	$	18,641,026		30.0	%
Senior Secured Loans—Second Lien		—		0.0	%		1,641,667		2.6	%
Corporate Bonds – Senior Unsecured		5,252,588		59.1	%		30,686,814		49.3	%
Closed-End Mutual Funds		—		0.0	%		14,154		0.0	%
Preferred Stock		419,691		4.7	%		3,215,965		5.2	%
Equities		—		0.0	%		8,041,798		12.9	%
Total Investment Activity	$	8,886,781		100.0	%	$	62,241,424		100.0	%

	For the Three Months Ended September 30, 2016					For the Nine months ended September 30, 2016
New Investment Activity by Asset Class	Purchases		Percentage			Purchases		Percentage
Senior Secured Loans — First Lien	$	1,517,324		14.5	%		19,915,931		31.4	%
Senior Secured Loans — Second Lien		1,744,786		16.7	%		2,506,786		4.0	%
Corporate Bonds — Senior Unsecured		3,965,051		38.0	%		18,165,766		28.7	%
Convertible Bonds — Senior Unsecured		—		0.0	%		560,000		0.9	%
Foreign Sovereign Bonds — Senior Unsecured		1,018,750		9.8	%		10,998,389		17.4	%
Asset-Backed Securities		—		0.0	%		2,460,000		3.9	%
Purchased Call Options		109,718		1.0	%		377,991		0.6	%
Equities(1)		2,094,543		20.0	%		8,294,401		13.1	%
Total Investment Activity	$	10,450,172		100.0	%	$	63,279,264		100.0	%

(1) In addition to the purchase amount shown here, the Company also sold short for proceeds of $176,203 during the three months ended September 30, 2016 and $939,022 during the nine months ended September 30, 2016. The Company did not execute any short sales during the three and nine months ended September 30, 2017.

The following table summarizes the amortized cost and the fair value of the Company’s invested assets as of September 30, 2017:

Portfolio Composition by Investment Type	Amortized Cost(1)		Fair Value		Percentage of Portfolio (at fair value)
Senior Secured Loans — First Lien	$	14,510,709	$	14,319,966		20.5	%
Senior Secured Loans — Second Lien		4,424,356		4,393,125		6.3	%
Senior Secured Loans — Escrow Loan		87,816		8,750		0.0	%
Asset-Backed Securities		1,968,094		1,961,079		2.8	%
Closed-End Mutual Funds		14,154		15,305		0.0	%
Corporate Bonds		38,068,077		37,556,876		53.7	%
Common Stocks		6,960,276		7,210,081		10.3	%
Preferred Stock		3,215,965		2,330,417		3.3	%
Rights		154,404		65,651		0.1	%
Warrants		—		2,114,916		3.0	%
Total Invested Assets	$	69,403,851	$	69,976,166		100.0	%

(1) Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

The following table summarizes the amortized cost and the fair value of the Company’s invested assets by class of financial asset as of September 30, 2017 to include, on a look-through basis, the investments underlying the TRS, as disclosed in Note 7 of the financial statements included herein. The investments underlying the TRS had a notional amount and market value of $38,185,770 and $37,463,810, respectively, as of September 30, 2017. The TRS was not in place as of December 31, 2016.

Portfolio Composition by Investment Type	Amortized Cost(1)		Fair Value		Percentage of Portfolio (at fair value)
Senior Secured Loans — First Lien	$	43,179,442	$	42,494,389		39.5	%
Senior Secured Loans — Second Lien		13,941,393		13,682,512		12.7	%
Senior Secured Loans — Escrow Loan		87,816		8,750		0.0	%
Asset-Backed Securities		1,968,094		1,961,079		1.8	%
Closed-End Mutual Funds		14,154		15,305		0.0	%
Corporate Bonds		38,068,077		37,556,876		35.0	%
Common Stocks		6,960,276		7,210,081		6.7	%
Preferred Stock		3,215,965		2,330,417		2.2	%
Rights		154,404		65,651		0.1	%
Warrants		—		2,114,916		2.0	%
Total Invested Assets	$	107,589,621	$	107,439,976		100.0	%

(1) Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

The following tables summarize the composition of our invested assets by class of financial asset at amortized cost and fair value as of December 31, 2016:

	December 31, 2016
Portfolio Composition by Investment Type	Amortized Cost(1)		Fair Value		Percentage of Portfolio (at fair value)
Senior Secured Loans — First Lien	$	27,394,540	$	28,864,108		36.9	%
Senior Secured Loans — Second Lien		12,790,248		12,673,072		16.2	%
Senior Secured Loans — Escrow Loan		87,816		17,500		0.0	%
Asset-Backed Securities		2,576,709		2,614,217		3.3	%
Convertible Bonds		569,431		700,625		0.9	%
Corporate Bonds		28,847,813		28,113,471		35.9	%
Common Stocks		6,170,708		4,532,375		5.8	%
Rights		154,404		96,288		0.1	%
Warrants		—		678,940		0.9	%
Total Invested Assets	$	78,591,669	$	78,290,596		100.0	%

(1) Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

The following table presents certain selected information regarding the composition of our invested assets as of September 30, 2017 and December 31, 2016:

	September 30, 2017			December 31, 2016
Number of Investments		40			42
% Variable Rate (based on fair value)		54	%(1)		53	%
% Non-Income Producing Equity or Other Investments (based on fair value)		5	%(1)		3	%
Weighted Average Purchase Price of Investments (as a % of par or stated value)		87.51	%(1)		87.40	%
Weighted Average Credit Rating of Investments that were Rated		Caa1	(1)		Caa1
% of Fixed Income Investments on Non-Accrual (based on fair value)		0	%(1)(2)		0	%(2)

(1) Includes positions underlying the TRS.

(2) Represents less than 0.5%.

Portfolio Composition by Strategy and Industry

	September 30, 2017					December 31, 2016
Portfolio Composition by Strategy	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
Broadly Syndicated — Private	$	2,223,759		3.2	%	$	3,639,776		4.7	%
Broadly Syndicated – Public		8,836,231		12.6	%		8,548,645		10.9	%
Middle-Market		56,955,097		81.4	%		63,487,958		81.1	%
Opportunistic/Other		1,961,079		2.8	%		2,614,217		3.3	%
Total Invested Assets	$	69,976,166		100.0	%	$	78,290,596		100.0	%

Broadly, syndicated debt refers to loans and other instruments originated by a bank to a large corporation (both private and public) that are sold off, or syndicated, to investors in pieces. Middle-Market companies include companies with annual revenues between $50 million and $2.5 billion.

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of September 30, 2017 and December 31, 2016:

	September 30, 2017					December 31, 2016
Industry Classifications	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
Chemicals	$	136,000		0.2	%	$	73,665		0.1	%
Energy		653,588		0.9	%		5,293,496		6.8	%
Financial		3,911,384		5.6	%		2,614,217		3.3	%
Healthcare		51,141,186		73.1	%		48,076,536		61.5	%
Media/Telecommunications		1,331,231		1.9	%		4,087,500		5.2	%
Real Estate Investment Trusts (REITs)		5,312,281		7.6	%		2,200,805		2.8	%
Retail		2,984,562		4.3	%		4,105,999		5.2	%
Service		—		0.0	%		3,791,110		4.8	%
Technology		—		0.0	%		5,120,935		6.5	%
Telecommunication Services		2,282,175		3.2	%		943,020		1.2	%
Utilities		2,223,759		3.2	%		1,983,313		2.6	%
Total Invested Assets	$	69,976,166		100.0	%	$	78,290,596		100.0	%

As of September 30, 2017, we did not “control” and were not an “affiliated person,” each as defined in the 1940 Act, of any of our portfolio companies. In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned 25% or more of its voting securities or we had the power to exercise control over the management or policies of such portfolio company, and would be an “affiliated person” of a portfolio company if we owned 5% or more of its voting securities.

Summary Description of Portfolio Companies/Investments

Our primary focus is to invest a majority of the portfolio in direct lending or originated opportunities over time. However, during the “ramp up phase,” the portfolio will consist primarily of middle-market loans as well as broadly syndicated bank loans (both private and public), corporate bonds, cash and cash equivalents and U.S. government securities. The ramp up phase will begin to wind down now that $50 million of total capital has been raised. We will begin deploying a portion of the portfolio into direct lending or originated opportunities (including, secured and unsecured debt and mezzanine financing) and equity investments (including warrants received in connection with originated debt investments).

Our primary holdings currently include senior secured first and second lien bank loans and bonds as well as total return swaps. Bank loans typically accrue interest at variable rates determined by reference to a base lending rate, such as LIBOR. The base rate typically resets every three months, such that bank loans have a very short duration of 90 days on average and typically have maturities of 3 to 5 years. Corporate notes and bonds typically accrue a fixed rate of interest with maturities of 5 to 7 years.

We focus on healthcare investments, although we may invest without limit in non-healthcare related investments and portfolio companies. The Adviser believes there is an excellent opportunity in the healthcare sector as a result of the aging population (Americans are turning age 65 at a rate of approximately 10,000 per day) and the longer life span of the average American due to increased usage of technology and pharmaceuticals in healthcare. Overarching all of this is the multi-year long implementation of the Affordable Care Act (“ACA”), the largest structural change to the U.S. healthcare sector since the passage of Medicare and Medicaid in the mid 1960’s. The Adviser believes these macro factors will combine to produce above average growth in the healthcare sector for at least the next decade.

The healthcare sector has traditionally been a stable, defensive sector. However, with the macro influences affecting the sector, particularly implementation of the ACA, we believe there will be more volatility and upheaval in the sector than historically has been the case. Investing in credit potentially minimizes unwanted volatility while also positioning the portfolio to participate in the potential growth of the healthcare sector while earning income. We believe lending to middle-market healthcare companies may potentially generate a higher risk adjusted yield. As we grow, it is our intention to do more origination and direct lending, predominantly to healthcare companies, although we will also make investments in non-healthcare companies where an opportunity exists to achieve above average risk adjusted yields and returns.

Summary Description of Top Portfolio Companies/Investments

As of September 30, 2017 and December 31, 2016, 65% and 65% (based on fair value), respectively, of our portfolio consisted of healthcare related and opportunistic investments. Information regarding these investments is provided below, and includes investments underlying the TRS on a look-through basis. This additional information is limited to publicly available information, and does not address credit worthiness or financial viability of the issuer, or our future plans as it relates to a specific investment:

Healthcare Investments

Ortho-Clinical Diagnostics: As of September 30, 2017 and December 31, 2016, we held corporate bonds of Ortho-Clinical Diagnostics (“Ortho-Clinical”) having an aggregate fair value of $9.1 million and $11.3 million, respectively. Ortho-Clinical is a provider of in-vitro diagnostic solutions for screening, diagnosing, monitoring and confirming diseases, as well as immunohematology to ensure compatibility for blood transfusions and plasma screening for infectious diseases.

U.S. Renal Care: As of September 30, 2017 and December 31, 2016, we held senior secured loans in US Renal Care, Inc. (“U.S. Renal Care”) having an aggregate fair value of $8.3 million and $4.0 million, respectively. U.S. Renal Care develops, acquires, and operates a network of outpatient, home, and specialty dialysis centers for serving patients suffering from chronic kidney failures in the United States. The company provides in-center and at-home hemodialysis and peritoneal dialysis services for end stage renal diseases. It operates outpatient, home, and specialty dialysis programs. The company also manages various acute setting dialysis programs in conjunction with local community hospitals. It also serves families, caregivers and physicians. U.S. Renal Care was founded in 2000 and is based in Plano, Texas. Upon completing an acquisition of DSI Renal in January 2016, U.S. Renal Care became third-largest provider of dialysis services in the United States, with approximately 300 outpatient dialysis facilities across 32 states/territories.

Valeant Pharmaceuticals International, Inc.: As of September 30, 2017 and December 31, 2016, we held senior secured loans and corporate bonds of Valeant Pharmaceuticals, Inc. (“Valeant”) having an aggregate fair value of $12.0 million and $3.4 million, respectively. Valeant is a multinational, specialty pharmaceutical and medical device company that develops, manufacturers, and markets a broad range of branded, generic and branded generic pharmaceuticals, over-the-counter products, and medical devices, which are marketed directly or indirectly in over 100 countries. The company’s broad portfolio of over 1,800 products is primarily focused in the areas of dermatology, gastrointestinal disorders, eye health (including Bausch + Lomb), neurology and branded generics. Valeant is headquartered in Laval, Quebec.

Quorum Health Corp.: As of September 30, 2017 and December 31, 2016, we held first lien senior secured loans and corporate bonds of Quorum Health Corp. (“Quorum”) having an aggregate fair value of $7.2 million and $11.7 million, respectively. Quorum Health Corporation is a leading provider of hospital and outpatient healthcare services focused on facility-based acute care in rural and mid-sized markets. As of July 11, 2017, the company owned or leased 32 hospitals located across 16 states with an aggregate of approximately 3,100 licensed beds. Approximately 84% of the company’s hospitals are sole providers in their local markets. Quorum also provides hospital management advisory and healthcare consulting services through its wholly-owned subsidiary, Quorum Health Resources. Quorum was formed through a spin-off of select assets from Community Health Systems Inc. completed in April 2016. The company is headquartered in Nashville, TN.

DJO Finance, LLC / DJO Finco Inc.: As of September 30, 2017, we held the first lien secured loan and corporate bonds of DJO Finance, LLC (“DJO”) with an aggregate fair value of $5.9 million. We did not hold any such investments as of December 31, 2016. DJO is a global developer, manufacturer and distributor of a diverse range of medical devices for musculoskeletal health, vascular health and pain management, including rigid and soft orthopedic bracing, hot and cold therapy, bone growth stimulators, vascular therapy systems, compression garments, therapeutic shoes, electrical stimulators and physical therapy products.

Endo Finance, LLC / Endo Finco Inc.: As of September 30, 2017, we held corporate bonds of Endo Finance, LLC (“Endo”) with an aggregate fair value of $3.3 million. We did not hold any such investments as of December 31, 2016. Endo is a generics and specialty branded pharmaceutical company, with a portfolio of over 250 prescription product families focused in the areas of pain management, urology, central nervous system disorders, immunosuppression, oncology, women’s health and cardiovascular disease markets, among others. The company’s portfolio includes products across an extensive range of dosage forms and delivery systems, including immediate and extended release oral solids, injectables, liquids, nasal sprays, ophthalmics and transdermal patches. Endo has global headquarters in Dublin, Ireland, and U.S. headquarters in Malvern, PA.

Opportunistic Investments

The Adviser makes opportunistic investments when it believes it has a differentiated view on an investment, has sourced a unique opportunity, or an investment has the potential for, in the Adviser’s opinion, an outsized return for the risk assumed. We will typically limit opportunistic investments to 20% or less of the portfolio, although we may invest more from time to time. The objective of opportunistic investments is primarily to generate capital appreciation, however, some opportunities may produce income as well.

iHeart Communications, Inc.: As of September 30, 2017 and December 31, 2016 we held first lien senior secured loans and bonds of iHeart Communications, Inc. (“iHeart”) having an aggregate fair value of $5.2 million and $4.1 million, respectively. iHeart is the largest broadcast radio and events business in the United States, and owns 90% of Clear Channel Outdoor, one of the world’s largest outdoor advertising companies. The company owns and operates approximately 850 broadcast radio stations in the United States and almost 1 million outdoor advertising displays in 45 countries. iHeartMedia also operates the iHeartRadio streaming app with 96 million registered users.

Vistra Energy: As of September 30, 2017 and December 31, 2016, we held common stock and rights shares of Vistra Energy (OTC:VSTE) (“Vistra Energy”) having an aggregate fair value of $2.2 million and $1.0 million, respectively. Vistra Energy is the largest electric power generator and retail electric provider in Texas, with other 16 GW of generation capacity and over 1.7 million retail customers. Vistra Energy was formerly named Texas Competitive Electric Holdings. The company emerged from bankruptcy on October 3, 2016. Upon emergence from bankruptcy, 1st lien creditor interests were converted into equity in the reorganized company. The reorganized equity is now listed on the New York Stock Exchange.

Results of Operations for the three and nine months ended September 30, 2017 and September 30, 2016

Revenues

We generate a significant portion of our investment income in the form of interest on the debt securities we purchase or originate. During the ramp up phase, we have invested primarily in broadly syndicated bank loans of private companies. Bank loans generally pay interest at rates which are periodically determined by reference to a base lending rate plus a spread. The base lending rate is typically the three-month LIBOR. The settlement of bank loans differs from the settlement of many other equity or debt instruments. Bank loans are manually settled through the agent by assignment. As a result, settlement can take an undetermined amount of time. Currently, according to data provided by Markit Partners, bank loans settle, on average, on the seventeenth day after the trade date. Generally, interest does not begin to accrue to the buyer until seven business days after the trade date.

Our CLO equity pays quarterly dividends based on excess cash flow available after the CLO’s payment “waterfall” provisions. Both Grayson and PAMCO CLOs are past their respective investment periods, and as a result, excess cash flow is expected to decline over time. We, therefore, expect that the quarterly dividends paid by the investment will similarly decline.

Expenses

For the three and nine months ended September 30, 2017, respectively, we had total net operating expenses of $193,689 or $0.02 per share and $933,621 or $0.11 per share. Our total net operating expenses were $353,096 or $0.06 per share and $803,911 or $0.19 per share, for the three and nine months ended September 30, 2016, respectively. Base management fees attributed to the Adviser of $305,288 and $1,106,346 for the three and nine months ended September 30, 2017, respectively, which were voluntarily waived for both periods. Our operating expenses include base management fees attributed to the Adviser of $363,595 and $797,215 for the three and nine months ended September 30, 2016, respectively, which were voluntarily waived for both periods. Our expenses include administrative services expenses attributed to the Adviser of $69,308 and $229,520 for the three and nine months ended September 30, 2017, respectively, which were voluntarily waived for both periods. Administrative services expenses attributed to the Adviser of $72,719 and $159,441, for the three and nine months ended September 30, 2016, respectively, were voluntarily waived for both periods. Amounts waived for management fees or administrative services expenses pertaining to periods prior to June 10, 2016 are not recoupable, but amounts waived for management fees or administrative services expenses pertaining to periods from and after June 10, 2016 are subject to recoupment by the Adviser within three years from the date that such fees were otherwise payable, provided that the recoupment will be limited to the amount of such voluntarily waived fees from and after June 10, 2016 and will not cause the sum of the Company’s advisory fees, administration fees, Other Expenses, and any recoupment to exceed the annual rate of 3.40% of average gross assets.

Amounts waived and subject to recoupment pertaining to advisory and administration fees are shown below:

Period Ended	Advisory Fees Waived and Subject to Recoupment (1)		Administrator fees Waived and Subject to Recoupment(1)		Recoupment Eligibility Expiration
September 30, 2017	$	305,288	$	69,308		September 30, 2020
June 30, 2017		389,733		77,947		June 30, 2020
March 31, 2017		390,969		78,194		March 31, 2020
December 31, 2016		366,861		73,372		December 31, 2019
September 30, 2016		343,320		68,664		September 30, 2019
June 30, 2016		74,421		14,884		June 30, 2019
Total	$	1,870,592	$	382,369

(1) The Advisor has permanently waived the recoupment of any advisory fees or administration fees calculated on the portion of gross assets attributable to the receivable from Advisor balance on the Statement of Assets and Liabilities.

In addition, cumulatively since inception through to June 10, 2016, the Company has voluntarily waived $930,143 and $186,042 of advisory fees and administration fees, respectively, all of which are not recoupable.

Our other expenses subject to the Expense Limitation Agreement for three and nine months ended September 30, 2017 were $351,204 and $983,110, respectively, and consisted of the following:

	For the Three Months Ended September 30, 2017		For the Nine Months Ended September 30, 2017
Audit and tax fees	$	58,382	$	161,527
Legal fees		46,772		127,296
Custodian and accounting service fees		79,982		234,276
Reports to stockholders		—		95,887
Stock transfer fee		136,158		305,530
Directors’ fees		4,526		11,129
Other expenses		25,384		47,465
Total	$	351,204	$	983,110

Our other expenses subject to the Expense Limitation Agreement for the three and nine months ended September 30, 2016 were $236,661 and $803,909, respectively, and consisted of the following:

	For the Three months ended September 30, 2016		For the Nine months ended September 30, 2016
Audit and tax fees	$	38,540	$	157,025
Legal fees		67,623		205,324
Custodian and accounting service fees		47,140		148,357
Reports to stockholders		15,040		75,953
Stock transfer fee		62,989		200,123
Directors’ fees		1,442		5,903
Other expenses		3,887		11,224
Total	$	236,661	$	803,909

Please refer to the Expense Limitation section above for further details on expense reimbursements.

Net Investment Income

We earned net investment income of $1,377,808 or $0.15 per share, and $1,030,934, or 0.19 per share, for the three months ended September 30, 2017 and September 30, 2016, respectively. We earned net investment income of $5,228,770 or $0.63 per share, and $2,198,307, or 0.52 per share for the nine months ended September 30, 2017 and September 30, 2016, respectively.

Net Realized Gains or Losses

We had sales or principal repayments of $2,004,759 and $8,034,499 during the three months ended September 30, 2017 and September 30, 2016, respectively, from which we realized a net gains/(losses) of $141,187 and $695,515, respectively. We had sales or principal repayments of $72,746,045 and $27,907,573 during the nine months ended September 30, 2017 and September 30, 2016, respectively, from which we realized a net gains/(losses) of $(272,623) and $1,197,232, respectively. The net realized loss on the TRS was $(524,777) and $(524,777) for the three and nine months ended September 30, 2017.

Net Change in Unrealized Appreciation (Depreciation) on Investments

For the three months ended September 30, 2017 and September 30, 2016, the net change in unrealized appreciation (depreciation) on investments totaled $(774,650) or $(0.09) per share, and $1,191,250 or $0.22 per share, respectively. For the nine months ended September 30, 2017 and September 30, 2016, the net change in unrealized appreciation (depreciation) on investments totaled $873,388 or $0.11 per share, and $3,844,531 or $0.90 per share, respectively. The net change in unrealized appreciation (depreciation) on the TRS was $(421,401) and $(633,427) for the three and nine months ended September 30, 2017. The net change in unrealized appreciation (depreciation) on our investments during the nine months ended September 30, 2017 and September 30, 2016 was primarily driven by the performance of the Toys ‘R’ US, Inc. Term B-4 Loan and the performance of the Ortho-Clinical Diagnostics Holdings Bond, respectively.

Net Increase from Payment from Affiliates

For the three months ended September 30, 2017 and September 30, 2016, the Adviser committed $0 and $0, respectively to the Company to voluntarily reimburse the Company for unrealized losses sustained. For the nine months ended September 30, 2017 and September 30, 2016, the Adviser committed $0 and $872,000, respectively to the Company to voluntarily reimburse the Company for unrealized losses sustained. Cumulatively since inception, the Adviser has committed $2,275,000 to voluntarily reimburse the Company for such losses. Had these commitments not been made, the NAV as of September 30, 2017 would have been lower by approximately this amount. These commitments are shown in the Statement of Operations as net increase from amounts committed by affiliates and are not recoupable.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the nine months ended September 30, 2017 and September 30, 2016, the net increase/(decrease) in net assets resulting from operations was $4,671,331 or $0.56 per share, and $8,112,070, or $1.91 per share, respectively.

	For the Nine Months Ended September 30, 2017			For the Nine Months Ended September 30, 2016
Income	$	6,162,391		$	3,002,218
Net expenses		(933,621	)		(803,911	)
Net realized gain/(loss)		(797,400	)		1,197,232
Net unrealized appreciation (depreciation)		239,961			3,844,531
Net increase from amounts committed by affiliates		—			872,000
Total	$	4,671,331		$	8,112,070

For the three months ended September 30, 2017 and September 30, 2016, the net increase/(decrease) in net assets resulting from operations was $(201,833) or $(0.02) per share, and $2,917,699, or $0.53 per share, respectively.

	For the Three Months Ended September 30, 2017			For the Three Months Ended September 30, 2016
Income	$	1,571,497		$	1,384,030
Net expenses		(193,689	)		(353,096	)
Net realized gain/(loss)		(383,590	)		695,515
Net unrealized appreciation (depreciation)		(1,196,051	)		1,191,250
Net increase from amounts committed by affiliates		—			—
Total	$	(201,833	)	$	2,917,699

Financial Condition, Liquidity and Capital Resources

As of September 30, 2017 and December 31, 2016, we had cash and cash equivalents of $6,791,502 and $3,948,113, respectively. As of September 30, 2017 and December 31, 2016, $6,620,362 and $3,913,546 was held in the State Street U.S. Government Money Market Fund, and $171,140 and $34,567 was held in a custodial account with State Street Bank and Trust Company, respectively. Cash and cash equivalents are available to fund new investments, pay operating expenses and pay distributions.

In aggregate through June 30, 2017 the Adviser controls 2,117,895 shares, including reinvestment of dividends, for a net amount of approximately $20.2 million.

The sales commissions and dealer manager fees related to the sale of our common stock were $1,453,224 and $2,142,925 for the nine months ended September 30, 2017 and September 30, 2016, and were offset against capital in excess of par value on the financial statements.

We expect to generate cash primarily from the net proceeds of our continuous public offering and from cash flows from fees, interest and dividends earned from our investments, as well as principal repayments and proceeds from sales of our investments. We are engaged in a continuous public offering of shares of common stock. Through September 30, 2015 we accepted subscriptions on a continuous basis and issued shares at monthly closings at prices that, after deducting selling commissions and dealer manager fees, must be above our net asset value per share. Effective October 1, 2015, we changed the frequency of our closings, which now occur weekly.

Prior to investing in securities of portfolio companies, we invest the net proceeds from our continuous public offering, from the issuance of shares of common stock under our distribution reinvestment plan and from sales and paydowns of existing investments primarily in cash, cash equivalents, U.S. government securities, repurchase agreements, high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our election to be treated as a RIC. Additionally, we may invest in higher yielding, liquid credit investments such as bank loans and corporate notes and bonds, which are considered “junk” as they are rated below investment grade, to the extent that at time of purchase 70% of our portfolio is in qualified investments as required by rules and regulations under the 1940 Act.

We may borrow funds to make investments, including before we have fully invested the proceeds of our continuous public offering, to the extent we determine that additional capital would allow us to take advantage of additional investment opportunities. On January 6, 2015, we entered into a senior, secured revolving credit facility (the “Credit Facility”) with State Street Bank and Trust Company (“State Street”) as lender and agent. Under the Credit Facility, State Street had agreed to extend credit to us, in an aggregate principal amount of up to $25 million, subject to borrowing base availability and restrictions on our total outstanding debt. Loans under the Credit Facility bore interest (at our election) at either (1) the higher of (i) the federal funds rate plus 1.25% per annum and (ii) the daily one-month London Interbank Offered Rate (“LIBOR”) plus 1.25% per annum or (2) one-, two- or three-month LIBOR plus 1.15% per annum. Interest was payable monthly in arrears. On January 5, 2016, the Company amended the Credit Facility with State Street and extended the maturity to January 3, 2017. The amendment to the Credit Facility did not contain any other material changes to the original agreement which was entered into on January 6, 2015 other than increasing the commitment fee from 0.15% to 0.25% per annum on the daily unutilized portion of the $25 million program amount. On January 3, 2017, the Company amended the Credit Facility with State Street and extended the maturity to March 20, 2017. The Credit Facility was fully paid down on February 24, 2017 and expired on March 20, 2017.

