PREM14A 1 d816004dprem14a.htm PREM14A PREM14A
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SCHEDULE 14A

(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

 

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                             Filed by a party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under §240.14a-12

Crescent Capital BDC, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This joint proxy statement/prospectus shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED SEPTEMBER 27, 2019

 

LOGO

[], 2019

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Stockholder,

On August 12, 2019, Crescent Capital BDC, Inc. (“Crescent Capital BDC”) and Alcentra Capital Corporation (“Alcentra Capital”) entered into an Agreement and Plan of Merger, dated as of August 12, 2019 (the “Original Merger Agreement”), as amended by Amendment No. 1 to the Agreement and Plan of Merger (“Amendment No. 1”), dated as of September 27, 2019 (as so amended, the “Merger Agreement”). Copies of the Original Merger Agreement and Amendment No. 1 are attached to the accompanying joint proxy statement/prospectus as Annexes A and B, respectively.

Under the terms of the Merger Agreement, Crescent Capital BDC formed two new wholly owned subsidiaries: Crescent Reincorporation Sub, Inc., a Maryland corporation (“Crescent Capital Maryland BDC” or the “Reincorporation Sub”), and Atlantis Acquisition Sub, Inc., a Maryland corporation (“Acquisition Sub”). The Merger Agreement provides that Crescent Capital BDC will merge with and into Crescent Capital Maryland BDC, with Crescent Capital Maryland BDC as the surviving corporation, thereby resulting in the reincorporation of Crescent Capital BDC from the State of Delaware into the State of Maryland (the “Reincorporation Merger”). Crescent Capital BDC stockholders will receive one share of Crescent Capital Maryland BDC common stock, par value $0.001 per share (“Crescent Capital Maryland BDC Common Stock”), for each share of Crescent Capital BDC common stock that they own in the Reincorporation Merger. Subsequently, Acquisition Sub will merge with and into Alcentra Capital (the “First Merger”), with Alcentra Capital as the surviving corporation (the “Surviving Corporation”). Finally, the Surviving Corporation will merge with and into Crescent Capital Maryland BDC (the “Second Merger” and, together with the First Merger, the “Mergers”). After the completion of the Mergers and the other transactions contemplated by the Merger Agreement (collectively, the “Transactions”), Crescent Capital Maryland BDC will be renamed “Crescent Capital BDC, Inc.” and is expected to have its common stock listed on The Nasdaq Stock Market (“NASDAQ”) under the symbol “CCAP.”

For each share of Alcentra Capital common stock, Alcentra Capital stockholders will receive (a) 0.4041 shares of Crescent Capital Maryland BDC Common Stock and (b) $3.1784 in cash, $1.6761 of which will be paid by Crescent Capital BDC’s external investment adviser, Crescent Cap Advisors, LLC, and $1.5023 of which will be paid by Crescent Capital Maryland BDC.

After the completion of the Mergers, based on the number of shares of Crescent Capital BDC common stock and Alcentra Capital common stock issued and outstanding as of [●], 2019, Crescent Capital BDC stockholders and Alcentra Capital stockholders are expected to own approximately [●]% and [●]% of the combined company’s outstanding common stock, respectively.

Based on Crescent Capital BDC’s net asset value (“NAV”) per share as of June 30, 2019, the Merger Consideration to be received by Alcentra Capital stockholders is approximately $11.02 per share, which represents 1.0x Alcentra Capital’s NAV per share as of June 30, 2019, and 1.36x the closing price of Alcentra Capital’s common stock on August 12, 2019 (the last trading day prior to announcement of the Original Merger Agreement).

There is currently no publicly traded market for Crescent Capital BDC common stock. Crescent Capital Maryland BDC is expected to apply to have its shares of common stock listed on NASDAQ under the symbol “CCAP,” with such listing expected to be effective as of the closing date of the Mergers. It is not possible to predict whether the common stock of the combined company will trade at, above, or below Crescent Capital BDC’s NAV following completion of the Mergers and the Transactions. The market price of Alcentra Capital common stock will fluctuate before the completion of the Transactions. You should obtain current stock price quotations for Alcentra Capital common stock. Alcentra Capital common stock trades on the Nasdaq Global Select Market under the symbol “ABDC.”


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The Reincorporation Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a)(1)(F) of the Code. If the Reincorporation Merger qualifies as a reorganization, then generally, for U.S. federal income tax purposes, no gain or loss will be recognized by Crescent Capital BDC stockholders upon exchange of their Crescent Capital BDC common stock for Crescent Capital Maryland BDC Common Stock. The Mergers, taken together, are intended to qualify as a “reorganization,” within the meaning of Section 368(a) of the Code, and it is a condition to Alcentra Capital’s obligation to complete the Mergers that it receive a legal opinion to that effect. If the Mergers qualify as a reorganization, then generally, for U.S. federal income tax purposes, U.S. stockholders (as defined in the accompanying joint proxy statement/prospectus under the heading “Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers”) will recognize gain, but will not recognize any loss, for U.S. federal income tax purposes, equal to the lesser of (i) the amount of cash received (other than cash received in lieu of a fractional share of Crescent Capital Maryland BDC Common Stock) and (ii) the excess, if any, of (x) the sum of the amount of cash received (including cash received in lieu of a fractional share of Crescent Capital Maryland BDC Common Stock) and the fair market value of the Crescent Capital Maryland BDC common stock received in the Mergers (determined at the effective time of the Mergers) over (y) the U.S. stockholder’s tax basis in the shares of Alcentra Capital common stock surrendered in the Mergers. If a U.S. stockholder recognizes gain equal to the amount described in clause (i) rather than clause (ii) of the preceding sentence, such U.S. stockholder will also recognize gain or loss attributable to cash received in lieu of a fractional share of Crescent Capital Maryland BDC Common Stock. Any gain recognized generally will be long-term capital gain, provided certain holding period and other requirements are met. The Alcentra Tax Dividend should not be treated for U.S. federal income tax purposes as part of the consideration paid for shares of Alcentra Capital common stock in the Mergers but instead should be treated for U.S. federal income tax purposes as a distribution with respect to the Alcentra Capital common stock.

Your vote is extremely important. At a special meeting of Crescent Capital BDC stockholders (the “Crescent Capital BDC Special Meeting”), Crescent Capital BDC stockholders will be asked to vote on (1) a proposal to approve the Reincorporation Merger pursuant to the plan of merger included as Exhibit B to Amendment No. 1, which is attached as Annex B to the accompanying joint proxy statement/prospectus, the approval of which will result in Crescent Capital BDC’s reincorporation from the State of Delaware to the State of Maryland, with such entity after the Reincorporation Merger referred to herein as Crescent Capital Maryland BDC and being subject to the charter of the surviving corporation substantially in the form set forth in Exhibit A to Amendment No. 1, which is attached as Annex B to the accompanying joint proxy statement; (2) the issuance of the shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable; (3) the approval of the proposed Crescent Capital BDC Investment Advisory Agreement between Crescent Capital BDC and its investment adviser, Crescent Cap Advisors (the “Proposed Crescent Capital BDC Investment Advisory Agreement”); and (4) the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the foregoing proposals. In order to complete the Transactions, Crescent Capital BDC’s stockholders are required to approve proposal numbers 1, 2, 3 and 4. See the accompanying joint proxy statement/prospectus for more information about the Transactions and the required stockholders approvals.

Crescent Capital BDC urges you to promptly fill out, sign, date and mail the enclosed proxy card or authorize your proxy by telephone or through the Internet as soon as possible even if you plan to attend the Crescent Capital BDC Special Meeting. Instructions are shown on the proxy card. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder. If you have any questions about the Transactions or need assistance voting your shares, please call Crescent Capital BDC at (310) 235-5900.

After careful consideration, the board of directors, including the independent directors, of Crescent Capital BDC unanimously recommends that its stockholders vote:

 

   

“FOR” the Reincorporation Merger;

 

   

“FOR” the issuance of the shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable; AND

 

   

“FOR” the adjournment of the Crescent Capital BDC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Crescent Capital BDC Special Meeting to approve the foregoing proposals.


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[The recommendation of the board of directors of Crescent Capital BDC with regard to the proposal to approve the Proposed Crescent Capital BDC Investment Advisory Agreement will be filed by amendment to the accompanying joint proxy statement/prospectus.]

The accompanying joint proxy statement/prospectus describes the Crescent Capital BDC Special Meeting, the special meeting of Alcentra Capital stockholders, the Transactions, the Merger Agreement, the other documents related to the Transactions and other related matters that a Crescent Capital BDC stockholder ought to know before voting on the proposals described herein and should be retained for future reference. Please carefully read this entire document, including “Questions and Answers about the Alcentra Capital Special Meeting, the Crescent Capital BDC Special Meeting and the Transactions” beginning on page [], “Risk Factors” beginning on page [], “Description of the Transactions” beginning on page [], “Description of the Merger Agreement” beginning on page [], “Crescent Capital BDC Proposal #1: The Approval of the Reincorporation Merger” beginning on page [], “Crescent Capital BDC Proposal #2: Issuance of Crescent Capital Maryland BDC Common Stock to Alcentra Capital Stockholders Pursuant to the Merger Agreement at a Price That is Below Its Then-Current NAV Per Share, if Applicable” beginning on page [] and “Crescent Capital BDC Proposal #3: The Approval of the Proposed Crescent Capital BDC Investment Advisory Agreement” beginning on page [] for a discussion of the Transactions, the risks relating to the Transactions, and other important information. You also can obtain information about Crescent Capital BDC and Alcentra Capital from documents that each has filed with the Securities and Exchange Commission. See “Where You Can Find More Information” for instructions on how to obtain such information.

Sincerely,

Jason A. Breaux

Chief Executive Officer

The Securities and Exchange Commission has not approved or disapproved the Crescent Capital Maryland BDC common stock to be issued under the accompanying joint proxy statement/prospectus or determined if the accompanying joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

The date of the accompanying joint proxy statement/prospectus is [●], 2019 and it is first being mailed or otherwise delivered to Crescent Capital BDC stockholders and Alcentra Capital stockholders on or about [●], 2019.

If you have questions about the Transactions or the accompanying joint proxy statement/prospectus, would like additional copies of the accompanying joint proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, you may contact Crescent Capital BDC at the address and telephone number listed below. You will not be charged for any of these documents that you request.

 

Crescent Capital BDC, Inc.

11100 Santa Monica Boulevard, Suite 2000

Los Angeles, California 90025

(310) 235-5900

investor.relations@crescentcap.com


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LOGO

Crescent Capital BDC, Inc.

11100 Santa Monica Boulevard, Suite 2000

Los Angeles, California 90025

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [], 20[]

To the Stockholders of Crescent Capital BDC, Inc.:

Notice is hereby given that Crescent Capital BDC, Inc., a Delaware corporation ( “Crescent Capital BDC”), will hold a Special Meeting of the Stockholders of Crescent Capital BDC (the “Crescent Capital BDC Special Meeting”) on [●], 20[●] at [●], Los Angeles time, at [●] for the following purposes:

 

  1.

To consider and vote upon a proposal to approve the merger of Crescent Capital BDC with and into a newly formed, wholly owned subsidiary, Crescent Reincorporation Sub, Inc., a Maryland corporation (“Crescent Capital Maryland BDC”), with Crescent Capital Maryland BDC as the surviving corporation, pursuant to the plan of merger included as Exhibit B to Amendment No. 1, which is attached as Annex B to the accompanying joint proxy statement/prospectus, the approval of which will result in Crescent Capital BDC’s reincorporation from the State of Delaware to the State of Maryland and being subject to the charter of the surviving corporation substantially in the form set forth Exhibit A to Amendment No. 1, which is attached as Annex B to the accompanying joint proxy statement/prospectus, with such entity after the Reincorporation Merger referred to herein as Crescent Capital Maryland BDC (the “Reincorporation Merger”);

 

  2.

To consider and vote upon a proposal to approve the issuance of the shares of Crescent Capital Maryland BDC common stock, par value $0.001 per share (“Crescent Capital Maryland BDC Common Stock”), to be issued to stockholders of Alcentra Capital Corporation, a Maryland corporation (“Alcentra Capital”), pursuant to the Agreement and Plan of Merger, dated as of August 12, 2019, as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of September 27, 2019 (as so amended, the “Merger Agreement”), by and among Crescent Capital BDC, Atlantis Acquisition Sub, Inc., a Maryland corporation and a directly wholly owned subsidiary of Crescent Capital BDC (“Acquisition Sub”), Alcentra Capital, and solely for the limited purposes set forth therein, Crescent Cap Advisors, LLC, Crescent Capital BDC’s investment adviser (“Crescent Cap Advisors”), which Merger Agreement provides for the Reincorporation Merger, the merger of Acquisition Sub with and into Alcentra Capital with Alcentra Capital as the surviving corporation (the “Surviving Corporation”), which we refer to as the “First Merger,” and the subsequent merger of the Surviving Corporation with and into Crescent Capital Maryland BDC, which we refer to as the “Second Merger” (and together with the First Merger, the “Mergers”) and certain other transactions as contemplated therein (collectively with the Mergers, the “Transactions”), at a price below its then-current NAV per share, if applicable;

 

  3.

To consider and vote upon a proposal to approve the Proposed Crescent Capital BDC Investment Advisory Agreement between Crescent Capital BDC and its investment adviser, Crescent Cap Advisors (the “Proposed Crescent Capital BDC Investment Advisory Agreement”), a copy of which is included as Annex D to the accompanying joint proxy statement/prospectus; and

 

  4.

To consider and vote upon a proposal to approve the adjournment of the Crescent Capital BDC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Crescent Capital BDC Special Meeting to approve the foregoing proposals.

Only the holders of record of shares of Crescent Capital BDC common stock at the close of business on [●], 2019 will be entitled to receive notice of and vote at the Crescent Capital BDC Special Meeting.


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It is important that all Crescent Capital BDC stockholders participate in the affairs of Crescent Capital BDC, regardless of the number of shares owned. Accordingly, Crescent Capital BDC urges you to promptly fill out, sign, date and mail the enclosed proxy card or authorize your proxy by telephone or through the Internet as soon as possible even if you plan to attend the meeting. Instructions are shown on the proxy card.

You have the option to revoke the proxy at any time prior to the meeting or to vote your shares in person if you attend the meeting and are the record owner of the shares.

The Crescent Capital BDC board of directors, including the independent directors, has unanimously approved the Reincorporation Merger and the issuance of the shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable. The Crescent Capital BDC board of directors, including the independent directors, unanimously recommends that Crescent Capital BDC stockholders vote “FOR” the Reincorporation Merger and “FOR” the issuance of the shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable. [The recommendation of the Crescent Capital BDC board of directors, including the independent directors regarding the proposal to approve the Proposed Crescent Capital BDC Investment Advisory Agreement will be filed by amendment to this joint proxy statement/prospectus.] The Crescent Capital BDC board of directors, including the independent directors, unanimously recommends Crescent Capital BDC stockholders vote “FOR” the adjournment of the Crescent Capital BDC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Crescent Capital BDC Special Meeting to approve the foregoing proposals.

By Order of the Board of Directors,

George P. Hawley

Secretary

Los Angeles, California

[●], 2019


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YOUR VOTE IS IMPORTANT!

CRESCENT CAPITAL BDC URGES YOU TO PROMPTLY FILL OUT, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD OR AUTHORIZE YOUR PROXY BY TELEPHONE OR THROUGH THE INTERNET AS SOON AS POSSIBLE EVEN IF YOU PLAN TO ATTEND THE CRESCENT CAPITAL BDC SPECIAL MEETING. INSTRUCTIONS ARE SHOWN ON THE PROXY CARD. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder.

The accompanying joint proxy statement/prospectus provides a description of the Merger Agreement, the Transactions contemplated thereby, and the matters to be considered at the Crescent Capital BDC Special Meeting. Crescent Capital BDC urges you to read the accompanying joint proxy statement/prospectus and its annexes carefully and in their entirety. If you have any questions concerning the Merger Agreement, the Transactions contemplated thereby, or the matters to be considered at the Crescent Capital BDC Special Meeting or this joint proxy statement/prospectus, would like additional copies of the joint proxy statement/prospectus or need help voting your shares, please contact Crescent Capital BDC:

Crescent Capital BDC, Inc.

11100 Santa Monica Boulevard, Suite 2000

Los Angeles, California 90025

(310) 235-5900

investor.relations@crescentcap.com


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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. The joint proxy statement/prospectus shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED SEPTEMBER 27, 2019

 

LOGO

[], 2019

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Stockholder,

Alcentra Capital Corporation (“Alcentra Capital”) and Crescent Capital BDC, Inc. (“Crescent Capital BDC”) have entered into an Agreement and Plan of Merger, dated as of August 12, 2019, as amended by Amendment No. 1 to the Agreement and Plan of Merger (“Amendment No. 1”), dated as of September 27, 2019 (as so amended, the “Merger Agreement”), pursuant to which Crescent Capital BDC (following its reincorporation by merger into the State of Maryland) will acquire all of the outstanding shares of Alcentra Capital in a stock and cash transaction. Prior to the closing of the transactions contemplated by the Merger Agreement, Crescent Capital BDC will merge with and into a newly formed wholly owned subsidiary, Crescent Reincorporation Sub, Inc., a Maryland corporation, with Crescent Reincorporation Sub, Inc. surviving the merger as “Crescent Capital BDC, Inc.” (“Crescent Capital Maryland BDC”). Pursuant to the Merger Agreement, Atlantis Acquisition Sub, Inc. (“Acquisition Sub”), a direct wholly owned subsidiary of Crescent Capital Maryland BDC, will merge with and into Alcentra Capital with Alcentra Capital surviving as a wholly owned subsidiary of Crescent Capital Maryland BDC (the “First Merger”). Immediately thereafter and as a single integrated transaction, Alcentra Capital will merge with and into Crescent Capital Maryland BDC with Crescent Capital Maryland BDC continuing as the surviving company (the “Second Merger,” and together with the First Merger, the “Mergers”).

Upon the completion of the Mergers, and subject to the terms and conditions of the Merger Agreement, Alcentra Capital stockholders will be entitled to receive the following consideration for each share of Alcentra Capital common stock owned immediately prior to the effective time of the Mergers: (1) 0.4041 shares of Crescent Capital Maryland BDC common stock and (2) $3.1784 per share in cash, $1.6761 of which will be paid by Crescent Cap Advisors, LLC, the external investment adviser of Crescent Capital BDC, and $1.5023 of which will be paid by Crescent Capital Maryland BDC. Crescent Capital Maryland BDC is expected to apply to have its common stock listed on The Nasdaq Stock Market under the symbol “CCAP,” with such listing expected to be effective as of the closing date of the Mergers.

After the completion of the Mergers, based on the number of shares of Crescent Capital BDC common stock issued and outstanding as of [●], 2019, Crescent Capital BDC stockholders and Alcentra Capital stockholders are expected to own approximately [●]% and [●]%, respectively, of the combined company’s outstanding common stock.

The market price of Alcentra Capital common stock will fluctuate before the completion of the Mergers and the other transactions contemplated by the Merger Agreement (collectively, the “Transactions”). You should obtain current stock price quotations for Alcentra Capital common stock. Alcentra Capital common stock trades on the Nasdaq Global Select Market under the symbol “ABDC.”

Your vote is extremely important. At a special meeting of Alcentra Capital stockholders (the “Alcentra Capital Special Meeting”), Alcentra Capital stockholders will be asked:

 

   

to approve the First Merger; and

 

   

to approve any adjournments of the Alcentra Capital Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the time of the meeting to approve the First Merger.

In order to complete the Transactions, Alcentra Capital stockholders are required to approve the First Merger. The proposal to approve the First Merger requires that a majority of the outstanding shares of Alcentra Capital common stock entitled to vote on such proposal vote “for” the approval of the First Merger in order for such proposal to be approved. The adjournment proposal requires that a majority of the votes cast by the holders of Alcentra Capital common stock present or represented and entitled to vote on such proposal at the Alcentra Capital Special Meeting vote “for” such proposal in order for it to be approved.


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Alcentra Capital urges you to promptly fill out, sign, date and mail the enclosed proxy card or authorize your proxy by telephone or through the Internet as soon as possible even if you plan to attend the Alcentra Capital Special Meeting. Instructions are shown on the proxy card. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder. If you have any questions about any of the matters to be voted on at the Alcentra Capital Special Meeting or the joint proxy statement/prospectus or need assistance voting your shares, please call D. F. King & Co., Inc., which is assisting Alcentra Capital with the solicitation of proxies, toll-free at (800) 741-3311 or collect at (212) 269-5550.

After careful consideration, the Alcentra Capital Board of Directors, including each of its independent directors, and upon recommendation from the Independent Director Committee, unanimously recommends that its stockholders vote:

 

   

“FOR” the approval of the First Merger; and

 

   

“FOR” the approval of any adjournments of the Alcentra Capital Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the time of the meeting to approve the First Merger.

The joint proxy statement/prospectus accompanying this letter describes the Alcentra Capital Special Meeting, the special meeting of Crescent Capital BDC stockholders, the Transactions, the Merger Agreement, the other documents related to the Transactions and other related matters that an Alcentra Capital stockholder ought to know before voting on the proposals described herein and should be retained for future reference. Please carefully read the entire joint proxy statement/prospectus, including “Questions and Answers about the Alcentra Capital Special Meeting, the Crescent Capital BDC Special Meeting and the Transactions” beginning on page [], “Risk Factors” beginning on page [], “Description of the Transactions” beginning on page [], “Description of the Merger Agreement” beginning on page [] and “Alcentra Capital Proposal #1: Approval of the First Merger” beginning on page [], for a discussion of the Transactions, the risks relating to the Transactions, and other important information. You also can obtain information about Alcentra Capital and Crescent Capital BDC from documents that each has filed with the Securities and Exchange Commission. See “Where You Can Find More Information” for instructions on how to obtain such information.

Sincerely,

Suhail A. Shaikh

Chief Executive Officer

The Securities and Exchange Commission has not approved or disapproved the Crescent Capital Maryland BDC common stock to be issued under the joint proxy statement/prospectus or the Transactions described in the joint proxy statement/prospectus, or determined if the joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

The date of the joint proxy statement/prospectus is [●], 2019 and it is first being mailed or otherwise delivered to Alcentra Capital’s stockholders on or about [●], 2019.

 

Alcentra Capital Corporation

200 Park Avenue, 7th Floor

New York, New York 10166

(212) 922-8240

In addition, if you have any questions about any of the matters to be voted on at the Alcentra Capital Special Meeting or the joint proxy statement/prospectus, would like additional copies of the joint proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, you may contact D.F. King & Co., Inc., Alcentra Capital’s proxy solicitor, at the address and telephone numbers listed below. You will not be charged for any of these documents that you request.

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, New York 10005

(800) 714-3311 (toll free)

(212) 269-5550 (call collect)


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LOGO

Alcentra Capital Corporation

200 Park Avenue, 7th Floor

New York, New York 10166

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [], 20[]

To the Stockholders of Alcentra Capital Corporation:

Notice is hereby given that Alcentra Capital Corporation, a Maryland corporation, or “Alcentra Capital,” will hold a Special Meeting of the Stockholders of Alcentra Capital, or the “Alcentra Capital Special Meeting,” on [●], 20[●] at [●], New York time, at the offices of Dechert LLP, located at 1095 Avenue of the Americas, 28th Floor, New York, New York 10036 for the following purposes:

 

  1.

To consider and vote upon a proposal to approve the merger of Atlantis Acquisition Sub, Inc., or “Acquisition Sub,” a direct wholly owned subsidiary of Crescent Capital BDC, Inc., or “Crescent Capital BDC,” with and into Alcentra Capital (the “First Merger”) with Alcentra Capital surviving as a wholly owned subsidiary of Crescent Capital BDC (following Crescent Capital BDC’s reincorporation by merger into the State of Maryland), pursuant to the Agreement and Plan of Merger, dated as of August 12, 2019, and as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of September 27, 2019, or the “Merger Agreement,” by and among Alcentra Capital, Crescent Capital BDC, Acquisition Sub, and solely for the limited purposes set forth therein, Crescent Cap Advisors, LLC, Crescent Capital BDC’s investment adviser; and

 

  2.

To consider and vote upon a proposal to approve the adjournment of the Alcentra Capital Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Alcentra Capital Special Meeting to approve the First Merger.

Only the holders of record of shares of Alcentra Capital common stock at the close of business on [●], 2019 will be entitled to receive notice of and vote at the Alcentra Capital Special Meeting.

It is important that all Alcentra Capital stockholders participate in the affairs of Alcentra Capital, regardless of the number of shares owned. Accordingly, Alcentra Capital urges you to promptly fill out, sign, date and mail the enclosed proxy card or authorize your proxy by telephone or through the Internet as soon as possible even if you plan to attend the meeting. Instructions are shown on the proxy card.

You have the option to revoke the proxy at any time prior to the meeting or to vote your shares in person if you attend the meeting and are the record owner of the shares.

The Alcentra Capital Board of Directors, including each of its independent directors, and the Independent Director Committee, has unanimously approved the Merger Agreement and the transactions contemplated thereby, and the Alcentra Capital Board of Directors, including each of its independent directors, and upon recommendation from the Independent Director Committee, unanimously recommends that Alcentra Capital stockholders vote “FOR” the approval of the First Merger and “FOR” the adjournment of the Alcentra Capital Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Alcentra Capital Special Meeting to approve the First Merger.

By Order of the Board of Directors,

Ellida McMillan

Secretary

New York, New York

[●], 2019


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YOUR VOTE IS IMPORTANT!

ALCENTRA CAPITAL URGES YOU TO PROMPTLY FILL OUT, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD OR AUTHORIZE YOUR PROXY BY TELEPHONE OR THROUGH THE INTERNET AS SOON AS POSSIBLE EVEN IF YOU PLAN TO ATTEND THE ALCENTRA CAPITAL SPECIAL MEETING. INSTRUCTIONS ARE SHOWN ON THE PROXY CARD. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder.

The accompanying joint proxy statement/prospectus provides a description of the Merger Agreement, the transactions contemplated thereby, including the First Merger, and the matters to be considered at the Alcentra Capital Special Meeting. Alcentra Capital urges you to read the accompanying joint proxy statement/prospectus and its annexes carefully and in their entirety. If you have any questions concerning the Merger Agreement, the transactions contemplated thereby, or the matters to be considered at the Alcentra Capital Special Meeting or the joint proxy statement/prospectus, would like additional copies of the joint proxy statement/prospectus or need help voting your shares, please contact Alcentra Capital’s proxy solicitor:

D. F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, New York 10005

(800) 714-73311 (toll free)

(212) 269-5550 (call collect)


Table of Contents

TABLE OF CONTENTS

 

     Page  

ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

     1  

QUESTIONS AND ANSWERS ABOUT THE ALCENTRA CAPITAL SPECIAL MEETING, THE CRESCENT CAPITAL BDC SPECIAL MEETING AND THE TRANSACTIONS

     6  

SUMMARY

     17  

COMPARATIVE FEES AND EXPENSES

     32  

RISK FACTORS

     37  

SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA OF ALCENTRA CAPITAL

     110  

SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA OF CRESCENT CAPITAL BDC

     113  

UNAUDITED SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

     118  

UNAUDITED PRO FORMA PER SHARE DATA

     120  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     121  

THE SPECIAL MEETING OF ALCENTRA CAPITAL

     123  

THE SPECIAL MEETING OF CRESCENT CAPITAL BDC

     126  

DESCRIPTION OF THE TRANSACTIONS

     131  

General Description of the Transactions

     131  

Background of the Transactions

     131  

Reasons for the Transactions

     160  

Recommendation of the Board of Directors of Alcentra Capital

     170  

Recommendation of the Board of Directors of Crescent Capital BDC

     170  

Opinion of the Financial Advisor to the Independent Director Committee of the Alcentra Capital Board

     170  

Opinion of the Financial Advisor to the Crescent Capital BDC Board

     178  

Financing of the Transactions

     186  

Financial Forecasts and Estimates

     186  

Stockholder Voting Agreements

     192  

Transaction Support Agreement

     192  

Interests of Certain Persons Related to Alcentra Capital in the Transactions

     193  

Interests of Certain Persons Related to Crescent Capital BDC in the Transactions

     194  

Regulatory Approvals Required for the Transactions

     195  

Listing of Crescent Capital Maryland BDC Common Stock

     195  

Board of Directors and Management of the Combined Company Following Completion of the Transactions

     195  

ACCOUNTING TREATMENT

     196  

DESCRIPTION OF THE MERGER AGREEMENT

     197  

Structure of the Merger

     197  

Closing; Completion of the Proposed Merger

     197  

Merger Consideration

     197  

Conversion of Shares; Exchange of Certificates; Book-Entry Shares

     198  

Letter of Transmittal

     198  

Withholding

     199  

Representations and Warranties

     200  

Conduct of Business Pending Completion of the Merger

     202  

Additional Covenants

     206  

Conditions to Closing the Merger

     217  

Termination of the Merger Agreement

     218  

Termination Fees

     220  

Effect of Termination

     220  

Amendment of the Merger Agreement

     220  

 

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     Page  

Extension; Waiver

     220  

Expenses; Transfer Taxes

     221  

Governing Law; Jurisdiction

     221  

Specific Performance

     222  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION MERGER AND THE MERGERS

     223  

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     240  

CAPITALIZATION

     262  

CRESCENT CAPITAL BDC PROPOSAL #1: THE APPROVAL OF THE REINCORPORATION MERGER

     263  

CRESCENT CAPITAL BDC PROPOSAL #2: ISSUANCE OF CRESCENT CAPITAL MARYLAND BDC COMMON STOCK TO ALCENTRA CAPITAL STOCKHOLDERS PURSUANT TO THE MERGER AGREEMENT AT A PRICE THAT IS BELOW ITS THEN-CURRENT NAV PER SHARE, IF APPLICABLE

     265  

CRESCENT CAPITAL BDC PROPOSAL #3: THE APPROVAL OF THE PROPOSED CRESCENT CAPITAL BDC INVESTMENT ADVISORY AGREEMENT

     266  

CRESCENT CAPITAL BDC PROPOSAL #4: POSSIBLE ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES, IF NECESSARY OR APPROPRIATE

     276  

ALCENTRA CAPITAL PROPOSAL #1: APPROVAL OF THE FIRST MERGER

     277  

ALCENTRA CAPITAL PROPOSAL #2: POSSIBLE ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES, IF NECESSARY OR APPROPRIATE

     278  

MARKET PRICE INFORMATION

     279  

BUSINESS OF CRESCENT CAPITAL BDC

     280  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CRESCENT CAPITAL BDC

     294  

SENIOR SECURITIES OF CRESCENT CAPITAL BDC

     329  

PORTFOLIO COMPANIES OF CRESCENT CAPITAL BDC

     330  

MANAGEMENT OF CRESCENT CAPITAL BDC

     339  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF CRESCENT CAPITAL BDC

     350  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CRESCENT CAPITAL BDC

     353  

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS OF ALCENTRA CAPITAL

     355  

BUSINESS OF ALCENTRA CAPITAL

     356  

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

     366  

SENIOR SECURITIES OF ALCENTRA CAPITAL

     380  

PORTFOLIO COMPANIES OF ALCENTRA CAPITAL

     381  

MANAGEMENT OF ALCENTRA CAPITAL

     385  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF ALCENTRA CAPITAL

     404  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ALCENTRA CAPITAL

     406  

DESCRIPTION OF ALCENTRA CAPITAL’S CAPITAL STOCK

     408  

DESCRIPTION OF CRESCENT CAPITAL MARYLAND BDC’S CAPITAL STOCK

     415  

CRESCENT CAPITAL MARYLAND BDC DIVIDEND REINVESTMENT PLAN

     424  

ALCENTRA CAPITAL DIVIDEND REINVESTMENT PLAN

     426  

 

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     Page  

COMPARISON OF STOCKHOLDER RIGHTS

     428  

REGULATION OF CRESCENT CAPITAL BDC

     457  

CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR OF ALCENTRA CAPITAL

     466  

CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR OF CRESCENT CAPITAL BDC

     467  

BROKERAGE ALLOCATION AND OTHER PRACTICES

     468  

LEGAL MATTERS

     469  

EXPERTS

     470  

OTHER MATTERS

     471  

STOCKHOLDERS SHARING AN ADDRESS

     472  

WHERE YOU CAN FIND MORE INFORMATION

     473  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

ANNEX A

  

Original Merger Agreement

     A-1  

ANNEX B

  

Amendment No. 1 to Original Merger Agreement

     B-1  

ANNEX C-1

  

Opinion of Houlihan Lokey Capital, Inc.

     C1-1  

ANNEX C-2

  

Opinion of BofA Securities, Inc.

     C2-1  

ANNEX D

  

Proposed Crescent Capital BDC Investment Advisory Agreement

     D-1  

ANNEX E

  

Bylaws of Crescent Capital Maryland BDC to become operative upon the completion of the Transactions

     E-1  

ANNEX F

  

Transaction Support Agreement between Crescent Capital BDC and Crescent Cap Advisors

     F-1  

ANNEX G

  

Form of Voting Agreement by and among Alcentra Capital and the Supporting Crescent Capital BDC Stockholders

     G-1  

 

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ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This joint proxy statement/prospectus, which forms part of a registration statement on Form N-14 filed with the Securities and Exchange Commission (the “SEC”) by Crescent Capital Maryland BDC (File No. 333-        ), constitutes a prospectus of Crescent Capital Maryland BDC under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Crescent Capital Maryland BDC Common Stock to be issued to Alcentra Capital stockholders pursuant to the Merger Agreement.