As of September 30, 2017 and December 31, 2016, $0 and $11,200,000, respectively, were outstanding under the Credit Facility. The Company incurred costs of $25,000 in connection with obtaining the Credit Facility. As of September 30, 2017, all such financing costs have been amortized to interest expense.

For the three and nine months ended September 30, 2017 and September 30, 2016 the components of total interest expense were as follows:

	For the Three Months Ended September 30, 2017		For the Nine Months Ended September 30, 2017
Direct interest expense	$	—	$	42,325
Commitment fees		—		8,054
Amortization of financing costs		—		—
Total	$	—	$	50,379
	For the Three Months Ended September 30, 2016		For the Nine Months Ended September 30, 2016
Direct interest expense	$	40,511	$	69,759
Commitment fees		9,758		36,478
Amortization of financing costs		—		—
Total	$	50,269	$	106,237

On June 13, 2017, the Company, entered into the TRS with BNP Paribas over one or more loans, with a maximum aggregate notional amount of the portfolio debt securities subject to the TRS of $40 million.

As of September 30, 2017, the TRS had a notional amount of $38,185,770 and a market value of $37,463,810. Cash collateral of $13,120,000 was posted against the TRS. See Note 7 to the financial statements included herein for additional information on the TRS.

While we are authorized to issue preferred stock, we do not currently anticipate issuing any.

Contractual Obligations and Off-Balance Sheet Arrangements

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of September 30, 2017 and December 31, 2016, we had no outstanding commitments to fund investments.

We have certain contracts under which we have material future commitments. We have entered into the Investment Advisory Agreement with the Adviser in accordance with the 1940 Act. Under the Investment Advisory Agreement, the Adviser provides us with investment advisory and management services. For these services, we pay (1) a management fee equal to a percentage of the average value of our gross assets and (2) an incentive fee based on our performance.

The incentive fee consists of two parts. The first part, which is calculated and payable quarterly in arrears, equals Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter and is subject to a hurdle rate, expressed as a rate of return on our net assets, equal to 1.875% per quarter. As a result, the Adviser will not earn this incentive fee for any quarter until our pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once our pre-incentive fee net investment income in any quarter exceeds the hurdle rate, the Adviser will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until our pre-incentive fee net investment income for such quarter equals 2.34375% of the Company’s net assets at the end of such quarter. This “catch-up” feature allows the Adviser to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, the Adviser will receive 20.0% of our pre-incentive fee net investment income. For purposes of calculating this part of the incentive fee, “Pre-Incentive Fee Net Investment Income” means interest income, distribution income and any other income (including any other fees, other than fees for providing managerial assistance, such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from

portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). This fee equals 20.0% of our incentive fee capital gains, which will equal our realized capital gains on a cumulative basis from formation, calculated as of the end of the applicable period, computed net of all realized capital losses (proceeds less amortized cost) and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. We will accrue for the capital gains incentive fee, which, if earned, will be paid annually. We will accrue for the capital gains incentive fee based on net realized and unrealized gains; however, under the terms of the Investment Advisory Agreement, the fee payable to the Adviser will be based on realized gains and no such fee will be payable with respect to unrealized gains unless and until such gains are actually realized. For the three months ended September 30, 2017 and September 30, 2016, the Company recognized a reduction of ($315,928) and accrued $313,850 of incentive fees on capital gains, respectively. For the nine months ended September 30, 2017 and September 30, 2016, the Company recognized a reduction of ($111,488) and accrued $313,850 of incentive fees on capital gains, respectively. Since inception, the Company has accrued $64,079 of incentive fees on capital gains in aggregate, all of which was voluntarily waived.

Under the Administration Agreement, the Adviser furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our day-to-day operations. We will reimburse the Adviser for the allocable portion (subject to the review and approval of the Board) of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the cost of our chief financial officer and chief compliance officer and their respective staffs, to the extent that such expenses do not exceed an annual rate of 0.4% of our gross assets. The Adviser also provides on our behalf significant managerial assistance to those portfolio companies to which we are required to offer to provide such assistance and any expenses payable to the Adviser for such managerial assistance are not subject to the cap on reimbursement.

Our organization and offering costs together are limited to 1% of total gross proceeds raised and are not due and payable to the Adviser to the extent they exceed that amount. Currently, the cumulative aggregate amount of organization and offering costs exceeds 1% of total proceeds raised. As of September 30, 2017, $4,139,919 of organization and offering costs could become payable to the Adviser contingent upon the amount of future proceeds raised.

If any of the contractual obligations discussed above is terminated, our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we receive under our Investment Advisory Agreement and our Administration Agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.

If for any taxable year we were not a “publicly offered” RIC within the meaning of Code Section 67(c)(2)(B), certain of our direct and indirect expenses, including the management fee, the incentive fee and certain other advisory expenses, would be subject to special “pass-through” rules. Such rules would treat these expenses as additional dividends to certain of our direct or indirect stockholders (generally including individuals and entities that compute their taxable income in the same manner as an individual) and as deductible by those stockholders, subject to the 2% “floor” on miscellaneous itemized deductions and other significant limitations on itemized deductions set forth in the Code.

Distributions

In order to qualify for the special tax treatment accorded RICs and their shareholders, we are required under the Code, among other things, to distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, or “investment company taxable income,” to our stockholders on an annual basis. We intend to authorize and declare weekly distributions to be paid monthly to our stockholders as determined by the Board. In addition, we also intend to distribute any realized net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) at least annually.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of our distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage requirements applicable to us as a BDC under the 1940 Act. If we do not distribute a certain percentage of our income annually, we will suffer adverse U.S. federal income tax consequences, including possible failure to qualify for the special tax treatment accorded RICs and their shareholders. We cannot assure stockholders that they will receive any distributions.

To the extent our taxable earnings fall below the total amount of our distributions for a taxable year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gains. Required distributions are driven by tax laws and thus tax accounting applies, not GAAP. Therefore, it is possible that we pay more in required distributions than we earn for book purposes. For the nine months ended September 30, 2017 and September 30, 2016, the Company did not distribute in excess of net investment income.

We have adopted an “opt in” distribution reinvestment plan for our stockholders. As a result, if we declare a cash distribution, our stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of our common stock. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a stockholder’s ability to participate in our distribution reinvestment plan. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders participating in our dividend reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes.

For the nine months ended September 30, 2017, the Company made the following distributions:

Payable Date	Dividend/ Share		Total Dividend1		Dividends Reinvested
9/27/2017	$	0.0554	$	505,439	$	331,096
8/30/2017		0.0554		497,727		328,315
8/2/2017		0.0692		610,689		403,364
6/28/2017		0.0554		481,256		318,649
5/31/2017		0.0692		580,257		385,226
4/26/2017		0.0554		445,910		295,916
3/29/2017		0.0554		431,714		286,868
3/1/2017		0.0554		418,078		277,772
2/1/2017		0.0692		499,353		332,190
Total	$	0.5400	$	4,470,423	$	2,959,396

¹  For the current period, there were no dividends classified as a return of capital.

For the year ended December 31, 2016, the Company made the following distributions:

Payable Date	Dividend/ Share		Total  Dividend1		Dividends Reinvested
12/31/2016	$	0.055	$	382,152	$	255,650
11/30/2016		0.055		368,541		247,396
10/30/2016		0.069		430,784		292,800
9/30/2016		0.055		321,955		220,312
8/31/2016		0.069		377,172		261,451
7/31/2016		0.055		277,907		200,860
6/29/20162		0.055		255,731		190,535
6/1/20163		0.067		280,557		216,628
4/29/2016		0.058		228,769		177,275
3/31/2016		0.058		196,318		161,095
2/29/2016		0.058		178,122		152,304
1/29/2016		0.058		166,836		146,197
Total	$	0.712	$	3,464,844	$	2,522,503

¹  For the year ended December 31, 2016, there were no dividends classified as a return of capital.

²  On May 12, 2016, the Board approved a $0.002 per share monthly increase to the dividend, which was normalized to the weekly distribution schedule starting in June 2016.

³  Beginning in May 2016, we began declaring dividends weekly.

Related Party Transactions

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

• We entered into the Investment Advisory Agreement with the Adviser. James Dondero, our president, controls the Adviser by virtue of his control of its general partner, NexPoint Advisors GP, LLC.

• Pursuant to an expense limitation agreement, the Adviser has agreed to waive fees or, if necessary, reimburse us to limit certain expenses to 1.0% of the quarter-end value of our gross assets.

• The Adviser provides us with the office facilities and administrative services necessary to conduct our day-to-day operations pursuant to the Administration Agreement.

• The Adviser has entered into an agreement with Highland, its affiliate, pursuant to which Highland makes available to the Adviser experienced investment professionals and other resources of Highland and its affiliates.

• The dealer manager for our continuous public offering, Highland Capital Funds Distributor, Inc., is an affiliate of the Adviser.

• In aggregate through September 30, 2017, the Adviser controls 2,117,895 shares, including reinvestment of dividends, for a net amount of approximately $20.2 million.

• Cumulatively since inception, the Adviser has committed $2,275,000 to voluntarily reimburse the Company for such losses. Had these commitments not been made, the NAV as of September 30, 2017 would have been lower by approximately this amount. These commitments are shown in the Statement of Operations as net increase from amounts committed by affiliates and are not recoupable.

The Adviser and its affiliates also sponsor, or manage, and may in the future sponsor or manage, other investment funds, accounts or investment vehicles (together referred to as “accounts”) that have investment mandates that are similar, in whole and in part, with ours. The Adviser and its affiliates may determine that an investment is appropriate for us and for one or more of those other accounts. In such event, depending on the availability of such investment and other appropriate factors, and pursuant to the Adviser’s allocation policy and co-investment relief, the Adviser or its affiliates may determine that we should invest side-by-side with one or more other accounts. We do not intend to make any investments if they are not permitted by applicable law and interpretive positions of the SEC and its staff, or if they are inconsistent with the Adviser’s allocation procedures and co-investment relief.

In addition, we and the Adviser have each adopted a formal code of ethics that governs the conduct of our and the Adviser’s officers, directors and employees. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Delaware General Corporations Law.

Critical Accounting Policies

The preparation of the financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. We have identified the following as critical accounting policies.

Fair Value of Financial Instruments

We will value our investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosure, or ASC Topic 820. ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value. ASC Topic 820’s definition of fair value focuses on exit price in the principal, or most advantageous, market and prioritizes the use of market-based inputs over entity-specific inputs within a measurement of fair value.

The portfolio will often include debt investments and equity investments that are fair valued. The portion of our portfolio that receives values from independent third parties are valued at their mid quotations obtained from unaffiliated market makers, other financial institutions that trade in similar investments or based on prices provided by independent third party pricing services. For investments where there are no available bid quotations, fair value is derived using proprietary models that consider the analyses of independent valuation agents as well as credit risk, liquidity, market credit spreads, and other applicable factors for similar transactions.

Due to the nature of our strategy once fully ramped, our portfolio will include relatively illiquid investments that are privately held. Valuations of privately held investments are inherently uncertain, may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed. Our net asset value could be materially affected if the determinations regarding the fair value of our investments were materially higher or lower than the values that we ultimately realize upon the disposal of such investments.

The Board is ultimately and solely responsible for determining the fair value of the portfolio investments that are not publicly traded, whose market prices are not readily available on a quarterly basis in good faith or any other situation where portfolio investments require a fair value determination.

The valuation process is conducted at the end of each fiscal quarter, with a portion of our valuations of portfolio companies without market quotations subject to review by the independent valuation firms each quarter. When an external event with respect to one of our portfolio companies, such as a purchase transaction, public offering or subsequent equity sale occurs, we expect to use the pricing indicated by such external event to corroborate our valuation.

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

• Our quarterly valuation process begins with each portfolio company or investment being initially valued by investment professionals of our investment adviser responsible for credit monitoring.

• Preliminary valuation conclusions are then documented and discussed with our senior management and our investment adviser.

• The audit committee of the Board reviews these preliminary valuations.

• At least once each quarter, the valuations for approximately one quarter of the portfolio investments that have been fair valued are reviewed by an independent valuation firm such that, over the course of a year, each material portfolio investment that has been fair valued shall have been reviewed by an independent valuation firm at least once.

• The Board discusses valuations and determines the fair value of each investment in our portfolio in good faith.

As of September 30, 2017, the Company held the following investments for which a sufficient level of current, reliable market quotations were not available:

Instrument	Type		Market Value
Gemphire Therapeutics, Inc.		Warrant	$	922,980
Caredex, Inc.		Warrant		807,762
PAMCO CLO 1997-1A B		Asset-Backed		288,776
SCYNEXIS, Inc.		Warrant		231,429
Kadmon Holdings, Inc.		Warrant		47,924
Galena Biopharma, Inc.		Warrant		335

As of December 31, 2016, the Company held the following investments for which a sufficient level of current, reliable market quotations were not available:

Instrument	Type		Market Value
CareDx, Inc.		Warrant	$	395,318
SCYNEXIS, Inc.		Warrant		259,771
PAMCO CLO 1997-1A B		Asset-Backed		275,625
Galena Biopharma, Inc.		Warrant		23,851

The Company values the TRS in accordance with the agreement (the “TRS Agreement”) with BNP Paribas (“BNP Paribas”) that establish the TRS. Pursuant to the TRS Agreement, the value of the TRS is based on the increase or decrease in the value of the loans underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The loans underlying the TRS are valued based on indicative bid prices provided by an independent third-party pricing service. Bid prices reflect the highest price that market participants may be willing to pay. These valuations are sent to the Company for review and testing. The Valuation Committee and the Board review and approve the value of the TRS, as well as the value of the loans underlying the TRS, on a quarterly basis. To the extent the Valuation Committee or the Board have any questions or concerns regarding the valuation of the loans underlying the TRS, such valuation is discussed or challenged pursuant to the terms of the TRS Agreement. For additional information on the TRS, see Note 7 to the financial statements included herein.

Organization Costs

Organization costs include the cost of incorporation, such as the cost of legal services and other fees pertaining to our organization and are paid by the Adviser, are expensed as we raise proceeds and become payable to the Adviser. Organization costs, together with offering costs, are limited to 1% of total gross proceeds raised in this offering and are not due and payable to the Adviser to the extent they exceed that amount. For the three and six months ended September 30, 2017 and September 30, 2016, the Adviser incurred and paid $0 of organization costs on our behalf. For the period from our inception to September 30, 2017, the Adviser incurred and paid organization costs of $33,392 on our behalf.

Offering Costs

Our offering costs include legal fees, promotional costs and other costs pertaining to the public offering of our shares of common stock, and are capitalized and amortized to expense over one year. For the three and nine months ended September 30, 2017, the Adviser incurred offering costs of $167,797 and $898,423, respectively, on our behalf. For the three and nine months ended September 30, 2016, the Adviser incurred offering costs of $275,719 and $732,086, respectively, on our behalf. For the three and nine months ended September 30, 2017, the Company capitalized $41,632 and $213,880 of offering costs, respectively. For the three and nine months ended September 30, 2016, the Company capitalized $117,192 and $317,141 of offering costs, respectively. Of the capitalized offering costs, $91,937 and $308,713 were amortized to expense during the three and nine months ended

September 30, 2017, respectively. Of the capitalized offering costs, $64,887 and $104,135 were amortized to expense during the three and nine months ended September 30, 2016, respectively. As of September 30, 2017 and September 30, 2016, $133,722 and $213,006 remained on the Statement of Assets and Liabilities, respectively.

Organization costs and offering costs are limited to 1% of total gross proceeds raised in this offering and are not due and payable to the Adviser to the extent they exceed that amount. Currently, the cumulative aggregate amount of $5,032,664 of organization and offering costs exceeds 1% of total proceeds raised. To the extent the Company is unable to raise sufficient capital such that the expenses paid by the Adviser on behalf of the Company are more than 1% of total proceeds at the end of the Offering, the Adviser will forfeit the right to reimbursement of the remaining $4,139,919 of these costs.

Investment Transactions and Related Investment Income and Expense

We record our investment transactions on a trade date basis, which is the date when we have determined that all material terms have been defined for the transactions. These transactions could possibly settle on a subsequent date depending on the transaction type. All related revenue and expenses attributable to these transactions are reflected on the Statements of Operations commencing on the trade date unless otherwise specified by the transaction documents. Realized gains and losses on investment transactions are recorded on the specific identification method. We accrue interest income if we expect that ultimately we will be able to collect it. Generally, when an interest payment default occurs on a loan in our portfolio, or if our management otherwise believes that the issuer of the loan will not be able to service the loan and other obligations, we place the loan on non-accrual status and will cease recognizing interest income on that loan until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed to be collectible. However, we remain contractually entitled to this interest. We may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. Accrued interest is written off when it becomes probable that such interest will not be collected and the amount of uncollectible interest can be reasonably estimated. We also accrue for delayed compensation, which is a pricing adjustment payable by the parties to a secondary loan trade that closes late, intended to assure that neither party derives an economic advantage from the delay. Delayed compensation begins calculating at the loan’s specific coupon rate if a trade hasn’t settled within 7 business days of trading. Original issue discounts, market discounts or premiums are accreted or amortized using the effective interest method as interest income, and will be accreted or amortized over the maturity period of the investments. We will record prepayment premiums on loans and debt securities as interest income. Dividend income, if any, will be recognized on an accrual basis to the extent that we expect to collect such amount.

We may have investments in our portfolio that contain a PIK interest provision. Any PIK interest will be added to the principal balance of such investments and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. In order to qualify for the special tax treatment accorded RICs and their shareholders, substantially all of our income (including PIK interest) must be distributed to stockholders in the form of dividends, even if we have not collected any cash.

Interest expense is recorded on an accrual basis. Certain expenses related to legal and tax consultation, due diligence, rating fees, valuation expenses and independent collateral appraisals may arise when we make certain investments.

Loan Origination, Facility, Commitment and Amendment Fees

We may receive fees in addition to interest income from loans during the life of the investment. We may receive origination fees upon the origination of an investment. These origination fees are initially deferred and deducted from the cost basis of the investment and subsequently accreted into income over the term of the loan. We may receive facility, commitment and amendment fees, which are paid to us on an ongoing basis. Facility fees, sometimes referred to as asset management fees, are accrued as a percentage periodic fee on the base amount (either the funded facility amount or the committed principal amount). Commitment fees are based upon the undrawn portion committed by us and are recorded on an accrual basis. Amendment fees are paid in connection with loan amendments and waivers and are accounted for upon completion of the amendments or waivers, generally when such fees are receivable. Any such fees are included in other income on the Statements of Operations.

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

We measure net realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

U.S. Federal Income Taxes

We have elected to be treated as a RIC under Subchapter M of the Code and intend each year to qualify and be eligible to be treated as such. As a RIC, we generally will not have to pay corporate-level federal income taxes on any investment company taxable income or net capital gains that we distribute as dividends to our stockholders. In order to qualify for the special tax treatment accorded RICs and their shareholders, we must meet certain gross income, diversification, and distribution requirements.

Recent Accounting Pronouncements

Please refer to Note 2 to the financial statements included herein for discussion of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, most significantly changes in interest rates. As of September 30, 2017, 54% (based on fair value) of the investments in our portfolio had floating interest rates (including investments underlying the TRS). These investments are usually based on a floating LIBOR and typically have interest rate reset provisions that adjust applicable interest rates under such loans to current market rates on a quarterly basis.

Pursuant to the terms of the TRS we pay fees to BNP Paribas a rate equal to one-month LIBOR plus 2.00% per annum on the utilized notional amount of the loans subject to the TRS in exchange for the right to receive the economic benefit of a pool of loans having a maximum notional market value amount of $40,000,000. To the extent that any present or future credit facilities or other financing arrangements that we or any of our subsidiaries enter into are based on a floating interest rate, we will be subject to risks relating to changes in market interest rates. In periods of rising interest rates when we or our subsidiaries have such debt outstanding, or financing arrangements in effect, our interest expense would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.

A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments, especially to the extent that we predominantly hold variable-rate investments, and to declines in the value of any fixed- rate investments we hold. To the extent that a majority of our investments may be in variable-rate investments, an increase in interest rates could make it easier for us to meet or exceed the hurdle rate for the income incentive fee payable to the Adviser and may result in a substantial increase in our net investment income, and also to the amount of incentive fees payable to our investment adviser with respect to our increasing pre-incentive fee net investment income.

Assuming that the Statements of Assets and Liabilities as of September 30, 2017 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates.

Change in interest rates	Increase (decrease) in interest income(1)			(Increase) decrease in interest expense			Increase (decrease) in net investment income
Down 25 basis points	$	(140,207	)	$	88,139		$	(52,068	)
Up 50 basis points		309,494			(176,279	)		133,215
Up 100 basis points		619,135			(352,558	)		266,577
Up 200 basis points		1,238,419			(705,115	)		533,304
Up 300 basis points		1,857,703			(1,057,673	)		800,030

(1) Includes the net effect of the change in interest rates on the unrealized appreciation (depreciation) on the TRS. As of September 30, 2017, 100% of the loans underlying the TRS paid variable interest rates.

Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments, including borrowing under future credit facilities or other borrowing. Accordingly, we can offer no assurances that actual results would not differ materially from the analysis above.

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as interest rate swaps, futures, options and forward contracts to the limited extent permitted under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.

Item 4. Controls and Procedures

As of the period covered by this report, we, including our president and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on our evaluation, our management, including our president and chief financial officer, concluded that our disclosure controls and procedures were effective in timely alerting management, including our president and chief financial officer, of material information about us required to be included in our periodic SEC filings. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, are based upon certain assumptions about the likelihood of future events and can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. There has not been any change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Part II – Other Information

Item 1: Legal Proceedings.

Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, we are currently not a party to any pending material legal proceedings.

Item 1A: Risk Factors.

None.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3: Defaults Upon Senior Securities.

None.

Item 4: Mine Safety Disclosures.

None.

Item 5: Other Information.

None.

Item 6: Exhibits

Number	Description
3.1	Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit (a)(3) to Post-Effective Amendment No.  1 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on December 12, 2014)
3.2	Amended and Restated Bylaws (Incorporated by reference to Exhibit (b)(3) to Post-Effective Amendment No.  1 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on December 12, 2014)
4.1	Forms of Subscription Agreement (Incorporated by reference to the Prospectus Appendix A. Appendix B and Appendix C filed with Post-Effective Amendment No. 7 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on May 11, 2017)
4.2	Distribution Reinvestment Plan (Incorporated by reference to Exhibit (e) to Post-Effective Amendment No.  1 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on December 12, 2014)
10.1	Amended and Restated Investment Advisory Agreement (Incorporated by reference to Exhibit (g)(1) to Post-Effective Amendment No.  8 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on June 30, 2017)
10.2	Sub-Administration and Accounting Agreement (Incorporated by reference to Company’s Registration Statement on Form N-2 (File No. 333-216277) filed on February 27, 2017)
10.3	Amended and Restated Administration Agreement (Incorporated by reference to Exhibit (k)(2) to Post-Effective Amendment No.  8 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on June 30, 2017)
10.4	Dealer Manager Agreement (Incorporated by reference to Post-Effective Amendment No.  4 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on March 2, 2016)
10.5	Form of Participating Broker-Dealer Agreement (Included as Exhibit A to the Dealer Manager Agreement)
10.6	Custodian Agreement (Incorporated by reference to Post-Effective Amendment No. 4 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on March 2, 2016)
10.7	Form of Agency Agreement (Incorporated by reference to Pre-Effective Amendment No.  3 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on July 24, 2014)
10.8	Escrow Agreement (Incorporated by reference to Post-Effective Amendment No.  4 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on March 2, 2016)
10.9	Expense Limitation Agreement (Incorporated by reference to Post-Effective Amendment No.  4 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on March 2, 2016)
10.10*	Control Agreement, dated and effective as of June 9, 2017, by and between NexPoint Capital, Inc. and BNP Paribas Prime Brokerage International, Ltd. and State Street Bank and Trust Company*
10.11*	Master Confirmation for Loan Total Return Swap Transactions, dated and effective as of June 13, 2017, by and between NexPoint Capital Inc. and BNP Paribas Prime Brokerage International, Ltd.*
10.12	Committed Facility Agreement, dated and effective as of October  19, 2017, by and between NexPoint Capital, Inc. and BNP Paribas Prime Brokerage International, Ltd. (Incorporated by reference to Exhibit 10.1 to Registrants Current Report on 8-K (File No. 814-01074) filed on October 19, 2017)
10.13	U.S. PB Agreement, dated and effective as of October  19, 2017, by and between NexPoint Capital, Inc. and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.2 to Registrants Current Report on 8-K (File No. 814-01074) filed on October 19, 2017)

Number	Description
10.14	International PB Agreement, dated and effective as of October  19, 2017, by and between NexPoint Capital, Inc., BNP Paribas Prime Brokerage International, Ltd., and BNP Paribas acting through its New York branch (Incorporated by reference to Exhibit 10.3 to Registrants Current Report on 8-K (File No. 814-01074) filed on October 19, 2017)
10.15	U.S. Triparty Agreement, dated and effective as of October  19, 2017, by and between NexPoint Capital, Inc., BNP Paribas Prime Brokerage, Inc. and Street Bank and Trust Company (Incorporated by reference to Exhibit 10.4 to Registrants Current Report on 8-K (File No. 814-01074) filed on October 19, 2017)
10.16	International Triparty Agreement, dated and effective as of October  19, 2017, by and between NexPoint Capital, Inc., BNP Paribas Prime Brokerage International, Ltd., and State Street Bank and Trust Company, as custodian (Incorporated by reference to Exhibit 10.5 to Registrants Current Report on 8-K (File No. 814-01074) filed on October 19, 2017)
31.1*	Certifications by President pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2*	Certifications by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* Filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

	NEXPOINT CAPITAL, INC.
Date: November 9, 2017	By:	/s/ James Dondero
	Name:	James Dondero
	Title:	President and Principal Executive Officer
Date: November 9, 2017	By:	/s/ Frank Waterhouse
	Name:	Frank Waterhouse
	Title:	Treasurer, Principal Accounting Officer and Principal Financial Officer

EX-10.10

Exhibit 10.10

CONTROL AGREEMENT

Control Agreement dated as of June 9, 2017 (this “Agreement”), among (a) BNP Paribas as secured party (“Party A”), (b) Nexpoint Capital, Inc., as debtor (“Party B”), and (c) State Street Bank and Trust Company (the “Custodian”).