This joint proxy statement/prospectus also constitutes a joint proxy statement of Crescent Capital BDC and Alcentra Capital under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also constitutes a notice of meeting with respect to the special meeting of Alcentra Capital stockholders, at which Alcentra Capital stockholders will be asked to vote on a proposal to approve the First Merger and a proposal to approve an adjournment of the Alcentra Capital Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Alcentra Capital Special Meeting to approve the First Merger. This joint proxy statement/prospectus also constitutes a notice of meeting with respect to the special meeting of Crescent Capital BDC stockholders, at which Crescent Capital BDC stockholders will be asked to vote on (1) a proposal to approve the Reincorporation Merger pursuant to the plan of merger included as Exhibit B to Amendment No. 1, which is attached as Annex B to this joint proxy statement/prospectus, the approval of which will result in Crescent Capital BDC’s reincorporation from the State of Delaware to the State of Maryland and being subject to the charter of the surviving corporation substantially in the form set forth in Exhibit A to Amendment No. 1, which is attached as Annex B to this joint proxy statement/prospectus, (2) a proposal to approve the issuance of the shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current net asset value (“NAV”) per share, if applicable, (3) a proposal to approve the Proposed Crescent Capital BDC Investment Advisory Agreement between Crescent Capital BDC and its investment adviser, Crescent Cap Advisors and (4) a proposal to adjourn the Crescent Capital BDC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Crescent Capital BDC Special Meeting to approve the foregoing proposals. Information about these meetings and the Transactions is contained in this joint proxy statement/prospectus.

You should rely only on the information contained in this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated [●], 2019. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than that date. Neither the mailing of this joint proxy statement/prospectus to Crescent Capital BDC stockholders or Alcentra Capital stockholders nor the issuance by Crescent Capital Maryland BDC of the shares of Crescent Capital Maryland BDC Common Stock to be issued to Alcentra Capital stockholders pursuant to the Merger Agreement will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

Except where the context otherwise indicates, information contained in this joint proxy statement/prospectus regarding Crescent Capital BDC has been provided by Crescent Capital BDC and information contained in this joint proxy statement/prospectus regarding Alcentra Capital has been provided by Alcentra Capital.

When used in this joint proxy statement/prospectus, unless otherwise indicated in this joint proxy statement/prospectus or the context otherwise requires:

 

   

“Acquisition Sub” refers to Atlantis Acquisition Sub, Inc., a wholly owned subsidiary of Crescent Capital BDC;

 

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“Alcentra Capital” refers to Alcentra Capital Corporation and, where applicable, its consolidated subsidiaries;

 

   

“Alcentra Capital Board” refers to the Board of Directors of Alcentra Capital;

 

   

“Alcentra Capital Bylaws” refers to Alcentra Capital’s amended and restated bylaws dated as of March 8, 2018;

 

   

“Alcentra Capital Charter” refers to Alcentra Capital’s Articles of Amendment and Restatement dated as of March 6, 2014, as filed with the State Department of Assessments and Taxation of Maryland;

 

   

“Alcentra Capital Common Stock” refers to Alcentra Capital’s common stock, par value $0.001 per share;

 

   

“Alcentra Capital Credit Facility” refers to Alcentra Capital’s senior secured revolving credit facility with ING Capital LLC, as amended and restated from time to time;

 

   

“Alcentra Capital InterNotes” refers to Alcentra Capital’s $55.0 million in aggregate principal amount of unsecured notes outstanding, series of which bear interest at a fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance of the respective series;

 

   

“Alcentra Capital Investment Advisory Agreement” refers to Alcentra Capital’s Amended and Restated Investment Advisory Agreement, dated as of May 4, 2018, with Alcentra NY;

 

   

“Alcentra Capital Special Meeting” refers to Special Meeting of the Stockholders of Alcentra Capital;

 

   

“Alcentra Group” refers to Alcentra NY, together with Alcentra Limited, both indirect subsidiaries of BNY Mellon;

 

   

“Alcentra NY” refers to Alcentra Capital’s investment adviser, Alcentra NY, LLC;

 

   

“Alcentra Tax Dividend” refers to any special dividends declared by Alcentra Capital after the date of the Merger Agreement (excluding regular quarterly dividends up to a maximum amount of $0.18 per share of Alcentra Capital Common Stock);

 

   

“Amendment No. 1” refers to Amendment No. 1 to the Original Merger Agreement, dated as of September 27, 2019;

 

   

“BDC” refers to a business development company under the Investment Company Act;

 

   

“BNY Mellon” refers to Bank of New York Mellon Corporation;

 

   

“Cash Consideration” refers to $3.1784 per share in cash consideration (consisting of $1.5023 per share in cash paid by Crescent Capital Maryland BDC (less the amount of any Alcentra Tax Dividend declared by Alcentra Capital after the date of the Merger Agreement) and $1.6761 per share in cash paid by Crescent Cap Advisors);

 

   

“CCAP Administration” refers to Crescent Capital BDC’s administrator, [CCAP Administration, LLC];

 

   

“CCAP Administration Agreement” refers to the administration agreement between Crescent Capital BDC and CCAP Administration, dated as of June 2, 2015;

 

   

“CCG LP” refers to Crescent Capital Group LP, the majority member of Crescent Cap Advisors and the sole member of CCAP Administration;

 

   

“Code” refers to the Internal Revenue Code of 1986, as amended;

 

   

“Crescent Cap Advisors” refers to Crescent Capital BDC’s investment adviser, Crescent Cap Advisors, LLC (f/k/a CBDC Advisors, LLC);

 

   

“Crescent Cap Advisors Consideration” refers to the Alcentra Capital stockholders’ right, in exchange for each share of Alcentra Capital Common Stock, to receive $1.6761 per share in cash paid by Crescent Cap Advisors (such amount of cash, as may be adjusted pursuant to the Merger Agreement);

 

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“Crescent Capital BDC” refers to (i) for any period prior to the Reincorporation Merger, Crescent Capital BDC, Inc., the Delaware corporation, and, where applicable, its consolidated subsidiaries, and (ii) for any period following the Reincorporation Merger, Crescent Capital Maryland BDC in its capacity as the surviving corporation in the Reincorporation Merger and, where applicable, its consolidated subsidiaries;

 

   

“Crescent Capital BDC Board” refers to the Board of Directors of Crescent Capital BDC;

 

   

“Crescent Capital BDC Common Stock” refers to Crescent Capital BDC’s common stock, par value $0.001 per share;

 

   

“Crescent Capital BDC Consideration” refers to the Alcentra Capital stockholders’ right (as part of the Merger Consideration) to receive in exchange for each share of Alcentra Capital Common Stock from Crescent Capital Maryland BDC (i) $1.5023 in cash (less the amount of any Alcentra Tax Dividend declared by Alcentra Capital after the date of the Merger Agreement) and (ii) 0.4041 of a share of Crescent Capital Maryland BDC Common Stock (and, if applicable, cash in lieu of fractional shares of Crescent Capital Maryland BDC Common Stock);

 

   

“Crescent Capital BDC Delaware Bylaws” refers to Crescent Capital BDC’s current bylaws prior to the Reincorporation Merger;

 

   

“Crescent Capital BDC Delaware Charter” refers to Crescent Capital BDC’s amended and restated certificate of incorporation as filed with the Secretary of State of the State of Delaware;

 

   

“Crescent Capital BDC Investment Advisory Agreement” refers to the Investment Advisory Agreement between Crescent Capital BDC and Crescent Cap Advisors, dated as of June 2, 2015;

 

   

“Crescent Capital BDC Maryland Bylaws” refers to Crescent Capital Maryland BDC’s bylaws after the Reincorporation Merger;

 

   

“Crescent Capital BDC Maryland Charter” refers to the charter of Crescent Capital Maryland BDC, as the surviving corporation in the Reincorporation Merger, as will be filed with the State Department of Assessments and Taxation of Maryland substantially in the form set forth in Exhibit A to the Merger Agreement;

 

   

“Crescent Capital BDC Resource Sharing Agreement” refers to the resource sharing agreement between Crescent Cap Advisors and CCG LLP;

 

   

“Crescent Capital BDC Special Meeting” refers to the Special Meeting of the Stockholders of Crescent Capital BDC;

 

   

“Crescent Capital Maryland BDC” refers to Crescent Reincorporation Sub, Inc., the surviving corporation of the Reincorporation Merger and, prior to the Reincorporation Merger, a wholly owned subsidiary of Crescent Capital BDC;

 

   

“Crescent Capital Maryland BDC Board” refers to the Board of Directors of Crescent Capital Maryland BDC;

 

   

“Crescent Capital Maryland BDC Common Stock” refers to refers to Crescent Capital Maryland BDC’s common stock, par value $0.001 per share;

 

   

“DGCL” refers to the Delaware General Corporation Law;

 

   

“Effective Time” refers to the effective time of the Mergers;

 

   

“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

 

   

“Exchange Ratio” refers to the Alcentra Capital stockholders’ right (as part of the Merger Consideration) to receive in exchange for each share of Alcentra Capital Common Stock from Crescent Capital Maryland BDC 0.4041 of a share of Crescent Capital Maryland BDC Common Stock, subject to adjustment pursuant to the Merger Agreement;

 

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“First Merger” refers to the merger of Acquisition Sub with and into Alcentra Capital, with Alcentra Capital being the surviving entity of such merger, pursuant to the Merger Agreement;

 

   

“Independent Director Committee” refers to the Committee of Independent Directors of the Alcentra Capital Board;

 

   

“Investment Company Act” refers to the Investment Company Act of 1940, as amended;

 

   

“LIBOR” refers to the London Interbank Offered Rate;

 

   

“Listing” refers to the listing of Crescent Capital Maryland BDC Common Stock on NASDAQ in connection with the Transactions;

 

   

“Mergers” refers to the First Merger and the Second Merger, collectively;

 

   

“Merger Agreement” refers to the Agreement and Plan of Merger, dated as of August 12, 2019, by and among Crescent Capital BDC, Acquisition Sub, Alcentra Capital, and solely for the limited purposes set forth therein, Crescent Cap Advisors; as amended by Amendment No. 1;

 

   

“Merger Consideration” refers to the Alcentra Capital stockholders’ right to receive in exchange for each share of Alcentra Capital Common Stock: (a) the Crescent Capital BDC Consideration and (b) the Crescent Cap Advisors Consideration;

 

   

“MGCL” refers to the Maryland General Corporation Law;

 

   

“NASDAQ” refers to The Nasdaq Stock Market;

 

   

“Original Merger Agreement” refers to the Agreement and Plan of Merger, dated as of August 12, 2019, by and among Crescent Capital BDC, Acquisition Sub, Alcentra Capital, and solely for the limited purposes set forth therein, Crescent Cap Advisors;

 

   

“Proposed Crescent Capital BDC Investment Advisory Agreement” refers to the proposed amended and restated investment advisory agreement between Crescent Capital BDC and its investment adviser, Crescent Cap Advisors, to be considered and voted upon by Crescent Capital BDC stockholders at the Crescent Capital BDC Special Meeting;

 

   

“Reincorporation” refers to the reincorporation of Crescent Capital BDC from the State of Delaware to the State of Maryland;

 

   

“Reincorporation Merger” refers to the merger of Crescent Capital BDC with and into a newly formed wholly owned subsidiary, Crescent Capital Maryland BDC, with Crescent Capital Maryland BDC as the surviving corporation, pursuant to the plan of merger included as Exhibit B to Amendment No. 1, which is attached as Annex B to this joint proxy statement/prospectus, resulting in Crescent Capital BDC’s reincorporation from the State of Delaware to the State of Maryland and being subject to the charter of the surviving corporation substantially in the form set forth in Exhibit A to Amendment No. 1, which is attached as Annex B to this joint proxy statement/prospectus;

 

   

“RIC” refers to a regulated investment company under subchapter M of the Code;

 

   

“SBCAA” refers to The Small Business Credit Availability Act, as amended;

 

   

“SEC” refers to the Securities and Exchange Commission;

 

   

“Second Merger” refers to the merger of Alcentra Capital with and into Crescent Capital Maryland BDC, with Crescent Capital Maryland BDC being the surviving entity in such merger, pursuant to the Merger Agreement;

 

   

“Securities Act” refers to the Securities Act of 1933, as amended;

 

   

“State Street” refers to State Street Bank and Trust Company;

 

   

“Supporting Crescent Capital BDC Stockholders” refers to Crescent Capital BDC’s stockholders that entered into Voting Agreements with Alcentra Capital;

 

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“Transactions” refers to the Mergers and the other transactions contemplated by the Merger Agreement; and

 

   

“Voting Agreements” refers to voting agreements entered into by Alcentra Capital with the Supporting Crescent Capital BDC Stockholders in connection with the Merger Agreement.

 

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QUESTIONS AND ANSWERS ABOUT THE ALCENTRA CAPITAL SPECIAL MEETING, THE CRESCENT CAPITAL BDC SPECIAL MEETING AND THE TRANSACTIONS

The questions and answers below highlight only selected information from this joint proxy statement/prospectus. They do not contain all of the information that may be important to you. You should read carefully this joint proxy statement/prospectus to fully understand the Merger Agreement and the Transactions, including the Mergers, and the voting procedures for the Alcentra Capital Special Meeting and the Crescent Capital BDC Special Meeting, respectively.

 

Q:

Why am I receiving these materials?

 

A:

Alcentra Capital and Crescent Capital BDC are sending these materials to their respective stockholders to help them decide how to vote their shares of Alcentra Capital Common Stock or Crescent Capital BDC Common Stock, as the case may be, at their respective special meetings concerning the Transactions.

At the Alcentra Capital Special Meeting, Alcentra Capital common stockholders will be asked to vote on a proposal to approve the First Merger and a proposal to approve the adjournment of the Alcentra Capital Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Alcentra Capital Special Meeting to approve the foregoing proposal.

At the Crescent Capital BDC Special Meeting, Crescent Capital BDC common stockholders will be asked to vote (i) on a proposal to approve the Reincorporation Merger pursuant to the plan of merger included as Exhibit B to Amendment No. 1, which is attached as Annex B to this joint proxy statement/prospectus, the approval of which will result in Crescent Capital BDC’s reincorporation from the State of Delaware to the State of Maryland and being subject to the charter of the surviving corporation substantially in the form set forth Exhibit A to the Merger Agreement, with such entity after the Reincorporation Merger referred to herein as Crescent Capital Maryland BDC, (ii) a proposal to approve the issuance of the shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable, (iii) a proposal to approve the Proposed Crescent Capital BDC Investment Advisory Agreement and (iv) a proposal to approve the adjournment of the Crescent Capital BDC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Crescent Capital BDC Special Meeting to approve the foregoing proposals. Information about these special meetings and the Mergers and other Transactions are contained in this joint proxy statement/prospectus.

The Alcentra Capital Board and Crescent Capital BDC Board have both unanimously approved the Mergers and the Merger Agreement as in the best interests of Alcentra Capital and Crescent Capital BDC, respectively, and their respective stockholders. Please see the section entitled “Description of the Transactions—Reasons for the Transactions.”

This joint proxy statement/prospectus summarizes the information regarding the matters to be voted upon at the Alcentra Capital Special Meeting and the Crescent Capital BDC Special Meeting. However, you do not need to attend your special meeting to vote your shares. You may simply sign the enclosed proxy and return it promptly in the envelope provided or authorize your proxy by telephone or through the Internet. Instructions are shown on the proxy card. It is very important that you vote your shares at your special meeting. The First Merger cannot be completed unless Alcentra Capital stockholders approve the First Merger and Crescent Capital BDC stockholders approve the Reincorporation Merger, the issuance of Crescent Capital Maryland BDC Common Stock in connection with the Mergers at a price below its then-current NAV per share, if applicable, and the approval of the Proposed Crescent Capital BDC Investment Advisory Agreement.

If you hold some or all of your shares in a brokerage account, your broker will not be permitted to vote your shares unless you provide them with instructions on how to vote your shares. For this reason, you should provide your broker with instructions on how to vote your shares or arrange to attend your special meeting

 

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and vote your shares in person. Stockholders are urged to authorize proxies by telephone or the Internet if their broker has provided them with the opportunity to do so. See your voting instruction form for details. If your broker holds your shares and you attend your special meeting in person, please bring a letter from your broker identifying you as the beneficial owner of the shares and authorizing you to vote your shares at the special meeting.

 

Q:

When and where is the Alcentra Capital Special Meeting?

 

A:

The Alcentra Capital Special Meeting will take place on [●], 20[●] at [●], New York Time, at the offices of Dechert LLP, located at 1095 Avenue of the Americas, 28th Floor, New York, New York 10036.

 

Q:

When and where is the Crescent Capital BDC Special Meeting?

 

A:

The Crescent Capital BDC Special Meeting will take place on [●], 20[●] at [●], Los Angeles Time, at [●].

 

Q:

What is happening at the Alcentra Capital Special Meeting?

 

A:

Alcentra Capital stockholders are being asked to consider and vote on the following matters at their special meeting:

 

   

a proposal to approve the First Merger; and

 

   

a proposal to approve the adjournment of the Alcentra Capital Special Meeting, if necessary or appropriate, to solicit additional proxies, if there are not sufficient votes at the time of the Alcentra Capital Special Meeting to approve the foregoing proposal.

 

Q:

What is happening at the Crescent Capital BDC Special Meeting?

 

A:

Crescent Capital BDC stockholders are being asked to consider and vote on the following matters at their special meeting:

 

   

a proposal to approve the Reincorporation Merger pursuant to the plan of merger included as Exhibit B to Amendment No. 1, which is attached as Annex B to this joint proxy statement/prospectus, the approval of which will result in Crescent Capital BDC’s reincorporation from the State of Delaware to the State of Maryland and being subject to the charter of the surviving corporation substantially in the form set forth Exhibit A to Amendment No. 1, with such entity after the Reincorporation Merger referred to herein as Crescent Capital Maryland BDC;

 

   

a proposal to approve the issuance of the shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable;

 

   

a proposal to approve Crescent Capital BDC’s Proposed Crescent Capital BDC Investment Advisory Agreement with its investment advisor, Crescent Cap Advisors; and

 

   

a proposal to approve the adjournment of the Crescent Capital BDC Special Meeting, if necessary or appropriate, to solicit additional proxies, if there are not sufficient votes at the time of the Crescent Capital BDC Special Meeting to approve the foregoing proposals.

 

Q:

What will happen in the Mergers?

 

A:

Subject to the terms and conditions of the Merger Agreement, the transactions contemplated by the Merger Agreement will be accomplished in three steps. First, in the Reincorporation Merger, Crescent Capital BDC will merge into Crescent Capital Maryland BDC, resulting in Crescent Capital BDC’s reincorporation from the State of Delaware to the State of Maryland. The surviving entity of the Reincorporation Merger will be

 

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  renamed Crescent Capital BDC, Inc. and will be governed by the charter of the surviving corporation substantially in the form set forth Exhibit A to the Merger Agreement and further described herein under the heading “Comparison of Stockholder Rights.” Next, in the First Merger, Acquisition Sub will merge with and into Alcentra Capital and the separate corporate existence of Acquisition Sub will cease. Immediately thereafter, Alcentra Capital will merge with and into Crescent Capital Maryland BDC and the separate corporate existence of Alcentra Capital will cease. Crescent Capital Maryland BDC will be the surviving entity of the Mergers and will succeed to and assume all the rights and obligations of Alcentra Capital and will continue its existence as a corporation under Maryland law.

 

Q:

What will Alcentra Capital stockholders receive in the First Merger?

 

A:

Each Alcentra Capital stockholder will be entitled to receive for each share of Alcentra Capital Common Stock owned by such Alcentra Capital stockholder immediately prior to the First Merger (A) a total of $3.1784 in cash, without interest, as may be adjusted pursuant to the Merger Agreement, and (B) 0.4041 shares of Crescent Capital Maryland BDC Common Stock subject to the payment of cash instead of fractional shares. For example, if an Alcentra Capital stockholder currently owns 100 shares of Alcentra Capital Common Stock, then, as a result of the First Merger, the stockholder will receive $317.84 in cash and 40 shares of Crescent Capital BDC Common Stock, plus cash instead of the fractional 0.41 share of Crescent Capital BDC Common Stock, in exchange for the stockholder’s 100 shares of Alcentra Capital Common Stock.

 

Q:

Is the Exchange Ratio subject to any adjustment?

 

A:

Generally, no. The Exchange Ratio will only be adjusted if (i) the outstanding shares of Alcentra Capital Common Stock or Crescent Capital BDC Common Stock have themselves been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of any reclassification, recapitalization, stock split, reverse stock split, split-up, combination or exchange of shares, or if a stock dividend (other than as a result of shares delivered pursuant to Crescent Capital BDC’s dividend reinvestment plan) or dividend payable in any other securities shall be declared with a record date prior to closing or if any other similar event shall have occurred or (ii) after the date of the Merger Agreement and prior to the effective time of the First Merger, Alcentra Capital declares any dividends (excluding regular quarterly dividends up to a maximum amount of $0.18 per share of Alcentra Capital Common Stock) required to meet certain RIC qualification requirements and the aggregate amount of any such dividends is greater than the amount of the total cash consideration of Crescent Capital Maryland BDC, then the Exchange Ratio may be adjusted to account for such dividends.

 

Q:

Will Crescent Capital BDC stockholders be permitted to transfer shares of Crescent Capital BDC Common Stock prior to the Effective Time?

 

A:

Generally, no. Under the terms of the subscription agreements by and between Crescent Capital BDC stockholders and Crescent Capital BDC, Crescent Capital BDC stockholders are not permitted to sell, assign, transfer or otherwise dispose of their shares of Crescent Capital BDC Common Stock or capital commitment unless Crescent Capital BDC provides its prior written consent and the transfer is otherwise made in accordance with applicable law.

In addition, each Voting Agreement prohibits the applicable Supporting Crescent Capital BDC Stockholder from transferring any of its shares of Crescent Capital BDC Common Stock or any economic or voting rights with respect thereto or entering into any contract, option or other arrangement or understanding with respect thereto, for the period between August 12, 2019 and the earlier of the effectiveness of the Transactions and the termination of the Merger Agreement in accordance with its terms, other than certain permitted transfers or with the prior written consent of Alcentra Capital. As of September 20, 2019, the Supporting Crescent Capital BDC Stockholders are entitled to vote approximately 13,939,781 shares of Crescent Capital BDC Common Stock, or approximately 71% of the outstanding shares of Crescent Capital BDC Common Stock. See “Description of the Transactions—Stockholder Voting Agreements” for more information.

 

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Q:

Will Crescent Capital Maryland BDC Common Stock be listed on a national securities exchange following the Mergers?

 

A:

Yes. Crescent Capital Maryland BDC is expected to apply to have its shares of common stock listed on NASDAQ under the symbol “CCAP.” If the Mergers are successfully consummated, and such application is approved, the Listing is expected to be effective as of the closing date of the Mergers.

 

Q:

Will Crescent Capital Maryland BDC stockholders be able to transfer shares of Crescent Capital Maryland BDC Common Stock following the Listing?

 

A:

Shares of Crescent Capital Maryland BDC Common Stock received by Crescent Capital BDC stockholders in the Reincorporation will be subject to transfer restrictions under the Crescent Capital BDC Maryland Charter for a period of up to one year following the Listing.

The Crescent Capital BDC Maryland Charter provides that during the period beginning with the Reincorporation and ending 365 days after the date of the Listing, any transfer (whether by sale, gift, merger, operation of law or otherwise), exchange, assignment, pledge, hypothecation or other disposition or encumbrance of any shares of Crescent Capital Maryland BDC Common Stock acquired by a stockholder attendant to the Reincorporation is prohibited, and therefore not effective, until 180 days after the date of the Listing for one-third of the shares of Crescent Capital Maryland BDC Common Stock acquired by a stockholder in the Reincorporation, 270 days after the date of the Listing for another one-third of the shares of Crescent Capital Maryland BDC Common Stock acquired by a stockholder in the Reincorporation and 365 days after the date of the Listing for the final one-third of Crescent Capital Maryland BDC Common Stock acquired by a stockholder in the Reincorporation, unless the Crescent Capital Maryland BDC Board provides prior written consent permitting an earlier effective date and the transfer, exchange, assignment, pledge, hypothecation or other disposition or encumbrance is made in accordance with applicable securities and other laws.

Such transfer restrictions are applicable only to shares received by Crescent Capital BDC stockholders in the Reincorporation, and not to shares of Crescent Capital Maryland BDC Common Stock issued to Alcentra Capital stockholders in the First Merger, and will be in addition to any transfer restrictions applicable by law or any applicable agreements between the stockholder and Crescent Capital Maryland BDC.

 

Q:

Who is responsible for paying the expenses relating to completing the Mergers, including the preparation of this joint proxy statement/prospectus and the solicitation of proxies?

 

A:

In general, Alcentra Capital and Crescent Capital BDC will each be responsible for its own expenses incurred in connection with the completion of the transactions contemplated by the Merger Agreement. However, Crescent Capital BDC will pay all costs and expenses in connection with the filings of the notification and report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). See “Description of the Merger Agreement—Expenses; Transfer Taxes.”

 

Q:

Will I receive dividends after the Mergers?

 

A:

Crescent Capital BDC currently intends to distribute quarterly dividends to its stockholders. The amount and timing of past dividends and distributions are not a guarantee of any future dividends or distributions, or the amount thereof, the payment, timing and amount of which will be determined by Crescent Capital BDC Board and depend on Crescent Capital BDC’s cash requirements, its financial condition and earnings, contractual restrictions, legal and regulatory considerations and other factors.

 

Q:

Are the Mergers subject to any third-party consents?

 

A:

Under the Merger Agreement, Alcentra Capital and Crescent Capital BDC shall use their respective reasonable best efforts to obtain certain consents and approvals from persons necessary in connection with

 

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  the consummation of the Transactions. As of the date of this joint proxy statement, Alcentra Capital and Crescent Capital BDC are not aware of any necessary third-party approvals other than HSR approval and the applicable stockholder approvals necessary to consummate the Transactions.

The obligations of Alcentra Capital and Crescent Capital BDC are subject to the satisfaction or (to the extent permitted by law) waiver of certain conditions, including the condition that any applicable waiting period (and any extension thereof) under antitrust laws relating to the consummation of the First Merger shall have expired or early termination thereof shall have been granted. Alcentra Capital and Crescent Capital BDC have agreed to use their respective reasonable best efforts to obtain all necessary actions or non-actions, consents and approvals from governmental authorities in connection with the consummation of the Transactions, including the First Merger, and the making of all necessary registrations and filings (including filings with governmental authorities, if any). Early termination of the waiting period under the HSR Act was granted on September 10, 2019.

 

Q:

How do Crescent Capital BDC’s investment objective and strategy differ from Alcentra Capital’s?

 

A:

Like Alcentra Capital, Crescent Capital BDC is an externally managed business development company. Crescent Capital BDC’s investment objective is to generate both current income and capital appreciation primarily through debt investments. Crescent Capital BDC and Alcentra Capital each focus on making investments in privately held companies.

Alcentra Capital’s investment objective is to generate both current income and, to a lesser extent, capital appreciation primarily by making direct investments in middle-market companies, which Alcentra Capital generally defines as companies with between $15 million to $75 million in annual EBITDA, or earnings before interest, taxes, depreciation and amortization, although Alcentra Capital may make investments in larger or smaller companies and other types of investments. These investments are typically in the form of first lien, second lien, unitranche debt and, to a lesser extent given the current credit environment, mezzanine debt. Alcentra Capital sources investments primarily through the network of relationships that the principals of Alcentra NY have developed with financial sponsor firms, financial institutions, middle-market companies, management teams and other professional intermediaries.

Alcentra Capital has primarily invested in debt and equity securities of private companies in a variety of industries. Alcentra NY has a history of investing in companies that seek capital to use for leveraged buyouts, acquisitions, recapitalizations and growth initiatives. Alcentra Capital’s primary targeted industry sectors are: healthcare and pharmaceutical services; defense, aerospace, and government services; business and outsourced services, as these sectors have generally exhibited faster growth relative to the overall economy. Alcentra Capital may also make investments in portfolio companies that do not possess these characteristics or are outside of these industry sectors where it believes there are opportunities to prudently deploy capital.

Crescent Capital BDC concentrates on making investments in companies with annual EBITDA of between $10 million and $250 million, which it refers to as “middle-market” companies. Crescent Capital BDC’s business model is focused on the direct origination of loans to such middle-market companies. The companies in which Crescent Capital BDC invests use their capital to support buyout transactions, organic growth, acquisitions, market or product expansion and recapitalizations.

Crescent Capital BDC has constructed an investment portfolio of primarily first lien and unitranche loans, and to a lesser extent second lien debt and equity investments in private middle-market companies. Crescent Capital BDC’s portfolio is well diversified by industry sector and its concentration to any single issuer is limited. Crescent Capital BDC expects to generate revenues primarily in the form of interest income from the investments it holds in addition to income from dividends on direct equity investments, capital gains on the sales of loans and debt and equity securities and various loan origination and other fees. The proportion of these investments will change over time given Crescent Capital BDC’s views on, among other things, the economic and credit environment in which Crescent Capital BDC operates.

 

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Q:

How will the combined company be managed following the Mergers?

 

A:

Upon completion of the Mergers, the current directors and officers of Crescent Capital BDC are expected to continue in their current positions in Crescent Capital Maryland BDC and Crescent Capital BDC’s investment adviser, Crescent Cap Advisors, will externally manage Crescent Capital Maryland BDC.

 

Q:

Are Alcentra Capital stockholders able to exercise dissenters’ rights?

 

A:

No. Alcentra Capital stockholders will not be entitled to exercise dissenters’ rights or rights of objecting stockholders with respect to any matter to be voted upon at the Alcentra Capital Special Meeting. Any Alcentra Capital stockholder may abstain from or vote against any of such matters.

 

Q:

Are Crescent Capital BDC stockholders able to exercise appraisal rights in the Reincorporation Merger?

 

A:

No. Crescent Capital BDC stockholders will not be entitled to exercise appraisal rights with respect to the Reincorporation Merger or any other matter to be voted upon at the Crescent Capital BDC Special Meeting. Any Crescent Capital BDC stockholder may abstain from or vote against any of such matters.

 

Q:

When do you expect to complete the Mergers?

 

A:

While there can be no assurance as to the exact timing, or that the Mergers will be completed at all, Alcentra Capital and Crescent Capital BDC are working to complete the Mergers in the fourth quarter of 2019. Alcentra Capital and Crescent Capital BDC currently expect to complete the Mergers promptly following receipt of the required approvals at the Alcentra Capital Special Meeting and the Crescent Capital BDC Special Meeting and satisfaction of the other closing conditions set forth in the Merger Agreement.

 

Q:

Are the Reincorporation Merger and the Mergers expected to be taxable transactions?

 

A:

The Reincorporation Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a)(1)(F) of the Code. If the Reincorporation Merger qualifies as a reorganization, then generally, for U.S. federal income tax purposes, no gain or loss will be recognized by Crescent Capital BDC stockholders upon the exchange of their Crescent Capital BDC Common Stock for Crescent Capital Maryland BDC Common Stock.

The Mergers, taken together, are intended to qualify as a “reorganization,” within the meaning of Section 368(a) of the Code, and it is a condition to Alcentra Capital’s obligation to complete the Mergers that it receive a legal opinion to that effect. If the Mergers qualify as a reorganization, then generally, for U.S. federal income tax purposes, U.S. stockholders (as defined herein under the heading “Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers”) will recognize gain, but will not recognize any loss, for U.S. federal income tax purposes, equal to the lesser of (i) the amount of cash received (other than cash received in lieu of a fractional share of Crescent Capital Maryland BDC Common Stock) and (ii) the excess, if any, of (x) the sum of the amount of cash received (including cash received in lieu of a fractional share of Crescent Capital Maryland BDC Common Stock) and the fair market value of the Crescent Capital Maryland BDC Common Stock received in the Mergers (determined at the effective time of the Mergers) over (y) the U.S. stockholder’s tax basis in the shares of Alcentra Capital Common Stock surrendered in the Mergers. If a U.S. stockholder recognizes gain equal to the amount described in clause (i) rather than clause (ii) of the preceding sentence, such U.S. stockholder will also recognize gain or loss attributable to cash received in lieu of a fractional share of Crescent Capital Maryland BDC Common Stock. Any gain recognized generally will be long-term capital gain, provided certain holding period and other requirements are met. The Alcentra Tax Dividend should not be treated for U.S. federal income tax purposes as part of the consideration paid for shares of Alcentra Capital Common Stock in the Mergers but instead should be treated for U.S. federal income tax purposes as a distribution with respect to the Alcentra Capital Common Stock.

 

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Q:

What happens if the Mergers are not consummated?

 

A:

If the First Merger is not approved by the requisite vote of the Alcentra Capital stockholders, if the Reincorporation Merger is not approved by the requisite vote of the Crescent Capital BDC stockholders (unless this condition to the closing of the First Merger is waived by Alcentra Capital), or if the issuance of the shares of Crescent Capital Maryland BDC Common Stock to be issued pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable, is not approved by the requisite vote of the Crescent Capital BDC stockholders, or if the First Merger is not completed for any other reason, Alcentra Capital’s stockholders will not receive any payment for their shares in connection with the First Merger. Instead, Alcentra Capital will remain an independent public company and its common stock will continue to be listed and traded on NASDAQ. In addition, under certain circumstances specified in the Merger Agreement, Alcentra Capital may be required to pay Crescent Capital BDC a termination fee of approximately $4.3 million. See “Description of the Merger Agreement—Termination of the Merger Agreement.”

 

Q:

What Alcentra Capital stockholder vote is required to approve the First Merger?

 

A:

Approval of the First Merger pursuant to the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Alcentra Capital Common Stock entitled to vote at the Alcentra Capital Special Meeting. Abstentions will have the effect of a vote “against” the proposal.

 

Q:

What Crescent Capital BDC stockholder vote is required to approve the Reincorporation Merger?

 

A:

Approval of the proposal to approve the Reincorporation Merger, the approval of which will result in Crescent Capital BDC’s reincorporation from the State of Delaware to the State of Maryland, requires the affirmative vote of the holders of a majority of the outstanding shares of Crescent Capital BDC Common Stock. Abstentions and broker non-votes will have the effect of a vote “against” the proposal.

 

Q:

What Crescent Capital BDC stockholder vote is required to approve the issuance of Crescent Capital Maryland BDC Common Stock to be issued pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable?

 

A:

To approve of the issuance of the shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable, stockholder approval may be obtained in either of two ways under the Investment Company Act. First, the stock issuance proposal will be approved if Crescent Capital BDC obtains the affirmative vote of (1) a “majority of the outstanding voting securities” of Crescent Capital BDC Common Stock and (2) a “majority of the outstanding voting securities” of Crescent Capital BDC Common Stock held by persons that are not affiliated persons of Crescent Capital BDC. For these purposes, the Investment Company Act defines a “majority of the outstanding securities” (as described in the preceding sentence) as the lesser of (1) 67% or more of the outstanding shares of Crescent Capital BDC Common Stock present or represented by proxy at the Crescent Capital BDC Special Meeting if the holders of more than 50% of the shares of Crescent Capital BDC Common Stock are present or represented by proxy or (2) more than 50% of the outstanding shares of Crescent Capital BDC Common Stock. In order to issue shares at a price below NAV pursuant to this approval, the Crescent Capital BDC Board would need to make certain determinations as required under the Investment Company Act. Second, the proposal can also be approved if it receives approval from a majority of Crescent Capital BDC stockholders. For purposes of approval under the Investment Company Act, abstentions and broker non-votes will have the effect of a vote “against” the proposal.

 

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Q:

What Crescent Capital BDC stockholder vote is required to approve the Proposed Crescent Capital BDC Investment Advisory Agreement between Crescent Capital Maryland BDC and its investment adviser, Crescent Cap Advisors?

 

A:

The affirmative vote of a “majority of the outstanding voting securities” of Crescent Capital BDC Common Stock is required to approve the Proposed Crescent Capital BDC Investment Advisory Agreement between Crescent Capital Maryland BDC with its investment adviser, Crescent Cap Advisors. For these purposes, the Investment Company Act defines a “majority of the outstanding voting securities” as the lesser of (i) 67% or more of the outstanding shares of Crescent Capital BDC Common Stock present or represented by proxy at the Crescent Capital BDC Special Meeting if the holders of more than 50% of the shares of Crescent Capital BDC Common Stock are present or represented by proxy or (ii) more than 50% of the outstanding shares of Crescent Capital BDC Common Stock. For purposes of approval under the Investment Company Act, abstentions and broker non-votes will have the effect of a vote “against” the proposal.

 

Q:

What constitutes a quorum at the stockholder meetings?

 

A:

Alcentra Capital: The presence, in person or by proxy, of the holders entitled to cast a majority of the votes entitled to be cast at the Alcentra Capital Special Meeting will constitute a quorum for the purposes of the Alcentra Capital Special Meeting.

Crescent Capital BDC: The presence, in person or by proxy, of the holders of at least one-third of shares of Crescent Capital BDC Common Stock issued and outstanding and entitled to vote at the Crescent Capital BDC Special Meeting will constitute a quorum for the purposes of the Crescent Capital BDC Special Meeting.

 

Q:

Does the Alcentra Capital Board recommend the approval of the First Merger and the approval of the proposal to adjourn the Alcentra Capital Special Meeting if necessary?

 

A:

Yes. The Alcentra Capital Board, including each of its independent directors, and the Independent Director Committee unanimously approved the First Merger, and the Alcentra Capital Board, including each of its independent directors, and upon the recommendation from the Independent Director Committee, recommends that Alcentra Capital stockholders vote “FOR” approval of the First Merger and “FOR” approval of the proposal to adjourn the Alcentra Capital Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Alcentra Capital Special Meeting to approve the proposal.

 

Q:

Does the Crescent Capital BDC Board recommend approval of the Reincorporation Merger, the issuance of Crescent Capital Maryland BDC Common Stock to be issued pursuant to the Merger Agreement at a price below its then-current NAV, if applicable and approval of the proposal to adjourn the Crescent Capital BDC Special Meeting if necessary?

 

A:

Yes. The Crescent Capital BDC Board, including its independent directors, unanimously approved the Reincorporation Merger, the issuance of Crescent Capital Maryland BDC Common Stock to be issued pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable, and recommends that Crescent Capital BDC stockholders vote “FOR” the Reincorporation Merger, “FOR” approval of the issuance of Crescent Capital Maryland BDC Common Stock to be issued pursuant to the Merger Agreement at a price below its then-current NAV, if applicable and “FOR” approval of the proposal to adjourn the Crescent Capital BDC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Crescent Capital BDC Special Meeting to approve the foregoing proposals.

 

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Q:

Does the Crescent Capital BDC Board recommend approval of the Proposed Crescent Capital BDC Investment Advisory Agreement?

 

A:

The Crescent Capital BDC Board, including its independent directors, is expected to unanimously approve the Proposed Crescent Capital BDC Investment Advisory Agreement and, as will be reflected in an amendment to this joint proxy statement/prospectus, is expected to recommend that Crescent Capital BDC stockholders vote “FOR” approval of the Proposed Crescent Capital BDC Investment Advisory Agreement.

 

Q:

What do I need to do now?

 

A:

We urge you to read carefully this entire document, including its annexes. You should also review the documents referenced under “Where You Can Find More Information” and consult with your accounting, legal and tax advisors.

 

Q:

If I am an Alcentra Capital stockholder, how do I vote my shares?

 

A:

You may indicate how you want to vote on your proxy card and then sign and mail your proxy card in the enclosed return envelope as soon as possible so that your shares may be represented at the Alcentra Capital Special Meeting. You may also submit your proxy by telephone or via the Internet pursuant to the instructions shown on the proxy card. If you are a record stockholder, you may also attend the Alcentra Capital Special Meeting in person instead of submitting a proxy.

Unless your shares are held in a brokerage account, if you sign, date and send your proxy and do not indicate how you want to vote, your proxy will be voted “FOR” the approval of the First Merger and “FOR” approval of the proposal to adjourn the Alcentra Capital Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Alcentra Capital Special Meeting to approve the First Merger. If your shares are held in a brokerage account, or in “street name,” please see the answer to the next question below.

If you fail to (1) return your proxy card, (2) submit your proxy by telephone or via the Internet pursuant to the instructions shown on the proxy card or (3) vote at the Alcentra Capital Special Meeting, or if you “abstain,” the effect will be the same as a vote “against” the First Merger.

With respect to the adjournment proposal, a vote to “abstain” will have no effect on the vote on such matter.

 

Q:

If I am an Alcentra Capital stockholder and some or all of my shares are held in a brokerage account, or in “street name,” will my broker vote my shares for me?

 

A:

No. With respect to the First Merger and adjournment proposals, if you do not provide your broker with instructions on how to vote your street name shares, your broker will not be permitted to vote them.

For this reason, you should provide your broker with instructions on how to vote your shares or arrange to attend the Alcentra Capital Special Meeting and vote your shares in person. If you do not provide your broker with instructions or attend the Alcentra Capital Special Meeting, it will have the same effect as a vote “against” approval of the First Merger. Stockholders are urged to authorize proxies by telephone or the Internet if their broker has provided them with the opportunity to do so. See your voting instruction form for details. If your broker holds your shares and you attend the Alcentra Capital Special Meeting in person, please bring a letter from your broker identifying you as the beneficial owner of the shares and authorizing you to vote your shares at the Alcentra Capital Special Meeting.

 

Q:

If I am a Crescent Capital BDC stockholder, how do I vote my shares?

 

A:

You may indicate how you want to vote on your proxy card and then sign and mail your proxy card in the enclosed return envelope as soon as possible so that your shares may be represented at the Crescent Capital BDC Special Meeting. If you are a record stockholder, you may also attend the Crescent Capital BDC Special Meeting in person instead of submitting a proxy.

 

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Unless your shares are held in a brokerage account, if you sign, date and send your proxy and do not indicate how you want to vote, your proxy will be voted “FOR” the Reincorporation Merger, “FOR” the proposal to approve the issuance of the shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable, “FOR” the approval of the Proposed Crescent Capital BDC Investment Advisory Agreement and “FOR” the proposal to approve the adjournment of the Crescent Capital BDC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Crescent Capital BDC Special Meeting to approve the foregoing proposals. If your shares are held in a brokerage account or in “street name,” please see the answer to the next question below.

If you fail to return your proxy card or vote at the Crescent Capital BDC Special Meeting, or if you “abstain,” your vote will have the effect of a vote “against” the Reincorporation Merger, “against” the issuance of Crescent Capital Maryland BDC Common Stock at a price below its then-current NAV, if applicable and “against” the approval of the Proposed Crescent Capital BDC Investment Advisory Agreement, assuming there is a quorum.

With respect to the adjournment proposal, a vote to “abstain” will have no effect on the vote on such matter.

 

Q:

If I am a Crescent Capital BDC stockholder and some or all of my shares are held in a brokerage account, or in “street name,” will my broker vote my shares for me?

 

A:

No. With respect to the approval of the Reincorporation Merger, the approval of the issuance of Crescent Capital Maryland BDC Common Stock at a price below its then-current NAV, if applicable, the approval of the Proposed Crescent Capital BDC Investment Advisory Agreement and the adjournment proposal, if you do not provide your broker with instructions on how to vote your street name shares, your broker will not be permitted to vote them.

For this reason, you should provide your broker with instructions on how to vote your shares or arrange to attend the Crescent Capital BDC Special Meeting and vote your shares in person. With respect to the proposals to approve the Reincorporation Merger, to approve the issuance of shares of Crescent Capital Maryland BDC Common Stock in connection with the Merger Agreement at a price below its then-current NAV, if applicable and to approve the Proposed Crescent Capital BDC Investment Advisory Agreement, broker shares for which written authority to vote has not been obtained will have the effect of a vote “against” the foregoing proposals.

Stockholders are urged to authorize proxies by telephone or the Internet if their broker has provided them with the opportunity to do so. See your voting instruction form for details.

If your broker holds your shares and you attend the Crescent Capital BDC Special Meeting in person, please bring a letter from your broker identifying you as the beneficial owner of the shares and authorizing you to vote your shares at the Crescent Capital BDC Special Meeting.

 

Q:

If I am an Alcentra Capital stockholder, what happens if I sell my shares before the Alcentra Capital Special Meeting?

 

A:

The record date of the Alcentra Capital Special Meeting is earlier than the date the First Merger is expected to be completed. If you transfer your shares of Alcentra Capital Common Stock after the record date but before the Alcentra Capital Special Meeting, you will retain your right to vote at the Alcentra Capital Special Meeting, but will have transferred the right to receive the Merger Consideration.

As Merger Consideration, each Alcentra Capital stockholder will be entitled to receive for each share of Alcentra Capital Common Stock owned by such Alcentra Capital stockholder immediately prior to the First Merger (A) a total of $3.1784 in cash, without interest, as may be adjusted pursuant to the Merger Agreement, and (B) 0.4041 shares of Crescent Capital BDC Maryland Common Stock (as may be adjusted pursuant to the Merger Agreement), subject to the payment of cash instead of fractional shares.

 

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In order to receive the Merger Consideration, you must hold your shares through completion of the First Merger.

 

Q:

If I want to change my vote, what can I do?

 

A:

Alcentra Capital: You may change your vote at any time before the Alcentra Capital Special Meeting takes place. To do so, you may either complete and submit a new proxy card or send a written notice stating that you would like to revoke your proxy. You may also change your vote by calling the proxy solicitor or via the Internet pursuant to the instructions shown on the proxy card and simply authorizing a new proxy to vote your shares. The last recorded vote will be the vote that is counted. In addition, you may elect to attend the Alcentra Capital Special Meeting and vote in person, as described above.

Crescent Capital BDC: You may change your vote at any time before the Crescent Capital BDC Special Meeting takes place. To do so, you may either complete and submit a new proxy card or send a written notice stating that you would like to revoke your proxy. The last recorded vote will be the vote that is counted. In addition, you may elect to attend the Crescent Capital BDC Special Meeting and vote in person, as described above.

 

Q:

If I am an Alcentra Capital stockholder, should I surrender my shares now?

 

A:

No. Alcentra Capital stockholders should not surrender their shares at this time. If the First Merger proceeds, the exchange agent will send former Alcentra Capital stockholders a confirmation as to the number of shares of Crescent Capital Maryland BDC Common Stock issued in exchange for such Alcentra Capital Common Stock and cash instead of fractional shares, as well as the amount of Cash Consideration payable in respect therefor, without any action on the part of such holders.

 

Q:

Whom can I contact with any additional questions?

 

A:

Alcentra Capital: You may call the proxy solicitor, D.F. King & Co., Inc., toll-free at (800) 714-3311 or collect at (212) 269-5550 with respect to any additional questions you may have.

Crescent Capital BDC: You may call Crescent Capital BDC at (310) 235-5900, with respect to any additional questions you may have.

 

Q:

Where can I find more information about Crescent Capital BDC and Alcentra Capital?

 

A:

You can find more information about Crescent Capital BDC and Alcentra Capital in the documents described under “Where You Can Find More Information.”

 

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SUMMARY

This summary highlights some of the information contained elsewhere in this joint proxy statement/prospectus. It is not complete and may not contain all of the information that you may want to consider. Crescent Capital BDC and Alcentra Capital urge you to read carefully this entire document, including “Risk Factors” beginning on page [] of this joint proxy statement/prospectus, and the other documents Crescent Capital BDC and Alcentra Capital refer you to for a more complete understanding of the Transactions. See “Where You Can Find More Information.” Certain items in this summary include a page reference directing you to a more complete description of that item.

Alcentra Capital and Crescent Capital BDC Propose a Merger of Acquisition Sub into Alcentra Capital with Alcentra Capital as the Surviving Entity and, immediately thereafter, a Merger of Alcentra Capital into Crescent Capital Maryland BDC (page [])

Subject to the terms and conditions of the Merger Agreement, Crescent Capital BDC will undergo the Reincorporation Merger, resulting in the reincorporation of Crescent Capital BDC from the State of Delaware into the State of Maryland. References to “Crescent Capital Maryland BDC” refer to the surviving corporation of the Reincorporation Merger. Following the Reincorporation Merger, two additional mergers will occur: (1) Acquisition Sub will merge with and into Alcentra Capital, with Alcentra Capital remaining as the surviving entity in the First Merger as a wholly owned subsidiary of Crescent Capital Maryland BDC and (2) Alcentra Capital will merge with and into Crescent Capital Maryland BDC, with Crescent Capital Maryland BDC remaining as the surviving entity in the Second Merger.

In the Mergers, Alcentra Capital Stockholders Will Have a Right to Receive Approximately $3.1784 of Cash Consideration and 0.4041 Shares of Crescent Capital Maryland BDC Common Stock per Share of Alcentra Capital Common Stock (page [])

Each Alcentra Capital stockholder will be entitled to receive for each share of Alcentra Capital Common Stock owned by such Alcentra Capital stockholder immediately prior to the First Merger (A) a total of $3.1784 in cash, without interest, as may be adjusted pursuant to the Merger Agreement, and (B) 0.4041 shares of Crescent Capital Maryland BDC Common Stock subject to the payment of cash instead of fractional shares.

Special Meeting of Alcentra Capital Stockholders (page [])

The Alcentra Capital Special Meeting will take place on [●], 20[●] at [●], New York time, at the offices of Dechert LLP, located at 1095 Avenue of the Americas, 28th Floor, New York, New York 10036. Alcentra Capital stockholders are being asked to consider and vote on the following matters at their special meeting:

 

   

a proposal to approve the First Merger; and

 

   

a proposal to approve any adjournments of the Alcentra Capital Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the time of the meeting to approve the First Merger.

You can vote at the Alcentra Capital Special Meeting if you owned Alcentra Capital Common Stock at the close of business on [●], 2019. As of that date, there were approximately [●] shares of Alcentra Capital Common Stock outstanding and entitled to vote and held by approximately [●] holders of record. At the close of business on [●], 2019, Alcentra Capital’s executive officers and directors owned beneficially or of record [●] shares of Alcentra Capital Common Stock, representing [●]% of the outstanding shares of Alcentra Capital Common Stock on that date.



 

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Special Meeting of Crescent Capital BDC Stockholders (page [])

The Crescent Capital BDC Special Meeting will take place on [●], 20[●] at [●], Los Angeles time, at [●]. Crescent Capital BDC stockholders are being asked to consider and vote on the following matters at their special meeting:

 

   

a proposal to approve the Reincorporation Merger;

 

   

a proposal to approve the issuance of the shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable;

 

   

a proposal to approve the Proposed Crescent Capital BDC Investment Advisory Agreement; and

 

   

a proposal to approve the adjournment of the Crescent Capital BDC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Crescent Capital BDC Special Meeting to approve the foregoing proposals.

You can vote at the Crescent Capital BDC Special Meeting if you owned Crescent Capital BDC Common Stock at the close of business on [●], 2019. As of that date, there were approximately [●] shares of Crescent Capital BDC Common Stock outstanding and entitled to vote and held by approximately [●] holders of record. At the close of business on [●], 2019, Crescent Capital BDC’s executive officers and directors owned beneficially or of record [●] shares of Crescent Capital BDC Common Stock, representing [●]% of the outstanding shares of Crescent Capital BDC Common Stock on that date.

Concurrently with the execution of the Merger Agreement, Alcentra Capital entered into the Voting Agreements with the Supporting Crescent Capital BDC Stockholders, pursuant to which such stockholders agreed to vote their respective shares of Crescent Capital BDC Common Stock in favor of the Crescent Capital BDC stockholder proposals described in this joint proxy statement/prospectus. In addition, each Voting Agreement prohibits the applicable Supporting Crescent Capital BDC Stockholder from transferring any of its shares of Crescent Capital BDC Common Stock until the earlier of the effectiveness of the Transactions and the termination of the Merger Agreement, other than certain permitted transfers or with the prior written consent of Alcentra Capital. As of September 20, 2019, the Supporting Crescent Capital BDC Stockholders are entitled to vote approximately 13,939,781 shares of Crescent Capital BDC Common Stock, or approximately 71% of the outstanding shares of Crescent Capital BDC Common Stock.

Comparative Market Price of Securities (page [])

Crescent Capital BDC Common Stock is not currently listed on any exchange. Alcentra Capital Common Stock trades on the Nasdaq Global Select Market under the symbol “ABDC.”

The number of shares to be issued to Alcentra Capital’s stockholders will remain fixed and will not be adjusted for any fluctuations in the market price or NAV per share of Alcentra Capital Common Stock or the NAV per share of Crescent Capital BDC Common Stock prior to completion of the Transactions.

Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers (page [])

The Reincorporation Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a)(1)(F) of the Code. If the Reincorporation Merger qualifies as a reorganization, then generally, for U.S. federal income tax purposes, no gain or loss will be recognized by Crescent Capital BDC stockholders upon the exchange of their Crescent Capital BDC Common Stock for Crescent Capital Maryland BDC Common Stock. The Mergers, taken together, are intended to qualify as a “reorganization,” within the meaning of Section 368(a)



 

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of the Code, and it is a condition to Alcentra Capital’s obligation to complete the Mergers that it receive a legal opinion to that effect. If the Mergers qualify as a reorganization, then generally, for U.S. federal income tax purposes, U.S. stockholders (as defined herein under the heading “Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers”) will recognize gain, but will not recognize any loss, for U.S. federal income tax purposes, equal to the lesser of (i) the amount of cash received (other than cash received in lieu of a fractional share of Crescent Capital Maryland BDC Common Stock) and (ii) the excess, if any, of (x) the sum of the amount of cash received (including cash received in lieu of a fractional share of Crescent Capital Maryland BDC Common Stock) and the fair market value of the Crescent Capital Maryland BDC Common Stock received in the Mergers (determined at the effective time of the Mergers) over (y) the U.S. stockholder’s tax basis in the shares of Alcentra Capital Common Stock surrendered in the Mergers. If a U.S. stockholder recognizes gain equal to the amount described in clause (i) rather than clause (ii) of the preceding sentence, such U.S. stockholder will also recognize gain or loss attributable to cash received in lieu of a fractional share of Crescent Capital Maryland BDC Common Stock. Any gain recognized generally will be long-term capital gain, provided certain holding period and other requirements are met. The Alcentra Tax Dividend should not be treated for U.S. federal income tax purposes as part of the consideration paid for shares of Alcentra Capital Common Stock in the Mergers but instead should be treated for U.S. federal income tax purposes as a distribution with respect to the Alcentra Capital Common Stock.

With respect to the Crescent Cap Advisors Consideration, there is limited authority addressing the tax consequences of the receipt of merger consideration from a party other than the acquiror and, as a result, the tax consequences of the receipt of the Crescent Cap Advisors Consideration are not entirely clear. Crescent Capital Maryland BDC, Crescent Cap Advisors and Crescent Capital Maryland BDC’s transfer agent intend to take the position that the Crescent Cap Advisors Consideration received by a U.S. stockholder is treated as additional merger consideration, and, assuming such position is respected, should generally result in additional taxable gain to such U.S. stockholder.

Except as otherwise described in the section entitled “Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers,” non-U.S. stockholders (as defined herein under the heading “Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers”) generally should not be subject to U.S. federal income tax on the receipt of the Crescent Cap Advisors Consideration. Because of the uncertainty regarding the tax consequences of the receipt of the Crescent Cap Advisors Consideration, Crescent Capital Maryland BDC, Crescent Cap Advisors and the Crescent Capital Maryland BDC’s transfer agent, and any other applicable withholding agent, may withhold U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty, provided the non-U.S. stockholder furnishes the applicable forms or documents certifying qualification for the lower treaty rate) from Crescent Cap Advisors Consideration paid to a non-U.S. stockholder. See “Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers” for a discussion of the material U.S. federal income tax consequences of the Mergers.

Holders of Crescent Capital BDC Common Stock and Alcentra Capital Common Stock are urged to read “Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers” for a more complete discussion of the U.S. federal income tax consequences of the Reincorporation Merger and the Mergers. Tax matters can be complicated and the tax consequences of the Reincorporation Merger to Crescent Capital BDC stockholders and of the Mergers to Alcentra Capital stockholders will depend on their particular tax situation. Holders of Crescent Capital BDC Common Stock and Alcentra Capital Common Stock are urged to consult with their tax advisors to determine the tax consequences of the Reincorporation Merger and the Mergers to them.



 

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The Merger of Acquisition Sub With and Into Alcentra Capital Will Be Accounted for Under the Acquisition Method of Accounting (page [])

The merger of Alcentra Capital with and into Crescent Capital Maryland BDC is expected to be accounted for as an asset acquisition pursuant to Accounting Standards Codification, or “ASC,” 805-50, Business Combinations—Related Issues, with the fair value of total consideration paid in conjunction with the Mergers allocated to the assets acquired and liabilities assumed based on their relative fair values as of the date of the Mergers.

Reasons for the Transactions (page [])

Alcentra Capital

The Alcentra Capital Board, including each of its independent directors, and the Independent Director Committee have determined that the First Merger and the other Transactions contemplated by the Merger Agreement are in Alcentra Capital’s best interests and the best interests of Alcentra Capital’s stockholders. Certain material factors considered by the Alcentra Capital Board and the Independent Director Committee that favored this conclusion included, among others:

 

   

financial considerations, including the Merger Consideration in light of other alternatives available to Alcentra Capital, the pro forma ownership of Crescent Capital Maryland BDC following the Mergers, the proposed amendments to the Crescent Capital BDC Investment Advisory Agreement and the fact that Crescent Cap Advisors agreed to fund at the closing certain Crescent Capital BDC transaction expenses;

 

   

the fact that Crescent Capital Maryland BDC will implement a stock repurchase program following the closing to repurchase an aggregate amount of up to $20 million in shares of Crescent Capital Maryland BDC Common Stock;

 

   

the results of the Independent Director Committee’s extensive review of strategic alternatives for Alcentra Capital;

 

   

the attributes of the pro forma combined company, and its ability to provide strategic and business opportunities and generate additional stockholder value;

 

   

the terms of the Merger Agreement, including the fact that the terms of the Merger Agreement are unlikely to unduly deter third parties from making an acquisition proposal for Alcentra Capital and the conditions to closing; and

 

   

various other factors, including the experience of Crescent Cap Advisors managing privately originated debt investments, the anticipated liquidity of Crescent Capital Maryland BDC Common Stock following the closing of the Mergers and the Listing and Crescent Capital BDC’s financing arrangements.

The foregoing list does not include all the factors that the Alcentra Capital Board considered in making its decision. For a further discussion of the material factors considered by the Alcentra Capital Board, see “Description of the Transactions—Reasons for the Transactions” below.

Crescent Capital BDC

In evaluating the Merger Agreement, the Crescent Capital BDC Board consulted with representatives of management, its investment adviser, Crescent Cap Advisors, as well as Crescent Capital BDC’s financial, legal and other advisors and considered a number of factors, including, but not limited to, the following factors, and determined that the Transactions are in Crescent Capital BDC’s best interests and the best interests of Crescent Capital BDC stockholders.



 

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The material factors material factors considered by the Crescent Capital BDC Board in evaluating the Transactions included, among others:

 

   

financial considerations, including the Merger Consideration, the proposed amendment to the Crescent Capital BDC Investment Advisory Agreement, and Crescent Cap Advisors’ commitment to reimburse Crescent Capital BDC for up to approximately $1.4 million in expenses incurred in connection with completing the Transactions;

 

   

that the combined company’s shares will be listed for trading on NASDAQ;

 

   

that the Transactions are expected to facilitate a dividend policy designed to over-earn a quarterly $0.41 dividend per share with the potential for future dividend growth over time;

 

   

that the enhanced scale of the combined company’s portfolio may accelerate Crescent Capital BDC’s path to more diversified funding sources, enhance its ability to tap the capital markets for additional growth equity and provide greater opportunities for lower cost financing through convertible notes and unsecured debt;

 

   

the terms of the Merger Agreement, including that, upon termination of the Merger Agreement under certain specified circumstances, Alcentra Capital may be required to pay Crescent Capital BDC a termination fee of approximately $4.3 million; and

 

   

various other factors, including the experience of Crescent Cap Advisors managing privately originated debt investments, information and discussions with Crescent Capital BDC’s management regarding Alcentra Capital’s business and portfolio investments and Crescent Capital BDC’s financing arrangements.

The foregoing list does not include all the factors that the Crescent Capital BDC Board considered in making its decision. For a further discussion of the material factors considered by Crescent Capital BDC Board, see “Description of the Transactions—Reasons for the Transactions” below.

Risks Relating to the Transactions (page [])

The Transactions are subject to the following risks. Alcentra Capital and Crescent Capital BDC stockholders should carefully consider these risks before deciding how to vote on the proposals to be voted on at their respective stockholder meetings. See “Risk Factors—Risks Relating to the Transactions.”

 

   

There is currently no market for Crescent Capital BDC Common Stock or Crescent Capital Maryland BDC Common Stock, and there can be no certainty as to trading prices of the Crescent Capital Maryland BDC Common Stock following consummation of the Mergers.

 

   

The Exchange Ratio will not be adjusted for changes in the price of Alcentra Capital Common Stock, and because there is no trading market for the Crescent Capital Maryland BDC Common Stock and because the NAV of Crescent Capital BDC may change, Alcentra Capital stockholders cannot be sure of the value of the stock portion of the consideration they will receive.

 

   

The value of the stock portion of the Merger Consideration that Alcentra Capital stockholders will receive at the Effective Time, and of the Crescent Capital Maryland BDC Common Stock that Crescent Capital BDC stockholders will hold following the Reincorporation, may be affected, either positively or negatively, by the trading performance of Crescent Capital Maryland BDC Common Stock following the Mergers.

 

   

The market price of Crescent Capital Maryland BDC Capital Common Stock may fluctuate significantly following the Listing.

 

   

Sales of shares of Crescent Capital Maryland BDC Common Stock after the completion of the Transactions may cause the market price of Crescent Capital Maryland BDC Common Stock to fall.



 

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Crescent Capital Maryland BDC’s stockholders will experience dilution in their ownership percentage if they opt out of Crescent Capital Maryland BDC’s Dividend Reinvestment Plan (“DRIP”).

 

   

Crescent Capital BDC and Alcentra Capital may fail to consummate the Mergers. If the Mergers do not close, Crescent Capital BDC and Alcentra Capital will not benefit from the expenses incurred in their pursuit.

 

   

Consummation of the Transactions will cause immediate dilution to Crescent Capital BDC stockholders’ and the Alcentra Capital’s stockholders’ voting interests and may cause immediate dilution to the NAV per share of the combined company’s common stock.

 

   

The combined company may be unable to realize the benefits anticipated in connection with the Mergers, including estimated cost savings and synergies, or it may take longer than anticipated to achieve such benefits.

 

   

The Mergers may trigger certain “change of control” provisions and other restrictions in certain of Crescent Capital BDC’s and Alcentra Capital’s contracts and the failure to obtain any required consents or waivers could adversely impact the combined company.

 

   

The opinions obtained by Crescent Capital BDC and Alcentra Capital from their respective financial advisors will not reflect changes in circumstances between signing the Merger Agreement and completion of the Transactions.

 

   

Termination of the Merger Agreement could negatively impact Alcentra Capital and Crescent Capital BDC.

 

   

Under certain circumstances, Alcentra Capital may be obligated to pay Crescent Capital BDC a termination fee upon termination of the Merger Agreement.

 

   

The Merger Agreement limits Alcentra Capital’s ability to pursue alternatives to the Transactions; however, in specified circumstances, Alcentra Capital may terminate the Merger Agreement to accept a superior proposal.

 

   

The Transactions are subject to closing conditions, including certain stockholder approvals, that, if not satisfied or waived, will result in the Transactions not being completed, which may result in material adverse consequences to Alcentra Capital’s business and operations.

 

   

Alcentra Capital and Crescent Capital BDC may waive one or more conditions to the Transactions without resoliciting stockholder approval.

 

   

Alcentra Capital will be subject to operational uncertainties and contractual restrictions while the Mergers are pending.

 

   

Crescent Capital Maryland BDC expects to apply to list shares of Crescent Capital Maryland BDC Common Stock on NASDAQ, with such listing to be effective at the Effective Time. After such listing, shares of Crescent Capital Maryland BDC Common Stock may trade at a discount from NAV, which could limit Crescent Capital Maryland BDC’s ability to raise additional equity capital.

 

   

The shares of Crescent Capital Maryland BDC Common Stock to be received by Alcentra Capital stockholders as a result of the Transactions and by the current Crescent Capital BDC stockholders pursuant to the Reincorporation will have different rights associated with them than the shares of Alcentra Capital Common Stock or current Crescent Capital BDC Common Stock, as the case may be, currently held by them.

 

   

Provisions of the Maryland General Corporation Law and of the Crescent Capital BDC Maryland Charter and the Crescent Capital BDC Maryland Bylaws could deter takeover attempts and have an adverse effect on the price of the Crescent Capital Maryland BDC Common Stock.



 

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The Crescent Capital BDC Maryland Charter will impose certain restrictions on transfer of the Crescent Capital Maryland BDC Common Stock currently held by Crescent Capital BDC stockholders in addition to those otherwise imposed by applicable law or by contract.

 

   

Upon completion of the Reincorporation Merger, the Crescent Capital BDC Maryland Charter will designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Crescent Capital Maryland BDC stockholders, which could limit Crescent Capital Maryland BDC stockholders’ ability to obtain a favorable judicial forum for disputes with Crescent Capital Maryland BDC or its directors, officers or other employees.

 

   

Crescent Capital Maryland BDC will incur significant costs as a result of the Listing.

 

   

If the Mergers do not qualify as reorganizations under Section 368(a) of the Code, Alcentra Capital and Alcentra Capital stockholders may be required to pay substantial U.S. federal income taxes.

In addition, stockholders should carefully consider the matters described in “Risk Factors” in determining whether to approve the First Merger, in the case of Alcentra Capital stockholders, and approve the Reincorporation Merger, the issuance of the shares of Crescent Capital Maryland BDC Common Stock to be issued to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable, and the Proposed Crescent Capital BDC Investment Advisory Agreement, in the case of Crescent Capital BDC stockholders. The risks set out below are not the only risks Crescent Capital BDC, Alcentra Capital and, following the completion of the Transactions, the combined company face. Additional risks and uncertainties not currently known to Crescent Capital BDC or Alcentra Capital or that they currently deem to be immaterial also may materially adversely affect their or, following the completion of the Transactions, the combined company’s business, financial condition or operating results. If any of the events described in such section occur, Crescent Capital BDC, Alcentra Capital or, following the completion of the Transactions, the combined company’s business, financial condition or results of operations could be materially adversely affected.

Opinion of the Financial Advisor to the Independent Director Committee of the Alcentra Capital Board (page [])

On August 12, 2019, Houlihan Lokey Capital, Inc. (“Houlihan Lokey”) orally rendered its opinion to the Independent Director Committee (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to the Independent Director Committee dated August 12, 2019), as to, as of August 12, 2019, the fairness, from a financial point of view, to the holders of Alcentra Capital Common Stock other than Crescent Capital BDC, Acquisition Sub, Crescent Cap Advisors, their respective affiliates and the subsidiaries of Alcentra Capital (together, the “Excluded Holders”) of the Merger Consideration to be received by such holders (other than the Excluded Holders) in the First Merger pursuant to the Merger Agreement.

Houlihan Lokey’s opinion was directed to the Independent Director Committee (in its capacity as such) and only addressed the fairness, from a financial point of view, to the holders of Alcentra Capital Common Stock other than the Excluded Holders of the Merger Consideration to be received by such holders (other than the Excluded Holders) in the First Merger pursuant to the Merger Agreement and did not address any other aspect or implication of the Mergers, any related transaction or any other agreement, arrangement or understanding entered into in connection therewith or otherwise. The summary of Houlihan Lokey’s opinion in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex C-1 to this joint proxy statement/prospectus and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in connection with the preparation of its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this joint proxy statement/prospectus are intended to be, and do not constitute, advice



 

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or a recommendation to the Independent Director Committee, any security holder of Alcentra Capital or any other person as to how to act or vote with respect to any matter relating to the Mergers or otherwise.