WHEREAS, pursuant to a custodian contract between the Custodian and Party B (as amended and in effect from time to time, the “Custodian Agreement”), the Custodian acts as custodian for Party B’s assets and maintains a custodial account for Party B; and

WHEREAS, pursuant to the terms of an ISDA Master Agreement and Credit Support Annex between Party A and Party B (including all schedules thereto and confirmations of transactions thereunder and as amended and in effect from time to time, the “Master Agreement”), Party B will from time to time grant to Party A a security interest in certain assets in the custodial account to secure Party B’s obligations to Party A under the Master Agreement; and

WHEREAS, Party A, Party B and Custodian are entering into this Agreement to provide for the control of the Collateral;

NOW, THEREFORE, in consideration of the mutual promises set forth herein, it is agreed as follows:

1. Collateral Accounts. Party B, from time to time, shall instruct the Custodian by any of the means mutually agreed to between Party B and the Custodian (which shall constitute “Proper Instructions” under the Custodian Agreement), to segregate certain U.S. cash, U.S. Government securities, or other U.S. securities to the extent acceptable to all parties hereto (but excluding securities for which reimbursement has not been received by the Custodian for the account of Party B) (“Collateral”) which are pledged to Party A pursuant to the Master Agreement. Such Collateral (other than cash Collateral) shall be identified and segregated on the Custodian’s books and records under the name “BNP Paribas as secured party of Nexpoint Capital, Inc.” (the “Securities Account”). The Custodian shall hold such Collateral as financial assets under Article 8 of the Uniform Commercial Code, as in effect from time to time in The Commonwealth of Massachusetts (the “UCC”). The Custodian shall identify and segregate in a separate deposit account (as defined in Section 9-102 of the UCC) any cash Collateral and hold it under the name “BNP Paribas as secured party of Nexpoint Capital, Inc.” (the “Deposit Account” and, together with the Securities Account, the “Collateral Accounts”). The Custodian shall have no responsibility for determining the adequacy of any Collateral required hereunder or under the Master Agreement, nor will it assume responsibility for any calculations related to any Collateral requirements under the Master Agreement. The Custodian may, in its discretion, choose not to act upon instructions from Party B to segregate Collateral in the Collateral Accounts if the instruction would in the Custodian’s sole judgment, after taking into account the subordination in Section 10(c), result in any remaining assets in the custodial account being inadequate to cover any obligations of Party B to the Custodian. For the avoidance of doubt, nothing in this Section 1 shall relieve Party B from satisfying its collateral posting obligations pursuant to the Master Agreement.

2. Account Control.

2.1 Security Interest. This Agreement is intended by Party A and Party B to grant “control” of the Collateral Accounts to Party A for purposes of perfection of Party A’s security interest in such Collateral and all such Collateral Accounts pursuant to Article 8 and Article 9 of the UCC, and the Custodian hereby acknowledges that it has been advised of Party B’s grant to Party A of a security interest in the Collateral Accounts and all such Collateral. Notwithstanding the foregoing, the Custodian makes no representation or warranty with respect to the creation, perfection or enforceability of any security interest in the Collateral Accounts.

2.2 Joint Instructions. Unless and until (A) the Custodian receives written notice from Party A pursuant to Section 2.3 below instructing the Custodian that Party A is exercising its right to exclusive control over the Collateral Accounts, which notice (inclusive of any entitlement order) shall be substantially in the form attached hereto as Exhibit B (a “Notice of Exclusive Control”) and has a reasonable time to act thereon, or if all previous Notices of Exclusive Control have been revoked or rescinded in writing by Party A or (B) the Custodian receives a Notice of Return of Excess Collateral pursuant to Section 4.3 below and has a reasonable time to act thereon: (i) the Custodian shall take actions with respect to the Collateral in the Collateral Accounts upon the joint instructions of Party A and Party B, except that in the case of instructions to segregate Collateral pursuant to Section 1, the Custodian shall take instructions solely from Party B, and (ii) the Custodian shall have no responsibility or liability to Party A or Party B for actions taken in accordance with such instructions.

2.3 Control by Party A.

(i) Party A agrees to provide the Custodian, in the form of Exhibit A attached (as may be amended from time to time), the names and signatures of authorized parties who may give notices, instructions, or entitlement orders concerning the Collateral Accounts. Other means of notice or instruction may be used provided that Party A and the Custodian agree to appropriate security procedures. Upon receipt by the Custodian of a Notice of Exclusive Control and following a reasonable time to act thereon, the Custodian shall thereafter follow only the instructions or entitlement orders of Party A with respect to the Collateral Accounts and shall comply with any entitlement order or instructions (within the meaning of Sections 8-102, 9-104 and 9-106 of the UCC) received from Party A, without further consent of Party B or any other person, and Custodian will not comply with entitlement orders and/or instructions concerning the Collateral originated by Party B without the prior written consent of Party A.

(ii) Party A represents and warrants to Party B that Party A will issue to the Custodian a Notice of Exclusive Control only if Party A has determined in good faith that an event of default, termination event or other authorized event has occurred under the Master Agreement which entitles Party A to exercise its rights as a secured party with respect to the Collateral in the Collateral Accounts.

(iii) The Custodian shall have no responsibility or liability to Party B for complying with a Notice of Exclusive Control or complying with entitlement orders or instructions originated by Party A concerning the Collateral Accounts. The Custodian shall have no

-2-

duty to investigate or make any determination to verify the existence of an event of default or compliance by either Party A or Party B with applicable law or the Master Agreement, and the Custodian shall be fully protected in complying with a Notice of Exclusive Control whether or not Party B may allege that no such event of default or other like event exists.

(iv) As between Party A and the Custodian, notwithstanding any provision contained herein or in any other document or instrument to the contrary, the Custodian shall not be liable for any action taken or omitted to be taken at the instruction or entitlement order of Party A, or any action taken or omitted to be taken under or in connection with this Agreement, except for the Custodian’s own gross negligence or willful misconduct in carrying out such instruction or entitlement order.

3. Distributions. The Custodian will credit cash interest, dividends and other income received by the Custodian on the Collateral to the Deposit Account and non-cash interest, dividends and other income received by the Custodian on the Collateral to the Securities Account.

4. Release of Collateral; Release of Security Interest; Notice of Return of Excess Collateral.

4.1 Release of Collateral. If there are no transactions outstanding under the Master Agreement, Party B may request Party A to issue joint instructions instructing Custodian to release all Collateral held in the Collateral Accounts. Custodian will effect such release as soon as reasonably practicable after receiving such joint instructions or entitlement orders from Party A and Party B.

4.2 Release of Security Interest. Party A agrees to notify the Custodian promptly in writing when all obligations of Party B to Party A under the Master Agreement have been fully paid and satisfied (and any commitment of Party A to advance further amounts or credit thereunder has been terminated) or Party A otherwise no longer claims any interest in the Collateral in the Collateral Accounts, whichever is sooner; at which time the Custodian shall have no further liabilities or responsibilities hereunder and the Custodian’s obligations under this Agreement shall terminate.

4.3 Notice of Return of Excess Collateral. Provided that the Custodian has not received a Notice of Exclusive Control, Party B may provide written notice to the Custodian in the form of Exhibit C (a “Notice of Return of Excess Collateral”), stating that (i) in its good faith belief, supported by the requisite facts, (A) as a result of a “Specified Party A Event” (as defined below), Party B has designated an “Early Termination Date” under the Master Agreement with respect to all Transactions thereunder, (B) Party B has delivered a calculation statement to Party A in which the amount due in respect of such termination pursuant to Section 6(d) of the Master Agreement is, (C) pursuant to the terms of the Master Agreement, Party B is entitled to the return of some or all of the Collateral held in the Collateral Accounts, net of any amounts owed to Party A (“Excess Collateral”), (D) Party B has simultaneously sent a copy of the Notice of Return of Excess Collateral to Party A, and (E) Party B has no knowledge that (1) Party A has delivered a Notice of Exclusive Control to the Custodian or (2) of any injunction or

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other order of any court or other authority that prevents the Custodian from transferring to Party B, or prevents Party B from receiving, some or all of the Collateral held in the Collateral Accounts; and (ii) instructing Custodian to transfer to Party B’s account identified in the Notice of Return of Excess Collateral the Excess Collateral specified by Party B in the Notice of Return of Excess Collateral.    

Concurrently with the Notice of Return of Excess Collateral contemplated in the prior paragraph, Party B agrees to simultaneously send a copy of the Notice of Return of Excess Collateral to Party A in the same form and using the same transmission manner that was used to send the Notice of Return of Excess Collateral to Custodian.

Solely as between Party B and Party A, the submission of such Notice of Return of Excess Collateral shall constitute a representation and warranty by Party B to Party A pursuant to Section 3 of the Master Agreement that all of Party B’s rights and enforcement pursuant to Section 6 of the Master Agreement have fully accrued following the expiration of any applicable notice requirement or grace period.

If the Custodian has determined that it has not received a Notice of Exclusive Control, the Custodian, without inquiry and in reliance on that determination and Party B’s Notice of Return of Excess Collateral, and following a reasonable time to act thereon shall transfer to Party B’s account identified in the Notice of Return of Excess Collateral or in a supplement thereto, the Excess Collateral specified by Party B in the Notice of Return of Excess Collateral or any supplement thereto.    

For the avoidance of doubt, Party B acknowledges and agrees that its rights with respect to Excess Collateral hereunder shall not: (i) limit the rights of Party A hereunder or under applicable law with respect to any Collateral held in the Collateral Accounts other than Excess Collateral; or (ii) confer on Party B any right of consent with respect to any Notice of Exclusive Control delivered or originated by Party A, or with respect to any entitlement order or instruction delivered or originated by Party A after delivery of such Notice of Exclusive Control.

A “Specified Party A Event” shall mean, with respect to Party A (the “Defaulting Party”): an Event of Default under Section 5(a)(vii) of the Master Agreement.

The Custodian will have no liability to Party A or Party B for complying with a Notice of Return of Excess Collateral. The Custodian will have no duty to investigate or make any determination to verify Party B’s right to issue a Notice of Return of Excess Collateral, the occurrence of a Specified Party A Event, or the validity, adequacy or sufficiency of any statement, print-out or other supporting documentation attached to a Notice of Return of Excess Collateral. Furthermore, the Custodian shall have no obligation or responsibility to review the substance or existence of any attachments to the Notice of Return of Excess Collateral or verify that any statement or other information contained in such notice is true and correct. The Custodian will be fully protected in complying with a Notice of Return of Excess Collateral whether or not Party A may allege that no rights of Party B exist to issue the Notice of Return of Excess Collateral.

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If the Custodian determines that it has received both a Notice of Exclusive Control and a Notice of Return of Excess Collateral but is unable to determine which was received by the Custodian first, the Notice of Exclusive Control will be deemed to have been received first and will control, and the Custodian will be fully protected in complying with the Notice of Exclusive Control despite the Custodian’s receipt of the Notice of Return of Excess Collateral. Party A and Party B agree to abide by the Custodian’s determination as to which was received first or that the Custodian is unable to determine which was received first.

5. Duties and Services of Custodian.

(i) Custodian agrees that it is acting as a securities intermediary, as defined in Section 8-102 of the UCC, with respect to the Collateral in the Securities Account, except Identified Securities (as defined below) and that Party B is the “entitlement holder,” as defined in Section 8-102 of the UCC, with respect to the Securities Account. The Custodian agrees, with respect to the Deposit Account, that it is acting as a “bank” as such term is used in Section 9-102 of the UCC and that Party B is the Custodian’s “customer,” as that term is defined in Section 4-104 of the UCC with respect to the Deposit Account. The parties hereto acknowledge that the Custodian Agreement is governed by the laws of The Commonwealth of Massachusetts and that, as a consequence, the jurisdiction of the Custodian as securities intermediary and as a bank is The Commonwealth of Massachusetts. Likewise, the law applicable to all issues in Article 2(1) of the Hague Securities Convention is the law in force in the Commonwealth of Massachusetts.

(ii) The Custodian shall have no duties, obligations, responsibilities or liabilities with respect to the Collateral Accounts except as and to the extent expressly set forth in this Agreement and the Custodian Agreement, and no implied duties of any kind shall be read into this Agreement against the Custodian including, without limitation, the duty to preserve, exercise or enforce rights in the Collateral and the Collateral Accounts. The Custodian shall not be liable or responsible for anything done or omitted to be done by it in good faith and in the absence of gross negligence or willful misconduct and may rely and shall be protected in acting upon any notice, instruction, entitlement order or other communication which it reasonably believes to be genuine and authorized.

(iii) As between Party B and the Custodian, except for the rights of control in favor of Party A agreed to herein, nothing herein shall be deemed to modify, limit, restrict, amend or supersede the terms of the Custodian Agreement, and Custodian shall be and remain entitled to all of the rights, indemnities, powers, and protections in its favor under the Custodian Agreement, which shall apply fully to the Custodian’s actions and omissions hereunder. Instructions or entitlement orders under this Agreement from Party B’s authorized representative given in accordance with the terms of the Custodian Agreement shall also constitute Proper Instructions under the Custodian Agreement.

(iv) As between the Custodian and Party A, Party A shall indemnify and hold the Custodian harmless with regard to any losses or liabilities of the Custodian (including reasonable attorneys’ fees) imposed on or incurred by the Custodian arising out of any action or omission of the Custodian in accordance with any notice, instruction, or entitlement order of Party A under this Agreement.

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(v) The parties hereto acknowledge that no “security entitlement” under the UCC shall exist with respect to cash or any financial asset held in the Collateral Accounts which is registered in the name of Party B, payable to the order of the Party B, or specially indorsed to Party B or any third party and that has not been specially indorsed by Party B to the Custodian or its nominee (each such asset an “Identified Security”). As between Party A and Party B, Party B hereby agrees that it will not instruct the Custodian to pledge any security as Collateral in the Securities Account other than U.S. securities. The Custodian shall have no responsibility for determining that any security pledged by Party B meets the definition of Collateral under this Agreement. The parties further acknowledge and agree that any Identified Securities received by the Custodian and credited to the Collateral Accounts from time to time shall (so long as so credited to the Collateral Accounts and so long as this Agreement remains in effect) be held by the Custodian for the benefit of Party A, not in its capacity as a “securities intermediary” (as defined in the UCC), but in its capacity as a collateral agent under and subject to the terms of this Agreement. For the avoidance of doubt, the Custodian’s acting in its capacity as collateral agent shall not impose upon the Custodian any greater duties than those stated in this Agreement, and the Custodian shall be entitled to all exculpations, indemnities and other benefits in its favor referred to in this Agreement when acting as the collateral agent.

(vi) For avoidance of doubt, Party A hereby acknowledges that any Collateral in the Collateral Accounts issued outside the United States (“Foreign Security System Assets”) which may be held by the Custodian, a sub-custodian within the Custodian’s network of sub-custodians (each a “Sub-Custodian”) or a depository or book-entry system for the central handling of securities and other financial assets in which the Custodian or the Sub-Custodian are participants may not permit Party B to have a security entitlement under the UCC with respect to such Foreign Security System Assets (and such property shall be deemed for purposes of this Agreement not to be a financial asset held within the Collateral Accounts). The parties hereby further acknowledge that the Custodian gives no assurance that a security entitlement is created under the UCC with respect to Party B’s assets held in Euroclear or Clearstream or their successors. Because foreign securities are not considered financial assets under the terms of this agreement, notwithstanding the current terms of the Master Agreement, or any future amendments thereto, Party B hereby agrees with Party A that it shall not instruct the Custodian to segregate foreign securities as Collateral to the Securities Account and may not satisfy any Collateral requirements under the Master Agreement with foreign securities pledged to the Securities Account.

6. Force Majeure; Special Damages. The Custodian shall not be liable for delays, errors or losses occurring by reason of circumstances beyond its control, including, without limitation, acts of God, market disorder, terrorism, insurrection, war, riots, failure of transportation or equipment, or failure of vendors, communication or power supply. In no event shall the Custodian be liable to any person for indirect, consequential or special damages, even if the Custodian has been advised of the possibility or likelihood of such damages.

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7. Compliance with Legal Process and Judicial Orders. The Custodian shall have no responsibility or liability to Party A or Party B or to any other person or entity for acting in accordance with any judicial or arbitral process, order, writ, judgment, decree or claim of lien relating to the Collateral Accounts subject to this Agreement notwithstanding that such order or process is subsequently modified, vacated or otherwise determined to have been without legal force or effect. Upon its receipt of any written claim relating to the Collateral Accounts, the Custodian shall endeavor to notify Party A and Party B as soon as reasonably practicable, provided that the Custodian’s failure to so notify Party A and/or Party B shall not give rise to any liability hereunder.

8. Custodian Representations. The Custodian represents and warrants that it is a Massachusetts trust company. The Custodian agrees and confirms, as of the date hereof, and at all times until the termination of this Agreement, that it has not entered into, and until the termination of this Agreement will not enter into, any agreement (other than the Custodian Agreement) with any other person or entity relating to the Collateral or the Collateral Accounts under which it has agreed to comply with entitlement orders (as defined in Section 8-102 of the UCC) of such other person or entity.

9. Access To Reports. Upon any pledge, release, or substitution of Collateral in the Collateral Accounts, Custodian shall notify Party A within one business day of such change. The Custodian will provide to Party A a copy of a statement of the Collateral Accounts within five (5) business days of the end of the calendar month; provided, however, that the Custodian’s failure to forward a copy of such statement to Party A shall not give rise to any liability hereunder.

10. The Custodian’s Compensation and Reimbursement Rights; Security Interest.

(a) Party B will pay and reimburse the Custodian for any advances, fees, costs, expenses (including, without limitation, reasonable attorneys’ fees and costs) and disbursements that may be paid or incurred by the Custodian in connection with this Agreement. Any fees, expenses or other amounts that may be owing to the Custodian from time to time pursuant to the terms of this Agreement or the Custodian Agreement (to which Party A is not a Party) shall be secured by any security interest that the Custodian may have been granted under the Custodian Agreement or applicable law. Upon a default by Party B in making payment or reimbursement, the Custodian shall be entitled to exercise its rights and remedies as a secured party and under applicable law against the Collateral and Collateral Accounts in accordance with the terms of the Custodian Agreement, applicable law and subject to Paragraph 10(c) below.

(b) The Custodian will not be obligated to advance cash or investments to, for or on behalf of Party B in the Collateral Accounts. However, if the Custodian does advance cash or investments to the Collateral Accounts for any purpose, Party B’s obligations to reimburse or repay the Custodian under Section 10(a) shall be secured by the security interest referred to in Section 10(a).

(c) The Custodian subordinates any security interest or right of recoupment or setoff that it may have in or against the Collateral or the Collateral Accounts to the security interest in favor of Party A. However, the subordination will not apply to the extent that the Custodian’s security interest or right of recoupment or setoff secures or may reduce obligations of Party B to pay, reimburse or indemnify the Custodian for the Custodian’s fees or expenses incurred under this Agreement.

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11. Notices. Any notice, instruction, entitlement order or other instrument required to be given hereunder (including any such Overdraft notice from Party B, provided that any such Overdraft notice may also be delivered via electronic mail to the addresses set forth below), or requests and demands to or upon the respective parties hereto, shall be in writing and may be sent by hand, or by facsimile transmission, telex, or overnight delivery by any recognized delivery service, prepaid or, for termination of this Agreement only, by certified or registered mail, and addressed as follows, or to such other address as any party may hereafter notify the other respective parties hereto in writing:

If to Party A,then:

BNP Paribas

525 Washington Boulevard

Jersey City, NJ 07310

Attention: Collateral Management

Telephone No.: 201-850-5587

Email: nyc_collateral@americas.bnpparibas.com

With a copy to:

BNP Paribas

787 Seventh Avenue

New York, NY 10019

Attention: Legal Department (Capital Markets)

If to Party B, then:

c/o Highland Capital Management Fund Advisors, L.P.

300 Crescent Ct., Suite 700

Dallas, TX 75201

Attention: Retail Operations

Email: R-Operations@HighlandCapital.com

Facsimile No.: 972-628-4171

Telephone No.: 972-628-4100

If to Custodian, then:

State Street Bank and Trust Company

100 Summer Street, Floor 5

Boston, MA 02206

Attention: James Meagher, Managing Director

State Street Alternative Investment Solutions

Facsimile No. : 212-651-2393

Telephone No.: 617-662-7310

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12. Amendment. No amendment or modification of this Agreement will be effective unless it is in writing and signed by each of the parties hereto.

13. Termination. Any of the parties to this Agreement may terminate it by giving to each of the other parties a notice in writing specifying the effective date of such termination, which (except in the case of a termination by Party A) shall not be less than thirty (30) days after the giving of such notice, unless the parties agree to a shorter period of time. Upon the effective date of termination of this Agreement and release of Collateral held in the Collateral Accounts, Party A shall have no further right to originate entitlement orders concerning the Collateral or the Collateral Accounts and Party B shall be entitled to originate entitlement orders concerning the Collateral or the Collateral Accounts for any purpose and without limitation except as may be provided in the Custodian Agreement. Upon termination of this Agreement by any party, any Collateral in the Collateral Accounts that has not been released by Party A shall be transferred, within 30 days of such termination, to a successor custodian designated in writing by Party B and acceptable to Party A. In the event no successor is agreed upon, the Custodian shall be entitled to petition a court of competent jurisdiction to appoint a successor custodian and shall be indemnified by Party B for any costs and expenses (including, without limitation, attorneys’ fees) relating thereto. Notwithstanding the foregoing, however, in the event that (a) an Event of Default with respect to Party A under the Master Agreement has occurred and is continuing and (b) all of Party B’s obligations to Party A under the Master Agreement have been fully satisfied, any Collateral in the Collateral Accounts that has not been expressly released by Party A within 30 days of any termination shall be deemed to have been so released.

14. Severability. In the event any provision of this Agreement is held illegal, void or unenforceable, the remainder of this Agreement shall remain in effect as if this Agreement had been executed with the illegal, void or unenforceable portion eliminated, so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter and purpose of this Agreement and the deletion of any illegal, void or unenforceable provision will not substantially impair the respective benefits or expectations of the parties to this Agreement.

15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts, without giving effect to the conflict of law provisions thereof.

16. Headings. Any headings appearing on this Agreement are for convenience only and shall not affect the interpretation of any of the terms of this Agreement.

17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts taken together shall constitute one and the same Agreement. Counterparts may be executed in either original or electronically transmitted form (e.g., faxes or emailed portable document format (PDF) form), and the parties hereby adopt as original any signatures received via electronically transmitted form.

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18. Successors; Assignment. This Agreement may not be assigned without the written consent of all parties. The Agreement will be binding upon the parties and their respective successors and assigns.

19. Confidentiality. Each of the Custodian, Party A and each Party B agrees that it shall maintain, and shall cause its agents, attorneys and accountants to maintain, the confidentiality of the specific terms of this Agreement, and shall not discuss or disclose, nor authorize such agents, attorneys or accountants to discuss or disclose, such terms, directly or indirectly, to any person, other than: (1) to such agents, attorneys or accountants, subject to the terms hereof; (2) as may be legally required by applicable law or regulation or by any subpoena or similar legal process, or as may be requested by a regulator having jurisdiction over such party; (3) in connection with litigation to which such party is a party; or (4) to the extent such terms become publicly available other than as a result of a breach of this Agreement.

20. Jury Trial Waiver; Waiver of Immunity. To the extent permitted by law, Party A, Party B, and the Custodian each hereby waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement. To the extent that in any jurisdiction Party A and Party B may now or hereafter be entitled to claim, for itself or its assets, immunity from suit, attachment (before or after judgment) or other legal process, Party A and Party B each irrevocably agrees not to claim, and hereby waives, such immunity.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers or duly authorized representatives as of the date first above written.

BNP PARIBAS
By:	/s/ Michael Cohen
Name:	Michael Cohen
Title:	Vice President
NEXPOINT CAPITAL, INC.
By:	/s/ Frank Waterhouse
Name:	Frank Waterhouse
Title:	Treasurer
STATE STREET BANK AND TRUST COMPANY
By:	/s/ Scott Kraemer	6/9/17
Name:	Scott Kraemer
Title:	Managing Director

State Street: Limited Access

Control Agreement

Exhibit A

TO

CONTROL AGREEMENT

AMONG

BNP PARIBAS,

NEXPOINT CAPITAL, INC., AND

STATE STREET BANK AND TRUST COMPANY

DATED AS OF JUNE 9, 2017

See Attached.

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	The bank
	for a changing
	world

Certificate of Incumbency

The undersigned, Lauren Rinesmith, certifies as of the date hereof that:

1. She is a duly appointed, qualified and acting Director and Counsel in the Legal Department of BNP Paribas.

2. Each person listed below is duly appointed, qualified and is an acting officer of BNP Paribas. Each person, acting jointly with another duly appointed, qualified and acting officer of BNP Paribas, is authorized to act on behalf of and to bind BNP Paribas regarding BNP Paribas’ derivative transactions, including, but not limited to, foreign currency and interest rate transactions and all other swaps and hedges, repurchase transactions, reverse repurchase transactions and securities lending transactions and to take such further actions as are necessary or convenient to better fulfill their duties in connection with the above. In furtherance of the foregoing, each person listed below, acting jointly with another duly appointed, qualified and acting officer, is authorized to execute and deliver, on behalf of BNP Paribas, Master Repurchase Agreements, Master Securities Loan Agreements and ISDA Master Agreements and such other documents that are deemed necessary or convenient in connection thereto.

3. The signatures specimen appearing next to the name of the person below is a true and correct signature of such person.

Name	Title	Signature
Heather Smith	Managing Director	/s/    Heather Smith
Everett Cheng	Managing Director	/s/    Everett Cheng
Mindy Sperling	Director	/s/    Mindy Sperling
Hugo Sueiro	Director	/s/    Hugo Sueiro
Anna Karpman	Director	/s/    Anna Karpman
Atif Rehman	Vice President	/s/    Atif Rehman
Michael Cohen	Vice President	/s/    Michael Cohen

The undersigned has executed this certificate as of the 19^th day of April, 2016.

/s/    Lauren Rinesmith

Lauren Rinesmith

Director and Counsel

Certificate of Incumbency for ISDA GROUP (Quarterly) - April 2016

BNP PARIBAS • 787 Seventh Avenue • New York, NY 10019-6016 • (212) 841-3000 • usa.bnpparibas.com

Exhibit B

[Letterhead of Party BNP Paribas]

Date:                     

State Street Bank and Trust Company

State Street Alternative Investment Solutions

100 Summer Street, Floor 5

Boston, MA 02206

Attention: James Meagher, Managing Director

RE: Nexpoint Capital, Inc.

NOTICE OF EXCLUSIVE CONTROL

We hereby instruct you pursuant to the terms of that certain Control Agreement dated as of June 9, 2017 (as from time to time amended and supplemented, the “Control Agreement”) among the undersigned, Nexpoint Capital, Inc., (together with its successors and assigns, “Party B”) and you, as Custodian, that you (i) shall not follow any instructions or entitlement orders of Party B with respect to the Collateral or the Collateral Accounts held by you for Party B, and (ii) unless and until otherwise expressly instructed by the undersigned, shall exclusively follow the entitlement orders and instructions of the undersigned with respect to such Collateral or such Collateral Accounts.

We hereby instruct you to follow the attached entitlement order.

Very truly yours, BNP Paribas
By:
	Authorized Signatory

cc: [IM]

State Street: Select Classification Level

B-1

Exhibit C

[Letterhead of Party B]

Date:                     

State Street Bank and Trust Company

State Street Alternative Investment Solutions

100 Summer Street, Floor 5

Boston, MA 02206

Attention: James Meagher, Managing Director

RE: Control Agreement

NOTICE OF RETURN OF EXCESS COLLATERAL

We refer to the Control Agreement dated as of June 9, 2017 (as amended and in effect from time to time, the “Control Agreement”) among BNP Paribas (“Party A”), Nexpoint Capital, Inc. (together with its successors and assigns, “Party B”), and you, as Custodian. Terms defined in the Control Agreement have the same meanings herein as therein.

We hereby issue a Notice of Return of Excess Collateral pursuant to Section 4.3 of the Control Agreement. We state that (i) Party B has declared an “Early Termination Date” under the Master Agreement with respect to all transactions thereunder as a result of the occurrence of a Specified Party A Event, (ii) Party B has determined the amount due in respect of such termination, (iii) pursuant to the terms of the Master Agreement, Party B is entitled to the return of some or all of the Collateral held in the Collateral Accounts, net of any amounts owed to Party A, (iv) we have sent a copy of this Notice of Return of Excess Collateral to Party A, and (v) we have no knowledge (A) that Party A has delivered a Notice of Exclusive Control to you or (B) of any injunction or other order of any court or other authority that prevents you from transferring to us, or prevents us from receiving, some or all of the Collateral held in the Collateral Accounts.

We hereby instruct you to transfer Collateral as follows: [insert description of Party B account and Collateral to be transferred thereto].

[Upon completion of such transfer of Collateral, the Control Agreement will terminate.]

Very truly yours,
Nexpoint Capital, Inc.
By:
	Authorized Signatory

cc: BNP Paribas

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EX-10.11

Exhibit 10.11

Date: June 13, 2017

To: NexPoint Capital, Inc.

From: BNP Paribas, London Branch

MASTER CONFIRMATION FOR

LOAN TOTAL RETURN SWAP TRANSACTIONS

THIS CONFIRMATION CANCELS AND REPLACES OUR PREVIOUS CONFIRMATION SENT

UNDER THE SAME REFERENCES

Ladies and Gentlemen:

The purpose of this Master Confirmation for Loan Total Return Swap Transactions (this “Master Confirmation”) is to set forth the terms and conditions of the total return swap transactions entered into from time to time between BNP Paribas (“BNPP”) and NexPoint Capital, Inc. a Delaware Corporation organized under the laws of the United States (“Counterparty”) (each, a “Transaction” and, collectively, the “Transactions”). This Master Confirmation, taken alone, is neither a commitment by either party to enter into any Transaction nor evidence of a Transaction. The parties agree that the confirmation applicable to any Transaction, which shall constitute a “Confirmation” for the purposes of, and will supplement, form a part of, and be subject to, the Master Agreement, shall consist of this Master Confirmation and the trade details and specific terms applicable to such Transaction set forth in Annex I.

The definitions and provisions contained in the 2006 ISDA Definitions (the “Definitions”), as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Master Confirmation. In the event of any inconsistency between the Definitions and this Master Confirmation, this Master Confirmation will govern. Capitalized terms used but not defined in this Master Confirmation have the meanings assigned to them in Appendix A. Capitalized terms used but not defined in this Master Confirmation or in Appendix A have the meanings assigned to them in the Definitions.

1. AGREEMENT

This Master Confirmation supplements, forms a part of and is subject to, the ISDA 2002 Master Agreement, dated as of May 22, 2017 (as amended, supplemented and otherwise modified and in effect from time to time, the “Master Agreement”), together with the schedule and any credit support annex (the “Credit Support Annex”) thereto, between BNPP and Counterparty. All provisions contained in the Master Agreement govern this Master Confirmation except as expressly modified below.

2. TERMS OF TRANSACTIONS

Each Transaction shall be governed by the terms and conditions set forth below, as supplemented by the trade details and specific terms of such Transaction set forth in Annex I. On each Business Day after the Facility Trade Date, BNPP shall deliver to Counterparty a revised Annex I reflecting each Transaction entered into under this Master Confirmation as of the end of the immediately preceding Business Day.

General Terms:

Facility Trade Date:	June 13, 2017
Facility Effective Date:	June 15, 2017
Facility Scheduled Termination Date:	December 10, 2017; subject to automatic extension as provided in the following sentence. On the 25th day of the calendar month immediately preceding the then Facility Scheduled Termination Date (commencing on November 25, 2017) (each such date, an “Automatic Extension Date”), the Facility Scheduled Termination Date shall be automatically extended to the date occurring six (6) calendar months after the then Facility Scheduled Termination Date (prior to giving effect to such extension) unless either of BNPP or Counterparty provides written notice to the other party by the applicable Automatic Extension Date that the Facility Scheduled Termination Date will not be further extended as of such Automatic Extension Date.

Facility Final Termination Date:	The date occurring 6 months after the Facility Scheduled Termination Date.
Facility Termination Date:	The earlier to occur of (i) the later of (A) the Facility Scheduled Termination Date and (B) the final Transaction Termination Date, (ii) the Facility Final Termination Date, or (iii) the date that Counterparty or BNPP declares to be a Facility Termination Date pursuant to the provisions hereof. The obligations of the parties to make payments required to be made hereunder shall remain unaffected by the occurrence of the Facility Termination Date.
Transaction Termination Date:	(a) With respect to any Transaction for which there exists a Repaid Obligation, the related Repayment Date; and (b) With respect to any Transaction for which there exists a Terminated Obligation, the related Transaction Termination Settlement Date.
Reference Portfolio:	As of any date of determination, all Reference Obligations with respect to all Transactions outstanding on such date.
Reference Obligation:	With respect to any Transaction, the obligation listed in Annex I for such Transaction.
Transaction Initiation:

Counterparty may, by notice to BNPP on any Business Day that is on or after the Facility Trade Date and prior to the first day of the Ramp-Down Period, request that any obligation (each, a “Reference Obligation”) become the subject of a new Transaction hereunder. Any such notice shall specify (1) the proposed Reference Obligation, (2) whether such Reference Obligation is a Term Obligation, Revolving Reference Obligation or Delayed Drawdown Reference Obligation, (3) the Initial Funded Amount of such Reference Obligation, (4) the related Reference Entity, (5) the related Reference Amount, (6) the LoanX ID of such Reference Obligation, (7) the coupon of such Reference Obligation, (8) the maturity date of such Reference Obligation, (9) if such Reference Obligation is a floating rate obligation, the floating rate index minimum rate of such Reference Obligation, (10) the aggregate outstanding indebtedness of the related Reference Entity, (11) the facility size of the related Reference Obligation, (12) the Moody’s Rating of such Reference Obligation, (13) the S&P Rating of such Reference Obligation, (14) the Moody’s Industry Classification of such Reference Obligation, (15) the Bloomberg Industry Subgroup Classification of such Reference Obligation, (16) the S&P Industry Classification of such Reference Obligation, (17) the domicile of the related Reference Entity, (18) whether such Reference Obligation is a Senior Secured Obligation or a Second Lien Obligation, (19) an estimate of the Initial Price of such Reference Obligation, and (20) whether the related Reference Entity is an Affiliate of Counterparty.

Counterparty acknowledges that, in connection with any request made pursuant to the immediately preceding paragraph, BNPP may perform, in respect of the related Reference Obligation, diligence concerning the existence or potential existence of an AML Violation, an OFAC Violation or a violation of BNPP’s corporate and social responsibility policy and may, if it determines in its sole discretion that such Transaction would, or would be reasonably likely to, result in an AML Violation, an OFAC Violation or a violation of BNPP’s corporate and social responsibility policy, withhold its consent to such Transaction on that basis.

BNPP may, in its sole discretion, consent to the proposed Reference Obligation becoming the subject of a Transaction hereunder. The effectiveness of BNPP’s consent to enter into such Transaction on such terms shall in all cases be subject to the satisfaction of the following conditions: (a) Counterparty provides a Firm Offer as described in the immediately succeeding paragraph on or prior to (i) the date that is three (3) days after the date BNPP notifies Counterparty of such consent and (ii) the date on which BNPP notifies Counterparty that BNPP has withdrawn such consent (the earlier of such

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dates, the “Firm Bid Date”); (b) such Firm Offer is within 10% of the estimate of the Initial Price specified in Counterparty’s request (and, if not, Counterparty must submit an updated request, to which BNPP may, in its sole discretion, consent as provided in the immediately preceding sentence); (c) on the Transaction Trade Date, the proposed Reference Obligation satisfies the Obligation Criteria set forth in Annex II, as determined by BNPP in its sole discretion; and (d) after entering into such proposed Transaction, the Reference Obligations relating to the then existing Transactions, in the aggregate, would not exceed any of the applicable limits set forth in the Portfolio Criteria set forth in Annex III; provided that the condition set forth in clause (d) is not applicable if the Transaction Trade Date falls within the Ramp-Up Period and the Portfolio Notional Amount after giving effect to the proposed Transaction would not exceed $25 million.

If BNPP consents to the proposed Reference Obligation becoming the subject of a Transaction hereunder, then the Independent Amount Percentage applicable to such Transaction will be as specified pursuant to Clause 9 herein unless otherwise specified by BNPP. If Counterparty consents to such Independent Amount Percentage, then Counterparty shall provide, no later than 3:00 p.m. (New York time) on the Firm Bid Date, a Firm Offer for such proposed Reference Obligation and the Approved Counterparty from which such Firm Offer was obtained. The date on which Counterparty provides such Firm Offer shall be the “Transaction Trade Date” for such Transaction, and the Firm Offer provided by Counterparty shall be the “Initial Price” for such Transaction.

Notwithstanding anything to the contrary in this Master Confirmation, if Counterparty requests on any Business Day that is on or after the Facility Trade Date and prior to the first day of the Ramp-Down Period, that a Pre-Approved Reference Obligation become the subject of a Transaction hereunder, then, provided that the Counterparty and BNPP have agreed to an Initial Price with respect to such Pre-Approved Reference Obligation, the conditions set forth in the second preceding paragraph shall be deemed to have been satisfied and such Pre-Approved Reference Obligation shall become the subject of a Transaction hereunder. With respect to any Transaction related to a Pre-Approved Reference Obligation, (i) the “Transaction Trade Date” shall be the date on which BNPP and Counterparty agree to the Initial Price for such Pre-Approved Reference Obligation and (ii) the Independent Amount Percentage will be as specified pursuant to Clause 9.

With respect to any Transaction, not later than one Business Day after the related Transaction Trade Date, subject to the satisfaction of the conditions described in the third preceding paragraph, BNPP shall deliver to Counterparty a revised Annex I, which shall include the relevant trade details, including the Independent Amount Percentage and the Initial Price, applicable to such Transaction. Counterparty may, within two (2) Business Days of receipt of any Annex I, request correction of any error therein. Absent manifest error, failure by Counterparty to request correction shall be deemed to be an affirmation and acceptance of the terms of the Transactions reflected on Annex I.

Upon the satisfaction of the conditions set forth in the fourth preceding paragraph, on the Transaction Trade Date for a Transaction, such Transaction shall, for all purposes hereof other than calculating Rate Payments, be deemed to be effective. On the Transaction Settlement Date for a Transaction, such Transaction shall, solely for the purposes of calculating Rate Payments, be deemed to be effective. The “Transaction Settlement Date” for a Transaction shall be the date following the Transaction Trade Date for such Transaction that is customary for settlement of the related Reference Obligation substantially in accordance with the then-current market practice in the principal market for the related Reference Obligation (as determined by the Calculation Agent), or any date specified by Counterparty and agreed to by BNPP; provided that if BNPP, any of its Affiliates or the Hedging Vehicle elects to establish a related hedge and notifies Counterparty of such election on the Transaction Trade Date, the Transaction Settlement Date shall be deemed to be the date on which such related hedge actually settles and the Calculation Agent shall make any adjustments to account for Delay Compensation in accordance with Clause 6(b) hereof. For the avoidance of doubt, none of BNPP, any of its Affiliates or the Hedging Vehicle shall be under any obligation to hedge any such Transaction or to own or hold any such Reference Obligation, and any of BNPP, its Affiliates and the Hedging Vehicle may establish, maintain, modify, terminate or re-establish any hedge position or any methodology for hedging at any time without regarding Counterparty. Notwithstanding the foregoing, if BNPP, any of its Affiliates or the Hedging Vehicle elects to establish a related hedge in respect of the Reference Obligation designated with respect to a new Transaction, and if (i) BNPP elects to give notice to Counterparty that such related hedge has failed to settle within a commercially reasonable period of time (as determined by the Calculation Agent and set forth in such notice) following the Transaction Settlement Date or (ii) if BNPP determines (in its sole discretion) that an AML Violation or OFAC Violation exists or could exist with respect to the related Reference Obligation, or if the settlement of such related hedge would or could result in a violation of BNPP’s “know your customer” compliance program or BNPP’s corporate and social responsibility policy, then the Transaction shall, in all cases and for all purposes hereof, be deemed never to have been effective and it shall be deemed that neither a Transaction Trade Date nor a Transaction Settlement Date occurred in respect of such Transaction, and neither BNPP nor Counterparty shall have any obligations hereunder in respect of such ineffective Transaction (except, in the case of clause (ii) of this sentence, Counterparty shall be liable to BNPP for any losses incurred by BNPP, such Affiliate or Hedging Vehicle in connection with their respective efforts to effect the settlement of such related hedge).

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Subject to Section 2(c) of the Master Agreement, in respect of each Transaction under this Master Confirmation or, in the case of the Counterparty Second Floating Amount and Counterparty Third Floating Amount, in respect of the Reference Portfolio, (a) Counterparty shall pay to BNPP the following amounts determined in accordance with the terms of this Master Confirmation for each applicable date: (i) on each Counterparty First Floating Rate Payer Payment Date, the Counterparty First Floating Amount, (ii) on each Counterparty Second Floating Rate Payer Payment Date, the Counterparty Second Floating Amount, (iii) on each Counterparty Third Floating Rate Payer Payment Date, the Counterparty Third Floating Amount, (iv) on each Counterparty Fourth Floating Rate Payer Payment Date, the Counterparty Fourth Floating Amount, and (v) on each Counterparty Fifth Floating Rate Payer Payment Date, the Counterparty Fifth Floating Amount, and (b) BNPP shall pay to Counterparty the following amounts determined in accordance with the terms of this Master Confirmation for each applicable date: (i) on each BNPP Fixed Amount Payer Payment Date, the BNPP Fixed Amount, and (ii) on each BNPP Floating Rate Payer Payment Date, the BNPP Floating Amount.

With respect to any Transaction, if any payment of interest on the related Reference Obligation that would otherwise be made during the period from and including the Transaction Trade Date to but excluding the Transaction Termination Trade Date is not made but is capitalized as additional principal (without default), then the amount of interest so capitalized as principal shall become a new Transaction hereunder (a “PIK Transaction”) having the same terms and conditions as the Transaction relating to the Reference Obligation in respect of which such interest is capitalized, except that (1) the Initial Price in relation to such PIK Transaction shall be 0%, (2) the Transaction Trade Date and Transaction Settlement Date for such PIK Transaction shall be the date on which such interest is capitalized and (3) the Reference Amount of such PIK Transaction will be the amount of interest so capitalized as principal. BNPP shall give notice to Counterparty after a PIK Transaction becomes outstanding as provided above, which notice shall set forth the information in the foregoing clauses (2) and (3).

Reference Entity:	With respect to any Transaction, the borrower of the related Reference Obligation identified as such in Annex I. In addition, with respect to any Transaction, “Reference Entity”, unless the context otherwise requires, shall also refer to any guarantor of or other obligor on the related Reference Obligation.
Ramp-Up Period:	The period from and including the Facility Effective Date and ending on and including August 10, 2017.
Ramp-Down Period:	The period from and including the later of (i) the date that is sixty (60) days prior to the Facility Scheduled Termination Date and (ii) the date on which a party provides written notice to the other party that the Facility Scheduled Termination Date will not be further extended, and ending on and including the Facility Scheduled Termination Date.
Portfolio Notional Amount:	As of any date of determination, the sum of the Notional Amounts for all Reference Obligations as of such date.
Notional Amount:	In relation to any Transaction, as of any date of determination, the Reference Amount of the related Reference Obligation as of such date multiplied by the Initial Price in relation to such Reference Obligation.
Notional Funded Amount:	As of any date of determination on or after the Transaction Settlement Date for any Transaction, in relation to a related Reference Obligation that is: (a)    a Term Obligation, the Notional Amount of such Reference Obligation on such date of determination; (b)    a Delayed Drawdown Reference Obligation or a Revolving Reference Obligation, (i) the Initial Funded Amount multiplied by the Initial Price, plus (ii) the Net Current Funded Amount on such date of determination, less (iii) the product of (x) the Reference Amount on such date of determination less the Initial Funded Amount, multiplied by (y) 100% minus the Initial Price; in each case as may be reduced in accordance with Clause 3 or Clause 5 hereof; provided that if the Notional Funded Amount for any Reference Obligation is at any time less than zero, such Notional Funded Amount shall be deemed to equal zero.
Portfolio Notional Funded Amount:	As of any date of determination, the aggregate of all Notional Funded Amounts with respect to all Reference Obligations in the Reference Portfolio on such date of determination.

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Reference Amount:	With respect to any Transaction, the “Reference Amount” indicated in Annex I. With respect to any Transaction in respect of which the related Reference Obligation is a Committed Obligation, the Reference Amount shall include the aggregate stated face amount of all letters of credit, bankers’ acceptances and other similar instruments issued in respect of such Committed Obligation to the extent that the holder of such Committed Obligation is obligated to extend credit in respect of any drawing or other similar payment thereunder. In the event any Reference Amount is reduced in accordance with Clause 3 or Clause 5 hereof, BNPP shall provide a revised Annex I reflecting such reduction on the next succeeding Business Day.
Utilization Amount:	In relation to any Calculation Period, the daily average of the Portfolio Notional Funded Amount during such Calculation Period.
Maximum Portfolio Notional Amount:	USD 40,000,000, or such greater amount as the parties may agree to in writing.
Minimum Portfolio Notional Amount:	On any date of determination, 80% of the Maximum Portfolio Notional Amount in effect on such date.
Business Day:	New York.
Payment Business Day:	A day on which commercial banks and foreign exchange markets settle payments and are open for general business in New York and London.
Business Day Convention:	Following (which shall apply to any date specified herein for the making of any payment or determination or the taking of any action which falls on a day that is not a Business Day).
Monthly Period:	Each period from but excluding the 10th day of any calendar month to and including the same day of the immediately succeeding calendar month; provided that the first such period will commence on, and include, the Facility Effective Date and end on, but exclude, July 10, 2017.
Calculation Agent:	BNPP; provided that, if an Event of Default shall have occurred and be continuing with respect to BNPP, then a Dealer selected by Counterparty in good faith that is not an Affiliate of either party shall be the Calculation Agent so long as no Event of Default with respect to Counterparty shall have occurred and be continuing. Unless otherwise specified, the Calculation Agent shall make all determinations, calculations and adjustments required pursuant to this Master Confirmation in good faith and on a commercially reasonable basis.
Calculation Agent City:	New York
Initial Price:	With respect to any Transaction and the related Reference Obligation, the Initial Price specified in Annex I. With respect to any Transaction, the Initial Price proposed by Counterparty and agreed by BNPP as provided in “Transaction Initiation” above will be determined as of the related Transaction Trade Date exclusive of accrued interest and will be expressed as a percentage. With respect to any Transaction, the Initial Price will be determined exclusive of expenses that would be incurred by a buyer in connection with any purchase of the Reference Obligation and exclusive of any Delay Compensation.

Payments by Counterparty

Counterparty First Floating Amounts
Counterparty First Floating Amount Payer:	Counterparty
Counterparty First Floating Amount:	In relation to any Counterparty First Floating Rate Payer Payment Date, the sum, for each Transaction for which such date is a Counterparty First Floating Rate Payer Payment Date, of the products of (a) the Counterparty First Floating Rate Payer Calculation Amount for such Transaction for the related Counterparty First Floating Rate Payer Calculation Period multiplied by (b) the Counterparty First Floating Rate Option for such Transaction during the related Counterparty First Floating Rate Payer Calculation Period plus the Counterparty First Floating Rate Spread multiplied by (c) the Counterparty First Floating Rate Day Count Fraction.

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Counterparty First Floating Rate Payer Calculation Amount:	In relation to any Counterparty First Floating Rate Payer Payment Date and any Transaction, the daily average of the Notional Funded Amount of such Transaction during the related Counterparty First Floating Rate Payer Calculation Period.
Counterparty First Floating Rate Payer Calculation Period:	In relation to any Transaction, each Monthly Period; provided that (a) the initial Counterparty First Floating Rate Payer Calculation Period will commence on, and include, the related Transaction Settlement Date and (b) the final Counterparty First Floating Rate Payer Calculation Period will end on, but exclude, the related Transaction Termination Date.
Counterparty First Floating Rate Payer Payment Dates:	(a) In relation to any Transaction (other than in relation to any Terminated Obligation or Repaid Obligation), the fifth Payment Business Day following the last day of any Monthly Period, commencing with the first such date after the Transaction Settlement Date for such Transaction and ending with the last such date occurring prior to the related Transaction Termination Date; and (b) In relation to any Terminated Obligation or Repaid Obligation, the related Total Return Payment Date.
Counterparty First Floating Rate Option:	In relation to any Transaction, USD-LIBOR-BBA.
Counterparty First Floating Rate Option Designated Maturity:	In relation to any Transaction, one month.
Counterparty First Floating Rate Spread:	2.00%
Counterparty First Floating Rate Day Count Fraction:	In relation to any Transaction, Actual/360.
Counterparty First Floating Rate Option Reset Dates:	In relation to any Transaction, the related Transaction Settlement Date and the first day of each Monthly Period thereafter.
Counterparty First Floating Rate Compounding:	Inapplicable
Counterparty Second Floating Amounts
Counterparty Second Floating Amount Payer:	Counterparty
Counterparty Second Floating Amount:	In relation to any Counterparty Second Floating Rate Payer Payment Date, the product of (a) the Counterparty Second Floating Rate Payer Calculation Amount multiplied by (b) the Counterparty Second Floating Rate Spread multiplied by (c) the Counterparty Second Floating Rate Day Count Fraction, in each case with respect to the related Counterparty Second Floating Rate Payer Calculation Period.

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	No Counterparty Second Floating Amount shall be payable, and no amount shall be payable under Clause 3(e), on any date occurring on or after the designation of an Early Termination Date pursuant to Section 6(a) of the Master Agreement by reason of an Event of Default in relation to BNPP as the Defaulting Party.
Counterparty Second Floating Rate Payer Calculation Amount:	In relation to any Counterparty Second Floating Rate Payer Calculation Period, the excess, if any, of (a) the Minimum Portfolio Notional Amount over (b) the Utilization Amount for such Counterparty Second Floating Rate Payer Calculation Period.
Counterparty Second Floating Rate Payer Calculation Period:	Each Monthly Period; provided that (a) the initial Counterparty Second Floating Rate Payer Calculation Period will commence on, and include, the last day of the Ramp-Up Period and (b) the final Counterparty Second Floating Rate Payer Calculation Period will end on, but exclude, the first day of the Ramp-Down Period.
Counterparty Second Floating Rate Payer Payment Dates:	The fifth Payment Business Day following the last day of each Monthly Period; provided that (a) the initial Counterparty Second Floating Rate Payer Payment Date will be the first such Payment Business Day after the last day of the Ramp-Up Period and (b) the final Counterparty Second Floating Rate Payer Payment Date will be the fifth Payment Business Day following the last day of the Monthly Period in which the Facility Scheduled Termination Date occurs.
Counterparty Second Floating Rate Spread:	2.00%.
Counterparty Second Floating Rate Day Count Fraction:	Actual/360.
Counterparty Second Floating Rate Compounding:	Inapplicable
Counterparty Third Floating Amounts
Counterparty Third Floating Amount Payer:	Counterparty
Counterparty Third Floating Amount:	In relation to any Counterparty Third Floating Rate Payer Payment Date, the product of (a) the Counterparty Third Floating Rate Payer Calculation Amount multiplied by (b) the Counterparty Third Floating Rate Spread multiplied by (c) the Counterparty Third Floating Rate Day Count Fraction, in each case with respect to the related Counterparty Third Floating Rate Payer Calculation Period. No Counterparty Third Floating Amount shall be payable, and no amount shall be payable under Clause 3(e), on any date occurring on or after the designation of an Early Termination Date pursuant to Section 6(a) of the Master Agreement by reason of an Event of Default in relation to BNPP as the Defaulting Party.
Counterparty Third Floating Rate Payer Calculation Amount:	In relation to any Counterparty Third Floating Rate Payer Calculation Period, the excess, if any, of (a) the Maximum Portfolio Notional Amount over (b) the greater of (i) the Utilization Amount for such Counterparty Third Floating Rate Payer Calculation Period and (ii) the Minimum Portfolio Notional Amount for such Counterparty Third Floating Rate Payer Calculation Period.

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Counterparty Third Floating Rate Payer Calculation Period:	Each Monthly Period; provided that (a) the initial Counterparty Third Floating Rate Payer Calculation Period will commence on, and include, the last day of the Ramp-Up Period and (b) the final Counterparty Third Floating Rate Payer Calculation Period will end on, but exclude, the first day of the Ramp-Down Period.
Counterparty Third Floating Rate Payer Payment Dates:	The fifth Payment Business Day following the last day of each Monthly Period; provided that (a) the initial Counterparty Third Floating Rate Payer Payment Date will be the first such Payment Business Day after the last day of the Ramp-Up Period and (b) the final Counterparty Third Floating Rate Payer Payment Date will be the fifth Payment Business Day following the last day of the Monthly Period in which the Facility Scheduled Termination Date.
Counterparty Third Floating Rate Spread:	0.375%.
Counterparty Third Floating Rate Day Count Fraction:	Actual/360.
Counterparty Third Floating Rate Compounding:	Inapplicable

Counterparty Fourth Floating Amounts
Counterparty Fourth Floating Amount Payer:	Counterparty
Counterparty Fourth Floating Amount:	In relation to any Counterparty Fourth Floating Rate Payer Payment Date and any Transaction, the Expense or Other Payment with respect to such Transaction for the related Counterparty Fourth Floating Rate Payer Payment Date.
Counterparty Fourth Floating Rate Payer Payment Dates:	In relation to any Transaction, (a) the fifth Payment Business Day following the last day of each Monthly Period, beginning with the first such Payment Business Day after the Transaction Settlement Date for such Transaction, (b) the related Transaction Termination Date and (c) after the related Transaction Termination Date, the fifth Payment Business Day after notice of a Counterparty Fourth Floating Amount from BNPP to Counterparty; provided that, prior to the fifth Business Day after the related Transaction Termination Date, if Counterparty has received fewer than five Business Days’ notice from BNPP that such Counterparty Fourth Floating Amount is due and payable, such Counterparty Fourth Floating Rate Payer Payment Date shall be the fifth Business Day following the last day of the next succeeding Monthly Period. The obligation of Counterparty to pay Counterparty Fourth Floating Amounts in respect of any Transaction shall survive the related Transaction Termination Date.
Counterparty Fifth Floating Amounts
Counterparty Fifth Floating Amount Payer:	Counterparty
Counterparty Fifth Floating Amount:	In relation to any Counterparty Fifth Floating Rate Payer Payment Date and any Terminated Obligation or Repaid Obligation, the Capital Depreciation with respect to such Terminated Obligation or Repaid Obligation for the related Counterparty Fifth Floating Rate Payer Payment Date, if any.
Counterparty Fifth Floating Rate Payer Payment Dates:	In relation to each Terminated Obligation or Repaid Obligation, the related Total Return Payment Date; provided that with respect to any Transaction Termination Date designated in connection with Clause 3(a)(iii)(b), Clause 3(b), Clause 3(c)(ii) or Clause 3(d) of this Master Confirmation or following an Event of Default under the Master Agreement as to which Counterparty is the Defaulting Party or an Additional Termination Event as to which Counterparty is the sole Affected Party, the Counterparty Fifth Floating Rate Payer Payment Date shall be such Transaction Termination Date, or if such date is not a Payment Business Day, the following day that is a Payment Business Day.