The Crescent Capital BDC Board Received an Opinion From its Financial Advisor Regarding the Merger Consideration (page [])

In connection with the Transactions, BofA Securities, Inc. (referred to, together with its predecessor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as “BofA Merrill Lynch”), Crescent Capital BDC’s financial advisor, delivered to the Crescent Capital BDC Board a written opinion, dated August 12, 2019, as to the fairness, from a financial point of view and as of the date of the opinion, to Crescent Capital BDC of the Alcentra Capital stockholders’ right, in exchange for each share of Alcentra Capital Common Stock, to receive from Crescent Capital BDC (i) $1.5023 in cash (less the amount of any Alcentra Tax Dividend declared by Alcentra Capital after the date of the Merger Agreement) and (ii) 0.4041 of a share of Crescent Capital Maryland BDC Common Stock (and if, applicable, cash in lieu of fractional shares of Crescent Capital Maryland BDC Common Stock) (collectively, the “Crescent Capital BDC Consideration”) in the Transactions. The full text of the written opinion, dated August 12, 2019, of BofA Merrill Lynch, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex C-2 to this joint proxy statement/prospectus and is incorporated by reference herein in its entirety. BofA Merrill Lynch provided its opinion to the Crescent Capital BDC Board (in its capacity as such) for the benefit and use of the Crescent Capital BDC Board in connection with and for purposes of its evaluation of the Crescent Capital BDC Consideration to be paid by Crescent Capital BDC from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the Transactions and no opinion or view was expressed as to the relative merits of the Transactions in comparison to other strategies or transactions that might be available to Crescent Capital BDC or in which Crescent Capital BDC might engage or as to the underlying business decision of Crescent Capital BDC to proceed with or effect the Transactions. BofA Merrill Lynch’s opinion does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed Transactions or any other matter. For more information, see the section entitled “Description of the Transactions—Opinion of the Financial Advisor to the Crescent Capital BDC Board.”

The Alcentra Capital Board, Including the Independent Directors, and upon Recommendation from the Independent Director Committee, Unanimously Recommends That Alcentra Capital Stockholders Vote “FOR” the Approval of the First Merger (page [])

The Alcentra Capital Board, including each of its independent directors, and the Independent Director Committee, unanimously approved the Merger Agreement and the Transactions contemplated thereby, and the Alcentra Capital Board, including each of its independent directors, and upon recommendation from the Independent Director Committee, recommends that Alcentra Capital stockholders vote “FOR” approval of the First Merger and “FOR” any adjournments of the Alcentra Capital Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the time of the meeting to approve the First Merger.

The Crescent Capital BDC Board, Including the Independent Directors, Unanimously Recommends That Crescent Capital BDC Stockholders Vote “FOR” the Approval of the Reincorporation Merger, Which Will Result in Crescent Capital BDC’s Reincorporation from the State of Delaware to the State of Maryland (page [])

The Crescent Capital BDC Board, including the independent directors, unanimously approved the Merger Agreement and the Transactions, including the Reincorporation Merger, which will result in Crescent Capital BDC’s reincorporation from the State of Delaware to the State of Maryland and unanimously recommends that Crescent Capital BDC stockholders vote “FOR” the approval of the Reincorporation Merger and “FOR” the



 

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adjournment of the Crescent Capital BDC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Crescent Capital BDC Special Meeting to approve the foregoing proposal.

The Crescent Capital BDC Board, Including the Independent Directors, Unanimously Recommends That Crescent Capital BDC Stockholders Vote “FOR” the Approval of the Issuance of Shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital Stockholders Pursuant to the Merger Agreement at a Price Below its Then-Current NAV, if Applicable (page [])

The Crescent Capital BDC Board, including the independent directors, unanimously approved the Merger Agreement and the Transactions, including the issuance of the shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable, and unanimously recommends that Crescent Capital BDC stockholders vote “FOR” the issuance of the shares of Crescent Capital BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable, and “FOR” the adjournment of the Crescent Capital BDC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Crescent Capital BDC Special Meeting to approve the foregoing proposals.

[The Recommendation of the Crescent Capital BDC Board, Including the Independent Directors, Regarding the Proposal to Approve the Proposed Crescent Capital BDC Investment Advisory Agreement Will Be Filed by Amendment to This Joint Proxy Statement/Prospectus.]

[●]

Crescent Capital BDC’s Investment Adviser Has Interests in the Transactions that Differ from the Interests of Crescent Capital BDC Stockholders (page [])

Crescent Capital BDC’s investment adviser, Crescent Cap Advisors, has indirect financial interests in the Transactions that are different from, and/or in addition to, the interests of Crescent Capital BDC stockholders. For example, Crescent Cap Advisors’ base management fee is based on a percentage of Crescent Capital BDC’s total assets. Because total assets under management will increase as a result of the Transactions, the dollar amount of Crescent Cap Advisors’ base management fee will likely increase as a result of the Transactions, except for the eighteen-month period following the First Merger, during which time Crescent Cap Advisors has agreed to waive a portion of the base management fee so that only 0.75% instead of 1.25% will be charged for such eighteen-month period following the First Merger. In addition, the income based fee and capital gains incentive fee payable by Crescent Capital BDC to Crescent Cap Advisors will be impacted as a result of the Transactions. See “The Special Meeting of Crescent Capital BDC—Crescent Capital BDC Proposal #3: The Approval of the Proposed Crescent Capital BDC Investment Advisory Agreement” andUnaudited Pro Forma Condensed Consolidated Financial Statements.

In connection with the Transactions, Crescent Cap Advisors has agreed to (1) provide $21.6 million of cash consideration, or $1.68 in cash per share of Alcentra Capital Common Stock, payable to Alcentra Capital’s stockholders in accordance with the terms and conditions set forth in the Merger Agreement at the effective time and (2) pursuant to the Proposed Crescent Capital BDC Investment Advisory Agreement, to waive, for the eighteen-month period following the First Merger, a portion of its base management fee so that only 0.75% will be charged for such time period.



 

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Alcentra Capital and Crescent Capital BDC Stockholders Do Not Have Dissenters’ or Appraisal Rights (page [] and page [])

Neither Crescent Capital BDC’s nor Alcentra Capital’s stockholders will be entitled to exercise dissenters’ or appraisal rights or rights of objecting stockholders in connection with the Transactions under Delaware law or Maryland law.

Crescent Capital BDC and Alcentra Capital Have Agreed When and How Alcentra Capital Can Consider Third Party Acquisition Proposals (page [])

During the period prior to the closing of the Mergers, Alcentra Capital has agreed to, and will cause its subsidiaries, its investment adviser, Alcentra NY, and its controlled representatives, and will instruct and use commercially reasonable efforts to cause its non-controlled representatives, to, immediately cease and cause to be terminated any existing solicitation of, or discussions or negotiations with, any third party relating to any Competing Proposal (as defined herein under the heading “Description of the Merger Agreement—Additional Covenants—No Solicitation”) or any inquiry, discussion, offer or request that could reasonably be expected to lead to a Competing Proposal, and not to initiate, solicit or knowingly encourage the making of any Competing Proposal or engage in negotiations or substantive discussions with, or furnish any non-public information to, or enter into any agreement, arrangement or understanding with, any third party relating to a Competing Proposal or any inquiry. However, Alcentra Capital is permitted under the Merger Agreement to grant a waiver of or terminate any “standstill” or similar obligation of any third party with respect to Alcentra Capital or any of its subsidiaries solely for the purpose of allowing such third party to submit a Competing Proposal.

If Alcentra Capital receives a Competing Proposal from a third party, and the Alcentra Capital Board determines in good faith after consultation with its financial advisors and outside legal counsel that (a) the Competing Proposal constitutes or would reasonably be expected to lead to a Superior Proposal (as defined herein under the heading “Description of the Merger Agreement—Additional Covenants—No Solicitation”) and (b) failure to consider such proposal would reasonably be expected to be inconsistent with the duties of the directors under applicable law, then Alcentra Capital may engage in discussions and negotiations with such third party so long as certain notice and other procedural requirements are satisfied. Alcentra Capital may terminate the Merger Agreement and enter into an agreement with a third party who makes a Superior Proposal, subject to certain procedural requirements and the payment to Crescent Capital BDC of an approximately $4.3 million termination fee.

Vote Required to Approve the Reincorporation Merger (page [])

The affirmative vote of the holders of at least a majority of the outstanding shares of Crescent Capital BDC Common Stock is required to approve the Reincorporation Merger, which will result in the reincorporation of Crescent Capital BDC from the State of Delaware to the State of Maryland. Abstentions and broker non-votes will have the effect of a vote “against” the proposal.

Vote Required to Approve the Issuance of Shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital Stockholders at a Price Below its Then-Current NAV, if Applicable (page [])

Under the Investment Company Act, Crescent Capital Maryland BDC is not permitted to issue common stock at a price below the then-current NAV per share unless such issuance is approved by its stockholders and, in certain cases, its board of directors makes certain determinations. Because the shares of Crescent Capital Maryland BDC Common Stock to be issued to Alcentra Capital stockholders pursuant to the Merger Agreement at the time of completion of the Transactions may be at a price below the then-current NAV per share, Crescent Capital BDC is seeking stockholder approval for the shares of Crescent Capital Maryland BDC Common Stock to be issued to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable.



 

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Stockholder approval may be obtained in either of two ways. First, the stock issuance proposal will be approved for purposes of the Investment Company Act if Crescent Capital BDC obtains the affirmative vote of (1) a “majority of the outstanding voting securities” of Crescent Capital BDC Common Stock and (2) a “majority of the outstanding voting securities” of Crescent Capital BDC Common Stock held by persons that are not affiliated persons of Crescent Capital BDC. For these purposes, the Investment Company Act defines a “majority of the outstanding securities” (as described in the preceding sentence) as the lesser of (1) 67% or more of the outstanding shares of Crescent Capital BDC Common Stock present or represented by proxy at the Crescent Capital BDC Special Meeting if the holders of more than 50% of the shares of Crescent Capital BDC Common Stock are present or represented by proxy or (2) more than 50% of the outstanding shares of Crescent Capital BDC Common Stock. In order to issue shares at a price below NAV pursuant to this approval, the Crescent Capital BDC Board would need to make certain determinations as required under the Investment Company Act. For purposes of this approval, abstentions and broker non-votes will have the effect of a vote “against” the proposal. Second, the proposal can also be approved for purposes of the Investment Company Act if it receives approval from a majority of Crescent Capital BDC stockholders. For purposes of this approval, abstentions and broker non-votes will have no effect on the vote.

If the shares of Crescent Capital Maryland BDC Common Stock to be issued pursuant to the Merger Agreement are issued at a price that is equal to or above its then-current NAV per share, then stockholder approval of this proposal is not required in order to complete the Transactions.

Vote Required to Approve the Proposed Crescent Capital BDC Investment Advisory Agreement (page [])

The affirmative vote of a “majority of the outstanding voting securities” of Crescent Capital BDC Common Stock is required to approve the Proposed Crescent Capital BDC Investment Advisory Agreement with its investment adviser, Crescent Cap Advisors. For these purposes, the Investment Company Act defines a “majority of the outstanding voting securities” as the lesser of (i) 67% or more of the outstanding shares of Crescent Capital BDC Common Stock present or represented by proxy at the Crescent Capital BDC Special Meeting if the holders of more than 50% of the shares of Crescent Capital BDC Common Stock are present or represented by proxy or (ii) more than 50% of the outstanding shares of Crescent Capital BDC Common Stock. For purposes of approval under the Investment Company Act, abstentions and broker non-votes will have the effect of a vote “against” the proposal.

Vote Required to Approve the First Merger (page [])

The affirmative vote of the holders of a majority of the outstanding shares of Alcentra Capital Common Stock entitled to vote at the Alcentra Capital Special Meeting on the proposal to approve the First Merger is required to approve the First Merger. Because the vote on the proposal is based on the total number of shares outstanding, abstentions and broker non-votes, if any, will have the same effect as voting “against” the proposal.

Completion of the Transactions (page [])

While there can be no assurance as to the exact timing, or that the Transactions will be completed at all, Crescent Capital BDC and Alcentra Capital are working to complete the Transactions in the fourth quarter of 2019. Crescent Capital BDC and Alcentra Capital currently expect to complete the Transactions promptly following receipt of the required approvals at the Alcentra Capital Special Meeting and the Crescent Capital BDC Special Meeting and satisfaction of the other closing conditions set forth in the Merger Agreement.



 

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Conditions That Must Be Satisfied or Waived for the Mergers to be Completed (page [])

Conditions to the Obligations of Each Party

The obligations of Alcentra Capital and Crescent Capital BDC to complete the First Merger are subject to the satisfaction or (to the extent permitted by law) waiver at or prior to the Effective Time of the following conditions:

 

   

Alcentra Capital shall have obtained the necessary approval of the Alcentra Capital stockholders and Crescent Capital BDC shall have obtained the necessary approvals of the Crescent Capital BDC stockholders;

 

   

the Crescent Capital BDC Common Stock to be issued in connection with the First Merger and the issuance of shares of Crescent Capital Maryland BDC Common Stock upon the conversion of any instruments exchangeable therefor or convertible thereto shall have been approved for listing on NASDAQ, subject to official notice of issuance;

 

   

the registration statement on Form N-14 (of which this joint proxy statement/prospectus is a part) shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order;

 

   

any applicable waiting period (and any extension thereof) under the HSR Act or any other antitrust laws relating to the consummation of the First Merger shall have expired or early termination thereof shall have been granted (early termination of the waiting period under the HSR Act was granted on September 10, 2019); and

 

   

no governmental authority of competent jurisdiction shall have issued or entered any law or order which is then in effect and has the effect of restraining, enjoining or otherwise prohibiting or making unlawful the consummation of the First Merger.

Conditions to Obligations of Crescent Capital BDC and Acquisition Sub to Effect the First Merger

The obligations of Crescent Capital BDC and Acquisition Sub to effect the First Merger are also subject to the satisfaction, or (to the extent permitted by law) waiver by Crescent Capital BDC, at or prior to the Effective Time, of the following conditions:

 

   

the representations and warranties of Alcentra Capital shall be true and correct in all respects (subject to the materiality thresholds set forth in the Merger Agreement) (i) as of the date of the Merger Agreement and (ii) as of the date of the closing of the First Merger (the “Closing Date”) as though made on and as of such date (except to the extent such representations and warranties are expressly made as of a specific date, in which case such representations and warranties shall be so true and correct as of such specific date only);

 

   

Alcentra Capital shall have performed or complied in all material respects with its obligations required under the Merger Agreement to be performed or complied with on or prior to the Closing Date;

 

   

since the date of the Merger Agreement, there shall not have occurred and be continuing any material adverse effect with respect to Alcentra Capital; and

 

   

Crescent Capital BDC shall have received a certificate signed by an executive officer of Alcentra Capital certifying as to the satisfaction of each of the foregoing conditions to the obligations of Alcentra Capital to effect the First Merger.



 

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Conditions to Obligations of Alcentra Capital to Effect the First Merger

The obligation of Alcentra Capital to effect the First Merger is also subject to the satisfaction, or (to the extent permitted by applicable law) waiver by Alcentra Capital, at or prior to the Effective Time, of the following conditions:

 

   

the representations and warranties of Crescent Capital BDC, Acquisition Sub and Crescent Cap Advisors shall be true and correct in all respects (subject to the materiality thresholds set forth in the Merger Agreement) as of the date of the Merger Agreement and as of the Closing Date as though made on and as of such date (except to the extent such representations and warranties are expressly made as of a specific date, in which case such representations and warranties shall be so true and correct as of such specific date only);

 

   

Crescent Capital BDC, Acquisition Sub and Crescent Cap Advisors shall have performed or complied in all material respects with their respective obligations required under the Merger Agreement to be performed or complied with on or prior to the Closing Date;

 

   

Alcentra Capital shall have received the written opinion of Dechert LLP, or, if Dechert LLP is unable to deliver such an opinion, the written opinion of Kirkland & Ellis LLP, as of the Closing Date, to the effect that Mergers will qualify as a “reorganization” within Section 368(a) of the Code;

 

   

since the date of the Merger Agreement, there shall not have occurred and be continuing any material adverse effect with respect to Crescent Capital BDC;

 

   

the Reincorporation Merger shall have become effective in accordance with the MGCL and the DGCL; and

 

   

Alcentra Capital shall have received a certificate signed by an executive officer of Crescent Capital BDC certifying as to the satisfaction of each of the conditions to the obligations of Crescent Capital BDC and Acquisition Sub to effect the First Merger summarized in the first, second and fourth bullets above.

Termination of the Merger Agreement (page [])

The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after the necessary approval of the Alcentra Capital stockholders or the necessary approvals of the Crescent Capital BDC stockholders, is obtained (except as otherwise expressly noted), as follows:

 

  (1)

by mutual written consent of Crescent Capital BDC and Alcentra Capital;

 

  (2)

by either Crescent Capital BDC or Alcentra Capital, if:

 

  (a)

the First Merger shall not have been consummated on or before 5:00 p.m. (New York time) on March 31, 2020 (the “Termination Date”);

 

  (b)

prior to the Effective Time, any governmental authority of competent jurisdiction shall have issued or entered any law or order or taken any other action permanently restraining, enjoining or otherwise prohibiting or making unlawful the consummation of the transactions contemplated by the Merger Agreement, and such law or order or other action shall have become final and non-appealable; or

 

  (c)

(i) the Alcentra Capital Special Meeting (including any adjournments or postponements thereof) shall have been duly held and completed and the necessary approval of the Alcentra Capital stockholders shall not have been obtained at such special meeting (or at any adjournment or postponement thereof) at which a vote on the approval of the First Merger is taken and (ii) the Crescent Capital BDC Special Meeting (including any adjournments or postponements thereof) shall have been duly held and completed and the necessary approvals of the Crescent Capital BDC stockholders shall not have been obtained at such special meeting (or at any adjournment or postponement thereof) at which a vote is taken;



 

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provided, however, that the right to terminate the Merger Agreement pursuant to clauses (2)(a) or (2)(b) above will not be available to any party that has breached in any material respect its obligations in any manner that has been the principal cause of or resulted in the failure to consummate the transactions contemplated by the Merger Agreement.

 

  (3)

by Alcentra Capital, if:

 

  (a)

Crescent Capital BDC, Acquisition Sub or Crescent Cap Advisors breaches or fails to perform any of their respective representations, warranties and covenants under the Merger Agreement, which breach would result in the failure of certain Alcentra Capital closing conditions, and such breach is not curable prior to the Termination Date or if curable prior to the Termination Date, has not been cured on or before the earlier of (A) the Termination Date and (B) the date that is thirty calendar days after the giving of written notice thereof by Alcentra Capital to Crescent Capital BDC (provided that Alcentra Capital is not then in material breach so as to result in the failure of a Crescent Capital BDC closing condition); and

 

  (b)

prior to obtaining the necessary approval of the Alcentra Capital stockholders, in order to simultaneously enter into a binding definitive agreement providing for the consummation of a Superior Proposal to the extent permitted by, and subject to the applicable terms and conditions of the Merger Agreement (provided that Alcentra Capital has not breached any of the provisions of the Merger Agreement in any material respect) and Alcentra Capital pays Crescent Capital BDC a termination fee of approximately $4.3 million (the “Alcentra Capital Termination Fee”).

 

  (4)

by Crescent Capital BDC, if:

 

  (a)

Alcentra Capital breaches or fails to perform any of its representations, warranties and covenants under the Merger Agreement, which breach would result in the failure of Crescent Capital BDC closing conditions, and such breach is not curable prior to the Termination Date or if curable prior to the Termination Date, has not been cured on or before the earlier of (A) the Termination Date and (B) the date that is 30 days after the giving of notice thereof by Crescent Capital BDC to Alcentra Capital (provided that Crescent Capital BDC is not then in material breach so as to result in the failure of a Alcentra Capital closing condition); or

 

  (b)

at any time prior to the receipt of the necessary approval of Alcentra Capital stockholders, the Alcentra Capital Board (or any committee thereof) shall have made an Alcentra Capital Adverse Recommendation Change (as defined herein under the heading “Description of the Merger Agreement—Additional Covenants—Alcentra Capital and Crescent Capital BDC Special Meetings”), Alcentra Capital or any of its subsidiaries has entered into an Alternative Acquisition Agreement (as defined herein under the heading “Description of the Merger Agreement—Additional Covenants—No Solicitation”) (other than an acceptable confidentiality agreement) or Alcentra Capital shall have failed to include in this joint proxy statement/prospectus the Alcentra Capital Board Recommendation (as defined in the Merger Agreement), provided that Crescent Capital BDC’s right to so terminate the Merger Agreement shall expire at 5:00 p.m., New York City time, on the tenth business day following the date on which such right to terminate first arose.

Termination Fee (page [])

Alcentra Capital may terminate the Merger Agreement and enter into an agreement with a third party who makes a Superior Proposal, subject to certain procedural requirements and the payment to Crescent Capital BDC of an approximately $4.3 million termination fee.



 

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Board of Directors and Management of the Combined Company Following Completion of the Transactions (page [])

Upon the completion of the Transactions, the current directors and officers of Crescent Capital BDC are expected to continue in their current positions as directors and officers of the combined company and Crescent Capital BDC’s investment adviser, Crescent Cap Advisors, will externally manage the combined company. Upon the completion of the Transactions, the current directors and officers of Alcentra Capital will not continue as directors or officers of the combined company.

The Rights of Crescent Capital BDC and Alcentra Capital Stockholders Following the Transactions Will Be Different (page [])

The rights of Crescent Capital BDC’s stockholders are currently governed by Delaware law, the Crescent Capital BDC Delaware Charter and the Crescent Capital BDC Delaware Bylaws. As a condition of the Transactions, and subject to the approval of Crescent Capital BDC’s stockholders, Crescent Capital BDC will merge with and into a newly formed wholly owned subsidiary, Crescent Capital Maryland BDC, thereby reincorporating from the State of Delaware to the State of Maryland. Following the Reincorporation Merger, the rights of Crescent Capital BDC stockholders will be governed by Maryland law, the Crescent Capital BDC Maryland Charter and the Crescent Capital BDC Maryland Bylaws.

The rights of Alcentra Capital’s stockholders are currently governed by Maryland law, the Alcentra Capital Charter and the Alcentra Capital Bylaws. As a result of the Transactions, Alcentra Capital stockholders who receive shares of Crescent Capital Maryland BDC Common Stock pursuant to the Merger Agreement will become stockholders of Crescent Capital Maryland BDC. The rights of Alcentra Capital stockholders and the rights of Crescent Capital Maryland BDC stockholders differ in certain respects. Please refer to the section of this joint proxy statement/prospectus entitled “Comparison of Stockholder Rights” for a discussion of the differences between the rights of Alcentra Capital and Crescent Capital BDC stockholders before the Transactions and the rights of Crescent Capital Maryland BDC stockholders after the Transactions. Unlike the shares of Crescent Capital Maryland BDC Common Stock received by current Crescent Capital BDC stockholders in the Reincorporation Merger, the transfer restrictions on Crescent Capital Maryland BDC Common Stock under the Crescent Capital BDC Maryland Charter are not applicable to shares of Crescent Capital Maryland BDC Common Stock received by Alcentra Capital stockholders in the First Merger.

Shares of Crescent Capital Maryland BDC Common Stock received by Crescent Capital BDC stockholders in the Reincorporation will be subject to transfer restrictions under the Crescent Capital BDC Maryland Charter for a period of up to one year following the Listing.

The Crescent Capital BDC Maryland Charter provides that during the period beginning with the Reincorporation and ending 365 days after the date of the Listing, any transfer (whether by sale, gift, merger, operation of law or otherwise), exchange, assignment, pledge, hypothecation or other disposition or encumbrance of any shares of Crescent Capital Maryland BDC Common Stock acquired by a stockholder attendant to the Reincorporation is prohibited, and therefore not effective, until 180 days after the date of the Listing for one-third of the shares of Crescent Capital Maryland BDC Common Stock acquired by a stockholder in the Reincorporation, 270 days after the date of the Listing for another one-third of the shares of Crescent Capital Maryland BDC Common Stock acquired by a stockholder in the Reincorporation and 365 days after the date of the Listing for the final one-third of Crescent Capital Maryland BDC Common Stock acquired by a stockholder in the Reincorporation, unless the Crescent Capital Maryland BDC Board provides prior written consent permitting an earlier effective date and the transfer, exchange, assignment, pledge, hypothecation or other disposition or encumbrance is made in accordance with applicable securities and other laws.



 

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COMPARATIVE FEES AND EXPENSES

The following tables are intended to assist you in understanding the costs and expenses that an investor in the common stock of Alcentra Capital and Crescent Capital BDC bears directly or indirectly and, based on the assumptions set forth below, the pro forma costs and expenses that an investor in the combined company following the completion of the Transactions may bear directly or indirectly. Alcentra Capital and Crescent Capital BDC caution you that some of the percentages indicated in the tables below are estimates and may vary. Except where the context suggests otherwise, whenever this joint proxy statement/prospectus contains a reference to fees or expenses paid or to be paid by “you,” “Alcentra Capital” or “Crescent Capital BDC,” stockholders will indirectly bear such fees or expenses as investors in Alcentra Capital, Crescent Capital BDC or the combined company, as applicable.

 

     Crescent
Capital
BDC
    Alcentra
Capital
    Pro Forma
Combined
Company(1)
 

Stockholder transaction expenses (as a percentage of offering price)

      

Sales load paid by Alcentra Capital and Crescent Capital BDC

     —   (2)      —   (2)      —   (2) 

Offering expenses borne by Alcentra Capital and Crescent Capital BDC

     —   (2)      —   (2)      —   (2) 

Dividend reinvestment plan expenses

     —   (3)      —   (3)      —   (3) 
  

 

 

   

 

 

   

 

 

 

Total stockholder transaction expenses paid by Alcentra Capital and Crescent Capital BDC

     None       None       None  
  

 

 

   

 

 

   

 

 

 

 

     Crescent
Capital
BDC
    Alcentra
Capital
    Pro Forma
Combined
Company(1)
 

Estimated annual expenses (as a percentage of net assets attributable to common stock):(4)

      

Base management fees(5)

     2.53     2.41     2.29

Income based fees and capital gains incentive fees(6)

     1.33     (0.98 )%      1.63

Interest payments on borrowed funds(7)

     3.73     4.78     4.69

Other expenses(8)

     1.05     3.72     2.06

Acquired fund fees and expenses(9)

     0.00     0.00     0.00
  

 

 

   

 

 

   

 

 

 

Total annual expenses (estimated)(10)

     8.63     9.93     10.68
  

 

 

   

 

 

   

 

 

 

Fee waiver(11)

     (2.54 )%      (0.40 )%      (2.55 )% 
  

 

 

   

 

 

   

 

 

 

Total annual expenses after Fee waiver

     6.09     9.53     8.13
  

 

 

   

 

 

   

 

 

 

 

(1)

See the unaudited pro forma condensed consolidated financial information and explanatory notes included elsewhere in this joint proxy statement/prospectus for more information illustrating the effect of the mergers on Crescent Capital BDC’s financial position and results of operations based upon Crescent Capital BDC’s and Alcentra Capital’s respective historical financial positions and results of operations.

(2)

Purchases of shares of Alcentra Capital Common Stock or Crescent Capital BDC Common Stock on the secondary market are not subject to sales charges, but may be subject to brokerage commissions or other charges. The table does not include any sales load (underwriting discount or commission) that stockholders may have paid in connection with their purchase of shares of Alcentra Capital Common Stock or Crescent Capital BDC Common Stock.

(3)

The expenses of the dividend reinvestment plan are included in “Other expenses.”

(4)

“Net assets attributable to common stock” equals stockholders’ equity at June 30, 2019. For Pro Forma Combined, the stockholders’ equity for Pro Forma Combined as of June 30, 2019 was used from the pro forma information included elsewhere in this joint proxy statement/prospectus.

(5)

Alcentra Capital is currently externally managed by its investment adviser, Alcentra NY. Pursuant to the Alcentra Capital Investment Advisory Agreement, Alcentra Capital pays Alcentra NY an annual base

 

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  management fee, which is calculated at an annual rate as follows: 1.50% of Alcentra Capital’s gross assets (i.e., total assets held before deduction of any liabilities), including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such as investments in U.S. Treasury Bills), if its gross assets are less than or equal to $625,000,000; 1.40% if its gross assets are greater than or equal to $625,000,001 but less than or equal to $750,000,000; and 1.25% if its gross assets are greater than or equal to $750,000,001. The various management fee percentages (i.e. 1.50%, 1.40% and 1.25%) apply to Alcentra Capital’s entire gross assets in the event its gross assets exceed the various gross asset thresholds. The base management fee is payable quarterly in arrears and is calculated based on the average value of Alcentra Capital’s gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters. The fact that Alcentra Capital’s base management fee is payable based upon its gross assets may encourage Alcentra NY to use leverage to make additional investments. See “Management of Alcentra Capital—Alcentra Capital Management Agreements—Alcentra Capital Investment Advisory Agreement—Management Fee.”

The Alcentra Capital management fee referenced in the table above is annualized and based on actual amounts incurred by Alcentra Capital during the six months ended June 30, 2019, excluding any waiver of management fees. The estimate of Alcentra Capital’s annualized base management fees based on actual expenses for the quarter ended June 30, 2019 assumes net assets of $141.9 million and leverage of $81.6 million, which reflects Alcentra Capital’s net assets and leverage as of June 30, 2019.

Crescent Capital BDC is externally managed by its investment adviser, Crescent Cap Advisors. Following completion of the Transactions, the combined company will continue to be externally managed by Crescent Cap Advisors and the pro forma combined company management fee has been calculated in a manner consistent with the Proposed Crescent Capital BDC Investment Advisory Agreement, assuming it is approved by stockholders. The base management fee is calculated and payable quarterly in arrears at an annual rate of 1.5% of Crescent Capital BDC’s gross assets (1.25% under the Proposed Crescent Capital BDC Investment Advisory Agreement), including assets acquired through the incurrence of debt but excluding any cash and cash equivalents. The base management fee is calculated based on the average value of gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter. Crescent Capital BDC’s and the pro forma combined company’s base management fees have been estimated by multiplying the respective company’s total assets as of June 30, 2019 (assuming it maintains no cash or cash equivalents) by 1.5% and 1.25%, respectively. The 2.53% and 2.41% reflected on the table are higher than 1.5% and 1.25%, respectively, because they are calculated on Crescent Capital BDC’s and the pro forma combined company’s net assets, respectively, as of June 30, 2019 (rather than its total assets). Crescent Cap Advisors has agreed to waive, for the eighteen months following the Effective Time, (1) a portion of the Base Management Fee so that only 0.75% shall be charged for such eighteen-month period and (2) the income based incentive fee (collectively, the “Fee Waiver”). See “Crescent Capital BDC Proposal #3: The Approval of the Proposed Crescent Capital BDC Investment Advisory Agreement—Overview of the Crescent Capital BDC Investment Advisory Agreement.”

(6)

Assumes that annual incentive fees earned by each investment adviser remain consistent with the incentive fees earned by such investment adviser during the six months ended June 30, 2019, annualized for a full year, and includes accrued capital gains incentive fees. In case of Alcentra Capital, the incentive fee line item excludes any reversal of accrued but unearned incentive fees that were recognized by Alcentra Capital during the six months ended June 30, 2019. No capital gains incentive fees were earned during the six months ended June 30, 2019. For more detailed information about the incentive fee calculations, see “Management of Alcentra Capital—Alcentra Capital Management Agreements—Alcentra Capital Investment Advisory Agreement—Incentive Fee,” with respect to Alcentra Capital, and “Crescent Capital BDC Proposal #3: The Approval of the Proposed Crescent Capital BDC Investment Advisory Agreement—Overview of the Crescent Capital BDC Investment Advisory Agreement,” with respect to Crescent Capital BDC.

(7)

“Interest payments on borrowed funds” represents interest expenses estimated by annualizing actual interest and credit facility expenses incurred for the six months ended June 30, 2019. During the six months ended

 

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  June 30, 2019, Alcentra Capital’s average outstanding borrowings were approximately $24.6 million under the Alcentra Capital Credit Facility and $55 million in connection with the Alcentra Capital InterNotes, and cash paid by Alcentra Capital for related interest expenses was approximately $2.6 million. Alcentra Capital had outstanding borrowings of approximately $26.6 million under the Alcentra Capital Credit Facility (with a carrying value of approximately $26.6 million) as of June 30, 2019 and had $55.0 million outstanding in principal amount of the Alcentra Capital InterNotes as of June 30, 2019. For the six months ended June 30, 2019, the weighted average interest rate under the Alcentra Capital Credit Facility was 5.11% and the weighted average interest rate under the Alcentra Capital InterNotes was 6.44%. See “Risk Factors—Risks Relating to Alcentra Capital—Risks Relating to Alcentra Capital’s Business and Structure—Incurring additional leverage may magnify Alcentra Capital’s exposure to risks associated with changes in interest rates, including fluctuations in interest rates which could adversely affect Alcentra Capital’s profitability.”

During the six months ended June 30, 2019, Crescent Capital BDC’s average outstanding borrowings were approximately $243.4 million and interest expense was $6.0 million. Crescent Capital BDC had outstanding borrowings of approximately $268.5 million (with a carrying value of approximately $268.5 million) as of June 30, 2019. The amount of leverage that Alcentra Capital or Crescent Capital BDC may employ at any particular time will depend on, among other things, Alcentra Capital and Crescent Capital BDC’s boards of directors’ and, in each company’s respective investment adviser’s assessment of market and other factors at the time of any proposed borrowing. See “Risk Factors—Risks Relating to Crescent Capital BDC—Risks Relating to Crescent Capital BDC’s Business and Structure—Crescent Capital BDC’s strategy involves a high degree of leverage. Crescent Capital BDC intends to continue to finance its investments with borrowed money, which will magnify the potential for gain or loss on amounts invested and increases the risk of investing in Crescent Capital BDC. The risks of investment in a highly leveraged fund include volatility and possible distribution restrictions.”