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Payments by BNPP

BNPP Fixed Amounts
BNPP Fixed Amount Payer:	BNPP
BNPP Fixed Amount:	In relation to any Transaction, the Interest and Fee Amount with respect to such Transaction for the related BNPP Fixed Amount Payer Payment Date.
BNPP Fixed Amount Payer Calculation Periods:	In relation to each Reference Obligation in the Reference Portfolio, each period from and including any date upon which a payment of interest is actually received by a Reference Obligation Holder on such Reference Obligation to but excluding the next such date; provided that (a) the initial BNPP Fixed Amount Payer Calculation Period will commence on, and include, the Transaction Settlement Date for such Reference Obligation and (b) the final BNPP Fixed Amount Payer Calculation Period will end on, but exclude, the related Transaction Termination Date.
BNPP Fixed Amount Payer Payment Dates:	(a) In relation to any Transaction (other than in relation to any Terminated Obligation or Repaid Obligation), the fifth Payment Business Day following the last day of any Monthly Period during which any payment of interest is actually received by a Reference Obligation Holder, on the related Reference Obligation, commencing with the first such date after the Transaction Settlement Date for such Transaction and ending with the last such date occurring prior to the related Transaction Termination Date; and (b) In relation to any Terminated Obligation or Repaid Obligation, the related Total Return Payment Date; provided that, in the case of a Terminated Obligation, if the related Transaction Termination Date occurs on a date other than a date on which interest on the related Reference Obligation is scheduled to be paid, the final BNPP Fixed Amount Payer Payment Date shall be the fifth Payment Business Day following the last day of any Monthly Period during which such interest is scheduled to be paid (subject to any applicable grace period).
BNPP Floating Amounts
BNPP Floating Amount Payer:	BNPP
BNPP Floating Amount:	In relation to any BNPP Floating Rate Payer Payment Date and any Terminated Obligation or Repaid Obligation, the Capital Appreciation with respect to such Terminated Obligation or Repaid Obligation for the related BNPP Floating Rate Payer Payment Date, if any.
BNPP Floating Rate Payer Payment Dates:	In relation to each Terminated Obligation or Repaid Obligation, the related Total Return Payment Date.

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3. REFERENCE OBLIGATION REMOVAL; ACCELERATED TERMINATION.

Reference Obligation Removal

(a) A Transaction may be terminated in whole by either party (or in part by Counterparty) in accordance with sub-clauses (i)-(vii) of this Clause 3 (each such termination, an “Accelerated Termination”) upon the giving of notice (an “Accelerated Termination Notice”) to the other party in accordance with this Clause 3. An Accelerated Termination Notice shall specify, in respect of an Accelerated Termination, (1) the Trade ID of the related Transaction, (2) the Reference Obligation that is the subject of such Accelerated Termination, (3) the related Reference Amount Reduction Amount, (4) the Transaction Termination Trade Date, and (5) the Transaction Termination Settlement Date. An Accelerated Termination Notice shall be given (i) on the proposed Transaction Termination Trade Date for the related Accelerated Termination and (ii) no more than 30 days, and no fewer than 10 days, prior to the proposed Transaction Termination Settlement Date for the related Accelerated Termination. The Transaction Termination Settlement Date for any Accelerated Termination shall be the date that is customary for settlement of the related Terminated Obligation substantially in accordance with the then-current market practice in the principal market for the related Terminated Obligation (as determined by the Calculation Agent), or any date specified by Counterparty and agreed to by BNPP; provided that if BNPP, any of its Affiliates or the Hedging Vehicle elects to terminate a related hedge and such related hedge termination actually settles on a date other than the Transaction Termination Settlement Date, the Transaction Termination Settlement Date shall be deemed to be the date that such related hedge termination actually occurred and the Calculation Agent shall make any adjustments to account for Delay Compensation in accordance with Clause 6(b) hereof. For the avoidance of doubt, none of BNPP, any of its Affiliates or the Hedging Vehicle shall be under any obligation to terminate any hedge related to any such Transaction or to dispose of any such Reference Obligation, and any of BNPP, its Affiliates and the Hedging Vehicle may establish, maintain, modify, terminate or re-establish any hedge position or any methodology for hedging at any time without regarding Counterparty.

(i) Counterparty may, on any Business Day, request that any Transaction or any portion thereof be terminated by delivering an Accelerated Termination Notice to BNPP; provided, however, that such Accelerated Termination Notice shall be deemed to not be effective unless BNPP notifies Counterparty of its consent to such Accelerated Termination as provided in this Clause 3(a)(i). The Accelerated Termination Notice delivered by Counterparty to BNPP shall also specify an estimate of the Final Price of the related Termination Obligation. Following BNPP’s receipt of such Accelerated Termination Notice, if (A) BNPP, in its commercially reasonable discretion, consents to the proposed termination of such Transaction or portion thereof on such terms and (B) after giving effect to such proposed termination, the Reference Obligations relating to the then existing Transactions, in the aggregate, would continue to satisfy the Portfolio Criteria (provided that the condition set forth in this clause (B) is not applicable if such Accelerated Termination Notice is delivered on a date that falls within the Ramp-Up Period or the Ramp-Down Period and the Portfolio Notional Amount after giving effect to such proposed termination would not exceed $25 million), then BNPP shall notify Counterparty of BNPP’s consent to such termination and, upon such notification, such Accelerated Termination Notice shall be deemed to be effective; provided, however, that such Accelerated Termination Notice shall subsequently be deemed ineffective and to have no force or effect if (x) Counterparty does not provide a Firm Bid pursuant to Clause 4(a) on or prior to (I) the date that is three (3) days after the date of such consent and (II) the date on which BNPP notifies Counterparty that BNPP has withdrawn such consent, or (y) such Firm Bid is not within 10% of the estimate of the Final Price specified in such Accelerated Termination Notice (in which case Counterparty must deliver an updated Accelerated Termination Notice, which shall be subject to the terms of this Clause 3(a)(i)).

(ii) With respect to any Transaction, following the occurrence of a Credit Event (as determined by the Calculation Agent) with respect to the related Reference Entity (including any guarantor or other obligor referred to in the definition thereof), BNPP shall, at any time after the Transaction Trade Date, be entitled to propose, by notice to Counterparty, an increased Independent Amount Percentage with respect to the related Transaction. If Counterparty does not, by notice to BNPP within one (1) Business Day after such notice from BNPP, agree to such increase, then BNPP may terminate the related Transaction by delivering an Accelerated Termination Notice to Counterparty.

(iii) If Counterparty fails to make, when due, any Transfer required under Clause 9 to be made by Counterparty and such failure is continuing after the grace period specified in Paragraph 7(i) of the Credit Support Annex (as may be modified pursuant to Paragraph 13 thereof) after BNPP gives notice of such failure to Counterparty, BNPP will then have the right to terminate any or all Transactions by (A) delivering an Accelerated Termination Notice to Counterparty with respect to each Transaction that will be terminated or (B) delivering a notice to Counterparty designating a date no fewer than 10 days after the date of delivery of such notice as the Facility Termination Date.

(iv) With respect to any Transaction, if BNPP, any of its Affiliates or the Hedging Vehicle would be unable, after using commercially reasonable efforts (A) to acquire, establish, re-establish, substitute, maintain, unwind or dispose of any transaction(s) or asset(s) (including, but not limited to, the applicable Reference Obligation(s)) held or desired to be held by BNPP, such Affiliate or Hedging Vehicle, as the case may be, as a hedge against the risk of entering

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into and performing BNPP’s obligations with respect to such Transaction without incurring excessive costs or expenses (including, but not limited to, during the continuance of a disrupted market) or (B) to realize, recover or remit the proceeds of any such transaction(s) or asset(s) (such clauses (A) and (B) together, the “Hedging Action”) and settle such Hedging Action, then, BNPP may, in its sole discretion, terminate the related Transaction by delivering an Accelerated Termination Notice to Counterparty.

(v) With respect to any Transaction, if BNPP is or becomes aware that Counterparty is not permitted pursuant to the terms of the related Reference Obligation to acquire or hold (or is otherwise prohibited from acquiring or holding) such Reference Obligation (or any participation interest in such Reference Obligation), then BNPP may, in its sole discretion, terminate the related Transaction by delivering an Accelerated Termination Notice to Counterparty.

(vi) With respect to any Transaction, if BNPP determines (in its sole discretion) that an AML Violation or OFAC Violation exists or could exist with respect to the related Reference Obligation, or if the establishment or maintenance by BNPP, any of its Affiliates or the Hedging Vehicle of any related hedge would or could result in a violation of BNPP’s corporate and social responsibility policy, then BNPP may, in its sole discretion, terminate the related Transaction by delivering an Accelerated Termination Notice to Counterparty.

(vii) With respect to any Transaction, following the occurrence of a Regulatory Event, the parties shall negotiate in good faith and in a commercially reasonable manner to (A) transfer the Regulatory Affected Transaction(s) to avoid the prohibition or limitation described in the definition of Regulatory Event or (B) provide for new terms and conditions for Regulatory Affected Transaction(s) within five (5) Business Days of written notice from BNPP (or such shorter amount of time reasonably determined by BNPP to comply with its obligations under any Applicable Law referenced in sub-clauses (i), (ii), or (iii) of the definition of Regulatory Event, or such longer period of time agreed to by the parties), which in either case preserves for both parties the economic benefits of the original Transaction(s) and does not otherwise result in any increased cost or risk for either party. In the event the parties are unable to agree as provided in clause (A) or (B) within the applicable time period, the party affected by such Regulatory Event shall have a right to terminate the Regulatory Affected Transaction(s) by delivering an Accelerated Termination Notice to the other party.

For purposes of the definition of Regulatory Event, and for the avoidance of doubt, all regulations, rules, guidelines and directives adopted or promulgated by Governmental Authorities in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act shall be deemed to be changes in Applicable Law at such time as such regulations, rules, guidelines and directives are adopted, promulgated and deemed effective in final and binding form. The determination of whether any events or circumstances set forth in the definition of Regulatory Event has occurred shall be made by BNPP in a commercially reasonable manner, but BNPP shall provide to Counterparty evidence demonstrating such determination (which evidence need not be in the form of an opinion of counsel).

For the avoidance of doubt, the parties hereto hereby acknowledge and agree that (x) neither party shall be required to take any action or perform any obligation under this Master Confirmation if such action or performance would not be permitted under Section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regardless of whether any event has arisen that would give rise to a Regulatory Event), and (y) nothing in this subclause (vii) shall require BNPP or any Affiliate of BNPP or any of their respective agents to take any action which, in the reasonable opinion of BNPP, is not possible or would be in contravention of any applicable law, regulation, market custom or practice, nor shall BNPP or any Affiliate of BNPP be obliged to take any action which would cause it to incur additional material costs or expenses during the continuance of a disrupted market.

Elective Termination by Counterparty

(b) Counterparty may, on any day prior to the date that is one month prior to the Facility Scheduled Termination Date, terminate all outstanding Transactions, if any, by delivering a notice to BNPP designating a date no fewer than 15 days after the date of delivery of such notice as the Facility Termination Date.

Elective Termination by BNPP due to Non-Compliance

(c) If at any time the Reference Portfolio, taken as a whole, fails to satisfy the Portfolio Criteria or any Reference Obligation related to any Transaction fails to satisfy the Obligation Criteria (and in each case, for the avoidance of doubt, in respect of any Transaction for which the related Transaction Settlement Date has not occurred, assuming for this purpose that such Transaction Settlement Date has occurred), then BNPP may notify Counterparty in writing of such non-compliance; provided, however, that if such non-compliance relates solely to clause (iii) or (ix) of the Portfolio

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Criteria, Counterparty may dispute such non-compliance by providing BNPP with (x) three or more pairs of indicative bid-offer quotations for the related Reference Obligation, expressed as a percentage and exclusive of accrued interest, that are acceptable to BNPP in its commercially reasonable discretion or (y) three or more good and irrevocable bids for value, to purchase the related Reference Obligation, expressed as a percentage and exclusive of accrued interest, for scheduled settlement substantially in accordance with then-current market practice in the principal market for such Reference Obligation, that are in each case submitted by Dealers. If Counterparty fails to correct such non-compliance within 3 Business Days following Counterparty’s receipt of such notice (any such failure to correct such non-compliance, a “Non-Compliance”), BNPP will then have the right to:

(i) by notice to Counterparty, increase the Independent Amount Percentage with respect to any one or more Transactions (and solely for purposes of this sub-clause and notwithstanding Clause 9(a) of this Master Confirmation, the posting by Counterparty of the corresponding additional Independent Amount with respect to the relevant Transactions within one (1) Business Day of any such notice shall be deemed to cure such Non-Compliance); or

(ii) terminate (1) if the Reference Portfolio, taken as a whole, fails to satisfy the Portfolio Criteria, any or all Transactions by (A) delivering an Accelerated Termination Notice to Counterparty with respect to each Transaction that will be terminated, or (B) delivering a notice to Counterparty designating a date no fewer than 10 days after the date of delivery of such notice as the Facility Termination Date or (2) if any Reference Obligation related to any Transaction fails to satisfy the Obligation Criteria, such Transaction by delivering an Accelerated Termination Notice to Counterparty with respect to such Transaction;

provided, however, that if any Non-Compliance relates solely to clause (x) of the Portfolio Criteria, BNPP will only have the right to increase the Independent Amount Percentage with respect to any one or more Transactions pursuant to Clause 3(c)(i), and BNPP may not terminate any Transactions pursuant to Clause 3(c)(ii) on the basis of such Non-Compliance.

Facility Scheduled Termination Date

(d) Each Transaction existing under this Master Confirmation shall terminate in connection with the occurrence of the Facility Scheduled Termination Date pursuant to the terms of this Master Confirmation and, in respect of each such terminated Transaction, (i) the “Reference Amount Reduction Amount” shall be the Reference Amount of the related Reference Obligation, (ii) the “Transaction Termination Trade Date” shall be a date occurring during the 30 calendar days preceding the Facility Scheduled Termination Date, as designated by the Calculation Agent in its sole discretion in a manner reasonably likely to cause the Transaction Termination Settlement Date for such Transaction to occur on the Facility Scheduled Termination Date, and (iii) the “Transaction Termination Settlement Date” shall be the Facility Scheduled Termination Date. For the avoidance of doubt, with respect to each such terminated Transaction, the “Final Price” in relation to the related Terminated Obligation shall be determined pursuant to Clause 4.

If (1) BNPP elects to terminate (or cause the BNPP Holder (as defined below) to terminate) a related hedge with respect to any Transaction and, (2) BNPP notifies Counterparty on the Facility Scheduled Termination Date that such related hedge has failed to settle on or prior to the Facility Scheduled Termination Date, then (I) the Transaction Termination Settlement Date with respect to such Transaction shall be deemed to occur on the earlier of (x) the Facility Final Termination Date and (y) the date on which such related hedge actually settles and (II) if BNPP notifies Counterparty on the Facility Final Termination Date that such related hedge has failed to settle on or prior to the Facility Final Termination Date, then (x) the “Final Price” in relation to each related Terminated Obligation shall be deemed to be 0% (notwithstanding Clause 4), and (y) BNPP shall assign (or cause the BNPP Holder to assign) any Terminated Obligation then held as a hedge in respect of a terminated Transaction to or at the direction of Counterparty.

Designation of Facility Termination Date

(e) Following the designation of a Facility Termination Date pursuant to Clause 3(a)(iii) in relation to all Transactions hereunder, (b) or (c)(ii), all Transactions outstanding, if any, under this Master Confirmation shall terminate pursuant to the terms of this Master Confirmation and, in respect of each such terminated Transaction, if any, (i) the “Reference Amount Reduction Amount” shall be the Reference Amount of the related Reference Obligation, (ii) the “Transaction Termination Trade Date” shall be the date of the designation of such Facility Termination Date, and (iii) the “Transaction Termination Settlement Date” shall be such Facility Termination Date. For the avoidance of doubt, with respect to each such terminated Transaction, if any, the “Final Price” in relation to the related Terminated Obligation

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shall be determined pursuant to Clause 4(b). On the Facility Termination Date, Counterparty shall pay to BNPP an amount equal to the present value (as calculated by the Calculation Agent) of each Counterparty Second Floating Amount and Counterparty Third Floating Amount that would have been payable absent the designation of such Facility Termination Date (assuming for purposes of such calculation that the Portfolio Funded Notional Amount is zero) on each subsequent Counterparty Second Floating Rate Payer Payment Date and Counterparty Third Floating Rate Payer Payment Date, respectively, occurring on or prior to the Facility Scheduled Termination Date, discounted to the Facility Termination Date at a discount rate per annum equal to the Discount Rate. For this purpose, the “Discount Rate” means, with respect to each Second Floating Rate Payer Payment Date or Counterparty Third Floating Rate Payer Payment Date, as applicable, the zero coupon swap rate (as determined by the Calculation Agent) implied by the fixed rate offered to be paid by BNPP under a fixed for floating interest rate swap transaction with a remaining term equal to the period from such Facility Termination Date to such Second Floating Rate Payer Payment Date or Counterparty Third Floating Rate Payer Payment Date, as applicable, in exchange for the receipt of payments indexed to USD-LIBOR-BBA.

Designation of Early Termination Date

(f) Notwithstanding anything to the contrary in the Master Agreement, in the event that an Early Termination Date is designated by either party pursuant to Section 6(a) or 6(b) of the Master Agreement, in lieu of calculating the amount payable in respect of all Transactions pursuant to Section 6(e) of the Master Agreement, the obligations of the parties shall be determined pursuant to the provisions hereof and, with respect to each Transaction to which this Master Confirmation relates, (i) the related Reference Obligation shall be deemed to be a Terminated Obligation, (ii) the “Transaction Termination Trade Date” with respect to such Terminated Obligation shall be such Early Termination Date, (iii) the “Final Price” in relation to such Terminated Obligation shall be determined pursuant to Clause 4, (iv) each amount that becomes payable by reason of the occurrence of the Transaction Termination Trade Date shall be an “Unpaid Amount” and (v) if such Early Termination Date is designated by BNPP, the foregoing shall not limit the effect of Clause 3(e) and if such Early Termination Date is designated by Counterparty as a result of an Event of Default with respect to BNPP, Counterparty shall have no obligations under Clause 3(e) to make any payments to BNPP in respect of any subsequent Counterparty Second Floating Rate Payer Payment Dates or Counterparty Third Floating Rate Payer Payment Dates.

Effect of Termination

(g) Notwithstanding anything to the contrary in the Master Agreement, with respect to any Transaction terminated in whole pursuant to this Clause 3, in lieu of calculating the amount payable in respect of a Transaction pursuant to Section 6(e) of the Master Agreement, (i) as of the relevant Transaction Termination Trade Date, immediately after the determination of the related Final Price and the calculation of any related Capital Appreciation or Capital Depreciation, each of the Reference Amount, the Notional Funded Amount, the Initial Funded Amount and the Current Funded Amount, for all purposes hereof other than calculating Rate Payments, shall be reduced to zero (provided that for the purposes of calculating the Return Amount (as defined in the Credit Support Annex) with respect to the related Terminated Obligation, neither of the Reference Amount nor the Current Funded Amount of such Terminated Obligation shall be reduced to zero until the Business Day next succeeding the Transaction Termination Settlement Date) and (ii) as of the relevant Transaction Termination Settlement Date, each of the Reference Amount, the Notional Funded Amount, the Initial Funded Amount and the Current Funded Amount, for purposes of calculating Rate Payments, shall be reduced to zero. Notwithstanding anything to the contrary in the Master Agreement, with respect to any Transaction terminated in part pursuant to this Clause 3, in lieu of calculating the amount payable in respect of a Transaction pursuant to Section 6(e) of the Master Agreement, (i) as of the relevant Transaction Termination Trade Date, immediately after the determination of the related Final Price and the calculation of any related Capital Appreciation or Capital Depreciation, (A) the Reference Amount, for all purposes hereof other than calculating Rate Payments, shall be reduced (if such Terminated Obligation is a Committed Obligation, such reduction shall be allocated on a pro rata basis according to the relative principal amounts of the funded and unfunded portions of the related Reference Obligation) by the Reference Amount Reduction Amount specified in the Accelerated Termination Notice (provided that for the purposes of calculating the Return Amount with respect to the related Terminated Obligation, the Reference Amount of such Terminated Obligation shall not be reduced until the Business Day next succeeding the Transaction Termination Settlement Date), and (B) each of the Notional Funded Amount, the Initial Funded Amount, and the Current Funded Amount, for all purposes hereof other than calculating Rate Payments, shall be reduced (if such Terminated Obligation is a Committed Obligation, such reduction shall be allocated on a pro rata basis according to the relative principal amounts of the funded and unfunded portions of the related Reference Obligation) in proportion to the Reference Amount Reduction Amount, and (ii) as of the relevant Transaction Termination Settlement Date, (A) the Reference

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Amount, for purposes of calculating Rate Payments, shall be reduced (if such Terminated Obligation is a Committed Obligation, such reduction shall be allocated on a pro rata basis according to the relative principal amounts of the funded and unfunded portions of the related Reference Obligation) by the Reference Amount Reduction Amount specified in the Accelerated Termination Notice and (B) each of the Notional Funded Amount, the Initial Funded Amount, and the Current Funded Amount, for purposes of calculating Rate Payments, shall be reduced (if such Terminated Obligation is a Committed Obligation, such reduction shall be allocated on a pro rata basis according to the relative principal amounts of the funded and unfunded portions of the related Reference Obligation) in proportion to the Reference Amount Reduction Amount. Notwithstanding the foregoing, other than with respect to the termination of a Transaction pursuant to Clause 3(d), if BNPP, any of its Affiliates or the Hedging Vehicle elects to terminate a related hedge in respect of the Reference Obligation designated with respect to a terminated Transaction, and if BNPP elects to give notice to Counterparty that such related hedge termination has failed to settle within a commercially reasonable period of time (as determined by the Calculation Agent and set forth in such notice) following the Transaction Termination Settlement Date, then the Transaction shall, for all purposes hereof, be deemed never to have been terminated and it shall be deemed that neither a Transaction Termination Trade Date nor a Transaction Termination Settlement Date occurred in respect of such Transaction; provided that, in such event, Counterparty may, promptly after any such notice, request that (x) the “Final Price” with respect to any such Terminated Obligation be deemed to be 0% and (y) BNPP assign (or cause the BNPP Holder to assign) such Terminated Obligation to or at the direction of Counterparty. With respect to any Accelerated Termination, not later than one Business Day after the related Transaction Termination Trade Date, BNPP shall deliver to Counterparty a revised Annex I, which shall reflect such Accelerated Termination.

4. FINAL PRICE DETERMINATION

Following the termination of any Transaction in whole or in part pursuant to Clause 3 or by reason of the occurrence of the Facility Scheduled Termination Date (other than in connection with a Repayment), the “Final Price” in relation to the relevant Terminated Obligation(s) will be determined in accordance with this Clause 4.

Determination by Counterparty

(a) In order to determine the Final Price in relation to any Terminated Obligation then held by or on behalf of BNPP as a hedge against the risk of entering into and performing its obligations with respect to the related Transaction, Counterparty may, no later than 3:00 p.m. (New York time) on the Transaction Termination Trade Date with respect to such Terminated Obligation, provide notice to BNPP of a Firm Bid (as defined below) from a Dealer of credit standing acceptable to BNPP in the exercise of its reasonable discretion to purchase the entire Reference Amount of such Terminated Obligation; provided that if such Dealer is not reasonably acceptable to BNPP , the Final Price in relation to such Terminated Obligation shall be determined pursuant to Clause 4(b); provided further that Counterparty hereby agrees that it shall not have the right to provide notice to BNPP of a Firm Bid in connection with the termination of a Transaction: (i) in the case of a termination pursuant to Clause 3(a)(ii), (a)(iii), (a)(v), (c), (d), (e) or (if the relevant Early Termination Date is designated as a result of an Event of Default with respect to Counterparty) (f); provided that, in the event (x) Counterparty has requested that a Transaction or any portion thereof be terminated pursuant to Clause 3(a)(i), (y) BNPP has not consented to such termination, and (z) such Transaction is subsequently terminated in accordance with Clause 3(a)(ii), (c) or (d), then this subclause (i) shall not apply; (ii) if BNPP would be unable to, after using commercially reasonable efforts in connection with any Transaction Termination Date, effect and settle any Hedging Action with respect to such Transaction by such Transaction Termination Date; or (iii) if, as a result of such termination and the termination of all other Transactions as to which the Total Return Payment Date has not yet occurred, (x) the aggregate Value (as defined in the Credit Support Annex) of all Posted Credit Support (as defined in the Credit Support Annex) held by BNPP as Secured Party (as defined in the Credit Support Annex) plus the aggregate of all BNPP Floating Amounts payable in connection with such terminations would be less than (y) the aggregate of all Counterparty Fifth Floating Amounts payable in connection with such terminations. Such notice must be given at least 15 days prior to the Facility Scheduled Termination Date if all Transactions are to be terminated in connection with the Facility Scheduled Termination Date. Any sale executed in respect of such Firm Bid (i) must be to (x) an Approved Buyer or (y) another buyer approved in advance of the Transaction Termination Trade Date by BNPP (such approval, in the case of a buyer with which BNPP has approved trading lines and that is not an Affiliate of Counterparty, not to be unreasonably withheld or delayed) and (ii) must be scheduled to occur no later than the date customary for settlement, substantially in accordance with the then-current market practice in the principal market for such Terminated Obligation (as determined by the Calculation Agent), following the Transaction Termination Trade Date and on or prior to the Facility Scheduled Termination Date if all Transactions are to be terminated in connection with the Facility Scheduled Termination Date. If the proviso to the first sentence of this Clause 4(a) does not apply and if all of the conditions set forth in the second sentence of this Clause 4(a) are satisfied, then such Firm Bid shall be the “Final Price” in relation to such Terminated Obligation. Otherwise, the “Final Price” in relation to such Terminated Obligation shall be determined pursuant to Clause 4(b).

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Determination by Calculation Agent

(b) If the Final Price in relation to any Terminated Obligation is not determined pursuant to Clause 4(a), the Calculation Agent shall attempt to obtain Firm Bids for such Terminated Obligation with respect to the applicable Transaction Termination Trade Date from three or more Dealers selected by BNPP; provided that, except in the case of a termination described in Clause 3(f) in connection with an Early Termination Date designated by BNPP, the Counterparty shall be entitled to select one of such Dealers; provided further that if such Dealer selected by Counterparty is not reasonably acceptable to BNPP or Counterparty fails to provide notice to BNPP of a financial institution to be selected as a Dealer promptly after the Transaction Termination Trade Date with respect to such Terminated Obligation, the Calculation Agent shall attempt to obtain Firm Bids from three or more Dealers selected in its discretion. A “Firm Bid” shall be a good and irrevocable bid for value, to purchase all or a portion of the applicable Terminated Obligation, expressed as a percentage and exclusive of accrued interest, for scheduled settlement substantially in accordance with the then-current market practice in the principal market for such Terminated Obligation (after deduction of any withholding taxes for which the related Reference Entity is not obligated to reimburse a Reference Obligation Holder, if applicable), as determined by the Calculation Agent, submitted by a Dealer as of 11 a.m. New York time or as soon as practicable thereafter. If there is more than one Terminated Obligation at any time, then the Calculation Agent may in its sole discretion, in addition to obtaining individual Firm Bids with respect to each separate Terminated Obligation, also obtain Firm Bids for any group or groups of such Terminated Obligations. BNPP may, but is not obligated to, sell or cause the sale of any portion of any Terminated Obligation to any Dealer that provides a Firm Bid.

If the Calculation Agent is unable to obtain from Dealers at least one Firm Bid for all of the Reference Amount of any Terminated Obligation (either as an individual Firm Bid or as part of a Firm Bid for any group or groups of such Terminated Obligations) on the relevant Transaction Termination Trade Date, the Calculation Agent will attempt to obtain a Firm Bid or combination of Firm Bids for all of the Reference Amount of such Terminated Obligation from three or more Dealers until the earlier of (i) the second Business Day (inclusive) following such Transaction Termination Trade Date and (ii) the date a Firm Bid or combination of Firm Bids is obtained for all of the Reference Amount of such Terminated Obligation.

If the Calculation Agent is able to obtain at least one Firm Bid or combination of Firm Bids for all of the Reference Amount of any Terminated Obligation, the “Final Price” in relation to such Terminated Obligation shall be the highest of such Firm Bids or combination of Firm Bids. If no Firm Bids are obtained on or prior to such second Business Day for all or a portion of the applicable Terminated Obligation, (x) the “Final Price” shall be deemed to be 0% with respect to such Terminated Obligation (or portion thereof) for which no Firm Bid was obtained and (y) BNPP shall assign (or cause the BNPP Holder to assign) such Terminated Obligation (or portion thereof) if then held as a hedge in respect of the related Transaction to or at the direction of Counterparty. The Calculation Agent will conduct the bid process in accordance with the procedures set forth in this Clause 4(b) and otherwise in a commercially reasonable manner.

Notwithstanding anything to the contrary herein (including, for the avoidance of doubt, either of Clause 4(a) or Clause 4(b)):

(i) Counterparty hereby agrees that it will not provide any bid with respect to any Terminated Obligation through any Dealer in connection with the determination of the Final Price. For the avoidance of doubt, while Counterparty may provide notice of a Firm Bid of a Dealer when permitted pursuant to Clause 4(a), Counterparty shall not directly or indirectly cause such Dealer to provide such Firm Bid by providing any bid in respect of the related Terminated Obligation to such Dealer.

(ii) The Calculation Agent shall be entitled to disregard any Firm Bid submitted by a Dealer if, in the Calculation Agent’s commercially reasonable judgment, (x) such Dealer may be ineligible to accept assignment or transfer of the related Terminated Obligation or portion thereof, as applicable, substantially in accordance with the then-current market practice in the principal market for the Terminated Obligation, as determined by the Calculation Agent, or (y) such Dealer would not, through the exercise of its commercially reasonable efforts, be able to obtain any consent required under any agreement or instrument governing or otherwise relating to the related Terminated Obligation to the assignment or transfer of the related Terminated Obligation or portion thereof, as applicable, to it.

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(iii) If the Calculation Agent determines in its commercially reasonable judgement that the highest Firm Bid obtained in connection with any Transaction Termination Trade Date is not bona fide, including, without limitation, due to (x) the insolvency of the bidder, (y) the inability, failure or refusal of the bidder to settle the purchase of the related Terminated Obligation or portion thereof, as applicable, or otherwise settle transactions in the relevant market or perform its obligations generally or (z) the Calculation Agent provides notice to Counterparty specifying BNPP’s reasonable grounds for insecurity concerning the bidder’s ability to settle the purchase of the related Terminated Obligation or portion thereof, as applicable, that Firm Bid shall be disregarded and the Calculation Agent shall designate a new Transaction Termination Trade Date; provided that the Calculation Agent shall designate a new Transaction Termination Trade Date pursuant to this paragraph only once. If the highest Firm Bid for any portion of the related Terminated Obligation determined in connection with the second Transaction Termination Trade Date is disregarded pursuant to this paragraph, (A) the Calculation Agent shall have no obligation to obtain further bids, (B) the applicable “Final Price” in relation to the portion which was so disregarded shall be deemed to be 0% with respect to such Terminated Obligation (or portion thereof), and (C) BNPP shall assign (or cause the BNPP Holder to assign) such Terminated Obligation (or portion thereof) if then held as a hedge in respect of the related Transaction to or at the direction of Counterparty.

The Calculation Agent may perform any of its duties under this Clause 4 through any Affiliate designated by it, but no such designation shall relieve the Calculation Agent of its duties under this Clause 4.

5. REPAYMENT.

With respect to any Transaction (x) in respect of a Reference Obligation that is not a Revolving Reference Obligation, if all or a portion of the Reference Amount of the related Reference Obligation is repaid or otherwise reduced or withdrawn or (y) in respect of a Reference Obligation that is a Revolving Reference Obligation, if all or a portion of the Reference Amount of the related Reference Obligation is irrevocably repaid or otherwise irrevocably reduced or withdrawn such that the lender thereunder is no longer obligated to fund in respect of such repaid, reduced or withdrawn amount (including, in each case, without limitation, through any exercise of any right of set-off, reduction, or counterclaim that results in the satisfaction of the obligations of the related Reference Entity to pay any principal owing in respect of such Reference Obligation) on or prior to the Transaction Termination Settlement Date (such repayment or other reduction or withdrawal, a “Repayment”; the portion of the related Reference Obligation so repaid or otherwise reduced or withdrawn, a “Repaid Obligation”; the portion of the Reference Amount of the related Reference Obligation so repaid or otherwise reduced or withdrawn, the “Repaid Reference Amount”; and the date of such Repayment, the “Repayment Date”):

(a) the Total Return Payment Date with respect to such Transaction will be the fifth Business Day next succeeding the last day of the Monthly Period in which the Repayment Date occurred;

(b) as of the related Repayment Date, immediately after the determination of the Final Price pursuant to Clause 5(c) and the calculation of any related Capital Appreciation or Capital Depreciation, the Reference Amount of the related Reference Obligation shall be reduced by an amount equal to the Repaid Reference Amount and each of the Notional Funded Amount, the Initial Funded Amount and the Current Funded Amount of the related Reference Obligation shall be reduced by the amount of the funded portion of the Reference Amount Reduction Amount; and

(c) the related “Final Price” of the Repaid Obligation shall be (i) if such Repaid Obligation is a Term Obligation, the amount of principal and premium in respect of principal paid by the related Reference Entity on the related Repaid Obligation in respect of the Reference Amount Reduction Amount to a Reference Obligation Holder on such Repayment Date (after deduction of any withholding taxes for which such Reference Entity is not obligated to reimburse a Reference Obligation Holder, if applicable), expressed as a percentage of the Reference Amount Reduction Amount, and (ii) if such Repaid Obligation is a Committed Obligation, the sum of (x) the amount of principal and premium in respect of principal paid by the related Reference Entity on the funded portion of the related Repaid Obligation in respect of the Reference Amount Reduction Amount to a Reference Obligation Holder on such Repayment Date (after deduction of any withholding taxes for which such Reference Entity is not obligated to reimburse a Reference Obligation Holder, if applicable), plus (y) the amount of the unfunded portion of the Reference Amount Reduction Amount, plus (z) any amounts paid by the related Reference Entity on the unfunded portion of the related Repaid Obligation in respect of the Reference Amount Reduction Amount to a Reference Obligation Holder on such Repayment Date (after deduction of any withholding taxes for which such Reference Entity is not obligated to reimburse a Reference Obligation Holder, if applicable), with such sum expressed as a percentage of the Reference Amount Reduction Amount.

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6. ADJUSTMENTS.

(a) If, with respect to any Transaction, the related Reference Obligation or any portion thereof is irreversibly converted or exchanged into or for any securities, obligations, cash or other assets or property (“Exchange Consideration”), BNPP shall have the right, in its sole discretion, to terminate such Transaction by delivering an Accelerated Termination Notice to Counterparty, and the “Final Price” shall be determined in accordance with Clause 4(b) as if the Exchange Consideration were the Terminated Obligation. If, however, with respect to any Transaction, Exchange Consideration consists solely of a Loan that satisfies the Obligation Criteria or BNPP does not elect to terminate such Transaction pursuant to the immediately preceding sentence, (a) such Exchange Consideration shall thereafter constitute the Reference Obligation or portion thereof related to such Transaction, (b) BNPP shall have the right to increase Independent Amount Percentage applicable to such Transaction by notice to Counterparty, and (c) the Calculation Agent shall in good faith adjust the terms of such Transaction as the Calculation Agent determines appropriate to preserve the theoretical value of such Transaction to the parties immediately prior to such exchange or, if such exchange results in a change in value, the proportionate post-exchange value, and determine the effective date of such adjustments.

(b) If, in connection with the establishment by BNPP, any of its Affiliates or the Hedging Vehicle of a related hedge in respect of a Transaction, the actual settlement of the purchase of the related hedge occurs after the date scheduled for the settlement of such purchase, or in connection with the termination by BNPP, such Affiliate or Hedging Vehicle, as the case may be, of a related hedge, the actual settlement of the sale of the related hedge occurs after the date scheduled for the settlement of such sale, the Calculation Agent shall in good faith and in a commercially reasonable manner adjust the amounts payable by Counterparty and BNPP under such Transaction to preserve the economics of such Transaction and to provide for the payment of any compensation for delayed settlement payable to or by BNPP, such Affiliate or Hedging Vehicle, as the case may be (“Delay Compensation”).

7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

(a) Each party hereby agrees as follows, so long as either party has or may have any obligation under any Transaction:

(i) Non-Reliance. It is acting for its own account, and it has made its own independent decisions to enter into such Transaction and as to whether such Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into such Transaction; it being understood that information and explanations related to the terms and conditions of such Transaction shall not be considered investment advice or a recommendation to enter into such Transaction. It has not received from the other party any assurance or guarantee as to the expected results of such Transaction;

(ii) Evaluation and Understanding. It is capable of evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of such Transaction. It is also capable of assuming, and assumes, the financial and other risks of such Transaction;

(iii) Status of Parties. The other party is not acting as a fiduciary or an advisor for it in respect of such Transaction; and

(iv) Reliance on its Own Advisors. Without limiting the generality of the foregoing, in making its decision to enter into, and thereafter to maintain, administer or terminate, such Transaction, it will not rely on any communication from the other party as, and it has not received any representation or other communication from the other party constituting, legal, accounting, business or tax advice, and it will consult its own legal, accounting, business and tax advisors concerning the consequences of such Transaction.

(b) Each party acknowledges and agrees that, so long as either party has or may have any obligation under any Transaction:

(i) such Transaction does not create any direct or indirect obligation of any Reference Entity or any direct or indirect participation in any Reference Obligation or any other obligation of any Reference Entity;

(ii) each party and its Affiliates may deal in any Reference Obligation and may accept deposits from, make loans or otherwise extend credit to, and generally engage in any kind of commercial or investment banking or other business with any Reference Entity, any Affiliate of any Reference Entity, any other person or entity having obligations relating to any Reference Entity and may act with respect to such business in the same manner as if such Transaction did not exist and may originate, purchase, sell, hold or trade, and may exercise consensual or remedial rights in respect of, obligations, securities or other financial instruments of, issued by or linked to any Reference Entity, regardless of whether any such action might have an adverse effect on such Reference Entity, the value of the related Reference Obligation or the position of the other party to such Transaction or otherwise;

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(iii) except as provided in Clause 7(d)(iv), each party and its Affiliates and the Calculation Agent may, whether by virtue of the types of relationships described herein or otherwise, at the date hereof or at any time hereafter, be in possession of information regarding any Reference Entity or any Affiliate of any Reference Entity that is or may be material in the context of such Transaction and that may or may not be publicly available or known to the other party. In addition, this Master Confirmation does not create any obligation on the part of such party and its Affiliates to disclose to the other party any such relationship or information (whether or not confidential);

(iv) none of BNPP, any of its Affiliates or the Hedging Vehicle shall be under any obligation to hedge such Transaction or to own or hold any Reference Obligation as a result of such Transaction, and any of BNPP, its Affiliates and the Hedging Vehicle may establish, maintain, modify, terminate or re-establish any hedge position or any methodology for hedging at any time without regard to Counterparty. Counterparty acknowledges and agrees that it is not relying on any representation, warranty or statement by BNPP, any of its Affiliates or the Hedging Vehicle as to whether, at what times, in what manner or by what method BNPP, any of its Affiliates or the Hedging Vehicle may engage in any hedging activities;

(v) notwithstanding any other provision in this Master Confirmation or any other document, BNPP and Counterparty (and each employee, representative, or other agent of BNPP or Counterparty) may each disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to them relating to such U.S. tax treatment and U.S. tax structure (as those terms are used in Treasury Regulations under Sections 6011, 6111 and 6112 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”)), other than any information for which nondisclosure is reasonably necessary in order to comply with applicable securities laws. To the extent not inconsistent with the previous sentence, BNPP and Counterparty will each keep confidential (except as required by law) all information unless the other party has consented in writing to the disclosure of such information; and

(vi) if BNPP elects to enter into a related hedge in respect of any Reference Obligation by holding or causing one of its Affiliates or the Hedging Vehicle (in such capacity, the “BNPP Holder”) to hold such Reference Obligation (it being understood that neither of BNPP nor the BNPP Holder has any obligation to hold a Reference Obligation in respect of any Transaction), the BNPP Holder may deal with such Reference Obligation as if the related Transaction did not exist, provided that, so long as the BNPP Holder remains the lender of record with respect to such Reference Obligation, upon any occasion permitting the BNPP Holder to exercise any right in relation to such Reference Obligation to give or withhold consent (an “Election”) to an action proposed to be taken (or to be refrained from being taken), the BNPP Holder may, at its discretion and without any regard to Counterparty or any Transaction, insofar as permitted under (x) applicable laws, rules and regulations and (y) each provision of any agreement or instrument evidencing or governing such Reference Obligation (and, in the case of any participation interest, governing such participation interest), give or refrain from giving its consent to the action proposed to be taken (or to be refrained from being taken); provided, further, that, without limiting the foregoing, Counterparty may, after being requested to do so by the BNPP Holder (which request may be made by the BNPP Holder in its discretion), by timely notice to the BNPP Holder, notify (a “Counterparty Election”) the BNPP Holder of its preference with respect to such action proposed to be taken (or to be refrained from being taken). BNPP shall have no obligation to cause the BNPP Holder to respond to, or consult with Counterparty in relation to, a Counterparty Election, and neither BNPP nor its Affiliates shall be liable to Counterparty or any of its Affiliates for the consequences of any consent caused by BNPP to be given or withheld by the BNPP Holder in connection with such Reference Obligation (whether or not pursuant to a Counterparty Election). If BNPP initially elects in its sole discretion to cause the BNPP Holder to withhold or grant its consent in accordance with a Counterparty Election, BNPP may subsequently determine to cause the BNPP Holder to give or withhold such consent at any time without notice to Counterparty.

(c) Each of the parties hereby represents that, on each date on which a Transaction is entered into hereunder:

(i) it is entering into such Transaction for investment, financial intermediation, hedging or other commercial purposes; and

(ii) (x) it is an “eligible contract participant” as defined in the U.S. Commodity Exchange Act, as amended (the “CEA”), (y) the Master Agreement and each Transaction are subject to individual negotiation by each party, and (z) neither the Master Agreement nor any Transaction will be executed or traded on a “trading facility” within the meaning given to such term in the CEA.

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(d) Counterparty hereby represents to BNPP that:

(i) its financial condition is such that it has no need for liquidity with respect to its investment in any Transaction and no need to dispose of any portion thereof to satisfy any existing or contemplated undertaking or indebtedness. Its investments in and liabilities in respect of any Transaction, which it understands is not readily marketable, are not disproportionate to its net worth, and it is able to bear any loss in connection with any Transaction, including the loss of its entire investment in such Transaction;

(ii) it understands that no obligations of BNPP to it hereunder will be entitled to the benefit of deposit insurance and that such obligations will not be guaranteed by any Affiliate of BNPP or any governmental agency;

(iii) it is not an Affiliate of any Reference Entity;

(iv) as of (x) the relevant Transaction Trade Date and (y) any date on which a sale is effected pursuant to Clause 4(a) or on which the Calculation Agent solicits Firm Bids pursuant to Clause 4(b), neither Counterparty nor any of its Affiliates, whether by virtue of the types of relationships described herein or otherwise, is on such date in possession of information regarding any related Reference Entity or any Affiliate of such Reference Entity that is or may be material in the context of such Transaction or the purchase or sale of any related Reference Obligation unless such information either (A) is publicly available or (B) has been disclosed to each Approved Counterparty or Dealer, as the case may be, from which a Firm Offer or Firm Bid, as the case may be, is obtained or solicited;

(v) It will not treat any of the Transactions as insurance (or reinsurance) or a financial guaranty for any accounting, tax or regulatory purpose;

(vi) it would have received all payments on the Reference Obligation without U.S. Federal or foreign withholding tax if it owned the Reference Obligation directly (which representation shall also be made for purposes of Section 3(f) of the Master Agreement); and

(vii) it is not, for U.S. Federal income tax purposes, a tax-exempt organization.

(e) Except for disclosure authorized pursuant to Clause 7(b)(v), Counterparty agrees to be bound by the confidentiality provisions of the related Reference Obligation Credit Agreement with respect to all information and documentation in relation to a Reference Entity or a Reference Obligation delivered to Counterparty hereunder. Counterparty acknowledges that such information may include material non-public information concerning the Reference Entity or its securities and agrees to use such information in accordance with applicable law, including Federal and State securities laws.

(f) Section 2(c)(ii) of the Master Agreement shall not apply to the Transactions to which this Master Confirmation relates.

(g) Notwithstanding anything in the Master Agreement to the contrary, BNPP will not be required to pay any additional amount under Section 2(d)(i) of the Master Agreement in respect of any deduction or withholding for or on account of any Tax in relation to any payment under any Transaction. If BNPP is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding for or on account of any Tax in relation to any payment under any Transaction and BNPP does not so deduct or withhold, then Section 2(d)(ii) of the Master Agreement shall be applicable.

(h) For U.S. federal income tax purposes, for any period during which BNPP, any of its Affiliates or the Hedging Vehicle has purchased a Reference Obligation to hedge BNPP’s obligations in respect of a Transaction, each party agrees (A) to treat Counterparty for U.S. federal income tax purposes as the beneficial owner of the Reference Obligation, (B) that each Transaction is intended to be treated as a secured financing to Counterparty by BNPP, and (C) that BNPP, such Affiliate or Hedging Vehicle, as the case may be, is intended to be treated as holding the Reference Obligation to secure the obligations of Counterparty hereunder.

(i) Counterparty shall maintain policies and procedures designed to prevent the violation of any applicable anti-bribery, anti-corruption or anti-money laundering laws, regulations or rules in any applicable jurisdiction.

(j) Counterparty shall not, directly or indirectly, use the proceeds of any Transaction or the related Reference Obligation, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or any other person (a) to fund any activities or business of or with any person, or in any country or territory, that, at the time of such fund, is a Sanctioned Country or Sanctioned Person, as applicable, or (b) in any manner that would result in a violation of Sanctions by any person, including any person participating in the related Reference Obligation, whether as underwriter, advisor, investor, lender, hedge provider, facility or security agent or otherwise.

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(k) Counterparty shall neither request nor permit any Reference Obligation to become or remain the subject of a Transaction hereunder if Counterparty would not be permitted pursuant to the terms of the Reference Obligation to acquire or hold (or would otherwise be prohibited from acquiring or holding) such Reference Obligation (or any participation interest in such Reference Obligation).

(l) If, in respect of any Transaction, Counterparty is no longer permitted to acquire or hold (or otherwise becomes prohibited from acquiring or holding) the related Reference Obligation (or any participation interest in such Reference Obligation), then Counterparty shall immediately notify BNPP thereof.

(m) In connection with each Transaction Trade Date and each Transaction terminated pursuant to Clause 3(a)(i), if Counterparty or any of its Affiliates, whether by virtue of the types of relationships described herein or otherwise, is in possession of information regarding any related Reference Entity or any Affiliate of such Reference Entity that is or may be material in the context of such Transaction or the purchase or sale of any related Reference Obligation, and such information is not publicly available, then Counterparty shall disclose such information to each Approved Counterparty or Dealer, as the case may be, from whom a Firm Offer or a Firm Bid, as the case may be, is obtained or solicited.

8. ADJUSTMENTS RELATING TO CERTAIN UNPAID OR RESCINDED PAYMENTS.

(a) If (i) BNPP makes any payment to Counterparty as provided under Clause 2 and the corresponding Interest and Fee Amount is not paid (in whole or in part) when due or (ii) any Interest and Fee Amount in respect of a Reference Obligation is required to be returned (in whole or in part) by a Reference Obligation Holder to the applicable Reference Entity or paid to any other person or entity or is otherwise rescinded pursuant to any bankruptcy or insolvency law or any other applicable law, then Counterparty will pay to BNPP, upon request by BNPP, such amount (or portion thereof) so not paid or so required to be returned, paid or otherwise rescinded. If such returned, paid or otherwise rescinded amount is subsequently paid, BNPP shall pay such amount (subject to Clause 8(c)) to Counterparty on the fifth Business Day following the last day of the next Monthly Period.

(b) If, with respect to any Repaid Obligation, the corresponding payment of principal of the Repaid Obligation is required to be returned (in whole or in part) by a Reference Obligation Holder to the applicable Reference Entity or paid to any other person or entity or is otherwise rescinded pursuant to any bankruptcy or insolvency law or any other applicable law, then (i) the parties hereto shall be restored severally and respectively to their former positions hereunder and thereafter all rights and obligations of the parties hereunder shall continue as though no Repayment had occurred and (ii) without limiting the generality of the foregoing, if either party has made a payment to the other party in respect of Capital Appreciation or Capital Depreciation related to such Repayment as provided under Clause 2, then the party that received the payment in respect of such Capital Appreciation or Capital Depreciation, as applicable, shall repay such amount (subject to Clause 8(c)) to the other party. If such returned, paid or otherwise rescinded amount is subsequently paid by the related Reference Entity or any such other person or entity, then the relevant party shall pay the amount of such Capital Appreciation or Capital Depreciation, as applicable, on the fifth Business Day following the last day of the next Monthly Period.

(c) Amounts payable pursuant to this Clause 8 shall be subject to adjustment by the Calculation Agent in good faith and on a commercially reasonable basis, as agreed by BNPP and Counterparty, in order to preserve for the parties the intended economic risks and benefits of the relevant Transaction.

(d) The payment obligations of BNPP and Counterparty pursuant to this Clause 8 shall survive the termination of all Transactions.

9. CREDIT SUPPORT.

Notwithstanding anything in the Credit Support Annex to the contrary, the following collateral terms shall apply to each Transaction to which this Master Confirmation relates (capitalized terms used in this Clause 9 but not otherwise defined in this Master Confirmation have the respective meanings given to such terms in the Credit Support Annex):

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(a) With respect to each Transaction to which this Master Confirmation relates, an “Independent Amount” shall be applicable to Counterparty on each date of determination in an amount in USD equal to, unless otherwise specified by BNPP from time to time, the Notional Amount of such Transaction on such date of determination multiplied by the relevant Independent Amount Percentage set forth in the table below for each listed type of Reference Obligation. Not later than one Business Day after (i) the Transaction Trade Date with respect to any Transaction and (ii) the date of any increase in the Independent Amount Percentage applicable to any Transaction, Counterparty as Pledgor will Transfer to BNPP as Secured Party Eligible Collateral having a Value as of the date of Transfer equal to the related Independent Amount (or increase in the related Independent Amount) determined pursuant to this Clause 9(a).

Type of Reference Obligation	Independent Amount Percentage
Senior Secured Obligation	25% + Additional Independent Amount Percentage
Senior Secured Obligations that are also CCC Reference Obligations	30% + Additional Independent Amount Percentage
Second Lien Obligation	40% + Additional Independent Amount Percentage
Second Lien Obligations that are also CCC Reference Obligations	50% + Additional Independent Amount Percentage

(b) Notwithstanding anything to the contrary in the Credit Support Annex, (X) Exposure with respect to all Transactions under the Master Agreement (other than all Transactions to which this Master Confirmation relates) shall be calculated in accordance with the Credit Support Annex and (Y) Exposure with respect to all Transactions to which this Master Confirmation relates shall be calculated as follows:

(i) Counterparty’s Exposure for all Transactions to which this Master Confirmation relates will be the greater of (x) the aggregate of the Unrealized Capital Gains for each such Transaction with an Unrealized Capital Gain that exceeds zero minus the aggregate of the Unrealized Capital Losses for each such Transaction with an Unrealized Capital Loss that exceeds zero, and (y) zero; and

(ii) BNPP’s Exposure for all Transactions to which this Master Confirmation relates will be the greater of (x) the aggregate of the Unrealized Capital Losses for each such Transaction with an Unrealized Capital Loss that exceeds zero minus the aggregate of the Unrealized Capital Gains for each such Transaction with an Unrealized Capital Gain that exceeds zero, and (y) zero.

(c) For purposes of calculating “Current Price” and “Net Collateral Value” with respect to any Transaction to which this Master Confirmation relates, BNPP shall be the sole Valuation Agent, but shall take into account the bid price published by the Pricing Service (if any).

(d) Notwithstanding anything in this Master Confirmation to the contrary (including in Clause 3(g)), if a Transaction Termination Trade Date occurs (i) during the Ramp-Down Period, (ii) because all Transactions are being terminated pursuant to Clause 3(b), Clause 3(c)(ii) or in connection with the occurrence of the Facility Scheduled Termination Date (including pursuant to Clause 3(d)) or (iii) in connection with a termination of all Transactions at a time when Counterparty does not have the right to provide notice to BNPP of a Firm Bid in connection with the termination of a Transaction by reason of the proviso to Clause 4(a), then, for purposes of determining the effect on the Return Amount with respect to the related Terminated Obligation, neither of the Reference Amount nor the Current Funded Amount of such Terminated Obligation shall be reduced to zero until the Business Day next succeeding the Transaction Termination Settlement Date.

(e) Each Business Day shall be a Valuation Date.

(f) Any Transfer required to be made pursuant to this Clause 9 shall be a Transfer made under the Credit Support Annex (and not a payment or delivery made under Section 2(a)(i) of the Master Agreement).

10. NOTICE AND ACCOUNT DETAILS.

Notices to BNPP:

BNP Paribas, acting through its London Branch

Credit Structuring

787 7th Avenue

New York, New York 10019

Phone: (212) 841-3452

Email: DL.BNPP.HIGHLAND.ACQUISITIONS@us.bnpparibas.com

Attention: Adam Schwartz

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Notices to Counterparty:

Nexpoint Capital Inc.

300 Crescent Court Suite 700

Dallas TX 75201

Phone: 972-628-4100

Email: R-Operations@HighlandCapital.com

Attention: Carter Chism

11. OFFICES.

(a) The Office of BNPP for each Transaction:

BNPP’s London Office.

(b) The Office of Counterparty for each Transaction:

Nexpoint Capital Inc.

300 Crescent Court Suite 700

Dallas TX 75201

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Please confirm that the foregoing correctly sets forth the terms of our agreement by having a duly authorized officer of Counterparty execute this Master Confirmation and return the same by facsimile to the attention of the individual at BNPP indicated on the first page hereof.

Very truly yours,
BNP PARIBAS
By:	/s/    Kevin Moran
	Name: Kevin Moran
	Title: Authorized Signatory
By:	/s/    Ludovic Goebbels
	Name: Ludovic Goebbels
	Title: Authorized Signatory
CONFIRMED AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN:
NEXPOINT CAPITAL, INC.
By:	/s/    Frank Waterhouse
	Name: Frank Waterhouse
	Title: Treasurer

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APPENDIX A

ADDITIONAL DEFINITIONS

“Additional Independent Amount Percentage” means, with respect to a Reference Obligation, if such Reference Obligation is the subject of bid quotations from nationally recognized independent dealers in such Reference Obligation as reported on a Pricing Service (which, in the case of MarkIt Partners, is as reported in the “Depth” field) in the aggregate of (i) zero bids, as determined by BNPP in its sole discretion, (ii) one bid, 15%, (iii) two bids, 10%, and (iv) three or more bids, 0%.