(8)

In the case of Alcentra Capital, includes overhead expenses, including payments under the Alcentra Capital Investment Advisory Agreement based on its allocable portion of overhead and other expenses incurred by Alcentra NY as well as a fixed annual fee, along with additional fees and expenses as incurred by State Street Bank and Trust Company as Alcentra Capital’s administrator. In the case of Crescent Capital BDC and Pro Forma Combined, includes allocable overhead expenses under the administration agreement with CCAP Administration, an affiliate of Crescent Cap Advisors, operating costs associated with sub-administration, custodian and transfer agent agreements with State Street Bank and Trust Company and other operating costs. The holders of shares of Alcentra Capital Common Stock and Crescent Capital BDC Common Stock (and not the holders of their debt securities or preferred stock, if any) indirectly bear the cost associated with their annual expenses.

(9)

With respect to “Acquired fund fees and expenses,” Alcentra Capital and Crescent Capital BDC stockholders indirectly bear the expenses of underlying funds or other investment vehicles that would be investment companies under section 3(a) of the Investment Company Act but for the exceptions to that definition provided for in sections 3(c)(1) and 3(c)(7) of the Investment Company Act in which Alcentra Capital or Crescent Capital BDC invests. Such underlying funds or other investment vehicles are referred to in this joint proxy statement/prospectus as “Acquired Funds.” This amount includes the estimated annual fees and expenses of Acquired Funds as of June 30, 2019. Certain of these Acquired Funds are subject to management fees, which generally range from 1% to 2.5% of total net assets, or incentive fees, which generally range between 15% to 25% of net profits. When applicable, fees and expenses estimates are based on historic fees and expenses for the Acquired Funds. For those Acquired Funds with little or no operating history, fees and expenses are based on expected fees and expenses stated in the Acquired Funds’ offering memorandum, private placement memorandum or other similar communication without giving effect to any performance. Although not reflected in the table, Crescent Cap Advisors has voluntarily waived its right to receive management fees on the investment in GACP II, an Acquired Fund, for any period in which GACP II remains in the investment portfolio. Future fees and expenses for these Acquired Funds may be substantially higher or lower because certain fees and expenses are based on the performance of the Acquired Funds, which may fluctuate over time.

 

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(10)

“Total annual expenses” as a percentage of net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. Alcentra Capital and Crescent Capital BDC borrow money to leverage and increase their total assets. The SEC requires that the “Total annual expenses” percentage be calculated as a percentage of net assets (defined as total assets less indebtedness and before taking into account any income based fees or capital gains incentive fees accrued during the period), rather than the total assets, including assets that have been funded with borrowed monies.

(11)

On May 4, 2018, Alcentra NY agreed to a temporary voluntary 0.25% reduction of the base management fee under the Alcentra Capital Investment Advisory Agreement, from May 1, 2018 to April 30, 2019, across all of these base management fee breakpoints. On May 3, 2019, Alcentra NY agreed to a continuation of the temporary 0.25% reduction across all of the base management fee breakpoints under the Alcentra Capital Investment Advisory Agreement, effective from May 1, 2019 to April 30, 2020. The Alcentra Capital fee waiver referenced in the table above is annualized and based on actual amounts of the Alcentra Capital management fee waived by Alcentra NY during the six months ended June 30, 2019.

As noted above, through the Fee Waiver, Crescent Cap Advisors has agreed to waive, for the eighteen-month period following the First Merger, (1) a portion of the base management fee so that only 0.75% shall be charged for such eighteen-month period and (2) the income based incentive fee. Crescent Cap Advisors may not terminate the Fee Waiver before the end of the eighteen-month period following the First Merger, but it may be terminated with approval of the Crescent Capital BDC Board and a majority of the outstanding voting securities of Crescent Capital BDC.

Example

The following examples demonstrate the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in Alcentra Capital, Crescent Capital BDC or, following the completion of the Transactions, the combined company’s common stock. In calculating the following expense amounts, each of Alcentra Capital and Crescent Capital BDC has assumed that it would have no additional leverage, that none of its assets are cash or cash equivalents and that its annual operating expenses would remain at the levels set forth in the tables above.

The expense amounts for Alcentra Capital assume an annual base management fee of 1.5% for each year. Income based fees and the capital gains fees under the Crescent Capital BDC Investment Advisory Agreement, which, assuming a 5% annual return, would either not be payable or have an insignificant impact on the expense amounts shown below, are not included in the example, except as specifically set forth below. Transaction expenses related to the Transactions are not included in the following examples.

 

     1 year      3 years      5 years      10 years  

You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return in(1):

           

Crescent Capital BDC

   $ 109      $ 301      $ 469      $ 803  

Alcentra Capital

   $ 93      $ 289      $ 463      $ 815  

The pro forma combined company following the completion of the Transactions

   $ 80      $ 248      $ 403      $ 739  

 

     1 year      3 years      5 years      10 years  

You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return in(2):

           

Crescent Capital BDC

   $ 101      $ 309      $ 490      $ 845  

Alcentra Capital

   $ 69      $ 224      $ 370      $ 695  

The pro forma combined company following the completion of the Transactions

   $ 88      $ 270      $ 433      $ 777  

 

(1)

The above illustration assumes no return from net realized capital gains or net unrealized capital appreciation.

 

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(2)

The above illustration assumes returns entirely from realized capital gains and thus subject to the capital gain incentive fee.

The foregoing tables are to assist you in understanding the various costs and expenses that an investor in Alcentra Capital, Crescent Capital BDC or, following the completion of the Transactions, the combined company’s common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5% annual return, performance will vary and may result in a return greater or less than 5%. If Crescent Capital BDC were to achieve sufficient returns on its investments, including through the realization of capital gains, to trigger income based fees or capital gains incentive fees of a material amount, its expenses, and returns to its investors, would be higher. Similarly, if Alcentra Capital were to achieve sufficient returns on its investments, including through the realization of capital gains, to trigger income based fees or capital gains incentive fees of a material amount, its expenses, and returns to its investors, would be higher.

In addition, while the example assumes reinvestment of all dividends and distributions at NAV, if the Crescent Capital BDC Board authorizes and the Crescent Capital BDC Board declares a cash dividend, participants in its dividend reinvestment plan who have not otherwise elected to receive cash will receive a number of shares of its common stock determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of Crescent Capital BDC Common Stock at the close of trading on the valuation date for the dividend. See “Crescent Capital Maryland BDC Dividend Reinvestment Plan” for additional information regarding Crescent Capital BDC’s dividend reinvestment plan.

Similarly, if the Alcentra Capital Board authorizes and declares a cash dividend, participants in its dividend reinvestment plan who have not otherwise elected to receive cash will receive a number of shares of its common stock determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of Alcentra Capital Common Stock at the close of trading on the valuation date for the dividend. See “Alcentra Capital Dividend Reinvestment Plan” for additional information regarding Alcentra Capital’s dividend reinvestment plan.

This example and the expenses in the tables above should not be considered a representation of Alcentra Capital, Crescent Capital BDC or, following the completion of the Transactions, the combined company’s future expenses as actual expenses (including the cost of debt, if any, and other expenses) that it may incur in the future and such actual expenses may be greater or less than those shown.

 

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RISK FACTORS

In addition to the other information included in this joint proxy statement/prospectus, stockholders should carefully consider the matters described below in determining whether to approve the First Merger, in the case of Alcentra Capital stockholders, and approve the Reincorporation Merger, approve the issuance of shares of Crescent Capital Maryland BDC Common Stock to Alcentra Capital stockholders pursuant to the Merger Agreement at a price below its then-current NAV per share, if applicable, and approve the Proposed Crescent Capital BDC Investment Advisory Agreement, in the case of Crescent Capital BDC stockholders. The risks set out below are not the only risks Crescent Capital BDC, Alcentra Capital and, following the completion of the Transactions, the combined company face. Additional risks and uncertainties not currently known to Crescent Capital BDC or Alcentra Capital or that they currently deem to be immaterial also may materially adversely affect their or, following the completion of the Transactions, the combined company’s business, financial condition or operating results. If any of the following events occur, Crescent Capital BDC, Alcentra Capital or, following the completion of the Transactions, the combined company’s business, financial condition or results of operations could be materially adversely affected.

Risks Relating to Crescent Capital BDC

Unless the context suggests otherwise, references in this section to Crescent Capital BDC refer to (i) prior to the consummation of the Mergers, Crescent Capital BDC, and (ii) from and after the consummation of the Mergers, refer to Crescent Capital Maryland BDC.

Risks Relating to Crescent Capital BDC’s Business and Structure

Crescent Capital BDC has a limited operating history.

Crescent Capital BDC was formed in February 2015 and commenced operations on June 26, 2015. As a result of Crescent Capital BDC’s limited operating history, Crescent Capital BDC is subject to the business risks and uncertainties associated with recently formed businesses, including the risk that Crescent Capital BDC will not achieve its investment objective and that the value of an investor’s investment could decline substantially.

Crescent Capital BDC is dependent upon key personnel of CCG LP and Crescent Cap Advisors.

Crescent Capital BDC does not have any internal management capacity or employees. Crescent Capital BDC’s ability to achieve its investment objective will depend on its ability to manage its business and to grow its investments and earnings. This will depend, in turn, on the diligence, skill and network of business contacts of the senior professionals of CCG LP. Crescent Capital BDC expects that these senior professionals will evaluate, negotiate, structure, close and monitor Crescent Capital BDC’s investments in accordance with the terms of the Proposed Crescent Capital BDC Investment Advisory Agreement. Crescent Capital BDC can offer no assurance, however, that senior professionals of CCG LP will continue to provide investment advice to Crescent Capital BDC. If these individuals do not maintain their employment or other relationships with CCG LP and do not develop new relationships with other sources of investment opportunities available to Crescent Capital BDC, Crescent Capital BDC may not be able to grow its investment portfolio. In addition, individuals with whom the senior professionals of CCG LP have relationships are not obligated to provide Crescent Capital BDC with investment opportunities. Therefore, Crescent Capital BDC can offer no assurance that such relationships will generate investment opportunities.

Crescent Cap Advisors is an affiliate of CCG LP and will depend upon access to the investment professionals and other resources of CCG LP to fulfill its obligations to Crescent Capital BDC under the Proposed Crescent Capital BDC Investment Advisory Agreement. Crescent Cap Advisors will also depend upon such investment professionals to obtain access to deal flow generated by CCG LP. Under the Crescent Capital BDC Resource Sharing Agreement, CCG LP has agreed to provide Crescent Cap Advisors with the experienced investment

 

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professionals necessary to fulfill its obligations under the Proposed Crescent Capital BDC Investment Advisory Agreement. The Crescent Capital BDC Resource Sharing Agreement provides that CCG LP will make available to Crescent Cap Advisors experienced investment professionals and access to the resources of CCG LP for purposes of evaluating, negotiating, structuring, closing and monitoring Crescent Capital BDC’s investments. Although Crescent Capital BDC is a third-party beneficiary of the Crescent Capital BDC Resource Sharing Agreement, it may be terminated by either party on 60 days’ notice. Crescent Capital BDC cannot assure investors that CCG LP will fulfill its obligations under the Crescent Capital BDC Resource Sharing Agreement. Crescent Capital BDC cannot assure investors that Crescent Cap Advisors will enforce the Crescent Capital BDC Resource Sharing Agreement if CCG LP fails to perform, that such agreement will not be terminated by either party or that Crescent Capital BDC will continue to have access to the investment professionals of CCG LP and its affiliates or their information and deal flow.

CCG LP’s and Crescent Cap Advisors’ investment professionals, which are currently composed of the same personnel, have substantial responsibilities in connection with the management of other CCG LP clients. The personnel of CCG LP may be called upon to provide managerial assistance to Crescent Capital BDC’s portfolio companies. These demands on their time, which may increase as the number of investments grow, may distract them or slow Crescent Capital BDC’s rate of investment.

Crescent Cap Advisors’ investment committee, which provides oversight over Crescent Capital BDC’s investment activities, is provided to Crescent Capital BDC by Crescent Cap Advisors under the Crescent Capital BDC Investment Advisory Agreement (and following the Transactions, is expected to continue to be provided under the Proposed Crescent Capital BDC Investment Advisory Agreement). The loss of any member of Crescent Cap Advisors’ investment committee or of other senior professionals of CCG LP would limit Crescent Capital BDC’s ability to achieve its investment objective and operate as it anticipates. This could have a material adverse effect on Crescent Capital BDC’s financial condition, results of operations and cash flows.

Further, Crescent Capital BDC depends upon CCG LP to maintain its relationships with private equity sponsors, placement agents, investment banks, management groups and other financial institutions, and Crescent Capital BDC expects to rely to a significant extent upon these relationships to provide Crescent Capital BDC with potential investment opportunities. If CCG LP fails to maintain such relationships, or to develop new relationships with other sources of investment opportunities, Crescent Capital BDC will not be able to grow its investment portfolio. In addition, individuals with whom the senior professionals of CCG LP has relationships are not obligated to provide Crescent Capital BDC with investment opportunities, and Crescent Capital BDC can offer no assurance that these relationships will generate investment opportunities in the future.

Crescent Capital BDC may not replicate the historical results achieved by CCG LP.

Crescent Capital BDC’s primary focus in making investments may differ from those of existing investment funds, accounts or other investment vehicles that are or have been managed by members of Crescent Cap Advisors’ investment committee or by CCG LP. Past performance should not be relied upon as an indication of future results. There can be no guarantee that Crescent Capital BDC will replicate its own historical performance, the historical success of CCG LP or the historical performance of investment funds, accounts or other investment vehicles that are or have been managed by members of Crescent Cap Advisors’ investment committee, or by CCG LP or its employees, and Crescent Capital BDC cautions investors that its investment returns could be substantially lower than the returns achieved by them in prior periods. Crescent Capital BDC cannot assure you that it will be profitable in the future or that Crescent Cap Advisors will be able to continue to implement Crescent Capital BDC’s investment objectives with the same degree of success that it has had in the past. Additionally, all or a portion of the prior results may have been achieved in particular market conditions which may never be repeated. Moreover, current or future market volatility and regulatory uncertainty may have an adverse impact on Crescent Capital BDC’s future performance.

 

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Crescent Capital BDC depends on CCG LP to manage its business effectively.

Crescent Capital BDC’s ability to achieve its investment objective depends on its ability to manage its business and to grow its investments and earnings. This will depend, in turn, on CCG LP’s ability to identify, invest in and monitor portfolio companies that meet Crescent Capital BDC’s investment criteria. The achievement of its investment objectives on a cost-effective basis will depend upon CCG LP’s execution of its investment process, its ability to provide competent, attentive and efficient services to Crescent Capital BDC and, to a lesser extent, Crescent Capital BDC’s access to financing on acceptable terms. CCG LP’s investment professionals will have substantial responsibilities in connection with the management of other investment funds, accounts and investment vehicles. The personnel of CCG LP may be called upon to provide managerial assistance to Crescent Capital BDC’s portfolio companies. These activities may distract them from servicing new investment opportunities for Crescent Capital BDC or slow its rate of investment. Any failure to manage Crescent Capital BDC’s business and its future growth effectively could have a material adverse effect on its business, financial condition, results of operations and cash flows.

Global capital markets could enter a period of severe disruption and instability. These conditions have historically affected and could again materially and adversely affect debt and equity capital markets in the United States and around the world and Crescent Capital BDC’s business.

From time to time, the global capital markets may experience periods of disruption and instability resulting in increasing spreads between the yields realized on riskier debt securities and those realized on risk-free securities and a lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector relating to subprime mortgages and the re-pricing of credit risk in the broadly syndicated market. Deteriorating market conditions could result in increasing volatility and illiquidity in the global credit, debt and equity markets generally. The duration and ultimate effect of such market conditions cannot be forecasted. Deteriorating market conditions and uncertainty regarding economic markets generally could result in declines in the market values of potential investments or declines in the market values of investments after they are made or acquired by Crescent Capital BDC and affect the potential for liquidity events involving such investments or portfolio companies. Such declines may be exacerbated by other events, such as the failure of significant financial institutions or hedge funds, dislocations in other investment markets or other extrinsic events. Applicable accounting standards require Crescent Capital BDC to determine the fair value of its investments as the amount that would be received in an orderly transaction between market participants at the measurement date. While most of Crescent Capital BDC’s investments are not publicly traded, as part of the valuation process Crescent Capital BDC considers a number of measures, including comparison to publicly traded securities. As a result, volatility in the public capital markets can adversely affect Crescent Capital BDC’s investment valuations.

During any such periods of market disruption and instability, Crescent Capital BDC and other companies in the financial services sector may have limited access, if any, to alternative markets for debt and equity capital. Equity capital may be difficult to raise because, subject to some limited exceptions that will apply to Crescent Capital BDC as a BDC, Crescent Capital BDC will generally not be able to issue additional shares of Crescent Capital BDC Common Stock at a price less than NAV without first obtaining approval for such issuance from its stockholders and independent directors. In addition, Crescent Capital BDC’s ability to incur indebtedness (including by issuing preferred stock) is limited by applicable regulations such that Crescent Capital BDC’s asset coverage, as defined in the Investment Company Act, must equal at least 200% (or 150% if certain disclosure and approval requirements are met) immediately after each time Crescent Capital BDC incurs indebtedness. The debt capital that will be available, if any, may be at a higher cost and on less favorable terms and conditions in the future. Any inability to raise capital could have a negative effect on Crescent Capital BDC’s business, financial condition and results of operations.

A prolonged period of market illiquidity may cause Crescent Capital BDC to reduce the volume of loans and debt securities it originates and/or fund and adversely affect the value of its portfolio investments, which could have a material and adverse effect on the business, financial condition, results of operations and cash flows of Crescent Capital BDC.

 

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Adverse developments in the credit markets may impair Crescent Capital BDC’s ability to enter into new debt financing arrangements.

During the economic downturn in the United States that began in mid-2007, many commercial banks and other financial institutions stopped lending or significantly curtailed their lending activity. In addition, in an effort to stem losses and reduce their exposure to segments of the economy deemed to be high risk, some financial institutions limited refinancing and loan modification transactions and reviewed the terms of existing facilities to identify bases for accelerating the maturity of existing lending facilities. If these conditions recur, it may be difficult for Crescent Capital BDC to enter into a new credit or other borrowing facility, obtain other financing to finance the growth of its investments, or refinance any outstanding indebtedness on acceptable economic terms, or at all.

Crescent Cap Advisors, the investment committee of Crescent Cap Advisors, CCG LP and their affiliates, officers, directors and employees may face certain conflicts of interest.

As a result of Crescent Capital BDC’s arrangements with CCG LP, Crescent Cap Advisors and Crescent Cap Advisors’ investment committee, there may be times when Crescent Cap Advisors or such persons have interests that differ from those of Crescent Capital BDC’s stockholders, giving rise to a conflict of interest.

The members of Crescent Cap Advisors’ investment committee are, or may be, investors in, or serve, or may serve, as officers, directors, members, or principals of entities that operate in the same or a related line of business as Crescent Capital BDC does, or of investment funds, accounts, or investment vehicles managed by CCG LP and/or its affiliates. Similarly, CCG LP and its affiliates may have other clients with similar, different or competing investment objectives.

In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the best interests of, or which may be adverse to the interests of, Crescent Capital BDC or its stockholders. For example, CCG LP has, and will continue to have, management responsibilities for other investment funds, accounts and investment vehicles. There is a potential that Crescent Capital BDC will compete with these funds, and other entities managed by CCG LP and its affiliates, for capital and investment opportunities. As a result, members of Crescent Cap Advisors’ investment committee who are affiliated with CCG LP will face conflicts in the allocation of investment opportunities among Crescent Capital BDC and other investment funds, accounts and investment vehicles managed by CCG LP and its affiliates, and may make certain investments that are appropriate for Crescent Capital BDC but for which Crescent Capital BDC receives a relatively small allocation or no allocation at all. CCG LP intends to allocate investment opportunities among eligible investment funds, accounts and investment vehicles in a manner that is fair and equitable over time and consistent with its allocation policy. However, Crescent Capital BDC can offer no assurance that such opportunities will be allocated to Crescent Capital BDC fairly or equitably in the short-term or over time, and Crescent Capital BDC may not be given the opportunity to participate in investments made by investment funds managed by CCG LP or its affiliates. Crescent Capital BDC expects that CCG LP and Crescent Cap Advisors will agree with the Crescent Capital BDC Board that, subject to applicable law, allocations among Crescent Capital BDC and other investment funds, accounts and investment vehicles managed by CCG LP will generally be made based on capital available for investment in the asset class being allocated and the respective governing documents of such investment funds, accounts and investment vehicles. Crescent Capital BDC expects that available capital for Crescent Capital BDC’s investments will be determined based on the amount of cash on hand, existing commitments and reserves, if any, the targeted leverage level, targeted asset mix and diversification requirements and other investment policies and restrictions set by the Crescent Capital BDC Board or as imposed by applicable laws, rules, regulations or interpretations. There can be no assurance that Crescent Capital BDC will be able to participate in all investment opportunities that are suitable for it.

Further, to the extent permitted by applicable law, Crescent Capital BDC and its affiliates may own investments at different levels of a portfolio company’s capital structure or otherwise own different classes of a portfolio

 

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company’s securities, which may give rise to conflicts of interest or perceived conflicts of interest. Conflicts may also arise because decisions regarding Crescent Capital BDC’s portfolio may benefit Crescent Capital BDC’s affiliates. Crescent Capital BDC’s affiliates may pursue or enforce rights with respect to one of its portfolio companies, and those activities may have an adverse effect on Crescent Capital BDC.

Principals and employees of CCG LP, Crescent Cap Advisors or their affiliates may, from time to time, possess material non-public information, limiting Crescent Capital BDC’s investment discretion.

The executive officers and directors, principals and other employees of CCG LP, including members of Crescent Cap Advisors’ investment committee, may serve as directors of, or in a similar capacity with, portfolio companies in which Crescent Capital BDC invests, the securities of which are purchased or sold on Crescent Capital BDC’s behalf and may come into possession of material non-public information with respect to issuers in which Crescent Capital BDC may be considering making an investment. In the event that material non-public information is obtained with respect to such companies, or Crescent Capital BDC becomes subject to trading restrictions under the internal trading policies of those companies, the policies of CCG LP or as a result of applicable law or regulations, Crescent Capital BDC could be prohibited for a period of time or indefinitely from purchasing or selling the securities of such companies, or Crescent Capital BDC may be precluded from providing such information or other ideas to other funds affiliated with CCG LP that might benefit from such information, and this prohibition may have an adverse effect on Crescent Capital BDC.

Crescent Capital BDC’s management and incentive fee structure may create incentives for Crescent Cap Advisors that are not fully aligned with the interests of Crescent Capital BDC’s stockholders and may induce Crescent Cap Advisors to make speculative investments.

In the course of Crescent Capital BDC’s investing activities, Crescent Capital BDC will pay management and incentive fees to Crescent Cap Advisors. Crescent Capital BDC has entered into the Crescent Capital BDC Investment Advisory Agreement with Crescent Cap Advisors that provides that these fees are based on the value of Crescent Capital BDC’s gross assets (which includes assets purchased with borrowed amounts or other forms of leverage but excludes cash and cash equivalents), instead of net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable). As a result, investors in Crescent Capital BDC Common Stock will invest on a “gross” basis and receive distributions on a “net” basis after expenses, including the costs of leverage, resulting in a lower rate of return than one might achieve if distributions were made on a gross basis. Because Crescent Capital BDC’s management fees are based on the value of Crescent Capital BDC’s gross assets, incurrence of debt or the use of leverage will increase the management fees due to Crescent Cap Advisors. As such, Crescent Cap Advisors may have an incentive to use leverage to make additional investments. In addition, as additional leverage would magnify positive returns, if any, on Crescent Capital BDC’s portfolio, the incentive fee would become payable to Crescent Cap Advisors (i.e., exceed the Hurdle Amount (as defined herein under the heading “Business of Crescent Capital BDC”)) at a lower average return on Crescent Capital BDC’s portfolio. Thus, if Crescent Capital BDC incurs additional leverage, Crescent Cap Advisors may receive additional incentive fees without any corresponding increase (and potentially with a decrease) in the performance of Crescent Capital BDC’s portfolio.

Additionally, under the incentive fee structure, Crescent Cap Advisors may benefit when capital gains are recognized and, because Crescent Cap Advisors will determine when to sell a holding, Crescent Cap Advisors will control the timing of the recognition of such capital gains. As a result of these arrangements, there may be times when the management team of Crescent Cap Advisors has interests that differ from those of Crescent Capital BDC’s stockholders, giving rise to a conflict. Furthermore, there is a risk Crescent Cap Advisors will make more speculative investments in an effort to receive this payment. PIK interest and OID would increase Crescent Capital BDC’s pre-incentive fee net investment income by increasing the size of the loan balance of underlying loans and increasing Crescent Capital BDC’s assets under management and would make it easier for Crescent Cap Advisors to surpass the Hurdle Amount and increase the amount of incentive fees payable to Crescent Cap Advisors.

 

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The part of the incentive fee payable to Crescent Cap Advisors relating to Crescent Capital BDC’s net investment income is computed and paid on income that may include interest income that has been accrued but not yet received in cash. This fee structure may give rise to a conflict of interest for Crescent Cap Advisors to the extent that it encourages Crescent Cap Advisors to favor debt financings that provide for deferred interest, rather than current cash payments of interest. Crescent Cap Advisors may have an incentive to invest in deferred interest securities in circumstances where it would not have done so but for the opportunity to continue to earn the incentive fee even when the issuers of the deferred interest securities would not be able to make actual cash payments to Crescent Capital BDC on such securities. This risk could be increased because, under the Crescent Capital BDC Investment Advisory Agreement, Crescent Cap Advisors is not obligated to reimburse Crescent Capital BDC for incentive fees Crescent Cap Advisors receives even if Crescent Capital BDC subsequently incurs losses or never receives in cash the deferred income that was previously accrued.

Additionally, the Transactions will have an effect on the management fee Crescent Capital BDC pays to Crescent Cap Advisors. With respect to any period prior to the completion of the Transactions, pursuant to a base waiver agreement with Crescent Cap Advisors, all management fees in excess of the sum of (i) 0.25% of undrawn capital and (ii) 0.75% of the aggregate gross assets excluding cash and cash equivalents were waived by Crescent Cap Advisors and not subject to recoupment by Crescent Cap Advisors. In the absence of the Transactions, this waiver would have expired upon the occurrence of a “Qualified IPO.” Although (i) the Proposed Crescent Capital BDC Investment Advisory Agreement proposes to reduce the base management fee payable to Crescent Cap Advisors from 1.5% to 1.25% and (ii) Crescent Cap Advisors has agreed to waive a portion of the management fee for the eighteen-month period after the completion of the Transactions, it is expected that the management fee Crescent Capital BDC pays to Crescent Cap Advisors will effectively be higher after such waiver period than it was before the completion of the Transactions due to the occurrence of a “Qualified IPO.” However, in the absence of the Proposed Crescent Capital BDC Investment Advisory Agreement, the base management fee would have been higher after a “Qualified IPO” if the terms of the Crescent Capital BDC Investment Advisory Agreement remained in effect upon completion of the Transactions. Upon expiration of the waiver period, the base management fee will be an annual rate of 1.25% of the combined company’s gross assets. The combined company’s gross assets are expected to be in excess of those of pre-Transactions Crescent Capital BDC alone.

The Crescent Capital BDC Board is charged with protecting Crescent Capital BDC’s interests by monitoring how Crescent Cap Advisors addresses these and other conflicts of interest associated with its services and compensation. While they are not expected to review or approve each investment decision or incurrence of leverage, Crescent Capital BDC’s independent directors will periodically review Crescent Cap Advisors’ services and fees as well as its portfolio management decisions and portfolio performance. In connection with these reviews, Crescent Capital BDC’s independent directors will consider whether its fees and expenses (including those related to leverage) remain appropriate.

Crescent Capital BDC may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to the extent it so invests, bear its ratable share of any such investment company’s expenses, including management and performance fees. Crescent Capital BDC also remains obligated to pay management and incentive fees to Crescent Cap Advisors with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of Crescent Capital BDC’s stockholders bears his or her share of the management and incentive fees of Crescent Cap Advisors as well as indirectly bearing the management and performance fees and other expenses of any investment companies in which Crescent Capital BDC invests.

Conflicts of interest may be created by the valuation process for certain portfolio holdings.

Crescent Capital BDC expects to make many of its portfolio investments in the form of loans and securities that are not publicly traded and for which no market based price quotation is available. As a result, the Crescent Capital BDC Board will determine the fair value of these loans and securities in good faith as described below in “—The majority of Crescent Capital BDC’s portfolio investments are recorded at fair value as determined in

 

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good faith by the Crescent Capital BDC Board and, as a result, there may be uncertainty as to the value of Crescent Capital BDC’s portfolio investments.” Each of the interested members of the Crescent Capital BDC Board has an indirect pecuniary interest in Crescent Cap Advisors. The participation of Crescent Cap Advisors’ investment professionals in Crescent Capital BDC’s valuation process, and the pecuniary interest in Crescent Cap Advisors by certain members of the Crescent Capital BDC Board, could result in a conflict of interest as Crescent Cap Advisors’ management fee is based, in part, on the value of Crescent Capital BDC’s gross assets, and Crescent Capital BDC’s incentive fees will be based, in part, on realized gains and realized and unrealized losses.

Conflicts may arise related to other arrangements with CCG LP and Crescent Cap Advisors’ other affiliates.

Crescent Capital BDC has entered into a license agreement with CCG LP under which CCG LP has agreed to grant Crescent Capital BDC a non-exclusive, royalty-free license to use the name “Crescent Capital.” In addition, the CCAP Administration Agreement with CCAP Administration, an affiliate of CCG LP, requires Crescent Capital BDC to pay to CCAP Administration Crescent Capital BDC’s allocable portion of overhead and other expenses incurred by CCAP Administration in performing its obligations under the CCAP Administration Agreement, such as rent and Crescent Capital BDC’s allocable portion of the cost of Crescent Capital BDC’s chief financial officer and chief compliance officer and their respective staffs. In addition, Crescent Cap Advisors has entered into a Resource Sharing Agreement with CCG LP pursuant to which CCG LP provides Crescent Cap Advisors with the resources necessary to fulfill its obligations under the Crescent Capital BDC Investment Advisory Agreement. These agreements create conflicts of interest that the independent members of the Crescent Capital BDC Board will monitor. For example, under the terms of the license agreement, Crescent Capital BDC will be unable to preclude CCG LP from licensing or transferring the ownership of the “Crescent Capital” name to third parties, some of whom may compete against Crescent Capital BDC. Consequently, it will be unable to prevent any damage to goodwill that may occur as a result of the activities of CCG LP or others. Furthermore, in the event the license agreement is terminated, Crescent Capital BDC will be required to change its name and cease using “Crescent Capital” as part of its name. Any of these events could disrupt Crescent Capital BDC’s recognition in the market place, damage any goodwill it may have generated and otherwise harm its business.

The Crescent Capital BDC Investment Advisory Agreement and the Proposed Crescent Capital BDC Investment Advisory Agreement were negotiated with Crescent Cap Advisors and the Administration Agreement was negotiated with CCAP Administration, which are both related parties to Crescent Capital BDC.

The Crescent Capital BDC Investment Advisory Agreement, the Proposed Crescent Capital BDC Investment Advisory Agreement, and the CCAP Administration Agreement were negotiated between related parties (with the exception that certain terms of the Proposed Crescent Capital BDC Investment Advisory Agreement were negotiated with Alcentra Capital). Consequently, their terms, including fees payable to Crescent Cap Advisors, may not be as favorable to Crescent Capital BDC as if they had been negotiated exclusively with an unaffiliated third party. In addition, Crescent Capital BDC may desire not to enforce, or to enforce less vigorously, its rights and remedies under these agreements because of its desire to maintain its ongoing relationship with Crescent Cap Advisors, CCAP Administration and their respective affiliates. Any such decision, however, could breach Crescent Capital BDC’s fiduciary obligations to its stockholders.

Crescent Cap Advisors has limited liability and is entitled to indemnification under the Crescent Capital BDC Investment Advisory Agreement and is expected to have limited liability and be entitled to indemnification under the Proposed Crescent Capital BDC Investment Advisory Agreement.

Under the Crescent Capital BDC Investment Advisory Agreement (and as expected under the Proposed Crescent Capital BDC Investment Advisory Agreement), Crescent Cap Advisors has not assumed any responsibility to Crescent Capital BDC other than to render the services called for under that agreement. Crescent Cap Advisors will not be responsible for any action of the Crescent Capital BDC Board in following or declining to follow Crescent Cap Advisors’ advice or recommendations. Under the Crescent Capital BDC Investment Advisory Agreement (and as expected under the Proposed Crescent Capital BDC Investment Advisory Agreement),

 

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Crescent Cap Advisors, its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with Crescent Cap Advisors, including, without limitation, its general partner and the CCAP Administration, and any person controlling or controlled by Crescent Cap Advisors will not be liable to Crescent Capital BDC, any subsidiary of Crescent Capital BDC, its directors, its stockholders or any subsidiary’s stockholders or partners for acts or omissions performed in accordance with and pursuant to the Crescent Capital BDC Investment Advisory Agreement or the Proposed Crescent Capital BDC Investment Advisory Agreement, except those resulting from acts constituting gross negligence, willful misfeasance, bad faith or reckless disregard of the duties that Crescent Cap Advisors owes to Crescent Capital BDC under the Crescent Capital BDC Investment Advisory Agreement or the Proposed Crescent Capital BDC Investment Advisory Agreement. In addition, as part of the Crescent Capital BDC Investment Advisory Agreement, Crescent Capital BDC has agreed to indemnify (and is expected to indemnify under the Proposed Crescent Capital BDC Investment Advisory Agreement) Crescent Cap Advisors and each of its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with Crescent Cap Advisors, including, without limitation, its general partner and CCAP Administration, and hold them harmless from and against all damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by such party in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding (including an action or suit by or in the right of Crescent Capital BDC or its security holders) arising out of or otherwise based upon the performance of any of Crescent Cap Advisors’ duties or obligations under the Crescent Capital BDC Investment Advisory Agreement (or the Proposed Crescent Capital BDC Investment Advisory Agreement) or otherwise as an investment adviser of Crescent Capital BDC, except in respect of any liability to Crescent Capital BDC or its security holders to which such party would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of Crescent Cap Advisors’ duties or by reason of the reckless disregard of Crescent Cap Advisors’ duties and obligations under the Crescent Capital BDC Investment Advisory Agreement or the Proposed Crescent Capital BDC Investment Advisory Agreement, as applicable. These protections may lead Crescent Cap Advisors to act in a riskier manner when acting on Crescent Capital BDC’s behalf than Crescent Cap Advisors would when acting for its own account.