“Affiliate”, for purposes of this Master Confirmation only, has the meaning given to such term in Rule 405 under the Securities Act of 1933, as amended.

“AML Violation” exists, with respect to a Reference Obligation, if there is a violation of any applicable anti-bribery, anti-corruption or anti-money laundering laws, regulations or rules in any applicable jurisdiction by any person participating in such Reference Obligation.

“Approved Buyer” means (a) any entity listed in Annex IV (as such Annex may be amended by mutual written consent of the parties hereto from time to time) so long as its long-term unsecured and unsubordinated debt obligations on the “trade date” for the related purchase or submission of a Firm Bid contemplated hereby are rated at least “A2” by Moody’s and at least “A” by S&P and (b) if an entity listed in Annex IV is not the principal banking or securities Affiliate within a financial holding company group, the principal banking or securities Affiliate of such listed entity within such financial holding company group so long as such obligations of such Affiliate have the rating indicated in clause (a) above.

“Approved Counterparty” means any entity listed in Annex IV (as such Annex may be amended by mutual written consent of the parties hereto from time to time) or a nationally recognized independent dealer in the related Reference Obligation, approved by the Calculation Agent or its designated Affiliate in its sole discretion.

“Assigned Moody’s Rating” means the publicly available rating, unpublished monitored rating or the estimated rating expressly assigned to a debt obligation (or facility) by Moody’s that addresses the full amount of the principal and interest promised; provided that, so long as the Calculation Agent or the BNPP Holder applies for a new estimated rating, or renewal of an estimated rating, in a timely manner and provides the information required to obtain such estimate or renewal, as applicable, then pending receipt of such estimate or renewal, as applicable, (A) in the case of a request for a new estimated rating, (i) for a period of 90 days, such debt obligation will have a Moody’s Rating of “B3” for purposes of this definition if the Calculation Agent or the BNPP Holder believes that such estimated rating will be at least “B3” and (ii) thereafter, such debt obligation will have a Moody’s Rating of “Caa3” or (B) in the case of a request for a renewal of an estimated rating following a material deterioration in the creditworthiness of the obligor or a specified amendment, the Calculation Agent will continue using the previous estimated rating assigned by Moody’s until such time as (x) Moody’s renews such estimated rating or assigns a new estimated rating for such debt obligation and (y) the criteria specified in clause (A) in connection with an annual request for a renewal of an estimated rating becomes applicable in respect of such debt obligation.

“Capital Appreciation” and “Capital Depreciation” mean, for any Total Return Payment Date, the amount determined according to the following formula for the applicable Terminated Obligation or Repaid Obligation:

(Final Price – Initial Price) x Reference Amount Reduction Amount

where

“Final Price” means (a) in the case of any Terminated Obligation, the percentage determined pursuant to Clause 4, and (b) in the case of any Repaid Obligation, the percentage determined pursuant to Clause 5.

If such amount is positive, such amount is “Capital Appreciation” and if such amount is negative, the absolute value of such amount is “Capital Depreciation”.

“CCC Reference Obligation” means a Reference Obligation that, (i) in the case of a Senior Secured Obligation, has a Moody’s Rating of Caa1 or lower or an S&P Rating of CCC+ or lower, or (ii) in the case of a Second Lien Obligation, has a Moody’s Default Probability Rating of Caa1 or lower or (if such obligation has an S&P Issuer Rating) an S&P Issuer Rating of CCC+ or lower.

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“CFR” means, with respect to an obligor of a Reference Obligation, if such obligor has a corporate family rating by Moody’s, then such corporate family rating; provided that, if such obligor does not have a corporate family rating by Moody’s but any entity in the obligor’s corporate family does have a corporate family rating, then the CFR is such corporate family rating.

“Committed Obligation” means (a) any Delayed Drawdown Reference Obligation and (b) any Revolving Reference Obligation.

“Costs of Assignment” means, in the case of any Terminated Obligation, the sum of (a) any actual costs of transfer or assignment paid by the seller under the terms of any Terminated Obligation or otherwise actually imposed on the seller by any applicable administrative agent, borrower or obligor incurred in connection with the sale of such Terminated Obligation and (b) any reasonable expenses incurred by the seller in connection with such sale and, if transfers of the Terminated Obligation are subject to the Standard Terms and Conditions for Distressed Trade Master Confirmations, as published by the LSTA and as in effect on the Transaction Trade Date, legal costs incurred by the seller in connection with such sale.

“Credit Event” means the occurrence of a Bankruptcy or Failure to Pay. For purposes of the determination of whether a Credit Event has occurred, the Obligation Category will be Borrowed Money, the Payment Requirement will be USD1,000,000 and no Obligation Characteristics will be specified. Capitalized terms used in this definition but not defined in this Master Confirmation shall have the meanings specified in the 2014 ISDA Credit Derivatives Definitions.

“Cure Threshold” means, on any date of determination from and including the Facility Effective Date, a percentage equal to (a) the aggregate of all Independent Amounts under this Master Confirmation over (b) the Portfolio Notional Amount.

“Current Funded Amount” means, as of any date of determination, and in relation to any Reference Obligation (and the related Transaction) that is a Committed Obligation:

(a) the amount advanced to the Reference Entity under the Reference Obligation in respect of the Reference Amount until the earlier of (x) such date of determination and (y) the Transaction Termination Settlement Date,

less

(b) if such Reference Obligation is a Revolving Reference Obligation, the amount repaid by the Reference Entity under the Reference Obligation in respect of the Reference Amount until the earlier of (x) such date of determination and (y) the Transaction Termination Settlement Date,

as such amount may be reduced in accordance with Clause 3 or Clause 5 hereof.

“Current Price” means, with respect to any Reference Obligation on any date of determination, the Valuation Agent’s determination of the best bid that would be received for the sale on such date of determination of such Reference Obligation, taking into account the bid price (if any) as reported on a Pricing Service for the Reference Obligation. If Counterparty disputes the Valuation Agent’s determination of the Current Price of any Reference Obligation, then Counterparty may, no later than (i) three hours after Counterparty is given notice of such determination, if such notice is received prior to 12:00 p.m. (New York time), or (ii) 12:00 p.m. (New York time) on the day following the day on which Counterparty is given notice of such determination, if such notice is received after 12:00 p.m. (New York time), designate two Dealers of credit standing acceptable to BNPP in the exercise of its reasonable discretion to provide a Firm Bid to BNPP within such one-hour period. The highest of such two Firm Bids will be the Current Price. The “Current Price” shall be expressed as a percentage and will be determined exclusive of accrued interest.

“Dealer” means (i) a nationally recognized independent dealer in the related Reference Obligation chosen by the Calculation Agent or its designated Affiliate (other than the Calculation Agent or any of its Affiliates), (ii) any Approved Buyer designated by Counterparty pursuant to Clause 4(a) or (iii) any other entity (other than the Calculation Agent or any of its Affiliates) designated by the Calculation Agent or its designated Affiliate in its sole discretion as a “Dealer” for the purposes of this Master Confirmation.

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“Delayed Drawdown Reference Obligation” means a Reference Obligation that (a) requires the holder thereof to make one or more future advances to the borrower under the instrument or agreement pursuant to which such Reference Obligation was issued or created, (b) specifies a maximum amount that can be borrowed on one or more fixed borrowing dates and (c) does not permit the re-borrowing of any amount previously repaid; provided that, on any date on which all commitments by the holder thereof to make advances to the borrower under such Delayed Drawdown Reference Obligation expire or are terminated or reduced to zero, such Reference Obligation shall cease to be a Delayed Drawdown Reference Obligation for purposes of the Portfolio Criteria.

“DIP Reference Obligation” means a Loan made to a debtor in possession pursuant to Section 364 of the U.S. Bankruptcy Code having the priority allowed by either Section 364(c) or 364(d) of the U.S. Bankruptcy Code and fully secured by senior liens.

“Expense or Other Payment” means, with respect to a Reference Obligation, the aggregate amount of any payments (other than extensions of credit) due from the lender(s) of record generally in respect of any Reference Obligation, including, without limitation, (a) any expense associated with any amendment, modification or waiver of the provisions of a credit agreement, (b) any reimbursement of any agents under the provisions of a credit agreement, (c) any related Costs of Assignment, and (d) any indemnity or other similar payment in respect of those lenders that were lenders of record at any time from and including the related Transaction Trade Date in respect of the related Transaction to but excluding the related Transaction Termination Date.

“Firm Offer” means a good and irrevocable offer for value, to sell the applicable proposed Reference Obligation, expressed as a percentage and exclusive of accrued interest, for scheduled settlement substantially in accordance with the then-current market practice in the principal market for such Reference Obligation, submitted by an Approved Counterparty.

“First-Lien Last-Out Loan” means a Loan that would otherwise be a Senior Secured Obligation except that, following a default of such Loan, such Loan becomes fully subordinated to other Senior Secured Obligations of the same obligor and is not entitled to any payments until such other Senior Secured Obligations are paid in full.

“Global Industry Classifications” means the Global Industry Classifications set forth below:

GLOBAL INDUSTRY CLASSIFICATIONS
Oil & Gas Drilling	Consumer Electronics	Regional Banks
Oil & Gas Equipment & Services	Home Furnishings	Thrifts & Mortgage Finance
Integrated Oil & Gas	Homebuilding	Other Diversified Financial Services
Oil & Gas Exploration & Production	Household Appliances	Multi-Sector Holdings
Oil & Gas Refining & Marketing	Housewares & Specialties	Specialized Finance
Oil & Gas Storage & Transportation	Leisure Products	Consumer Finance
Coal & Consumable Fuels	Apparel, Accessories & Luxury Goods	Asset Management & Custody Banks
Commodity Chemicals	Footwear	Investment Banking & Brokerage
Diversified Chemicals	Textiles	Diversified Capital Markets
Fertilizers & Agricultural Chemicals	Casinos & Gaming	Financial Exchanges & Data
Industrial Gases	Hotels, Resorts & Cruise Lines	Mortgage REITs
Specialty Chemicals	Leisure Facilities	Insurance Brokers
Construction Materials	Restaurants	Life & Health Insurance
Metal & Glass Containers	Education Services	Multi-line Insurance
Paper Packaging	Specialized Consumer Services	Property & Casualty Insurance
Aluminum	Advertising	Reinsurance

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Diversified Metals & Mining	Broadcasting	Internet Software & Services
Copper	Cable & Satellite	IT Consulting & Other Services
Gold	Movies & Entertainment	Data Processing & Outsourced Services
Precious Metals & Minerals	Publishing	Application Software
Silver	Distributors	Systems Software
Steel	Internet & Direct Marketing Retail	Home Entertainment Software
Forest Products	Department Stores	Communications Equipment
Paper Products	General Merchandise Stores	Technology Hardware, Storage & Peripherals
Aerospace & Defense	Apparel Retail	Electronic Equipment & Instruments
Building Products	Computer & Electronics Retail	Electronic Components
Construction & Engineering	Home Improvement Retail	Electronic Manufacturing Services
Electrical Components & Equipment	Specialty Stores	Technology Distributors
Heavy Electrical Equipment	Automotive Retail	Semiconductor Equipment
Industrial Conglomerates	Homefurnishing Retail	Semiconductors
Construction Machinery & Heavy Trucks	Drug Retail	Alternative Carriers
Agricultural & Farm Machinery	Food Distributors	Integrated Telecommunication Services
Industrial Machinery	Food Retail	Wireless Telecommunication Services
Trading Companies & Distributors	Hypermarkets & Super Centers	Electric Utilities
Commercial Printing	Brewers	Gas Utilities
Environmental & Facilities Services	Distillers & Vintners	Multi-Utilities
Office Services & Supplies	Soft Drinks	Water Utilities
Diversified Support Services	Agricultural Products	Independent Power Producers & Energy Traders
Security & Alarm Services	Packaged Foods & Meats	Renewable Electricity
Human Resource & Employment Services	Tobacco	Diversified REITs
Research & Consulting Services	Household Products	Industrial REITs
Air Freight & Logistics	Personal Products	Hotel & Resort REITs
Airlines	Health Care Equipment	Office REITs
Marine	Health Care Supplies	Health Care REITs
Railroads	Health Care Distributors	Residential REITs
Trucking	Health Care Services	Retail REITs
Airport Services	Health Care Facilities	Specialized REITs
Highways & Railtracks	Managed Health Care	Diversified Real Estate Activities
Marine Ports & Services	Health Care Technology	Real Estate Operating Companies
Auto Parts & Equipment	Biotechnology	Real Estate Development
Tires & Rubber	Pharmaceuticals	Real Estate Services
Automobile Manufacturers	Life Sciences Tools & Services
Motorcycle Manufacturers	Diversified Banks

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“Governmental Authority” means any government (whether federal, state or local) having jurisdiction over any aspect of the applicable Transaction or any related hedge, if any, established by BNPP, any of its Affiliates or the Hedging Vehicle, and any agency, authority, instrumentality, ministry, regulatory body, court, central bank or other entity (public or private) exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supranational bodies).

“Hard Asset Loan” means a Loan that is secured by collateral consisting primarily of tangible assets other than the obligor’s ownership interest or investment in other persons or entities, as determined by the Calculation Agent in a commercially reasonable manner.

“Hedging Vehicle” means, with respect to a Transaction, any special purpose entity that (i) maintains a substantial swap trading relationship with BNPP, (ii) does not maintain a substantial swap trading relationship with any other swap dealer, (iii) holds the related Reference Obligation as a related hedge to such Transaction, and (iv) is organized in the Republic of Ireland.

“Inchoate Reference Obligation” means an obligation whose closing is not yet complete and with respect to which full funding has not yet occurred, unless the seller (or a transferor to such seller of such obligation) has made a legally binding commitment to fully fund such obligation to the obligor thereof (subject to customary conditions), which commitment is not conditioned on BNPP’s, Counterparty’s, or an Affiliate of Counterparty’s (and for purposes hereof, including any entity that is commonly managed or advised by Counterparty or an Affiliate of Counterparty in the term “Affiliate”) ultimate purchase of such obligation from such seller.

“Initial Funded Amount” means, as of any date of determination, and in relation to any Reference Obligation (and the related Transaction) that is a Committed Obligation, the amount advanced to the Reference Entity under the Reference Obligation in respect of the Reference Amount as of the Transaction Trade Date (or, if the Transaction Settlement Date has occurred, the Transaction Settlement Date), as such amount may be reduced in accordance with Clause 3 or Clause 5 hereof.

“Interest and Fee Amount” means, for any BNPP Fixed Amount Payer Payment Date and any Transaction, the aggregate amount of interest (excluding interest breakage costs), fees (including, without limitation, amendment, consent, tender, facility, letter of credit and other similar fees) and other amounts (other than in respect of principal and premium paid in respect of principal) paid to a Reference Obligation Holder in respect of the Reference Amount of the related Reference Obligation (after deduction of any withholding taxes for which the related Reference Entity is not obligated to reimburse a Reference Obligation Holder, if applicable) during the relevant BNPP Fixed Amount Payer Calculation Period or, with respect to the final BNPP Fixed Amount Payer Calculation Period for any Transaction, on the final BNPP Fixed Amount Payer Payment Date, less (i) any fee or other consideration paid to compensate a Reference Obligation Holder in its capacity as administrative agent, collateral agent, letter of credit issuer or swing line lender under the relevant loan documentation and (ii) any indemnity, reimbursement payments or compensation for out of pocket loss and expenses made to a Reference Obligation Holder; provided that Interest and Fee Amounts:

(a) in the case of “Interest and Accruing Fees” (as defined in the “Standard Terms and Conditions for Par/Near Par Trade Master Confirmations” or “Standard Terms and Conditions for Distressed Trade Master Confirmations”, as applicable to the relevant Reference Obligation, most recently published by the LSTA prior to the Trade Date), shall not include any amounts that accrue prior to the Transaction Settlement Date for the related Reference Obligation or that accrue on or after the Transaction Termination Date for the related Terminated Obligation or Repaid Obligation,

(b) in the case of “Non-Recurring Fees” (as so defined), shall not include any amounts that (i) are paid with respect to any event occurring prior to the Transaction Trade Date, or on or after the Transaction Termination Trade Date, for the related Reference Obligation or portion thereof, or the related Terminated Obligation or Repaid Obligation, or (ii) are paid with respect to the related Reference Obligation that is not held by or on behalf of BNPP as a hedge for the related Transaction; and

(c) shall be determined after deducting all customary and reasonable expenses that would be incurred by a buyer in connection with any purchase of the Reference Obligation as a hedge for such Transaction and shall be adjusted by any Delay Compensation as provided in Clause 6(b).

“Loan” means any obligation for the payment or repayment of borrowed money that is documented by a term loan agreement or other similar credit agreement.

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“LSTA” means The Loan Syndications and Trading Association, Inc. and any successor thereto.

“Moody’s” means Moody’s Investors Service, Inc. and any successor or successors thereto.

“Moody’s Default Probability Rating” means, with respect to a Reference Obligation, as of any date of determination:

(a) if the obligor of such Reference Obligation has a CFR, then such CFR;

(b) if not determined pursuant to clause (a) above, if the obligor of such Reference Obligation has one or more senior unsecured obligations with an Assigned Moody’s Rating (other than any estimated rating), then the Assigned Moody’s Rating on any such obligation as selected by the Calculation Agent in its sole discretion;

(c) if not determined pursuant to clauses (a) or (b) above, if the obligor of such Reference Obligation has one or more senior secured obligations with an Assigned Moody’s Rating, then the Moody’s rating that is one subcategory lower than the Assigned Moody’s Rating on any such senior secured obligation as selected by the Calculation Agent in its sole discretion;

(d) if not determined pursuant to clauses (a), (b) or (c) above, if a rating estimate has been assigned to such Reference Obligation by Moody’s upon the request of the Calculation Agent or the BNPP Holder, then the Moody’s Default Probability Rating is such rating estimate as long as such rating estimate or a renewal for such rating estimate has been issued or provided by Moody’s in each case within the 15 month period preceding the date on which the Moody’s Default Probability Rating is being determined; provided that, if such rating estimate has been issued or provided by Moody’s for a period (x) longer than 13 months but not beyond 15 months, the Moody’s Default Probability Rating will be one subcategory lower than such rating estimate and (y) beyond 15 months, the Moody’s Default Probability Rating will be deemed to be “Caa3”;

(e) if such Reference Obligation is a DIP Reference Obligation, the Moody’s Derived Rating set forth in clause (a) in the definition thereof;

(f) if not determined pursuant to any of clauses (a) through (e) above and at the election of the Calculation Agent, the Moody’s Derived Rating; and

(g) if not determined pursuant to any of clauses (a) through (f) above, the Reference Obligation will be deemed to have a Moody’s Default Probability Rating of “Caa3”.

“Moody’s Derived Rating” means, with respect to a Reference Obligation whose Moody’s Default Probability Rating is determined as the Moody’s Derived Rating, the rating as determined in the manner set forth below:

(a) with respect to any DIP Reference Obligation, the Moody’s Default Probability Rating of such Reference Obligation shall be the rating which is one subcategory below the facility rating (whether public or private) of such DIP Reference Obligation rated by Moody’s;

(b) if not determined pursuant to clause (a) above, (1) if such Reference Obligation is rated by S&P, then the rating which is one subcategory below the Moody’s equivalent rating of the S&P Rating of such Reference Obligation, (2) if such Reference Obligation does not have an S&P Rating, but another security or obligation of the obligor is publicly rated by S&P, and such other security or obligation of the obligor is (i) a senior secured obligation, then the rating which is one subcategory below the Moody’s equivalent rating of the S&P rating of such other security or obligation of the obligor, (ii) an unsecured obligation, then the rating which is the Moody’s equivalent rating of the S&P rating of such other security or obligation of the obligor, and (iii) a subordinated obligation, then the rating which is one subcategory above the Moody’s equivalent rating of the S&P rating of such other security or obligation of the obligor, or (3) if such Reference Obligation is a DIP Reference Obligation, no Moody’s Derived Rating may be determined based on a rating by S&P or any other rating agency; and

(c) if not determined pursuant to clauses (a) or (b) above and such Reference Obligation is not rated by Moody’s or S&P and no other security or obligation of the issuer of such Reference Obligation is rated by Moody’s or S&P, and if Moody’s has been requested by the Calculation Agent, the BNPP Holder or the issuer of such Reference Obligation to assign a rating or rating estimate with respect to such Reference Obligation but such rating or rating estimate has not been received, pending receipt of such estimate, the Moody’s Derived Rating of such Reference Obligation for purposes of the definition of Moody’s Default Probability Rating shall be (i) “B2” or lower if the Calculation Agent or the BNPP Holder believes that such estimate shall be at least “B2” or lower and if the Portfolio Notional Amount attributable to Reference Obligations determined pursuant to this clause (c)(i) and clause (a) above does not exceed 5% of the Portfolio Target Amount or (ii) otherwise, “Caa1”.

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“Moody’s Industry Classifications” means the Moody’s Industry Classification Group List set forth below:

Moody’s Industry Classification Group List

1. CORP—Aerospace & Defense

2. CORP—Automotive

3. CORP—Banking, Finance, Insurance & Real Estate

4. CORP—Beverage, Food & Tobacco

5. CORP—Capital Equipment

6. CORP—Chemicals, Plastics, & Rubber

7. CORP—Construction & Building

8. CORP—Consumer goods: Durable

9. CORP—Consumer goods: Non-durable

10. CORP—Containers, Packaging & Glass

11. CORP—Energy: Electricity

12. CORP—Energy: Oil & Gas

13. CORP—Environmental Industries

14. CORP—Forest Products & Paper

15. CORP—Healthcare & Pharmaceuticals

16. CORP—High Tech Industries

17. CORP—Hotel, Gaming & Leisure

18. CORP—Media: Advertising, Printing & Publishing

19. CORP—Media: Broadcasting & Subscription

20. CORP—Media: Diversified & Production

21. CORP—Metals & Mining

22. CORP—Retail

23. CORP—Services: Business

24. CORP—Services: Consumer

25. CORP—Sovereign & Public Finance

26. CORP—Telecommunications

27. CORP—Transportation: Cargo

28. CORP—Transportation: Consumer

29. CORP—Utilities: Electric

30. CORP—Utilities: Oil & Gas

31. CORP—Utilities: Water

32. CORP—Wholesale

“Moody’s Rating” means, with respect to a Reference Obligation, as of any date of determination:

(i) if the Reference Obligation itself is rated by Moody’s (including pursuant to any credit estimate), such rating,

(ii) if the foregoing paragraph is not applicable, then, if the Reference Obligation is a Loan and the related Reference Entity has a corporate family rating by Moody’s, the rating specified in the applicable row of the table below under “Relevant Rating” opposite the row in the table below that describes such Loan:

Loan	Relevant Rating
The Loan is a secured obligation, but is not a Second Lien Obligation and is not Subordinate	The rating by Moody’s that is one rating subcategory above such corporate family rating
The Loan is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate	The rating by Moody’s that is one rating subcategory below such corporate family rating
The Loan is Subordinate	The rating by Moody’s that is two rating subcategories below such corporate family rating

(iii) if the foregoing paragraphs are not applicable, but there is a rating by Moody’s on a secured obligation of the Reference Entity that is not a Second Lien Obligation and is not Subordinate (the “other obligation”), the rating specified in the applicable row of the table below under “Relevant Rating” opposite the row in the table below that describes such Reference Obligation:

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Reference Obligation	Relevant Rating
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not Subordinate	The rating assigned by Moody’s to the other obligation
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate	The rating by Moody’s that is one rating subcategory below the rating assigned by Moody’s to the other obligation
The Reference Obligation is Subordinate	The rating by Moody’s that is two rating subcategories below the rating assigned by Moody’s to the other obligation

(iv) if the foregoing paragraphs are not applicable, but there is a rating by Moody’s on an unsecured obligation of the Reference Entity (or, failing that, an obligation that is a Second Lien Obligation) but is not Subordinate (the “other obligation”), the rating specified in the applicable row of the table below under “Relevant Rating” opposite the row in the table below that describes such Reference Obligation:

Reference Obligation	Relevant Rating
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not Subordinate	The rating by Moody’s that is one rating subcategory above the rating assigned by Moody’s to the other obligation
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate	The rating assigned by Moody’s to the other obligation
The Reference Obligation is Subordinate	The rating by Moody’s that is one rating subcategory below the rating assigned by Moody’s to the other obligation

(v) if the foregoing paragraphs are not applicable, but there is a rating by Moody’s on an obligation of the Reference Entity that is Subordinate (the “other obligation”), the rating specified in the applicable row of the table below under “Relevant Rating” opposite the row in the table below that describes such Reference Obligation:

Reference Obligation	Relevant Rating
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not Subordinate	The rating by Moody’s that is two rating subcategories above the rating assigned by Moody’s to the other obligation
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate	The rating by Moody’s that is one rating subcategory above the rating assigned by Moody’s to the other obligation
The Reference Obligation is Subordinate	The rating assigned by Moody’s to the other obligation

(vi) if a rating cannot be assigned pursuant to clauses (i) through (v), the Moody’s Rating may be determined using any of the methods below:

(A) for up to 10% of the Portfolio Target Amount, Counterparty may apply to Moody’s for a shadow rating or public rating of such Reference Obligation, which shall then be the Moody’s Rating (and Counterparty may deem the Moody’s Rating of such Reference Obligation to be “B3” pending receipt of such shadow rating or public rating, as the case may be); provided that (x) a Reference Obligation will not be included in the 10% limit of the Portfolio Target Amount if Counterparty has assigned a rating to such Reference Obligation in accordance with clause (B) below and (y) upon receipt of a shadow rating or public rating, as the case may be, such Reference Obligation will not be included in the 10% limit of the Portfolio Target Amount; or

(B) for up to 10% of the Portfolio Target Amount, if there is a private rating of an obligor that has been provided by S&P to BNPP and Counterparty, Counterparty may impute a Moody’s Rating that corresponds to such private rating; provided that a Reference Obligation will not be included in the 10% limit of the Portfolio Target Amount if Counterparty has applied to Moody’s for a shadow rating,

(vii) if a rating cannot be assigned pursuant to clauses (i) through (vi), the Moody’s Rating shall be Caa3.

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For purposes of the foregoing, a “private rating” shall refer to a rating obtained by BNPP, by Counterparty or by or on behalf of an obligor on a Reference Obligation that is not disseminated publicly; whereas a “shadow rating” shall refer to a credit estimate obtained upon application of Counterparty or a holder of a Reference Obligation. Any private rating or shadow rating shall be required to be refreshed annually. If Counterparty applies to Moody’s for a shadow rating or public rating of a Reference Obligation, Counterparty shall provide evidence to BNPP of such application and shall notify BNPP of the expected rating. Counterparty shall notify BNPP of the shadow rating or public rating assigned by Moody’s to a Reference Obligation.

“Moody’s Rating Factor” means, for each Reference Obligation, as of any date of determination, the number set forth in the table below opposite the Moody’s Default Probability Rating of such Reference Obligation.

Moody’s Default Probability Rating	Moody’s Rating Factor		Moody’s Default Probability Rating		Moody’s Rating Factor
Aaa		1		Ba1		940
Aa1		10		Ba2		1,350
Aa2		20		Ba3		1,766
Aa3		40		B1		2,220
A1		70		B2		2,720
A2		120		B3		3,490
A3		180		Caa1		4,770
Baa1		260		Caa2		6,500
Baa2		360		Caa3		8,070
Baa3		610		Ca or lower		10,000

Any Reference Obligation issued or guaranteed by the United States government or any agency or instrumentality thereof is assigned a Moody’s Default Probability Rating equal to the then-current Moody’s rating of the direct obligations of the United States government.