Crescent Capital BDC’s ability to enter into transactions with its affiliates is restricted.

Crescent Capital BDC is prohibited under the Investment Company Act from participating in certain transactions with Crescent Capital BDC’s affiliates without the prior approval of Crescent Capital BDC’s independent directors and, in some cases, the SEC. Crescent Capital BDC considers Crescent Cap Advisors and its affiliates, including CCG LP, to be affiliates of Crescent Capital BDC for such purposes. In addition, any person that owns, directly or indirectly, 5% or more of Crescent Capital BDC’s outstanding voting securities will be its affiliate for purposes of the Investment Company Act, and Crescent Capital BDC is generally prohibited from buying or selling any security from or to such affiliate without the prior approval of its independent directors. The Investment Company Act also prohibits certain “joint” transactions with certain of Crescent Capital BDC’s affiliates, which could include investments in the same portfolio company, without prior approval of Crescent Capital BDC’s independent directors and, in some cases, of the SEC. Crescent Capital BDC is prohibited from buying or selling any security from or to any person who owns more than 25% of its voting securities or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC.

Crescent Capital BDC may, however, invest alongside CCG LP’s investment funds, accounts and investment vehicles in certain circumstances where doing so is consistent with Crescent Capital BDC’s investment strategy as well as applicable law and SEC staff interpretations or exemptive orders. For example, Crescent Capital BDC may invest alongside such investment funds, accounts and investment vehicles consistent with guidance promulgated by the SEC staff to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that CCG LP, acting on Crescent Capital BDC’s behalf and on behalf of such investment funds, accounts and investment vehicles, negotiates no term other than price. Crescent Capital BDC may also invest alongside CCG LP’s investment funds, accounts and investment vehicles as otherwise

 

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permissible under regulatory guidance, applicable regulations or exemptive orders and CCG LP’s allocation policy. If Crescent Capital BDC is prohibited by applicable law from investing alongside CCG LP’s investment funds, accounts and investment vehicles with respect to an investment opportunity, Crescent Capital BDC may not be able to participate in such investment opportunity. This allocation policy provides that allocations among Crescent Capital BDC and investment funds, accounts and investment vehicles managed by CCG LP and its affiliates will generally be made pro rata based on capital available for investment, as determined, in Crescent Capital BDC’s case, by the Crescent Capital BDC Board as well as the terms of Crescent Capital BDC’s governing documents and those of such investment funds, accounts and investment vehicles. It is Crescent Capital BDC’s policy to base its determinations on such factors as: the amount of cash on hand; existing commitments and reserves, if any; Crescent Capital BDC’s targeted leverage level; its targeted asset mix; and diversification requirements and other investment policies and restrictions set by the Crescent Capital BDC Board or imposed by applicable laws, rules, regulations or interpretations. Crescent Capital BDC expects that these determinations will be made similarly for investment funds, accounts and investment vehicles managed by CCG LP. However, Crescent Capital BDC can offer no assurance that investment opportunities will be allocated to Crescent Capital BDC fairly or equitably in the short-term or over time.

In situations where co-investment with investment funds, accounts and investment vehicles managed by CCG LP is not permitted or appropriate, such as when there is an opportunity to invest in different securities of the same issuer or where the different investments could be expected to result in a conflict between Crescent Capital BDC’s interests and those of CCG LP’s clients, subject to the limitations described in the preceding paragraph, CCG LP will need to decide which client will proceed with the investment. Similar restrictions limit Crescent Capital BDC’s ability to transact business with Crescent Capital BDC’s officers or directors or their affiliates. These restrictions will limit the scope of investment opportunities that would otherwise be available to Crescent Capital BDC.

Crescent Capital BDC, Crescent Cap Advisors and CCG LP have been granted exemptive relief from the SEC which permits greater flexibility to negotiate the terms of co-investments if the Crescent Capital BDC Board determines that it would be advantageous for Crescent Capital BDC to co-invest with investment funds, accounts and investment vehicles managed by CCG LP in a manner consistent with Crescent Capital BDC’s investment objectives, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Crescent Capital BDC believes that co-investment by Crescent Capital BDC and investment funds, accounts and investment vehicles managed by CCG LP may afford Crescent Capital BDC additional investment opportunities and an ability to achieve a more varied portfolio. Accordingly, Crescent Capital BDC’s exemptive order permits Crescent Capital BDC to invest with investment funds, accounts and investment vehicles managed by CCG LP in the same portfolio companies under circumstances in which such investments would otherwise not be permitted by the Investment Company Act. The exemptive relief permitting co-investment transactions generally applies only if Crescent Capital BDC’s independent directors and directors who have no financial interest in such transaction review and approve in advance each co-investment transaction.

Crescent Capital BDC’s ability to sell or otherwise exit investments also invested in by other CCG LP investment vehicles is restricted.

Crescent Capital BDC may be considered affiliates with respect to certain of Crescent Capital BDC’s portfolio companies because Crescent Capital BDC’s affiliates, which may include certain investment funds, accounts or investment vehicles managed by CCG LP, also hold interests in these portfolio companies and as such these interests may be considered a joint enterprise under the Investment Company Act. To the extent that Crescent Capital BDC’s interests in these portfolio companies may need to be restructured in the future or to the extent that Crescent Capital BDC chooses to exit certain of these transactions, its ability to do so will be limited. Crescent Capital BDC intends to seek exemptive relief in relation to certain joint transactions; however, there is no assurance that Crescent Capital BDC will obtain relief that would permit it to negotiate future restructurings or other transactions that may be considered a joint enterprise.

 

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Crescent Capital BDC operates in an increasingly competitive market for investment opportunities, which could make it difficult for Crescent Capital BDC to identify and make investments that are consistent with its investment objectives.

A number of entities compete with Crescent Capital BDC to make the types of investments that Crescent Capital BDC makes and plans to make. Crescent Capital BDC competes with public and private funds, commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds. Many of Crescent Capital BDC’s competitors are substantially larger and have considerably greater financial, technical and marketing resources than Crescent Capital BDC does. For example, Crescent Capital BDC believes some of its competitors may have access to funding sources that are not available to Crescent Capital BDC. In addition, some of Crescent Capital BDC’s competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than Crescent Capital BDC. Furthermore, many of Crescent Capital BDC’s competitors are not subject to the regulatory restrictions that the Investment Company Act imposes on Crescent Capital BDC as a BDC or the source-of-income, asset diversification and distribution requirements Crescent Capital BDC must satisfy to maintain its RIC qualification. The competitive pressures Crescent Capital BDC faces may have a material adverse effect on its business, financial condition, results of operations and cash flows. As a result of this competition, Crescent Capital BDC may not be able to take advantage of attractive investment opportunities from time to time, and Crescent Capital BDC may not be able to identify and make investments that are consistent with its investment objectives.

With respect to the investments Crescent Capital BDC makes, Crescent Capital BDC will not seek to compete based primarily on the interest rates Crescent Capital BDC will offer, and Crescent Capital BDC believes that some of Crescent Capital BDC’s competitors may make loans with interest rates that will be lower than the rates Crescent Capital BDC offers. In the secondary market for acquiring existing loans, Crescent Capital BDC expects to compete generally on the basis of pricing terms. With respect to all investments, Crescent Capital BDC may lose some investment opportunities if Crescent Capital BDC does not match its competitors’ pricing, terms and structure. However, if Crescent Capital BDC matches its competitors’ pricing, terms and structure, Crescent Capital BDC may experience decreased net interest income, lower yields and increased risk of credit loss. Crescent Capital BDC may also compete for investment opportunities with investment funds, accounts and investment vehicles managed by CCG LP. Although CCG LP will allocate opportunities in accordance with its policies and procedures, allocations to such investment funds, accounts and investment vehicles will reduce the amount and frequency of opportunities available to Crescent Capital BDC and may not be in the best interests of it and its stockholders. Moreover, the performance of investments will not be known at the time of allocation. See “—Crescent Cap Advisors, the investment committee of Crescent Cap Advisors, CCG LP and their affiliates, officers, directors and employees may face certain conflicts of interest.

Crescent Capital BDC will be subject to corporate-level income tax if it is unable to qualify as a RIC.

To qualify as a RIC under the Code, Crescent Capital BDC must meet certain source-of-income, asset diversification and distribution requirements. The distribution requirement for a RIC is satisfied if Crescent Capital BDC distributes at least 90% of Crescent Capital BDC’s net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to Crescent Capital BDC’s stockholders on an annual basis. Crescent Capital BDC will be subject, to the extent Crescent Capital BDC uses debt financing, to certain asset coverage ratio requirements under the Investment Company Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict Crescent Capital BDC from making distributions necessary to qualify as a RIC. If Crescent Capital BDC is unable to obtain cash from other sources, Crescent Capital BDC may fail to qualify as a RIC and, thus, may be subject to corporate-level income tax. To qualify as a RIC, Crescent Capital BDC must also meet certain asset diversification requirements at the end of each calendar quarter. Failure to meet these tests may result in Crescent Capital BDC having to dispose of certain investments quickly in order to prevent the loss of its qualification as a RIC. Because most of Crescent Capital BDC’s investments are in private or thinly traded public companies, any such dispositions could be made at

 

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disadvantageous prices and may result in substantial losses. If Crescent Capital BDC fails to qualify as a RIC for any reason and become subject to corporate income tax, the resulting corporate taxes could substantially reduce Crescent Capital BDC’s net assets, the amount of income available for distributions to its stockholders and the amount of funds available for new investments. Such a failure would have a material adverse effect on Crescent Capital BDC and its stockholders.

An investment in Crescent Capital Maryland BDC Common Stock presents an above average degree of risk.

The investments Crescent Capital BDC makes in accordance with its investment objective may result in a higher amount of risk than that associated with alternative investment options, and higher volatility or loss of principal. Crescent Capital BDC’s investments in portfolio companies may be speculative and, therefore, an investment in Crescent Capital Maryland BDC Common Stock may not be suitable for someone with lower risk tolerance. In addition, the Crescent Capital Maryland BDC Common Stock is intended for long-term investors who can accept the risks of investing primarily in illiquid loans and other debt or debt-like instruments and should not be treated as a trading vehicle.

Crescent Capital BDC may need to raise additional capital.

Crescent Capital BDC intends to access the capital markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain additional capital to fund new investments and grow its portfolio of investments. Unfavorable economic conditions could increase Crescent Capital BDC’s funding costs, limit its access to the capital markets or result in a decision by lenders not to extend credit to Crescent Capital BDC. A reduction in the availability of new capital could limit its ability to grow. In addition, Crescent Capital BDC will be required to distribute in respect of each taxable year at least 90% of its net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, for such taxable year to its stockholders to maintain Crescent Capital BDC’s qualification as a RIC. Amounts so distributed will not be available to fund new investments or repay maturing debt. An inability on Crescent Capital BDC’s part to access the capital markets successfully could limit its ability to grow its business and execute its business strategy fully and could decrease its earnings, if any, which would have an adverse effect on the value of its securities.

Further, Crescent Capital BDC may pursue growth through acquisitions or strategic investments in new businesses. Completion and timing of any such acquisitions or strategic investments may be subject to a number of contingencies and risks. There can be no assurance that the integration of an acquired business will be successful or that an acquired business will prove to be profitable or sustainable.

Regulations governing Crescent Capital BDC’s operation as a BDC affect its ability to, and the way in which it may, raise additional capital.

Crescent Capital BDC may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which Crescent Capital BDC refers to collectively as “senior securities,” up to the maximum amount permitted by the Investment Company Act. Under the provisions of the Investment Company Act, Crescent Capital BDC will be permitted as a BDC to issue senior securities in amounts such that Crescent Capital BDC’s asset coverage ratio, as defined in the Investment Company Act, equals at least 200% (or 150% if certain disclosure and approval requirements are met) of Crescent Capital BDC’s gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of Crescent Capital BDC’s assets declines, Crescent Capital BDC may be unable to satisfy this test. If that happens, Crescent Capital BDC may be required to sell a portion of its investments at a time when such sales may be disadvantageous to Crescent Capital BDC in order to repay a portion of its indebtedness. If Crescent Capital BDC issues senior securities, Crescent Capital BDC will be exposed to typical risks associated with leverage, including an increased risk of loss.

Furthermore, equity capital may be difficult to raise because, subject to some limited exceptions Crescent Capital BDC is not generally able to issue and sell Crescent Capital BDC Common Stock at a price below NAV per

 

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share. Crescent Capital BDC may, however, sell Crescent Capital BDC Common Stock, or warrants, options or rights to acquire shares of Crescent Capital BDC Common Stock, at a price below the then-current NAV per share of Crescent Capital BDC Common Stock if the Crescent Capital BDC Board determines that such sale is in its best interests, and if its stockholders, including a majority of those stockholders that are not affiliated with Crescent Capital BDC, approve such sale. In any such case, the price at which Crescent Capital BDC’s securities are to be issued and sold may not be less than a price that, in the determination of the Crescent Capital BDC Board, closely approximates the market value of such securities (less any distributing commission or discount). Crescent Capital BDC does not currently have authorization from its stockholders to issue Crescent Capital BDC Common Stock a price below the then-current NAV per share.

Stockholders may be required to pay tax in excess of the cash they receive.

Following consummation of the Transactions, under Crescent Capital BDC’s dividend reinvestment plan, if a stockholder owns shares of Crescent Capital BDC Common Stock, the stockholder will have all cash distributions automatically reinvested in additional shares of Crescent Capital BDC Common Stock unless such stockholder, or his, her or its nominee on such stockholder’s behalf, specifically “opts out” of the dividend reinvestment plan by delivering a written notice to the plan administrator prior to the record date of the next distribution. If a stockholder does not “opt out” of the dividend reinvestment plan, that stockholder will be deemed to have received, and for U.S. federal income tax purposes will be taxed on, the amount reinvested in Crescent Capital Maryland BDC Common Stock to the extent the amount reinvested was not a tax-free return of capital. As a result, a stockholder may have to use funds from other sources to pay U.S. federal income tax liability on the value of the common stock received. Even if a stockholder chooses to “opt out” of the dividend reinvestment plan, Crescent Capital Maryland BDC will have the ability to declare a large portion of a dividend in shares of Crescent Capital BDC Common Stock instead of in cash in order to satisfy the Annual Distribution Requirement (as defined herein under the headingMaterial U.S. Federal Income Tax Consequences of the Reincorporation Merger and of the Mergers—U.S. Federal Income Taxation of an Investment in Crescent Capital Maryland BDC Common Stock—Election to Be Taxed as a RIC”). As long as a portion of this dividend is paid in cash and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, a stockholder generally will be subject to tax on 100% of the fair market value of the dividend on the date the dividend is received by the stockholder in the same manner as a cash dividend, even though most of the dividend was paid in shares of common stock.

Crescent Capital BDC may have difficulty paying its required distributions if it recognizes income before, or without, receiving cash representing such income.

For U.S. federal income tax purposes, Crescent Capital BDC includes in income certain amounts that Crescent Capital BDC has not yet received in cash, such as the accretion of original issue discount. This may arise if Crescent Capital BDC receives warrants in connection with the making of a loan and in other circumstances, or through contracted PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such OID, which could be significant relative to Crescent Capital BDC’s overall investment activities, or increases in loan balances as a result of contracted payment-in-kind arrangements, will be included in income before Crescent Capital BDC receives any corresponding cash payments. Crescent Capital BDC also may be required to include in income certain other amounts that Crescent Capital BDC will not receive in cash.

Since in certain cases Crescent Capital BDC may recognize income before or without receiving cash representing such income, Crescent Capital BDC may have difficulty meeting the requirement to distribute at least 90% of its net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to maintain its qualification as a RIC. In such a case, Crescent Capital BDC may have to sell some of its investments at times Crescent Capital BDC would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If Crescent Capital BDC is not able to obtain such cash from other sources, it may fail to qualify as a RIC and thus be subject to corporate-level income tax.

 

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Crescent Capital BDC may be subject to withholding of U.S. federal income tax on distributions for non-U.S. stockholders.

Distributions by a RIC generally are treated as dividends for U.S. tax purposes, and will be subject to U.S. income or withholding tax unless the stockholder receiving the dividend qualifies for an exemption from U.S. tax, or the distribution is subject to one of the special look-through rules described below. Distributions paid out of net capital gains can qualify for a reduced rate of taxation in the hands of an individual U.S. stockholder, and an exemption from U.S. tax in the hands of a non-U.S. stockholder.

Properly reported dividend distributions by RICs paid out of certain interest income (such distributions, “interest-related dividends”) are generally exempt from U.S. withholding tax for non-U.S. stockholders. Under such exemption, a non-U.S. stockholder generally may receive interest-related dividends free of U.S. withholding tax if the stockholder would not have been subject to U.S. withholding tax if it had received the underlying interest income directly. No assurance can be given as to whether any of Crescent Capital BDC’s distributions will be eligible for this exemption from U.S. withholding tax or, if eligible, will be designated as such by Crescent Capital BDC. In particular, the exemption does apply to distributions paid in respect of a RIC’s non-U.S. source interest income, its dividend income or its foreign currency gains. In the case of shares of Crescent Capital BDC Common Stock held through an intermediary, the intermediary may withhold U.S. federal income tax even if Crescent Capital BDC designates the payment as a dividend eligible for the exemption. Also, because Crescent Capital BDC Common Stock will be subject to significant transfer restrictions, and an investment in Crescent Capital BDC Common Stock will generally be illiquid, non-U.S. stockholders whose distributions on Crescent Capital Maryland BDC Common Stock are subject to U.S. withholding tax may not be able to transfer their shares of Crescent Capital Maryland BDC Common Stock easily or quickly or at all.

Crescent Capital BDC may retain income and capital gains in excess of what is permissible for excise tax purposes and such amounts will be subject to 4% U.S. federal excise tax, reducing the amount available for distribution to stockholders.

Crescent Capital BDC may retain some income and capital gains in the future, including for purposes of providing it with additional liquidity, which amounts would be subject to the 4% U.S. federal excise tax. In that event, Crescent Capital BDC will be liable for the tax on the amount by which it does not meet the foregoing distribution requirement. See “Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers.”

Crescent Capital BDC’s business may be adversely affected if it fails to maintain its qualification as a RIC.

To maintain RIC tax treatment under the Code, Crescent Capital BDC must meet the Annual Distribution Requirement, 90% Income Test and Diversification Tests described below and defined and further described in “Material U.S. Federal Income Tax Considerations.” The Annual Distribution Requirement will be satisfied if Crescent Capital BDC distributes dividends to its stockholders in respect of each taxable year of an amount generally at least equal to 90% of its investment company taxable income, determined without regard to any deduction for distributions paid. In this regard, a RIC may, in certain cases, satisfy the Annual Distribution Requirement by distributing dividends relating to a taxable year after the close of such taxable year under the “spillback dividend” provisions of Subchapter M of the Code. Crescent Capital BDC will be subject to tax, at regular corporate rates, on any retained income and/or gains, including any short-term capital gains or long-term capital gains. Crescent Capital BDC must also satisfy the Excise Tax Avoidance Requirement, which is an additional distribution requirement with respect to each calendar year in order to avoid the imposition of a 4% excise tax on the amount of any under-distribution. Because Crescent Capital BDC may use debt financing, it is subject to (i) an asset coverage ratio requirement under the Investment Company Act and may, in the future, be subject to (ii) certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict it from making distributions necessary to satisfy the distribution requirements. If Crescent Capital BDC is unable to obtain cash from other sources, or chose or be required to retain a portion of its taxable

 

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income or gains, it could (i) be required to pay excise tax and (ii) fail to qualify for RIC tax treatment, and thus become subject to corporate-level income tax on its taxable income (including gains).

The 90% Income Test will be satisfied if Crescent Capital BDC earns at least 90% of its gross income each taxable year from distributions, interest, gains from the sale of stock or securities, or other income derived from the business of investing in stock or securities. The Diversification Tests will be satisfied if Crescent Capital BDC meets certain asset diversification requirements at the end of each quarter of its taxable year. To satisfy the Diversification Tests, at least 50% of the value of Crescent Capital BDC assets at the close of each quarter of each taxable year must consist of cash, cash equivalents (including receivables), U.S. government securities, securities of other RICs, and other acceptable securities, and no more than 25% of the value of its assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by Crescent Capital BDC and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in Crescent Capital BDC having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of Crescent Capital BDC investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

Crescent Capital BDC may invest in certain debt and equity investments through taxable subsidiaries and the net taxable income of these taxable subsidiaries will be subject to federal and state corporate income taxes. Crescent Capital BDC also may invest in certain foreign debt and equity investments which could be subject to foreign taxes (such as income tax, withholding, and value added taxes). If Crescent Capital BDC fails to maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce its net assets, the amount of income available for distribution, and the amount of Crescent Capital BDC’s distributions.

Certain investors are limited in their ability to make significant investments in Crescent Capital BDC.

Private funds that are excluded from the definition of “investment company” either pursuant to Section 3(c)(1) or 3(c)(7) of the Investment Company Act are restricted from acquiring directly or through a controlled entity more than 3% of Crescent Capital BDC’s total outstanding voting stock (measured at the time of the acquisition). Investment companies registered under the Investment Company Act and BDCs, such as Crescent Capital BDC, are also currently subject to this restriction as well as other limitations under the Investment Company Act that would restrict the amount that they are able to invest in securities of Crescent Capital BDC. As a result, certain investors will be limited in their ability to make significant investments in Crescent Capital BDC at a time that they might desire to do so. The SEC has proposed Rule 12d1-4 under the Investment Company Act. Subject to certain conditions, proposed Rule 12d1-4 would provide an exemption to permit acquiring funds to invest in the securities of other registered investment companies and BDCs in excess of the limits currently prescribed by the Investment Company Act.

Crescent Capital BDC’s business could be adversely affected in the event it defaults under its existing credit facilities or any future credit or other borrowing facility.

Crescent Capital BDC has entered into, and additionally may enter into, one or more credit facilities. The closing of any additional credit facilities is contingent on a number of conditions including, without limitation, the negotiation and execution of definitive documents relating to such credit facility. If Crescent Capital BDC obtains any additional credit facilities, Crescent Capital BDC intends to use borrowings under such credit facilities to make additional investments and for other general corporate purposes. However, there can be no assurance that Crescent Capital BDC will be able to close such additional credit facilities or obtain other financing.

In the event Crescent Capital BDC defaults under one of its credit facilities or any other future borrowing facility, Crescent Capital BDC’s business could be adversely affected as Crescent Capital BDC may be forced to

 

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sell a portion of Crescent Capital BDC’s investments quickly and prematurely at what may be disadvantageous prices to Crescent Capital BDC in order to meet Crescent Capital BDC’s outstanding payment obligations and/or support working capital requirements under the relevant credit facility or such future borrowing facility, any of which would have a material adverse effect on Crescent Capital BDC’s business, financial condition, results of operations and cash flows. In addition, following any such default, the agent for the lenders under any future borrowing facility could assume control of the disposition of any or all of Crescent Capital BDC’s assets, including the selection of such assets to be disposed and the timing of such disposition, which would have a material adverse effect on Crescent Capital BDC’s business, ability to pay dividends, financial condition, results of operations and cash flows. If Crescent Capital BDC were unable to obtain a waiver of a default from the lenders or holders of that indebtedness, as applicable, those lenders or holders could accelerate repayment under that indebtedness, which might result in cross-acceleration of other indebtedness. An acceleration could have a material adverse impact on Crescent Capital BDC’s business, financial condition and results of operations.

In addition, following any such default, the agent for the lenders under the relevant credit facility or such future credit or other borrowing facility could assume control of the disposition of any or all of Crescent Capital BDC’s assets, including the selection of such assets to be disposed and the timing of such disposition, which could have a material adverse effect on Crescent Capital BDC’s business, financial condition, results of operations and cash flows.

Lastly, as a result of any such default, Crescent Capital BDC may be unable to obtain additional leverage, which could, in turn, affect its return on capital.

Crescent Capital BDC’s strategy involves a high degree of leverage. Crescent Capital BDC intends to continue to finance its investments with borrowed money, which will magnify the potential for gain or loss on amounts invested and increases the risk of investing in Crescent Capital BDC. The risks of investment in a highly leveraged fund include volatility and possible distribution restrictions.

The use of leverage magnifies the potential for gain or loss on amounts invested. The use of leverage is generally considered a speculative investment technique and increases the risks associated with investing in Crescent Capital BDC’s securities. However, Crescent Capital BDC has borrowed from, and may in the future issue debt securities to, banks, insurance companies and other lenders. Lenders of these funds have fixed dollar claims on Crescent Capital BDC’s assets that are superior to the claims of Crescent Capital BDC’s common stockholders, and Crescent Capital BDC would expect such lenders to seek recovery against Crescent Capital BDC’s assets in the event of a default. Crescent Capital BDC may pledge up to 100% of its assets and may grant a security interest in all of its assets under the terms of any debt instruments Crescent Capital BDC may enter into with lenders. In addition, under the terms of its credit facilities and any borrowing facility or other debt instrument Crescent Capital BDC may enter into, Crescent Capital BDC is likely to be required to use the net proceeds of any investments that Crescent Capital BDC sells to repay a portion of the amount borrowed under such facility or instrument before applying such net proceeds to any other uses. If the value of Crescent Capital BDC’s assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have had Crescent Capital BDC not leveraged, thereby magnifying losses or eliminating Crescent Capital BDC’s stake in a leveraged investment. Similarly, any decrease in Crescent Capital BDC’s revenue or income will cause Crescent Capital BDC’s net income to decline more sharply than it would have had Crescent Capital BDC not borrowed. Such a decline would also negatively affect Crescent Capital BDC’s ability to make dividend payments on Crescent Capital BDC Common Stock or preferred stock. Crescent Capital BDC’s ability to service any debt will depend largely on its financial performance and will be subject to prevailing economic conditions and competitive pressures. In addition, Crescent Capital BDC’s common stockholders will bear the burden of any increase in Crescent Capital BDC’s expenses as a result of its use of leverage, including interest expenses and any increase in the base management fee payable to Crescent Cap Advisors.

There can be no assurance that Crescent Capital BDC’s business will generate sufficient cash flow from operations or that future borrowings will be available to Crescent Capital BDC under its credit facilities or

 

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otherwise in an amount sufficient to enable it to repay its indebtedness or to fund its other liquidity needs. Crescent Capital BDC may need to refinance all or a portion of its indebtedness on or before it matures. There can be no assurance that Crescent Capital BDC will be able to refinance any of its indebtedness on commercially reasonable terms or at all. If Crescent Capital BDC cannot service its indebtedness, it may have to take actions such as selling assets or seeking additional equity. There can be no assurance that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or on terms that would not be disadvantageous to stockholders or on terms that would not require Crescent Capital BDC to breach the terms and conditions of its existing or future debt agreements.

As a BDC, Crescent Capital BDC is generally required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of Crescent Capital BDC’s borrowings and any preferred stock that Crescent Capital BDC may issue in the future, of at least 200%. If this ratio declines below 200%, Crescent Capital BDC will not be able to incur additional debt and could be required to sell a portion of its investments to repay some debt when it is otherwise disadvantageous for Crescent Capital BDC to do so. This could have a material adverse effect on Crescent Capital BDC’s operations, and Crescent Capital BDC may not be able to make distributions. The amount of leverage that Crescent Capital BDC employs will depend on Crescent Cap Advisors’ assessment of market and other factors at the time of any proposed borrowing. Crescent Capital BDC cannot assure stockholders that it will be able to obtain credit at all or on terms acceptable to it. The SBCAA, which was signed into law in March 2018, modifies the applicable section of the Investment Company Act and decreases the asset coverage requirements applicable to BDCs from 200% to 150% (subject to either stockholder approval or approval of both a majority of the board of directors and a majority of directors who are not interested persons). In such event, Crescent Capital BDC would be able to incur additional leverage. As of June 30, 2019, Crescent Capital BDC’s total outstanding indebtedness was $266.6 million and Crescent Capital BDC’s asset coverage ratio, computed in accordance with the Investment Company Act, was 218%. Crescent Capital BDC plans to seek the approval of the board of directors and stockholders to reduce its asset coverage ratio to 150% as soon as practical following the completion of the Mergers. If Crescent Capital BDC obtains stockholder approval or approval of a majority of its board of directors who are not interested persons and who have no financial interest in the proposal to reduce the required asset coverage ratio applicable to Crescent Capital BDC, Crescent Capital BDC would be able to incur additional leverage in the future, and the risks associated with an investment in Crescent Capital BDC increases.

Crescent Capital BDC is subject to risks associated with the current interest rate environment, and to the extent Crescent Capital BDC uses debt to finance its investments, changes in interest rates may affect Crescent Capital BDC’s cost of capital and net investment income. Further, changes in LIBOR or its discontinuation may adversely affect the value of LIBOR-indexed securities, loans, and other financial obligations or extensions of credit in Crescent Capital BDC’s portfolio.

An increase in interest rates from their comparatively low present levels may make it more difficult for Crescent Capital BDC’s portfolio companies to service their obligations under the debt investments that Crescent Capital BDC holds. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults.

In addition, concerns have been publicized that some of the member banks surveyed by the British Bankers’ Association (the “BBA”) in connection with the calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivatives positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental authorities in various jurisdictions are ongoing. These developments may have adversely affected the interest rates on securities, loans, and other financial obligations or extensions of credit whose interest

 

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payments were determined by reference to LIBOR. Any future similar developments could, in turn, reduce the value of such instruments held by or due to Crescent Capital BDC.

In July 2017, the head of the United Kingdom Financial Conduct Authority announced the intention to phase out the use of LIBOR by the end of 2021. It is unclear if at that time whether or not LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee of the Federal Reserve Board, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities. It is currently unknown whether this or any other alternative reference rates will attain market acceptance as replacements for LIBOR. The unavailability of LIBOR presents risks to Crescent Capital BDC, including the risk that any pricing or adjustments to Crescent Capital BDC’s investments resulting from a substitute reference rate may adversely affect Crescent Capital BDC’s performance or NAV. There is no definitive information regarding the future of LIBOR or of any particular replacement index rate. As such, the potential effect of any such event on Crescent Capital BDC’s cost of capital and net investment income cannot yet be determined.

There can be no assurance that all of the LIBOR-indexed securities, loans, and other financial obligations or extensions of credit in which Crescent Capital BDC is invested do or will include, or be amended to include, an alternative rate-setting methodology to be used in the event that LIBOR ceases to exist. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to Crescent Capital BDC or on its overall financial condition or results of operations.

To the extent Crescent Capital BDC borrows money to make investments, its net investment income will depend, in part, upon the difference between the rate at which Crescent Capital BDC borrows funds and the rate at which it invests those funds. As a result, Crescent Capital BDC can offer no assurance that a significant change in market interest rates would not have a material adverse effect on Crescent Capital BDC’s net investment income in the event Crescent Capital BDC uses debt to finance its investments. In periods of rising interest rates, Crescent Capital BDC’s cost of funds would increase, which could reduce its net investment income.

In addition, a rise in the general level of interest rates typically leads to higher interest rates applicable to Crescent Capital BDC’s debt investments. Accordingly, an increase in interest rates may result in an increase of the amount of Crescent Capital BDC’s pre-incentive fee net investment income, which could make it easier for Crescent Capital BDC to meet or exceed the Hurdle Amount and, as a result, increase the in incentive fees payable to Crescent Cap Advisors.

Crescent Capital BDC is and may be subject to restrictions under its credit facilities and any future credit or other borrowing facility that could adversely impact its business.

Crescent Capital BDC’s credit facilities, and any future borrowing facility, may be backed by all or a portion of Crescent Capital BDC’s loans and securities on which the lenders may have a security interest. Under its revolving credit facilities, Crescent Capital BDC has granted the lenders a security interest its unused capital commitments. In the future, Crescent Capital BDC may pledge up to 100% of its assets and may grant a security interest in all of its assets under the terms of any debt instrument Crescent Capital BDC enters into with lenders. Like with its current credit facilities, Crescent Capital BDC expects that any future security interests it grants will be set forth in a pledge and security agreement and evidenced by the filing of financing statements by the agent for the lenders, and Crescent Capital BDC expects that the custodian for Crescent Capital BDC’s securities serving as collateral for such loan would include in the custodian’s electronic systems notices indicating the existence of such security interests and, following notice of occurrence of an event of default, if any, and during its continuance, will only accept transfer instructions with respect to any such securities from the lender or its designee. Under its current credit facilities, Crescent Capital BDC is subject to customary events of default. If

 

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Crescent Capital BDC were to default under the terms of its current credit facilities and any future borrowing facility, the agent for the applicable lenders would be able to assume control of the timing of disposition of the assets pledge under the facility, which could include any or all of Crescent Capital BDC’s assets securing such debt. Such remedial action would have a material adverse effect on Crescent Capital BDC’s business, financial condition, results of operations and cash flows.

In addition, the security interests as well as negative covenants under its credit facilities, or any other future borrowing facility, may limit Crescent Capital BDC’s ability to create liens on assets to secure additional debt and may make it difficult for Crescent Capital BDC to restructure or refinance indebtedness at or prior to maturity or obtain additional debt or equity financing. In addition, if Crescent Capital BDC’s borrowing base under its credit facilities or any other borrowing facility were to decrease, Crescent Capital BDC would be required to secure additional assets in an amount equal to any borrowing base deficiency. In the event that all of Crescent Capital BDC’s assets are secured at the time of such a borrowing base deficiency, Crescent Capital BDC could be required to repay advances under the relevant credit facility or any other borrowing facility or make deposits to a collection account, either of which could have a material adverse impact on Crescent Capital BDC’s ability to fund future investments and to pay dividends.

In addition, under its credit facilities, or any other future borrowing facility, Crescent Capital BDC may be limited as to how borrowed funds may be used, which may include restrictions on geographic and industry concentrations, loan size, payment frequency and status, average life, collateral interests and investment ratings, as well as regulatory restrictions on leverage which may affect the amount of funding that may be obtained. There may also be certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, a violation of which could limit further advances and, in some cases, result in an event of default. An event of default under its credit facilities or any other borrowing facility could result in an accelerated maturity date for all amounts outstanding thereunder, which could have a material adverse effect on Crescent Capital BDC’s business and financial condition. This could reduce Crescent Capital BDC’s revenues and, by delaying any cash payment allowed to Crescent Capital BDC under the relevant credit facility or any other borrowing facility until the lenders have been paid in full, reduce Crescent Capital BDC’s liquidity and cash flow and impair its ability to grow its business and maintain its qualification as a RIC.

Crescent Capital BDC may be the target of litigation.

Crescent Capital BDC may be the target of securities litigation in the future, particularly if the value of shares of its common stock fluctuates significantly. Crescent Capital BDC could also generally be subject to litigation, including derivative actions by stockholders. In addition, Crescent Capital BDC’s investment activities subject it to litigation relating to the bankruptcy process and the normal risks of becoming involved in litigation by third parties. This risk is somewhat greater where Crescent Capital BDC exercises control or significant influence over a portfolio company’s direction. Any litigation could result in substantial costs and divert management’s attention and resources from Crescent Capital BDC’s business and cause a material adverse effect on Crescent Capital BDC’s business, financial condition and results of operations.

There is a risk that investors in Crescent Capital BDC Common Stock may not receive dividends or that Crescent Capital BDC’s dividends may not grow over time and that investors in Crescent Capital BDC’s debt securities may not receive all of the interest income to which they are entitled.

Crescent Capital BDC intends to make distributions on a quarterly basis to Crescent Capital BDC’s stockholders out of assets legally available for distribution. Crescent Capital BDC cannot assure you that Crescent Capital BDC will achieve investment results that will allow Crescent Capital BDC to make a specified level of cash distributions or year-to-year increases in cash distributions. If Crescent Capital BDC declares a dividend and if more stockholders opt to receive cash distributions rather than participate in its reinvestment plan, Crescent Capital BDC may be forced to sell some of its investments in order to make cash dividend payments.

 

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In addition, due to the asset coverage test applicable to Crescent Capital BDC as a BDC, Crescent Capital BDC may be limited in its ability to make distributions. Certain of its credit facilities may also limit Crescent Capital BDC’s ability to declare dividends if Crescent Capital BDC defaults under certain provisions. Further, if Crescent Capital BDC invests a greater amount of assets in equity securities that do not pay current dividends, it could reduce the amount available for distribution.

The above-referenced restrictions on distributions may also inhibit Crescent Capital BDC’s ability to make required interest payments to holders of its debt, which may cause a default under the terms of its debt agreements. Such a default could materially increase Crescent Capital BDC’s cost of raising capital, as well as cause Crescent Capital BDC to incur penalties under the terms of its debt agreements.

If Crescent Capital BDC does not invest a sufficient portion of its assets in qualifying assets, it could fail to qualify as a BDC or be precluded from investing according to its current business strategy.

To maintain its status as a BDC, Crescent Capital BDC is not permitted to acquire any assets other than “qualifying assets” specified in the Investment Company Act unless, at the time the acquisition is made, at least 70% of Crescent Capital BDC’s total assets are qualifying assets (with certain limited exceptions). Subject to certain exceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as a qualifying asset only if such issuer has a common equity market capitalization that is less than $250.0 million at the time of such investment. Subject to certain exceptions for follow-on investments and investments in distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as qualifying assets only if such issuer has a common equity market capitalization that is less than $250.0 million at the time of such investment.

Crescent Capital BDC may be precluded from investing in what Crescent Capital BDC believes are attractive investments if such investments are not qualifying assets for purposes of the Investment Company Act. If Crescent Capital BDC does not invest a sufficient portion of its assets in qualifying assets, Crescent Capital BDC could violate the Investment Company Act provisions applicable to BDCs. As a result of such violation, specific rules under the Investment Company Act could prevent Crescent Capital BDC, for example, from making follow-on investments in existing portfolio companies (which could result in the dilution of Crescent Capital BDC’s position) or could require Crescent Capital BDC to dispose of investments at inappropriate times in order to come into compliance with the Investment Company Act. If Crescent Capital BDC needs to dispose of such investments quickly, it could be difficult to dispose of such investments on favorable terms. Crescent Capital BDC may not be able to find a buyer for such investments and, even if it does find a buyer, Crescent Capital BDC may have to sell the investments at a substantial loss. Any such outcomes would have a material adverse effect on Crescent Capital BDC’s business, financial condition, results of operations and cash flows.

The majority of Crescent Capital BDC’s portfolio investments are recorded at fair value as determined in good faith by the Crescent Capital BDC Board and, as a result, there may be uncertainty as to the value of Crescent Capital BDC’s portfolio investments.

Crescent Capital BDC expects that many of Crescent Capital BDC’s portfolio investments will take the form of loans and securities that are not publicly traded. The fair value of loans, securities and other investments that are not publicly traded may not be readily determinable, and Crescent Capital BDC will value these investments at fair value as determined in good faith by the Crescent Capital BDC Board, including to reflect significant events affecting the value of Crescent Capital BDC’s investments. Most, if not all, of Crescent Capital BDC’s investments (other than cash and cash equivalents) will be classified as Level 3 under the FASB Accounting Standards Codification, Fair Value Measurements and Disclosures (ASC Topic 820). This means that Crescent Capital BDC’s portfolio valuations will be based on unobservable inputs and Crescent Capital BDC’s assumptions about how market participants would price the asset or liability in question. Crescent Capital BDC expects that inputs into the determination of fair value of its portfolio investments will require significant

 

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management judgment or estimation. Even if observable market data are available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information. Crescent Capital BDC retains the services of one or more independent service providers to review the valuation of these loans and securities. However, the ultimate determination of fair value will be made by the Crescent Capital BDC Board and not by such third party valuation firm. The types of factors that the Crescent Capital BDC Board may take into account in determining the fair value of Crescent Capital BDC’s investments generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made in the future, comparisons to publicly traded companies, relevant credit market indices and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, Crescent Capital BDC considers the pricing indicated by the external event to corroborate its valuation.

Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, Crescent Capital BDC’s determinations of fair value may differ materially from the values that would have been used if a ready market for these loans and securities existed. Also, since these valuations are, to a large extent, based on estimates, comparisons and qualitative evaluations of private information, Crescent Capital BDC’s fair valuation process could make it more difficult for investors to accurately value Crescent Capital BDC’s investments and could lead to undervaluation or overvaluation of Crescent Capital BDC’s securities. In addition, the valuation of these types of securities may result in substantial write-downs and earnings volatility. Also, privately held companies frequently have less diverse product lines and smaller market presence than larger public competitors.

Crescent Capital BDC’s NAV could be adversely affected if Crescent Capital BDC’s determinations regarding the fair value of its investments were materially higher than the values that it ultimately realizes upon the disposal of such loans and securities. Further, Crescent Capital BDC’s NAV as of a particular date may be materially greater than or less than the value that would be realized if Crescent Capital BDC’s assets were to be liquidated as of such date. For example, if Crescent Capital BDC were required to sell a certain asset or all or a substantial portion of its assets on a particular date, the actual price that Crescent Capital BDC would realize upon the disposition of such asset or assets could be materially less than the value of such asset or assets as reflected in Crescent Capital BDC’s NAV. Volatile market conditions could also cause reduced liquidity in the market for certain assets, which could result in liquidation values that are materially less than the values of such assets as reflected in the NAV.

Crescent Capital BDC will adjust quarterly the valuation of its portfolio to reflect the Crescent Capital BDC Board’s determination of the fair value of each investment in Crescent Capital BDC’s portfolio. Any changes in fair value are recorded in Crescent Capital BDC’s statement of operations as net change in unrealized appreciation or depreciation.

Crescent Capital BDC may experience fluctuations in its quarterly operating results.

Crescent Capital BDC could experience fluctuations in its quarterly operating results due to a number of factors, including the interest rate payable on the loans and debt securities Crescent Capital BDC acquires, the default rate on such loans and securities, the level of Crescent Capital BDC’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which Crescent Capital BDC encounters competition in Crescent Capital BDC’s markets and general economic conditions. In light of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

 

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New or modified laws or regulations governing Crescent Capital BDC’s operations may adversely affect Crescent Capital BDC’s business.

Crescent Capital BDC and its portfolio companies are subject to regulation by laws at the U.S. federal, state and local levels. These laws and regulations, as well as their interpretation, may change from time to time, including as the result of interpretive guidance or other directives from the U.S. President and others in the executive branch, and new laws, regulations and interpretations may also come into effect. Any such new or changed laws or regulations could have a material adverse effect on Crescent Capital BDC’s business. In addition, if Crescent Capital BDC does not comply with applicable laws and regulations, it could lose any licenses that it then holds for the conduct of its business and may be subject to civil fines and criminal penalties.

Additionally, changes to the laws and regulations governing Crescent Capital BDC’s operations, including those associated with RICs, may cause Crescent Capital BDC to alter its investment strategy in order to avail itself of new or different opportunities or result in the imposition of corporate-level taxes on Crescent Capital BDC. Such changes could result in material differences to the strategies and plans set forth therein and may shift Crescent Capital BDC’s investment focus from the areas of expertise of CCG LP to other types of investments in which CCG LP may have little or no expertise or experience. Any such changes, if they occur, could have a material adverse effect on Crescent Capital BDC’s results of operations and the value of an investor’s investment. If Crescent Capital BDC invests in commodity interests in the future, Crescent Cap Advisors may determine not to use investment strategies that trigger additional regulation by the U.S. Commodity Futures Trading Commission (“CFTC”) or may determine to operate subject to CFTC regulation, if applicable. If Crescent Capital BDC or Crescent Cap Advisors were to operate subject to CFTC regulation, Crescent Capital BDC may incur additional expenses and would be subject to additional regulation.

On March 23, 2018, the SBCAA was signed into law. The SBCAA, among other things, modifies the applicable provisions of the Investment Company Act to reduce the required asset coverage ratio applicable to BDCs from 200% to 150% subject to certain approval, time and disclosure requirements (including either stockholder approval or approval of a majority of the directors who are not interested persons of the BDC and who have no financial interest in the proposal). As previously noted, Crescent Cap Advisors plans to seek approval to reduce Crescent Capital BDC’s asset coverage ratio to 150% as soon as practical following the completion of the Transactions. If Crescent Capital BDC obtains stockholder approval or approval of a majority of directors who are not interested persons and who have no financial interest in the proposal to reduce the required asset coverage ratio applicable to Crescent Capital BDC, it would be able to incur additional leverage in the future, and the risks associated with an investment in Crescent Capital BDC increases.

On May 24, 2018, President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act, which increased from $50 billion to $250 billion the asset threshold for designation of “systemically important financial institutions” or “SIFIs” subject to enhanced prudential standards set by the Federal Reserve Board, staggering application of this change based on the size and risk of the covered bank holding company. On May 30, 2018, the Federal Reserve Board voted to consider changes to the Volcker Rule that would loosen compliance requirements for all banks.

Further, there has been increasing commentary amongst regulators and intergovernmental institutions, including the Financial Stability Board and International Monetary Fund, on the topic of so called “shadow banking” (a term generally taken to refer to credit intermediation involving entities and activities outside the regulated banking system). Crescent Capital BDC is an entity outside the regulated banking system and certain of the activities of the Crescent Capital BDC may be argued to fall within this definition and, in consequence, may be subject to regulatory developments. As a result, Crescent Capital BDC and Crescent Cap Advisors could be subject to increased levels of oversight and regulation. This could increase costs and limit operations. In an extreme eventuality, it is possible that such regulations could render the continued operation of Crescent Capital BDC unviable and lead to its premature termination or restructuring.

 

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Changes to U.S. tariff and import/export regulations may have a negative effect on Crescent Capital BDC’s portfolio companies and, in turn, harm Crescent Capital BDC.

There has been ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, treaties and tariffs. The current administration, along with the U.S. Congress, has created significant uncertainty about the future relationship between the United States and other countries with respect to trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States. Any of these factors could depress economic activity and restrict Crescent Capital BDC’s portfolio companies’ access to suppliers or customers and have a material adverse effect on their business, financial condition and results of operations, which in turn would negatively impact Crescent Capital BDC.

The Crescent Capital BDC Board may change Crescent Capital BDC’s investment objectives, operating policies and strategies without prior notice or stockholder approval.

The Crescent Capital BDC Board has the authority, except as otherwise provided in the Investment Company Act, to modify or waive certain of Crescent Capital BDC’s investment objectives, operating policies and strategies without prior notice and without stockholder approval. However, absent stockholder approval, Crescent Capital BDC may not change the nature of its business so as to cease to be, or withdraw its election as, a BDC. Under Delaware law, Crescent Capital BDC also cannot be dissolved without prior stockholder approval, and following the Reincorporation Merger, a similar provision will apply under Maryland law. Crescent Capital BDC cannot predict the effect any changes to Crescent Capital BDC’s current operating policies and strategies would have on its business, operating results and the market price of its common stock. Nevertheless, any such changes could adversely affect Crescent Capital BDC’s business and impair its ability to make distributions to its stockholders.

Crescent Cap Advisors and CCAP Administration each have the ability to resign on 60 days’ notice, and Crescent Capital BDC may not be able to find a suitable replacement within that time, resulting in a disruption in operations that could adversely affect Crescent Capital BDC’s financial condition, business and results of operations.

Crescent Cap Advisors has the right under the Crescent Capital BDC Investment Advisory Agreement (and with substantially similar rights expected under the Proposed Crescent Capital BDC Investment Advisory Agreement) to resign as Crescent Capital BDC’s investment adviser at any time upon not less than 60 days’ written notice, whether Crescent Capital BDC has found a replacement or not. Similarly, CCAP Administration has the right under the administration agreement to resign at any time upon not less than 60 days’ written notice, whether Crescent Capital BDC has found a replacement or not. If Crescent Cap Advisors or CCAP Administration were to resign, Crescent Capital BDC may not be able to find a new investment adviser or administrator, as applicable, or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If Crescent Capital BDC is unable to do so quickly, its operations are likely to experience a disruption, its financial condition, business and results of operations as well as its ability to pay distributions to its stockholders are likely to be adversely affected and the market price of its shares may decline. In addition, the coordination of Crescent Capital BDC’s internal management and investment or administrative activities, as applicable, is likely to suffer if Crescent Capital BDC is unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by Crescent Cap Advisors or CCAP Administration, as applicable. Even if Crescent Capital BDC is able to retain a comparable service provider or individuals performing such services are retained, whether internal or external, their integration and lack of familiarity with Crescent Capital BDC’s investment objectives may result in additional costs and time delays that may adversely affect Crescent Capital BDC’s business, financial condition, results of operations and cash flows.

 

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In addition, if Crescent Cap Advisors resigns or is terminated, Crescent Capital BDC would lose the benefits of its relationship with CCG LP, including the use of its communication and information systems, insights into Crescent Capital BDC’s existing portfolio, market expertise, sector and macroeconomic views and due diligence capabilities, as well as any investment opportunities referred to Crescent Capital BDC by CCG LP, and Crescent Capital BDC would be required to change its name, which may have a material adverse impact on its operations.

Crescent Capital BDC is highly dependent on information systems, and systems failures or cyber-attacks could significantly disrupt its business, which may, in turn, negatively affect the value of shares of Crescent Capital BDC Common Stock and Crescent Capital BDC’s ability to pay distributions.

Crescent Capital BDC’s business is highly dependent on the communications and information systems of CCG LP, to which Crescent Capital BDC has access through its administrator, CCAP Administration. In addition, certain of these systems are provided to CCG LP by third-party service providers. Any failure or interruption of such systems, including as a result of the termination of an agreement with any such third-party service provider, could cause delays or other problems in Crescent Capital BDC’s activities. This, in turn, could have a material adverse effect on Crescent Capital BDC’s operating results and negatively affect the market price of Crescent Capital BDC Common Stock and its ability to pay dividends to its stockholders.

Cybersecurity risks and cyber incidents may adversely affect Crescent Capital BDC’s business by causing a disruption to its operations, a compromise or corruption of its confidential information and/or damage to its business relationships.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of Crescent Capital BDC’s information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to Crescent Capital BDC’s information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen information, misappropriation of assets, increased cybersecurity protection and insurance costs, litigation and damage to Crescent Capital BDC’s business relationships. This could result in significant losses, reputational damage, litigation, regulatory fines or penalties, or otherwise adversely affect Crescent Capital BDC’s business, financial condition or results of operations. In addition, Crescent Capital BDC may be required to expend significant additional resources to modify its protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. Crescent Capital BDC faces risks posed to its information systems, both internal and those provided to it by third-party service providers. Crescent Capital BDC, Crescent Cap Advisors and their affiliates have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as Crescent Capital BDC’s increased awareness of the nature and extent of a risk of a cyber-incident, may be ineffective and do not guarantee that a cyber-incident will not occur or that Crescent Capital BDC’s financial results, operations or confidential information will not be negatively impacted by such an incident.

Third parties with which Crescent Capital BDC does business (including those that provide services to Crescent Capital BDC) may also be sources or targets of cybersecurity or other technological risks. Crescent Capital BDC outsources certain functions and these relationships allow for the storage and processing of Crescent Capital BDC’s information and assets, as well as certain investor, counterparty, employee and borrower information. While Crescent Capital BDC engages in actions to reduce its exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure or destruction of data, or other cybersecurity incidents, with increased costs and other consequences, including those described above. Privacy and information security laws and regulation changes, and compliance with those changes, may also result in cost increases due to system changes and the development of new administrative processes.

 

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Crescent Capital BDC and Crescent Cap Advisors are subject to regulations and SEC oversight. If Crescent Capital BDC or Crescent Cap Advisors fails to comply with applicable requirements, it may adversely impact Crescent Capital BDC’s results relative to companies that are not subject to such regulations.

As a BDC, Crescent Capital BDC is subject to a portion of the Investment Company Act. In addition, Crescent Capital BDC has elected to be treated, and intends to operate in a manner so as to continuously qualify, as a RIC in accordance with the requirements of Subchapter M of the Code. The Investment Company Act and the Code impose various restrictions on the management of a BDC, including related to portfolio construction, asset selection, and tax. These restrictions may reduce the chances that Crescent Capital BDC will achieve the same results as other vehicles managed by CCG LP and/or Crescent Cap Advisors.

However, if Crescent Capital BDC does not maintain its status as a BDC, it would be subject to regulation as a registered closed-end investment company under the Investment Company Act. As a registered closed-end investment company, Crescent Capital BDC would be subject to substantially more regulatory restrictions under the Investment Company Act which would significantly decrease its operating flexibility.

In addition to these and other requirements applicable to Crescent Capital BDC, Crescent Cap Advisors is subject to regulatory oversight by the SEC. To the extent the SEC raises concerns or has negative findings concerning the manner in which Crescent Capital BDC or Crescent Cap Advisors operates, it could adversely affect Crescent Capital BDC’s business.

Risks Relating to Crescent Capital BDC’s Investments

Economic recessions or downturns could impair Crescent Capital BDC’s portfolio companies, and defaults by Crescent Capital BDC’s portfolio companies will harm Crescent Capital BDC’s operating results.

Many of the portfolio companies in which Crescent Capital BDC expects to make investments are likely to be susceptible to economic slowdowns or recessions and may be unable to repay their loans during such periods. Therefore, the number of Crescent Capital BDC’s non-performing assets is likely to increase and the value of Crescent Capital BDC’s portfolio is likely to decrease during such periods. Adverse economic conditions may also decrease the value of collateral securing some of Crescent Capital BDC’s loans and debt securities and the value of Crescent Capital BDC’s equity investments. If the value of collateral underlying Crescent Capital BDC’s loan declines during the term of the loan, a portfolio company may not be able to obtain the necessary funds to repay the loan at maturity through refinancing. Decreasing collateral value may hinder a portfolio company’s ability to refinance Crescent Capital BDC’s loan because the underlying collateral cannot satisfy the debt service coverage requirements necessary to obtain new financing. Thus, economic slowdowns or recessions could lead to financial losses in Crescent Capital BDC’s portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase Crescent Capital BDC’s funding costs, limit its access to the capital markets or result in a decision by lenders not to extend credit to Crescent Capital BDC. Crescent Capital BDC considers a number of factors in making Crescent Capital BDC investment decisions, including, but not limited to, the financial condition and prospects of a portfolio company and its ability to repay Crescent Capital BDC’s loan. Unfavorable economic conditions could negatively affect the valuations of Crescent Capital BDC’s portfolio companies and, as a result, make it more difficult for such portfolio companies to repay or refinance Crescent Capital BDC’s loan. Therefore, these events could prevent Crescent Capital BDC from increasing its investments and harm its operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by Crescent Capital BDC or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due, termination of the portfolio company’s loans and foreclosure on its assets, which could trigger cross-defaults under other agreements and jeopardize its ability to meet its obligations under the loans and debt securities that Crescent Capital BDC holds. Crescent Capital BDC may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company, which may include the waiver of certain financial covenants. Furthermore, if one of Crescent Capital BDC’s portfolio companies were to file for

 

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bankruptcy protection, depending on the facts and circumstances, including the extent to which Crescent Capital BDC actually provides significant managerial assistance to that portfolio company, a bankruptcy court might re-characterize Crescent Capital BDC’s debt holding and subordinate all or a portion of Crescent Capital BDC’s claim to claims of other creditors, even though Crescent Capital BDC may have structured Crescent Capital BDC’s investment as senior secured debt.

Crescent Capital BDC’s portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity, and rising interests rates may make it more difficult for portfolio companies to make periodic payments on their loans.

Crescent Capital BDC’s portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity. This risk and the risk of default is increased to the extent that the loan documents do not require the portfolio companies to pay down the outstanding principal of such debt prior to maturity. In addition, if general interest rates rise, there is a risk that Crescent Capital BDC’s portfolio companies will be unable to pay escalating interest amounts, which could result in a default under their loan documents with Crescent Capital BDC. Any failure of one or more portfolio companies to repay or refinance its debt at or prior to maturity or the inability of one or more portfolio companies to make ongoing payments following an increase in contractual interest rates could have a material adverse effect on Crescent Capital BDC’s business, financial condition, results of operations and cash flows.

Crescent Capital BDC may hold the debt securities of leveraged companies.

Investment in leveraged companies involves a number of significant risks. Leveraged companies in which Crescent Capital BDC invests may have limited financial resources and may be unable to meet their obligations under their loans and debt securities that Crescent Capital BDC holds. Such developments may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of Crescent Capital BDC’s realizing any guarantees that it may have obtained in connection with its investment. Smaller leveraged companies also may have less predictable operating results and may require substantial additional capital to support their operations, finance their expansion or maintain their competitive position.

Leveraged companies may experience bankruptcy or similar financial distress. The bankruptcy process has a number of significant inherent risks. Many events in a bankruptcy proceeding are the product of contested matters and adversary proceedings and are beyond the control of the creditors. A bankruptcy filing by a portfolio company may adversely and permanently affect the portfolio company. If the proceeding is converted to a liquidation, the value of the portfolio company may not equal the liquidation value that was believed to exist at the time of the investment. The duration of a bankruptcy proceeding is also difficult to predict, and a creditor’s return on investment can be adversely affected by delays until the plan of reorganization or liquidation ultimately becomes effective. The administrative costs in connection with a bankruptcy proceeding are frequently high and would be paid out of the debtor’s estate prior to any return to creditors. Because the standards for classification of claims under bankruptcy law are vague, Crescent Capital BDC’s influence with respect to the class of securities or other obligations that Crescent Capital BDC owns may be lost by increases in the number and amount of claims in the same class or by different classification and treatment. In the early stages of the bankruptcy process, it is often difficult to estimate the extent of, or even to identify, any contingent claims that might be made. In addition, certain claims that have priority by law (for example, claims for taxes) may be substantial.

Crescent Capital BDC typically invests in middle-market companies, which involves higher risk than investments in large companies.

Investment in private and middle-market companies involves a number of significant risks. Generally, little public information exists about these companies, and Crescent Capital BDC will rely on the ability of CCG LP’s investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If Crescent Capital BDC is unable to uncover all material information about these companies,

 

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Crescent Capital BDC may not make a fully informed investment decision and may lose money on its investments. Middle-market companies may have limited financial resources and may be unable to meet their obligations under their loans and debt securities that Crescent Capital BDC holds, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of Crescent Capital BDC realizing any guarantees that it may have obtained in connection with its investment. In addition, such companies typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Additionally, middle-market companies are more likely to depend on the management talents and efforts of a small group of persons. Therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on one or more of the portfolio companies Crescent Capital BDC invests in and, in turn, on Crescent Capital BDC. Middle-market companies also may be parties to litigation and may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence. In addition, Crescent Capital BDC’s executive officers, directors and Crescent Cap Advisors may, in the ordinary course of business, be named as defendants in litigation arising from Crescent Capital BDC’s investments in portfolio companies.

In addition, investment in middle-market companies involves a number of other significant risks, including:

 

   

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

 

   

they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;

 

   

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

 

   

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

The due diligence process that Crescent Cap Advisors undertakes in connection with Crescent Capital BDC’s investments may not reveal all the facts that may be relevant in connection with an investment.

Crescent Cap Advisors’ due diligence may not reveal all of a company’s liabilities and may not reveal other weaknesses in its business. There can be no assurance that Crescent Capital BDC’s due diligence process will uncover all relevant facts that would be material to an investment decision. Before making an investment in, or a loan to, a company, Crescent Cap Advisors will assess the strength and skills of the company’s management team and other factors that it believes are material to the performance of the investment. In making the assessment and otherwise conducting customary due diligence, Crescent Cap Advisors will rely on the resources available to it and, in some cases, an investigation by third parties. This process is particularly important and highly subjective with respect to newly organized entities because there may be little or no information publicly available about the entities. Crescent Capital BDC may make investments in, or loans to, companies, including middle market companies, which are not subject to public company reporting requirements, including requirements regarding preparation of financial statements, and will, therefore, depend upon the compliance by investment companies with their contractual reporting obligations and the ability of Crescent Cap Advisors’ investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If Crescent Capital BDC and Crescent Cap Advisors are unable to uncover all material information about these companies, Crescent Capital BDC may not make a fully informed investment decision and may lose money on its investments. As a result, the evaluation of potential investments and the ability to perform due diligence on and effective monitoring of investments may be impeded, and Crescent Capital BDC may not realize the returns that it expects on any particular investment. In the event of fraud by any company in which

 

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Crescent Capital BDC invests or with respect to which it makes a loan, Crescent Capital BDC may suffer a partial or total loss of the amounts invested in that company.

The lack of liquidity in Crescent Capital BDC’s investments may adversely affect Crescent Capital BDC’s business.

All of Crescent Capital BDC’s assets may be invested in illiquid loans and securities, and a substantial portion of Crescent Capital BDC’s investments in leveraged companies will be subject to legal and other restrictions on resale or will otherwise be less liquid than more broadly traded public securities. The illiquidity of these investments may make it difficult for Crescent Capital BDC to sell such investments if the need arises. In addition, if Crescent Capital BDC is required to liquidate all or a portion of its portfolio quickly, Crescent Capital BDC may realize significantly less than the value at which it has previously recorded its investments. Some of Crescent Capital BDC’s debt investments may contain interest rate reset provisions that may make it more difficult for the borrowers to make periodic interest payments to Crescent Capital BDC. In addition, some of Crescent Capital BDC’s debt investments may not pay down principal until the end of their lifetimes, which could result in a substantial loss to Crescent Capital BDC if the portfolio companies are unable to refinance or repay their debts at maturity.

Crescent Capital BDC may invest in high yield debt, or junk bonds, which has greater credit and liquidity risk than more highly rated debt obligations.

Crescent Capital BDC may also invest in debt securities which will not be rated by any rating agency and, if they were rated, would be rated as below investment grade quality. Below investment grade securities, which are often referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be illiquid and difficult to value.

Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of Crescent Capital BDC’s portfolio investments, reducing NAV through increased net unrealized depreciation.

As a BDC, Crescent Capital BDC is required to carry its investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by the Crescent Capital BDC Board, as described above in “—Risks Relating to Crescent Capital BDC’s Business and Structure—The majority of Crescent Capital BDC’s portfolio investments are recorded at fair value as determined in good faith by the Crescent Capital BDC Board and, as a result, there may be uncertainty as to the value of Crescent Capital BDC’s portfolio investments.”

When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, Crescent Capital BDC uses the pricing indicated by the external event to corroborate Crescent Capital BDC’s valuation. While most of Crescent Capital BDC’s investments are not publicly traded, applicable accounting standards require Crescent Capital BDC to assume as part of its valuation process that its investments are sold in a principal market to market participants (even if Crescent Capital BDC plans on holding an investment through its maturity). As a result, volatility in the capital markets can also adversely affect Crescent Capital BDC’s investment valuations. Crescent Capital BDC records decreases in the market values or fair values of its investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in Crescent Capital BDC’s portfolio. The effect of all of these factors on Crescent Capital BDC’s portfolio may reduce Crescent Capital BDC’s NAV by increasing net unrealized depreciation in Crescent Capital BDC’s portfolio. Depending on market conditions, Crescent Capital BDC could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse effect on Crescent Capital BDC’s business, financial condition, results of operations and cash flows.

 

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Crescent Capital BDC is a non-diversified investment company within the meaning of the Investment Company Act, and therefore it is not limited by the Investment Company Act with respect to the proportion of its assets that may be invested in securities of a single issuer or industry.

Crescent Capital BDC is classified as a non-diversified investment company within the meaning of the Investment Company Act, which means that Crescent Capital BDC is not limited by the Investment Company Act with respect to the proportion of Crescent Capital BDC’s assets that Crescent Capital BDC may invest in securities of a single issuer. Beyond the asset diversification requirements associated with Crescent Capital BDC’s qualification as a RIC under the Code, Crescent Capital BDC does not have fixed guidelines for diversification. To the extent that Crescent Capital BDC assumes large positions in the securities of a small number of issuers or Crescent Capital BDC’s investments are concentrated in relatively few industries, Crescent Capital BDC’s NAV 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. Crescent Capital BDC may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Crescent Capital BDC’s portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject Crescent Capital BDC to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.

Crescent Capital BDC’s failure to make follow-on investments in its portfolio companies could impair the value of its portfolio.

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

 

   

increase or maintain in whole or in part its position as a creditor or equity ownership percentage in a portfolio company;

 

   

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

 

   

preserve or enhance the value of its investment.

Crescent Capital BDC has discretion to make follow-on investments, subject to the availability of capital resources. Failure on Crescent Capital BDC’s part to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and Crescent Capital BDC’s initial investment, or may result in a missed opportunity for Crescent Capital BDC to increase its participation in a successful operation. Even if Crescent Capital BDC has sufficient capital to make a desired follow-on investment, Crescent Capital BDC may elect not to make a follow-on investment because it may not want to increase its level of risk, because Crescent Capital BDC prefers other opportunities or because Crescent Capital BDC is inhibited by compliance with BDC requirements of the Investment Company Act or the desire to maintain Crescent Capital BDC’s qualification as a RIC. Crescent Capital BDC’s ability to make follow-on investments may also be limited by CCG LP’s allocation policy.

Additionally, certain loans that Crescent Capital BDC may make to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by first priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of the collateral to repay their obligations in full before Crescent Capital BDC. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds were not sufficient to repay amounts outstanding under the loan

 

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obligations secured by the second priority liens, then Crescent Capital BDC, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.

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

The rights Crescent Capital BDC may have with respect to the collateral securing the loans Crescent Capital BDC makes to its portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that Crescent Capital BDC enters into with the holders of such senior debt. Under a typical intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens:

 

   

the ability to cause the commencement of enforcement proceedings against the collateral;

 

   

the ability to control the conduct of such proceedings;

 

   

the approval of amendments to collateral documents;

 

   

releases of liens on the collateral; and

 

   

waivers of past defaults under collateral documents.

Crescent Capital BDC may not have the ability to control or direct such actions, even if its rights are adversely affected.

Crescent Capital BDC’s subordinated investments may be subject to greater risk than investments that are not similarly subordinated.

Crescent Capital BDC may make subordinated investments that rank below other obligations of the obligor in right of payment. Subordinated investments are subject to greater risk of default than senior obligations as a result of adverse changes in the financial condition of the obligor or in general economic conditions. If Crescent Capital BDC makes a subordinated investment in a portfolio company, the portfolio company may be highly leveraged, and its relatively high debt-to-equity ratio may create increased risks that its operations might not generate sufficient cash flow to service all of its debt obligations.

The disposition of Crescent Capital BDC’s investments may result in contingent liabilities.

Crescent Capital BDC currently expects that substantially all of its investments will involve loans and private securities. In connection with the disposition of an investment in loans and private securities, Crescent Capital BDC may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. Crescent Capital BDC may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate

 

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or with respect to potential liabilities. These arrangements may result in contingent liabilities that ultimately result in funding obligations that Crescent Capital BDC must satisfy through its return of distributions previously made to Crescent Capital BDC.