“Moody’s Weighted Average Rating Factor” means the number (rounded up to the nearest whole number) determined by:

summing the products of (i) the Notional Amount of each Reference Obligation multiplied by (ii) the Moody’s Rating Factor of such Reference Obligation and dividing such sum by the Portfolio Notional Amount.

“Net Collateral Value” means, as of any date of determination, an amount equal to (a) the aggregate Value (as defined in the Credit Support Annex) on such date of all Posted Credit Support (as defined in the Credit Support Annex) held by BNPP as Secured Party (as defined in the Credit Support Annex) plus (b) the aggregate of all Unrealized Capital Gains on such date with respect to the Reference Portfolio minus (c) the aggregate of all Unrealized Capital Losses on such date with respect to the Reference Portfolio.

“Net Collateral Value Percentage” means, as of any date of determination, an amount (expressed as a percentage) equal to (a) the Net Collateral Value on such date divided by (b) the Portfolio Notional Amount on such date.

“Net Current Funded Amount” means, as of any date of determination, and in relation to any Reference Obligation (and the related Transaction) that is a Committed Obligation, the Current Funded Amount on such date of determination less the Initial Funded Amount, as such amount may be reduced in accordance with Clause 3 or Clause 5 hereof.

“Non-Emerging Market Country” means any country that has a country ceiling for foreign currency bonds of at least “Aa2” by Moody’s and, to the extent such country is rated by S&P, a sovereign rating of at least “AA” by S&P.

“OFAC” means the United States Treasury Department’s Office of Foreign Assets Control.

“OFAC Violation” exists, with respect to a Reference Obligation, if any person uses the proceeds of such Reference Obligation, or lends, contributes or otherwise makes available such proceeds to any subsidiary, joint venture partner or any other person (a) to fund any activities or business of or with any person, or in any country or territory, that, at the time of such fund, is a Sanctioned Country or Sanctioned Person, as applicable, or (b) in any manner that would result in a violation of Sanctions by any person, including any person participating in such Reference Obligation, whether as underwriter, advisor, investor, lender, hedge provider, facility or security agent or otherwise.

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“Portfolio Target Amount” means (a) during the Ramp-Up Period, the Maximum Portfolio Notional Amount, (b) during the Ramp-Down Period, the Portfolio Notional Amount on the day immediately preceding the first day of the Ramp-Down Period and (c) otherwise, the Portfolio Notional Amount.

“Pre-Approved Reference Obligation” means any of the Reference Obligations listed in Annex VI hereto.

“Pricing Service” means Markit Partners or any other nationally recognized loan pricing service mutually agreed upon by the Calculation Agent and Counterparty; provided that neither Counterparty nor any of its Affiliates shall be a Pricing Service; provided, further, that the Calculation Agent shall have the ability upon at least 15 Business Days’ prior written notice to advise Counterparty that one or more sources listed herein is no longer considered to be a Pricing Service, provided that the Calculation Agent can only provide such notice if in its commercially reasonable discretion such Pricing Service has largely or entirely exited its loan pricing business.

“Rate Payments” means Counterparty First Floating Amounts, Counterparty Second Floating Amounts, Counterparty Third Floating Amounts, Counterparty Fourth Floating Amounts and BNPP Fixed Amounts.

“Reference Amount Reduction Amount” means the amount by which the Reference Amount of the related Reference Obligation is reduced pursuant to Clause 3(d), Clause 3(e), Clause 3(g) or Clause 5(b) (determined immediately prior to the related Transaction Termination Trade Date or Repayment Date, as applicable) for any Terminated Obligation or Repaid Obligation, as applicable.

“Reference Obligation Credit Agreement” means the term loan agreement or other similar credit agreement governing the related Reference Obligation.

“Reference Obligation Holder” means a holder of the Reference Obligation with the same tax status as BNPP or, if any Affiliate of BNPP or the Hedging Vehicle holds the Reference Obligation to hedge BNPP’s obligations hereunder, such Affiliate or Hedging Vehicle, as the case may be, in any case assuming that BNPP, such Affiliate or Hedging Vehicle, as the case may be, treats Counterparty as the beneficial owner of the Reference Obligation for U.S. federal income tax purposes.

“Regulatory Event” means the occurrence of any of the following events following the Transaction Trade Date for a Transaction:

(i) the effectiveness or adoption of any rule, law, regulation, rulemaking, order, decree, guideline, judgment, decision, directive or statute (together with any communication under clause (ii) below, “Applicable Law”) (or in the applicability or official or generally accepted interpretation of any Applicable Law), or any change or amendment thereto, enacted, promulgated, executed, ratified or adopted by any Governmental Authority;

(ii) an action taken by a taxing authority or brought in a court of competent jurisdiction (regardless of whether such action is taken or brought) with respect to BNPP or Counterparty; or

(iii) the imposition of margin or collateral requirements of a futures commission merchant, derivatives clearing organization, board of trade designated as a contract market, swap execution facility, clearing agency, registered broker, dealer or security-based swap dealer, exchange or security-based swap execution facility, whether imposed pursuant to any Applicable Law or otherwise;

in each case which renders all or part of such Transaction unlawful or materially and adversely affects the capital treatment of such Transaction or BNPP’s hedge of any part of such Transaction or the tax treatment of any hedge of BNPP’s obligations under such Transaction.

“Regulatory Affected Transaction” means any Transaction with respect to which a Regulatory Event has occurred.

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“Revolving Reference Obligation” means a Reference Obligation that (a) requires the holder thereof to make one or more future advances to the borrower under the instrument or agreement pursuant to which such Reference Obligation was issued or created, (b) specifies a maximum aggregate amount that can be borrowed and (c) permits, during any period on or after the date on which the holder thereof acquires such Reference Obligation, the re-borrowing of any amount previously repaid; provided that, on the date that all commitments by the holder thereof to make advances to the borrower under such Revolving Reference Obligation expire or are terminated or reduced to zero, such Reference Obligation shall cease to be a Revolving Reference Obligation for purposes of the Portfolio Criteria.

“S&P” means S&P Global Ratings, an S&P Global business, and any successor or successors thereto.

“S&P Industry Classifications” means the S&P Industry Classifications set forth below:

S&P Industry Classifications

Asset Code	Asset Description
1	Aerospace & Defense
2	Air transport
3	Automotive
4	Beverage & Tobacco
5	Radio & Television
6	[Reserved]
7	Building & Development
8	Business equipment & services
9	Cable & satellite television
10	Chemicals & plastics
11	Clothing/textiles
12	Conglomerates
13	Containers & glass products
14	Cosmetics/toiletries
15	Drugs
16	Ecological services & equipment
17	Electronics/electrical
18	Equipment leasing
19	Farming/agriculture
20	Financial intermediaries
21	Food/drug retailers
22	Food products
23	Food service
24	Forest products
25	Health care
26	Home furnishings
27	Lodging & casinos
28	Industrial equipment
29	[Reserved]
30	Leisure goods/activities/movies
31	Nonferrous metals/minerals
32	Oil & gas
33	Publishing
34	Rail industries
35	Retailers (except food & drug)
36	Steel
37	Surface transport
38	Telecommunications
39	Utilities
43	Life Insurance
44	Health Insurance
45	Property & Casualty Insurance
46	Diversified Insurance

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“S&P Issuer Rating” means, with respect to a Reference Obligation, if such Reference Obligation is a Second Lien Obligation, the corporate issuer rating by S&P of the related Reference Entity.

“S&P Rating” means, with respect to a Reference Obligation:

(i) if the Reference Obligation itself is rated by S&P (including pursuant to any credit estimate), such rating,

(ii) if the foregoing paragraph is not applicable, then, if the Reference Obligation is a Loan and the related Reference Entity has a corporate issuer rating by S&P, the rating specified in the applicable row of the table below under “Relevant Rating” opposite the row in the table below that describes such Loan:

Loan	Relevant Rating
The Loan is a secured obligation, but is not a Second Lien Obligation and is not Subordinate	The rating by S&P that is one rating subcategory above such corporate issuer rating
The Loan is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate	The rating by S&P that is one rating subcategory below such corporate issuer rating
The Loan is Subordinate	The rating by S&P that is two rating subcategories below such corporate issuer rating

(iii) if the foregoing paragraphs are not applicable, but there is a rating by S&P on a secured obligation of the Reference Entity that is not a Second Lien Obligation and is not Subordinate (the “other obligation”), the rating specified in the applicable row of the table below under “Relevant Rating” opposite the row in the table below that describes such Reference Obligation:

Reference Obligation	Relevant Rating
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not Subordinate	The rating assigned by S&P to the other obligation
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate	The rating by S&P that is one rating subcategory below the rating assigned by S&P to the other obligation
The Reference Obligation is Subordinate	The rating by S&P that is two rating subcategories below the rating assigned by S&P to the other obligation

(iv) if the foregoing paragraphs are not applicable, but there is a rating by S&P on an unsecured obligation of the Reference Entity (or, failing that, an obligation that is a Second Lien Obligation) but is not Subordinate (the “other obligation”), the rating specified in the applicable row of the table below under “Relevant Rating” opposite the row in the table below that describes such Reference Obligation:

Reference Obligation	Relevant Rating
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not Subordinate	The rating by S&P that is one rating subcategory above the rating assigned by S&P to the other obligation
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate	The rating assigned by S&P to the other obligation

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The Reference Obligation is Subordinate The rating by S&P that is one rating subcategory below the rating assigned by S&P to the other obligation

(v) if the foregoing paragraphs are not applicable, but there is a rating by S&P on an obligation of the Reference Entity that is Subordinate (the “other obligation”), the rating specified in the applicable row of the table below under “Relevant Rating” opposite the row in the table below that describes such Reference Obligation:

Reference Obligation	Relevant Rating
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not Subordinate	The rating by S&P that is two rating subcategories above the rating assigned by S&P to the other obligation
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate	The rating by S&P that is one rating subcategory above the rating assigned by S&P to the other obligation
The Reference Obligation is Subordinate	The rating assigned by S&P to the other obligation

(vi) if the foregoing paragraphs are not applicable, then the S&P Rating shall be “CCC-”; provided that (x) if application has been made to S&P to rate a Reference Obligation and such Reference Obligation has a Moody’s Rating, then the S&P Rating with respect to such Reference Obligation shall, pending the receipt of such rating from S&P, be equal to the S&P Rating that is equivalent to such Moody’s Rating and (y) Reference Obligations in the Reference Portfolio constituting no more, by aggregate Notional Amount, than 10% of the Portfolio Target Amount may be given a S&P Rating based on a rating given by Moody’s as provided in clause (x) (after giving effect to the addition of the relevant Reference Obligation, if applicable).

“Sanctioned Country” means a country subject to a sanctions program identified on the list maintained by OFAC and available at http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx, or as otherwise published from time to time.

“Sanctioned Person” means (a) a person named on the list of “Specially Designated Nationals and Blocked Persons” maintained by OFAC available at http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx, or as otherwise published from time to time, or (b) (i) an agency of the government of a Sanctioned Country, (ii) an organization controlled by a Sanctioned Country, or (iii) a person resident in a Sanctioned Country, to the extent subject to a sanctions program administered by OFAC.

“Sanctions” means any sanctions program enacted, administered, imposed or enforced by OFAC, the United States Department of State, the United Nations Security Council, the European Union, the French Republic, Her Majesty’s Treasury and/or any other relevant sanctions authority.

“Second Lien Obligation” means a Hard Asset Loan, a First-Lien Last-Out Loan, a Subordinated Holding Company Loan, or other Loan that is secured by collateral, but as to which the beneficiary or beneficiaries of such collateral security agree for the benefit of the holder or holders of Senior Secured Obligations secured by the same collateral as to one or more of the following: (1) to defer their right to enforce such collateral security either permanently or for a specified period of time while such Senior Secured Obligations are outstanding, (2) to permit a holder or holders of such Senior Secured Obligations to sell such collateral free and clear of the security in favor of such beneficiary or beneficiaries, (3) not to object to sales of assets by the obligor on such Loan following the commencement of a bankruptcy or other insolvency proceeding with respect to such obligor or to an application by the holder or holders of such Senior Secured Obligations to obtain adequate protection in any such proceeding and (4) not to contest the creation, validity, perfection or priority of such Senior Secured Obligations.

“Senior Secured Obligation” means a Loan (other than a First-Lien Last-Out Loan, a Hard Asset Loan or a Subordinated Holding Company Loan) that: (i) is not (and cannot by its terms become) subordinate in right of payment to any other obligation of the obligor of such Loan (other than with respect to liquidation, trade claims, capitalized leases or similar obligations); (ii) is secured by a valid, first-priority perfected security interest or lien in, to or on specified collateral securing such obligor’s obligations under such Loan; and (iii) the value of the collateral securing such Loan at the Transaction Trade Date together with other attributes of the obligor (including, without limitation, its general financial condition, ability to generate cash flow available for debt service and other demands for that cash flow) is adequate (as determined by the Calculation Agent in a commercially reasonable manner) to repay such Loan in accordance with its terms and to repay all other Loans of equal seniority secured by a first lien or security interest in the same collateral.

36

“Subordinate” means, with respect to an obligation (the “Subordinated Obligation”) and another obligation of the obligor thereon to which such obligation is being compared (the “Senior Obligation”), a contractual, trust or similar arrangement (without regard to the existence of preferred creditors arising by operation of law or to collateral, credit support, lien or other credit enhancement arrangements or provisions regarding the application of proceeds of any of the foregoing) providing that (i) upon the liquidation, dissolution, reorganization or winding up of the obligor, claims of the holders of the Senior Obligation will be satisfied prior to the claims of the holders of the Subordinated Obligation or (ii) the holders of the Subordinated Obligation will not be entitled to receive or retain payments in respect of their claims against the obligor at any time that the obligor is in payment arrears or is otherwise in default under the Senior Obligation.

“Subordinated Holding Company Loan” means a Loan that is a senior secured obligation, issued by a holding company and secured only by the assets of such holding company, not benefitting from a guarantee by the related operating company, as determined by the Calculation Agent in a commercially reasonable manner.

“Term Obligation” means any Reference Obligation that is not a Committed Obligation.

“Terminated Obligation” means any Reference Obligation or portion of any Reference Obligation with respect to which the related Transaction (or portion thereof) is being terminated and the Reference Amount of which is being reduced.

“Termination Threshold” means, on any date of determination from and including the Facility Effective Date, the Cure Threshold minus 5%.

“Total Return Payment Date” means, with respect to any Terminated Obligation or Repaid Obligation, the earlier of (a) the fifth Payment Business Day next succeeding the last day of the Monthly Period during which the related Transaction Termination Date occurs and (b) the Facility Final Termination Date.

“Transaction Termination Settlement Date” means, for any Terminated Obligation, the date customary for settlement, substantially in accordance with the then-current market practice in the principal market for such Terminated Obligation (as determined by the Calculation Agent), of the sale of such Terminated Obligation with the trade date for such sale occurring on the related Transaction Termination Trade Date. For the avoidance of doubt, the Transaction Termination Settlement Date with respect to any Transaction will be no later than the Facility Final Termination Date.

“Transaction Termination Trade Date” means, with respect to any Terminated Obligation, the date so designated in the related Accelerated Termination Notice or as provided in Clause 3(d) or (e); provided that if the related Final Price is not determined in accordance with Clause 4(a), the “Transaction Termination Trade Date” will be the bid submission deadline for the Firm Bid or combination of Firm Bids for all of the Reference Amount of such Terminated Obligation that are to be the basis for determining the Final Price of such Terminated Obligation as designated by the Calculation Agent in order to cause the related Total Return Payment Date to occur as promptly as practicable (in the discretion of the Calculation Agent) after the date originally designated as the “Transaction Termination Trade Date” in the related Accelerated Termination Notice. The Calculation Agent shall notify the parties of any Transaction Termination Trade Date designated by it pursuant to the foregoing proviso.

“Unrealized Capital Gain” and “Unrealized Capital Loss” mean, with respect to any Reference Obligation on any date of determination, the amount determined according to the following formula:

(Current Price – Initial Price) x Reference Amount

If such amount is positive, such amount is “Unrealized Capital Gain” and if such amount is negative, the absolute value of such amount is “Unrealized Capital Loss”. For purposes of computing any Unrealized Capital Gain or Unrealized Capital Loss, a Repaid Obligation or Terminated Obligation will be deemed to continue to be outstanding in an amount equal to its Reference Amount until (but excluding) the related Total Return Payment Date.    

“U.S. Bankruptcy Code” means Title 11 of the United States Code, as amended from time to time (or any successor statute).    

37

ANNEX I

REFERENCE PORTFOLIO

Reference Obligation

Reference Entity

Reference Amount

Initial Funded Amount

Initial Price (%)

Transaction Trade Date

Transaction Settlement Date

Trade ID

Buy/Sell

Independent Amount Percentage

Buy Trade ID (if a Sell)

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

1

ANNEX II

OBLIGATION CRITERIA

The “Obligation Criteria” are as follows:

(i) The obligation is either a Senior Secured Obligation or a Second Lien Obligation.

(ii) The Reference Entity is domiciled in the United States, Canada or Luxembourg.

(iii) The obligation is denominated in USD.

(iv) The obligation constitutes a legal, valid, binding and enforceable obligation of the applicable Reference Entity, enforceable against such person in accordance with its terms.

(v) The obligation is (x) not a Delayed Drawdown Reference Obligation or Revolving Reference Obligation and (y) the obligation does not require any future advances to be made to the related issuer or obligor on or after the Transaction Trade Date.

(vi) The obligation is not Subordinate.

(vii) The obligation constitutes indebtedness for U.S. Federal income tax purposes.

(viii) Transfers of the obligation on the Transaction Trade Date may be effected pursuant to the Standard Terms and Conditions for Par/Near Par Trade Master Confirmations and not the Standard Terms and Conditions for Distressed Trade Master Confirmations, in each case as published by the LSTA and as in effect on the Transaction Trade Date.

(ix) The obligation is (x) on the Transaction Trade Date the subject of at least two (2) bid quotations from nationally recognized independent dealers in the related obligation as reported on a Pricing Service (which, in the case of Markit Partners, is as reported in the “Depth” field), or (y) otherwise consented to by the Calculation Agent (in its sole discretion).

(x) The obligation has an Initial Price as of the Transaction Trade Date of at least 70%.

(xi) The obligation is rated by either Moody’s or S&P, and (x) if rated by Moody’s, has on the Transaction Trade Date a Moody’s Rating of at least Caa3 and (y) if rated by S&P, has an S&P Rating of at least CCC-.

(xii) The Reference Entity is not an Affiliate of Counterparty.

(xiii) The aggregate outstanding amount of the obligation is at least equal to $200 million for a Senior Secured Obligation and $175 million for a Second Lien Obligation.

(xiv) The scheduled maturity date of the obligation is not more than 8 years after the proposed Transaction Trade Date.

(xv) The obligation is one as to which all of the Additional Obligation Criteria set forth in Annex V are satisfied.

2

ANNEX III

PORTFOLIO CRITERIA

The “Portfolio Criteria” are as follows:

As of any date of determination:

(i) The Portfolio Notional Amount shall not exceed the Maximum Portfolio Notional Amount.

(ii) The Portfolio Notional Amount attributable to Reference Obligations that have a single Reference Entity shall be no more than 10.0% of the total Portfolio Target Amount; provided that three (3) Reference Entities are permitted to have Reference Obligations for which the aggregate Portfolio Notional Amount is each no more than 15.0% of the total Portfolio Target Amount and one (1) Reference Entity is permitted to have Reference Obligations for which the aggregate Portfolio Notional Amount is no more than 20.0% of the total Portfolio Target Amount.

(iii) The Portfolio Notional Amount attributable to Reference Obligations having fewer than three (3) bids as reported on a Pricing Service (which, in the case of Markit Partners, is as reported in the “Depth” field) shall be no more than 15% of the total Portfolio Target Amount unless consented to by BNPP (in its sole discretion). The Reference Obligations with CUSIPs 90290PAL8 and 02922XAG3 will be excluded from this calculation unless they have zero (0) bids as reported on a Pricing Service (which, in the case of Markit Partners, is as reported in the “Depth” field).

(iv) The Portfolio Notional Amount attributable to Reference Obligations relating to any single one of the Moody’s Industry Classifications shall be no more than 20% of the total Portfolio Target Amount, with the exception of “Healthcare & Pharmaceuticals.”

(v) The Portfolio Notional Amount attributable to Reference Obligations relating to any single one of the Global Industry Classifications shall be no more than 20% of the total Portfolio Target Amount, with the exceptions of (i) Reference Obligations relating to “Health Care Services,” which shall be no more than 30% of the total Portfolio Target Amount, and (ii) Reference Obligations relating to “Health Care Facilities,” which shall be no more than 30% of the total Portfolio Target Amount.

(vi) The Portfolio Notional Amount attributable to Reference Obligations which are Second Lien Obligations shall be no more than 35% of the total Portfolio Target Amount.

(vii) The Portfolio Notional Amount attributable to CCC Reference Obligations shall be no more than 25.0% of the total Portfolio Target Amount.

(viii) The Moody’s Weighted Average Rating Factor of all Reference Obligations in the Reference Portfolio shall be no more than 3900.

(ix) All Reference Obligations must have at least two (2) bids as reported on a Pricing Service (which, in the case of Markit Partners, is as reported in the “Depth” field) or be otherwise consented to by BNPP.

(x) With respect to any Reference Obligation, the Current Price of such Reference Obligation is at least 50%.

3

ANNEX IV

Approved Buyers and Approved Counterparties

Bank of America, NA

The Bank of Montreal

The Bank of New York Mellon, N.A.

Barclays Bank plc

BNP Paribas

Canadian Imperial Bank of Commerce

Credit Agricole S.A.

Credit Suisse

Deutsche Bank AG

Goldman Sachs & Co.

HSBC Bank

JPMorgan Chase Bank, N.A.

Morgan Stanley & Co.

Natixis

Royal Bank of Canada

The Royal Bank of Scotland plc

Scotia Capital

Societe Generale

The Toronto-Dominion Bank

UBS AG

U.S. Bank, National Association

Wells Fargo Bank, National Association

4

ANNEX V

Additional Obligation Criteria

The “Additional Obligation Criteria” are as follows:

As of any date of determination and with respect to any obligation:

1) Counterparty does not have any communications or negotiations with the Reference Entity with respect to such obligation (directly or indirectly through an intermediary such as the seller of such obligation) in connection with the issuance or funding of such obligation or commitments with respect thereto, except for communications of an immaterial nature or customary due diligence communications; provided, that the Counterparty may provide comments as to mistakes or inconsistencies in loan documents (including with respect to any provisions that are inconsistent with the terms and conditions of purchase of the obligation).

2) Counterparty does not earn or receive from any person any fee or other compensation for services, however denominated, in connection with the origination of such obligation, including breakage fees or any fees attributable to reduced funding requirements by the obligors.

3) None of the Counterparty, an Affiliate of Counterparty or an entity that is commonly managed or advised by Counterparty or an Affiliate of Counterparty acts or has acted as an underwriter, placement or other agent, arranger, negotiator or structuror in connection with the issuance or origination of such obligation.

4) If such obligation is an Inchoate Reference Obligation, (i) Counterparty has been advised or believes that the obligation will be executed on the terms presented to BNPP, regardless of whether BNPP, Counterparty or an Affiliate of Counterparty acquires the obligation and (ii) the notional amount of the obligation is less than 5% of the total principal amount of such obligation, and the economic exposure to the Counterparty and its Affiliates (including any related Transaction) in the aggregate is less than 15% of the total principal amount of the obligation.

5) Counterparty does not hold itself out, through advertising or otherwise, as originating, lending funds, making a market in or a dealer in respect of such obligation.

5

ANNEX VI

PRE-APPROVED REFERENCE OBLIGATIONS

Reference Obligation	CUSIP	Reference Entity	Reference Amount		Initial Funded Amount
Term B Loan (Second Lien) @ LIBOR 7.25% 12/19/2022	38723BAF8	Granite Acquisition, Inc.	$	1,000,000	$	1,000,000
TL 2nd Lien @ LIBOR 6.5% 7/25/2022	00769EAV2	Advantage Sales & Marketing Inc.	$	1,000,000	$	1,000,000
TLB4 @ LIBOR 8.75% 4/24/2020	89233UAN5	Toys ‘R’ Us-Delaware, Inc.	$	3,500,000	$	3,500,000
TL (First Lien) @ LIBOR 4.75% 4/28/2021	L3434LAC4	Evergreen Skills Lux S.? R.L.	$	3,500,000	$	3,500,000
Initial TL 2nd Lien @ LIBOR 8.25% 4/28/2022	L3434LAB6	Evergreen Skills Lux S.? R.L.	$	2,000,000	$	2,000,000
Term Advance @ LIBOR 5.75% 5/29/2020	29276MAG2	EnergySolutions, LLC	$	500,000	$	500,000
Reserve Based Term Loan @ LIBOR 7% 8/31/2020	31659HAG6	Fieldwood Energy LLC	$	3,000,000	$	3,000,000
FLLO Facility (First Lien) @ LIBOR 7.125% 9/30/2020	31659HAJ0	Fieldwood Energy LLC	$	2,000,000	$	2,000,000
Tranche B Term Loan (Second Lien) @ LIBOR 7% 3/25/2021	75049HAB3	RadNet, Inc.	$	3,500,000	$	3,500,000
Term Loan (Second Lien) @ LIBOR 8% 12/29/2023	90290PAL8	U.S. Renal Care, Inc.	$	5,000,000	$	5,000,000
I TBL @ LIBOR 5.25% 7/31/2020	09071FAF8	BioScrip, Inc.	$	1,000,000	$	1,000,000
Delayed Draw Term Loan @ LIBOR 5.25% 7/31/2020	09071FAG6	BioScrip, Inc.	$	1,000,000	$	1,000,000
Term Loan @ LIBOR 5.75% 4/29/2022	74909HAC3	Quorum Health Corporation	$	7,000,000	$	7,000,000
Tranche B Term Loan @ LIBOR 4.25% 8/16/2023	52706YAH6	Leslie’s Poolmart, Inc.	$	2,000,000	$	2,000,000
ITL @ LIBOR 4% 6/7/2023	55328HAE1	MPH Acquisition Holdings LLC	$	1,000,000	$	1,000,000
Term B Loan (First Lien) @ LIBOR 3.5% 8/20/2019	02922XAG3	American Renal Holdings Inc.	$	3,000,000	$	3,000,000

6

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

I, James Dondero, President, certify that:

1) I have reviewed this quarterly report on Form 10-Q of NexPoint Capital, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2017

/s/ James Dondero

    James Dondero

    President

    (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

I, Frank Waterhouse, Chief Financial Officer, certify that:

1) I have reviewed this quarterly report on Form 10-Q of NexPoint Capital, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2017

/s/ Frank Waterhouse

Frank Waterhouse

Treasurer, Principal Accounting Officer and Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of NexPoint Capital, Inc. (the “Company”), for the nine months ended September 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, James Dondero and Frank Waterhouse, President and Principal Financial Officer, respectively, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Date:November 9, 2017	/s/ James Dondero
	James Dondero President and Principal Executive Officer
	/s/ Frank Waterhouse
	Frank Waterhouse Treasurer, Principal Accounting Officer and Principal Financial Officer