Crescent Capital BDC will be subject to the risk that the debt investments Crescent Capital BDC makes in its portfolio companies may be repaid prior to maturity.

Crescent Capital BDC expects that its investments will generally allow for repayment at any time subject to certain penalties. When such prepayment occurs, Crescent Capital BDC intends to generally reinvest these proceeds in temporary investments, pending their future investment in accordance with Crescent Capital BDC’s investment strategy. These temporary investments will typically have substantially lower yields than the debt being prepaid, and Crescent Capital BDC could experience significant delays in reinvesting these amounts. Any future investment may also be at lower yields than the debt that was repaid. As a result, Crescent Capital BDC’s results of operations could be materially adversely affected if one or more of Crescent Capital BDC’s portfolio companies elects to prepay amounts owed to Crescent Capital BDC. Additionally, prepayments could negatively impact Crescent Capital BDC’s ability to pay, or the amount of, dividends on Crescent Capital BDC Common Stock, which could result in a decline in the market price of Crescent Capital BDC’s shares.

Crescent Capital BDC may be subject to risks under hedging transactions and may become subject to risk if it invests in non-U.S. securities.

The Investment Company Act generally requires that 70% of Crescent Capital BDC’s investments be in issuers each of whom is organized under the laws of, and has its principal place of business in, any state of the United States, the District of Columbia, Puerto Rico, the Virgin Islands or any other possession of the United States. However, Crescent Capital BDC’s portfolio may include debt securities of non-U.S. companies, including emerging market issuers, to the limited extent such transactions and investments would not cause Crescent Capital BDC to violate the Investment Company Act. Crescent Capital BDC expects that these investments would focus on the same secured debt, unsecured debt and related equity security investments that Crescent Capital BDC makes in U.S. middle-market companies and, accordingly, would be complementary to Crescent Capital BDC’s overall strategy and enhance the diversity of its holdings. Investing in loans and securities of emerging market issuers involves many risks including economic, social, political, financial, tax and security conditions in the emerging market, potential inflationary economic environments, regulation by foreign governments, different accounting standards and political uncertainties. Economic, social, political, financial, tax and security conditions also could negatively affect the value of emerging market companies. These factors could include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations or judgments or foreclosing on collateral, lack of uniform accounting and auditing standards and greater price volatility.

Engaging in either hedging transactions or investing in foreign loans and securities would entail additional risks to Crescent Capita BDC’s stockholders. Crescent Capital BDC could, for example, use instruments such as interest rate swaps, caps, collars and floors and, if Crescent Capital BDC was to invest in foreign loans and securities, Crescent Capital BDC could use instruments such as forward contracts or currency options and borrow under a credit facility in currencies selected to minimize Crescent Capital BDC’s foreign currency exposure. In each such case, Crescent Capital BDC generally would seek to hedge against fluctuations of the relative values of its portfolio positions from changes in market interest rates or currency exchange rates. Hedging against a decline in the values of Crescent Capital BDC’s portfolio positions would not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of the positions declined. However, such hedging could establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions could also limit the opportunity for gain if the values of the underlying portfolio positions increased. Moreover, it might not be possible to hedge against an

 

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exchange rate or interest rate fluctuation that was so generally anticipated that Crescent Capital BDC would not be able to enter into a hedging transaction at an acceptable price.

While Crescent Capital BDC may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates could result in poorer overall investment performance than if Crescent Capital BDC had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged could vary. Moreover, for a variety of reasons, Crescent Capital BDC might not seek to establish a perfect correlation between the hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation could prevent Crescent Capital BDC from achieving the intended hedge and expose Crescent Capital BDC to risk of loss. In addition, it might not be possible for Crescent Capital BDC to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those loans and securities would likely fluctuate as a result of factors not related to currency fluctuations.

Crescent Capital BDC may not realize anticipated gains on the equity interests in which it invests.

When Crescent Capital BDC invests in loans and debt securities, it may acquire warrants or other equity securities of portfolio companies as well. Crescent Capital BDC may also invest in equity securities directly. To the extent Crescent Capital BDC holds equity investments, it will attempt to dispose of them and realize gains upon such disposition. However, the equity interests Crescent Capital BDC receives may not appreciate in value and, may decline in value. As a result, Crescent Capital BDC may not be able to realize gains from its equity interests, and any gains that Crescent Capital BDC does realize on the disposition of any equity interests may not be sufficient to offset any other losses it experiences.

Crescent Capital BDC’s investments in OID and PIK interest income may expose Crescent Capital BDC to risks associated with such income being required to be included in accounting income and taxable income prior to receipt of cash.

Crescent Capital BDC’s investments may include OID and PIK instruments. To the extent OID and PIK interest income constitute a portion of Crescent Capital BDC’s income, Crescent Capital BDC will be exposed to risks associated with such income being required to be included in an accounting income and taxable income prior to receipt of cash, including the following:

 

   

OID instruments and PIK securities may have unreliable valuations because the accretion of OID as interest income and the continuing accruals of PIK securities require judgments about their collectability and the collectability of deferred payments and the value of any associated collateral;

 

   

OID income may also create uncertainty about the source of Crescent Capital BDC’s cash dividends;

 

   

OID instruments may create heightened credit risks because the inducement to the borrower to accept higher interest rates in exchange for the deferral of cash payments typically represents, to some extent, speculation on the part of the borrower;

 

   

for accounting purposes, cash distributions to shareholders that include a component of accreted OID income do not come from paid-in capital, although they may be paid from the offering proceeds. Thus, although a distribution of accreted OID income may come from the cash invested by the stockholders, the Investment Company Act does not require that shareholders be given notice of this fact;

 

   

generally, Crescent Capital BDC must recognize income for income tax purposes no later than when it recognizes such income for accounting purposes;

 

   

the higher interest rates on PIK securities reflects the payment deferral and increased credit risk associated with such instruments and PIK securities generally represent a significantly higher credit risk than coupon loans;

 

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the presence of accreted OID income and PIK interest income create the risk of non-refundable cash payments to Crescent Cap Advisors in the form of incentive fees on income based on non-cash accreted OID income and PIK interest income accruals that may never be realized;

 

   

even if accounting conditions are met, borrowers on such securities could still default when Crescent Capital BDC’s actual collection is expected to occur at the maturity of the obligation;

 

   

OID and PIK create the risk that incentive fees will be paid to Crescent Cap Advisors based on non-cash accruals that ultimately may not be realized, which Crescent Cap Advisors will be under no obligation to reimburse Crescent Capital BDC or these fees; and

 

   

PIK interest has the effect of generating investment income and increasing the incentive fees payable at a compounding rate. In addition, the deferral of PIK interest also reduces the loan-to-value ratio at a compounding rate.

Significant U.K. or European developments stemming from the U.K.’s decision to withdraw from the European Union may create significant risks for global markets and Crescent Capital BDC’s investments.

As a consequence of the United Kingdom’s vote to withdraw from the European Union (the “EU”), the government of the United Kingdom gave notice of its withdrawal from the EU (“Brexit”). Negotiations for Brexit have created political and economic uncertainty, particularly in the United Kingdom and the EU, and this uncertainty may last for years. The United Kingdom and EU announced in March 2018 an agreement in principle to transitional provisions under which EU law would remain in force in the United Kingdom until the end of December 2020, but this remains subject to the successful conclusion of an agreement between the United Kingdom and the EU. In the absence of such an agreement there would be no transitional provisions and the United Kingdom would exit the EU and the relationship between the United Kingdom and the EU would be based on the World Trade Organization rules. On March 21, 2019, the United Kingdom came to an agreement with the EU to delay their withdrawal and has since come to further agreements to delay the withdrawal. The process for the United Kingdom to exit the EU, and the longer term economic, legal, political, regulatory and social framework to be put in place between the United Kingdom and the EU remain unclear and may lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European and global markets for some time. The mid-to-long term uncertainty may have a negative effect on the performance of any investments located or with operations in the United Kingdom or Europe. During this period of uncertainty, the negative impact on not only the United Kingdom and European economies, but the broader global economy, could be significant, potentially resulting in increased market and currency volatility (including volatility of the value of the British pound sterling relative to the United States dollar and other currencies and volatility in global currency markets generally), and illiquidity and lower economic growth for companies that rely significantly on Europe for their business activities and revenues. It is possible that certain economic activity will be curtailed until some signs of clarity begin to emerge, including negotiations around the terms for United Kingdom’s exit out of the EU.

There are many ways in which Crescent Capital BDC and its investments could be affected, only some of which Crescent Capital BDC is able to currently identify. In particular, currency volatility may mean that Crescent Capital BDC’s returns and the returns of Crescent Capital BDC’s portfolio companies will be adversely affected by market movements and may make it more difficult, or more expensive, for Crescent Capital BDC to implement appropriate currency hedging. Potential declines in the value of the British pound and/or the euro against other currencies, along with the potential downgrading of the United Kingdom’s sovereign credit rating, may also have an impact on the performance of any of Crescent Capital BDC’s portfolio companies located in the United Kingdom or Europe.

Additional risks associated with the outcome of Brexit include macroeconomic risk to the United Kingdom and European economies, impetus for further disintegration of the EU and related political stresses (including those related to sentiment against cross border capital movements and activities of investors such as Crescent Capital BDC), prejudice to financial services business that are conducting business in the EU and which are based in the

 

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United Kingdom, legal uncertainty regarding achievement of compliance with applicable financial and commercial laws and regulations in view of the expected steps to be taken pursuant to or in contemplation of Article 50 of the Treaty on EU and negotiations undertaken under Article 218 of the Treaty on the Functioning of the EU, and the unavailability of timely information as to expected legal, tax and other regimes. Any further exits from the EU, or the possibility of such exits, would likely cause additional market disruption globally and introduce new legal and regulatory uncertainties. Crescent Capital BDC continues to monitor the potential impact of Brexit on its results of operations and financial condition.

You may receive shares of Crescent Capital BDC Common Stock as dividends, which could result in adverse tax consequences to you.

In order to satisfy the Annual Distribution Requirement (as defined herein under the heading “Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers—U.S. Federal Income Taxation of an Investment in Crescent Capital Maryland BDC Common Stock—Election to Be Taxed as a RIC”), to RICs, Crescent Capital BDC has the ability to declare a large portion of a dividend in shares of Crescent Capital BDC Common Stock instead of in cash. As long as a portion of such dividend is paid in cash and certain requirements are met, the entire distribution would be treated as a dividend for U.S. federal income tax purposes. As a result, a stockholder would be taxed on 100% of the dividend in the same manner as a cash dividend, even though most of the dividend was paid in shares of Crescent Capital BDC Common Stock.

Risks Relating to Alcentra Capital

Risks Relating to Alcentra Capital’s Business and Structure

Alcentra Capital is dependent upon key personnel of its investment adviser, Alcentra NY, and Alcentra Group for Alcentra Capital’s future success. If Alcentra NY or the Alcentra Group were to lose any of its key personnel, Alcentra Capital’s ability to achieve its investment objective could be significantly harmed.

Alcentra Capital depends on the diligence, skill and network of business contacts of the investment professionals of Alcentra NY and Alcentra Group to achieve Alcentra Capital’s investment objective. Alcentra NY’s team of investment professionals evaluates, negotiates, structures, closes and monitors Alcentra Capital’s investments in accordance with the terms of the Alcentra Capital Investment Advisory Agreement.

Alcentra NY’s Investment Committee (the “Alcentra Investment Committee”) is currently comprised of Vijay Rajguru, chairman of the Alcentra Capital Board and the Global Chief Investment Officer for Alcentra NY, Suhail A. Shaikh, Alcentra Capital’s Chief Executive Officer and Head of U.S. Direct Lending at Alcentra NY, and Peter Glaser, Alcentra Capital’s President and Co-Head of European Direct Lending at Alcentra NY. The loss of any member of the Alcentra Investment Committee would limit Alcentra Capital’s ability to achieve Alcentra NY’s investment objective and operate as Alcentra Capital anticipates. This could have a material adverse effect on Alcentra Capital’s financial condition, results of operations and cash flows.

Alcentra Capital’s business model depends to a significant extent upon Alcentra NY’s network of relationships with financial sponsors, service providers and other intermediaries. Any inability of Alcentra NY to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect Alcentra Capital’s business.

Alcentra Capital depends upon Alcentra NY to maintain its relationships with private equity sponsors, placement agents, investment banks, management groups and other financial institutions, and Alcentra Capital expects to rely to a significant extent upon these relationships to provide Alcentra Capital with potential investment opportunities. If Alcentra NY fails to maintain such relationships, or to develop new relationships with other sources of investment opportunities, Alcentra Capital will not be able to grow its investment portfolio. In addition, individuals with whom Alcentra NY has relationships are not obligated to provide Alcentra Capital with investment opportunities, and Alcentra Capital can offer no assurance that these relationships will continue to generate investment opportunities for Alcentra Capital in the future.

 

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Alcentra Capital’s financial condition, results of operations and cash flows depend on Alcentra NY’s ability to manage Alcentra Capital’s business effectively.

Alcentra Capital’s ability to achieve its investment objective depends on Alcentra NY’s ability to manage Alcentra Capital’s business and to grow its investments and earnings. This depends, in turn, on Alcentra NY’s ability to identify, invest in and monitor portfolio companies that meet Alcentra Capital’s investment guidelines. The achievement of Alcentra Capital’s investment objective on a cost-effective basis depends upon Alcentra NY’s execution of Alcentra Capital’s investment process, Alcentra NY’s ability to provide competent, attentive and efficient services to Alcentra Capital and, to a lesser extent, Alcentra Capital’s access to financing on acceptable terms. Alcentra NY’s investment professionals have substantial responsibilities in connection with the management of other investment funds, accounts and investment vehicles. The personnel of Alcentra NY may be called upon to provide managerial assistance to Alcentra Capital’s portfolio companies.

These activities may distract them from servicing new investment opportunities for Alcentra Capital or slow Alcentra Capital’s rate of investment. Any failure to manage Alcentra Capital’s business and Alcentra Capital’s future growth effectively could have a material adverse effect on Alcentra Capital’s business, financial condition, results of operations and cash flows.

There are significant potential conflicts of interest that could negatively affect Alcentra Capital’s operations and investment returns.

Certain of Alcentra Capital’s executive officers and directors, and members of the Alcentra Investment Committee of Alcentra NY, serve or may serve as officers, directors or principals of other entities and affiliates of Alcentra NY and investment funds managed by Alcentra NY or its affiliates. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in Alcentra Capital’s or its stockholders’ best interests or may require them to devote time to services for other entities, which could interfere with the time available to provide services to Alcentra Capital. Members of the Alcentra Investment Committee may have significant responsibilities for other funds. Similarly, although the professional staff of Alcentra NY will devote as much time to the management of Alcentra Capital as appropriate to enable Alcentra NY to perform its duties in accordance with the Alcentra Capital Investment Advisory Agreement, the investment professionals of Alcentra NY may have conflicts in allocating their time and services among Alcentra Capital, on the one hand, and investment vehicles managed by Alcentra NY or one or more of its affiliates, on the other hand. These activities could be viewed as creating a conflict of interest insofar as the time and effort of the professional staff of Alcentra NY and its officers and employees will not be devoted exclusively to the business of Alcentra Capital but will instead be allocated between the business of Alcentra Capital and the management of these other investment vehicles.

In addition, certain funds may have investment objectives that compete or overlap with, and may from time to time invest in asset classes similar to those targeted by, Alcentra Capital. Consequently, Alcentra Capital, on the one hand, and these other entities, on the other hand, may from time to time pursue the same or similar capital and investment opportunities. Alcentra NY endeavors to allocate investment opportunities in a fair and equitable manner, and in any event consistent with any fiduciary duties owed to Alcentra Capital. Nevertheless, it is possible that Alcentra Capital may not be given the opportunity to participate in certain investments made by investment funds managed by investment managers affiliated with Alcentra NY. In addition, there may be conflicts in the allocation of investments among Alcentra Capital and the funds managed by investment managers affiliated with Alcentra NY or one or more of Alcentra Capital’s controlled affiliates or among the funds they manage, including investments made pursuant to the co-investment exemptive relief granted to Alcentra Capital by the SEC. Further, such other Alcentra NY-managed funds may hold positions in portfolio companies in which Alcentra Capital has also invested. Such investments may raise potential conflicts of interest between Alcentra Capital and such other Alcentra NY-managed funds, particularly if Alcentra Capital and such other Alcentra NY-managed funds invest in different classes or types of securities or investments of the same underlying portfolio company. In that regard, actions may be taken by such other Alcentra NY-managed funds

 

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that are adverse to Alcentra Capital’s interests, including, but not limited to, during a restructuring, bankruptcy or other insolvency proceeding or similar matter occurring at the underlying portfolio company.

Alcentra Capital pays Alcentra NY an annual base management fee based on Alcentra Capital’s gross assets as well as an incentive fee based on Alcentra NY’s performance. Alcentra NY’s base management fee is based on a percentage of Alcentra Capital’s gross assets (other than cash or cash equivalents but including assets purchased with borrowed funds and other forms of leverage) and, consequently, Alcentra NY may have conflicts of interest in connection with decisions that could affect Alcentra Capital’s total assets, such as decisions as to whether to incur indebtedness or to make future investments.

The Alcentra Capital Investment Advisory Agreement renews for successive annual periods if approved by the Alcentra Capital Board or by the affirmative vote of the holders of a majority of Alcentra Capital’s outstanding voting securities, including, in either case, approval by a majority of Alcentra Capital’s directors who are not “interested persons” of Alcentra Capital as defined in Section 2(a)(19) of the Investment Company Act. However, both Alcentra Capital and Alcentra NY have the right to terminate the agreement without penalty upon 60 days’ written notice to the other party. Moreover, conflicts of interest may arise if Alcentra NY seeks to change the terms of the Alcentra Capital Investment Advisory Agreement, including, for example, the terms for compensation to Alcentra NY. While any material change to the Alcentra Capital Investment Advisory Agreement must be submitted to stockholders for approval under the Investment Company Act, Alcentra Capital may from time to time decide it is appropriate to seek stockholder approval to change the terms of the agreement.

As a result of the arrangements described above, there may be times when the management team of Alcentra NY (including those members of management focused primarily on managing Alcentra Capital) has interests that differ from those of yours, giving rise to a conflict.

Alcentra Capital’s stockholders may have conflicting investment, tax and other objectives with respect to their investments in Alcentra Capital. The conflicting interests of individual stockholders may relate to or arise from, among other things, the nature of Alcentra Capital’s investments, the structure or the acquisition of Alcentra Capital’s investments, and the timing of dispositions of Alcentra Capital’s investments. As a consequence, conflicts of interest may arise in connection with decisions made by Alcentra NY, including with respect to the nature or structuring of Alcentra Capital’s investments, that may be more beneficial for one stockholder than for another stockholder, especially with respect to stockholders’ individual tax situations. In selecting and structuring investments appropriate for Alcentra Capital, Alcentra NY will consider the investment and tax objectives of Alcentra Capital and Alcentra Capital’s stockholders, as a whole, not the investment, tax or other objectives of any stockholder individually.

The investment professionals of Alcentra NY may, from time to time, possess material non-public information, limiting Alcentra Capital’s investment discretion.

The investment professionals of Alcentra NY, including members of the Alcentra Investment Committee, may serve as directors of, or in a similar capacity with, portfolio companies in which Alcentra Capital invests, the securities of which are purchased or sold on Alcentra Capital’s behalf. In the event that material non-public information is obtained with respect to such companies, or Alcentra Capital becomes subject to trading restrictions under the internal trading policies of those companies or as a result of applicable law or regulations, Alcentra Capital could be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may have an adverse effect on Alcentra Capital.

Global capital markets could enter a period of severe disruption and instability. These conditions have historically affected and again could materially and adversely affect debt and equity capital markets in the United States and around the world and could have a negative impact on Alcentra Capital’s business and operations.

The U.S. and global capital markets have in the past and may in the future experience periods of extreme volatility and disruption during economic downturns and recessions. Increases to budget deficits or direct and

 

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contingent sovereign debt, may create concerns about the ability of certain nations to service their sovereign debt obligations, and risks resulting from any such debt crisis in Europe, the United States or elsewhere could have a detrimental impact on the global economy, sovereign and non-sovereign debt in certain countries and the financial condition of financial institutions generally. Austerity measures that certain countries may agree to as part of any debt crisis or disruptions to major financial trading markets may adversely affect world economic conditions and have an adverse impact on Alcentra Capital’s business and that of its portfolio companies. In June 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union, and the implications of the United Kingdom’s pending withdrawal from the European Union are unclear at present. Market and economic disruptions, which may be caused by political trends and government actions in the United States or elsewhere, have in the past and may in the future affect, the U.S. capital markets, which could adversely affect Alcentra Capital’s business and that of its portfolio companies and the broader financial and credit markets and reduce the availability of debt and equity capital for the market as a whole and to financial firms, in particular. At various times, such disruptions have resulted in, and may in the future result, a lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector and the repricing of credit risk. Such conditions may occur for a prolonged period of time again and may materially worsen in the future, including as a result of U.S. government shutdowns or further downgrades to the U.S. government’s sovereign credit rating or the perceived credit worthiness of the United States or other large global economies. Unfavorable economic conditions, including future recessions, also could increase Alcentra Capital’s funding costs, limit its access to the capital markets or result in a decision by lenders not to extend credit to Alcentra Capital. Equity capital may be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, Alcentra Capital is generally not able to issue additional shares of Alcentra Capital Common Stock at a price less than NAV without first obtaining approval for such issuance from Alcentra Capital’s stockholders and Alcentra Capital’s independent directors. Alcentra Capital has previously attempted to issue additional shares of Alcentra Capital Common Stock at a price less than NAV, however, Alcentra Capital’s stockholders did not approve such issuance.

Volatility and dislocation in the capital markets can also create a challenging environment in which to raise or access debt capital. The reappearance of market conditions similar to those experienced from 2008 through 2009 for any substantial length of time could make it difficult to extend the maturity of or refinance Alcentra Capital’s existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on Alcentra Capital’s business. The debt capital that will be available to Alcentra Capital in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what Alcentra Capital currently experiences including being at a higher cost due to a rising rate environment. If Alcentra Capital is unable to raise or refinance debt, then Alcentra Capital’s equity investors may not benefit from the potential for increased returns on equity resulting from leverage and Alcentra Capital may be limited in its ability to make new commitments or to fund existing commitments to its portfolio companies.

Given the extreme volatility and dislocation that the capital markets have historically experienced, many BDCs have faced, and may in the future face, a challenging environment in which to raise capital. Alcentra Capital may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption or instability in the global financial markets or deteriorations in credit and financing conditions may cause Alcentra Capital to reduce the volume of the loans Alcentra Capital originates and/or funds, adversely affect the value of its portfolio investments or otherwise have a material adverse effect on Alcentra Capital’s business, financial condition, results of operations and cash flows. In addition, significant changes in the capital markets, including the extreme volatility and disruption, have had, and may in the future have, a negative effect on the valuations of Alcentra Capital’s investments and on the potential for liquidity events involving Alcentra Capital’s investments. An inability to raise capital, and any required sale of Alcentra Capital’s investments for liquidity purposes, could have a material adverse impact on Alcentra Capital’s business, financial condition or results of operations. Alcentra NY monitors developments and seeks to manage Alcentra Capital’s investments in a manner consistent with achieving Alcentra Capital’s investment objective, but there can be no assurance that Alcentra NY will be successful in doing so, and Alcentra NY or Alcentra Capital may not timely anticipate or manage

 

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existing, new or additional risks, contingencies or developments, including regulatory developments in the current or future market environment.

Many of the portfolio companies in which Alcentra Capital makes investments may be susceptible to economic slowdowns or recessions and may be unable to repay the loans Alcentra Capital made to them during these periods. Therefore, Alcentra Capital’s non-performing assets may increase and the value of Alcentra Capital’s portfolio may decrease during these periods as Alcentra Capital is required to record its investments at their current fair value. Adverse economic conditions also may decrease the value of collateral securing some of Alcentra Capital’s loans and the value of Alcentra Capital’s equity investments. Economic slowdowns or recessions could lead to financial losses in Alcentra Capital’s portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase Alcentra Capital’s and its portfolio companies’ funding costs, limit Alcentra Capital’s and its portfolio companies’ access to the capital markets or result in a decision by lenders not to extend credit to Alcentra Capital or its portfolio companies. These events could prevent Alcentra Capital from increasing investments and harm Alcentra Capital’s operating results.

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

Alcentra Capital is subject to risks associated with the current interest rate environment and, to the extent Alcentra Capital uses debt to finance its investments, changes in interest rates will affect its cost of capital and net investment income.

Since the economic downturn that began in mid-2007, interest rates have remained comparatively low. Because longer-term inflationary pressure is likely to result from the U.S. government’s fiscal policies and challenges during this time, Alcentra Capital will likely experience net rising interest rates, rather than net falling rates, and have experienced net increases to LIBOR over 2018 and 2019. In addition, the Federal Reserve may to continue to raise the federal funds rate over time.

To the extent Alcentra Capital borrows money or issue debt securities or preferred stock to make investments, Alcentra Capital’s net investment income will depend, in part, upon the difference between the rate at which Alcentra Capital borrows funds or pays interest or dividends on such debt securities or preferred stock and the rate at which Alcentra Capital invests these funds. In addition, the majority of Alcentra Capital’s debt investments and Alcentra Capital’s borrowings under the Alcentra Capital Credit Facility have floating interest rates that reset on a periodic basis, and many of Alcentra Capital’s investments are subject to interest rate floors. As a result, a change in market interest rates could have a material adverse effect on Alcentra Capital’s net investment income, in particular with respect to increases from current levels to the level of the interest rate floors on certain investments. In periods of rising interest rates, Alcentra Capital’s cost of funds will increase because the interest rates on the majority of amounts Alcentra Capital has borrowed are floating, which could reduce Alcentra Capital’s net investment income to the extent any debt investments have fixed interest rates, and the interest rate on investments with an interest rate floor will not increase until interest rates exceed the applicable floor. Alcentra Capital may use interest rate risk management techniques in an effort to limit Alcentra Capital’s exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the Investment Company Act and applicable commodities laws. These activities may limit Alcentra Capital’s ability to participate in the benefits of lower interest rates with respect to the hedged borrowings. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on Alcentra Capital’s business, financial condition and results of operations.

 

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A rise in the general level of interest rates typically leads to higher interest rates applicable to Alcentra Capital’s debt investments, which may result in an increase of the amount of incentive fees payable to Alcentra NY. Also, an increase in interest rates available to investors could make an investment in Alcentra Capital Common Stock less attractive if Alcentra Capital is not able to increase its distribution rate, which could reduce the value of Alcentra Capital Common Stock.

In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on Alcentra Capital’s cost of capital and net investment income cannot yet be determined. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market value for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to Alcentra Capital and could have a material adverse effect on Alcentra Capital’s business, financial condition and results of operations.

The fee structure under the Alcentra Capital Investment Advisory Agreement may induce Alcentra NY to pursue speculative investments and incur leverage, which may not be in the best interests of Alcentra Capital’s stockholders.

The base management fee will be payable to Alcentra NY under the Alcentra Capital Investment Advisory Agreement even if the value of your investment declines. The base management fee is calculated based on Alcentra Capital’s gross assets, including assets purchased with borrowed funds or other forms of leverage (but excluding cash or cash equivalents). Accordingly, the base management fee is be payable regardless of whether the value of Alcentra Capital’s gross assets and/or your investment has decreased during the then-current quarter and creates an incentive for Alcentra NY to incur leverage, which may not be consistent with Alcentra Capital’s stockholders’ interests.

The incentive fee based on income payable to Alcentra NY is calculated based on a percentage of Alcentra Capital’s return on invested capital. The incentive fee based on income payable to Alcentra NY may create an incentive for Alcentra NY to make investments on Alcentra Capital’s behalf that are risky or more speculative than would be the case in the absence of such a compensation arrangement. Unlike the base management fee, the incentive fee based on income is payable only if the hurdle rate is achieved. Because the portfolio earns investment income on gross assets while the hurdle rate is based on invested capital, and because the use of leverage increases gross assets without any corresponding increase in invested capital, Alcentra NY may be incentivized to incur leverage to grow the portfolio, which will tend to enhance returns where Alcentra Capital’s portfolio has positive returns and increase the chances that such hurdle rate is achieved. Conversely, the use of leverage may increase losses where Alcentra Capital’s portfolio has negative returns, which would impair the value of Alcentra Capital Common Stock.

In addition, Alcentra NY receives the incentive fee based on capital gains based, in part, upon net capital gains realized on Alcentra Capital’s investments. Unlike the incentive fee based on income, there is no hurdle rate applicable to the incentive fee based on capital gains. As a result, Alcentra NY may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income-producing securities. Such a practice could result in Alcentra Capital’s investing in more speculative securities than would otherwise be the case, which may not be in the best interests of its stockholders and could result in higher investment losses, particularly during economic downturns.

Alcentra Capital’s incentive fee arrangements with Alcentra NY may vary from those of other investment funds, accounts or investment vehicles that Alcentra NY currently manages or may manage in the future, which may create an incentive for Alcentra NY to devote time and resources to a higher fee-paying fund.

Alcentra NY manages private investment funds, accounts and other investment vehicles and may manage other funds, accounts and investment vehicles in the future. If Alcentra NY is paid a higher performance-based fee

 

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from any other fund that it may manage in the future, it may have an incentive to devote more research and development or other activities, and/or recommend the allocation of investment opportunities, to such higher fee-paying fund. For example, to the extent Alcentra NY’s incentive compensation is not subject to a hurdle or total return requirement with respect to another fund, it may have an incentive to devote time and resources to such other fund. As a result, the investment professionals of Alcentra NY may devote time and resources to a higher fee-paying fund.

Alcentra NY’s liability is limited under the Alcentra Capital Investment Advisory Agreement and Alcentra Capital has agreed to indemnify Alcentra NY against certain liabilities, which may lead Alcentra NY to act in a riskier manner on Alcentra Capital’s behalf than it would when acting for its own account.

Under the Alcentra Capital Investment Advisory Agreement, Alcentra NY has not assumed any responsibility to Alcentra Capital other than to render the services called for under that agreement. It will not be responsible for any action of the Alcentra Capital Board in following or declining to follow Alcentra NY’s advice or recommendations. Under the Alcentra Capital Investment Advisory Agreement, Alcentra NY, its officers, members and personnel, and any person controlling or controlled by Alcentra NY will not be liable to Alcentra Capital for acts or omissions performed in accordance with and pursuant to the Alcentra Capital Investment Advisory Agreement, except those resulting in a loss due to a breach of a fiduciary duty (as specified in Section 36(b) of the Investment Company Act) with respect to the receipt of compensation for services. In addition, as part of the Alcentra Capital Investment Advisory Agreement, Alcentra Capital has agreed to indemnify Alcentra NY and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and amounts reasonably paid in settlement, arising out of or in connection with the performance of any such person’s duties or obligations or any action taken or omitted on Alcentra Capital’s behalf pursuant to authority granted by the Alcentra Capital Investment Advisory Agreement, except where attributable to gross negligence, willful misfeasance or bad faith in the performance of such person’s duties or by reason of the reckless disregard of such person’s duties and obligations under the Alcentra Capital Investment Advisory Agreement. These protections may lead Alcentra NY to act in a riskier manner when acting on Alcentra Capital’s behalf than it would when acting for its own account.

Alcentra Capital operates in a highly competitive market for investment opportunities, which could reduce returns and result in losses.

A number of entities compete with Alcentra Capital to make the types of investments that Alcentra Capital makes. Alcentra Capital competes with public and private funds, other BDCs, commercial and investment banks, commercial financing companies and, to the extent that they provide an alternative form of financing, private equity and hedge funds.

Moreover, alternative investment vehicles, such as hedge funds, also invest in lower-middle and middle-market companies. As a result, competition is intense for investment opportunities in lower-middle and middle-market companies. Many of Alcentra Capital’s competitors are substantially larger and have considerably greater financial, technical and marketing resources than Alcentra Capital does. For example, Alcentra Capital believes some of its competitors may have access to funding sources that are not available to Alcentra Capital. In addition, some of Alcentra Capital’s competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than Alcentra Capital. Furthermore, many of Alcentra Capital’s competitors are not subject to the regulatory restrictions that the Investment Company Act imposes on Alcentra Capital as a BDC or the source-of-income, asset diversification and distribution requirements Alcentra Capital must satisfy to maintain its RIC qualification. The competitive pressures Alcentra Capital faces may have a material adverse effect on its business, financial condition, results of operations and cash flows. As a result of this competition, Alcentra Capital may not be able to take advantage of attractive investment opportunities from time to time, and Alcentra Capital may not be able to identify and make investments that are consistent with its investment objective.

 

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With respect to the investments Alcentra Capital makes, Alcentra Capital does not seek to compete based primarily on the interest rates it offers, and Alcentra Capital believes that some of its competitors may make loans with interest rates that will be lower than the rates Alcentra Capital offers. With respect to all investments, Alcentra Capital may lose some investment opportunities if Alcentra Capital does not match its competitors’ pricing, terms and structure. However, if Alcentra Capital matches its competitors’ pricing, terms and structure, Alcentra Capital may experience decreased net interest income, lower yields and increased risk of credit loss.

Alcentra Capital’s activities may be limited as a result of being controlled by a bank holding company.

BNY Mellon is a bank holding company (“BHC”) under the Bank Holding Company Act of 1956, as amended (the “BHCA”). BNY Mellon is also a financial holding company (“FHC”) under the BHCA, which is a status available to BHCs that meet certain criteria.

FHCs may engage in a broader range of activities than BHCs that are not FHCs. However, the activities of FHCs and their affiliates remain subject to certain restrictions imposed by the BHCA and related regulations. Because BNY Mellon may be deemed to “control” Alcentra Capital within the meaning of the BHCA, these restrictions could apply to Alcentra Capital as well. Accordingly, the BHCA and other applicable banking laws, rules, regulations and guidelines, and their interpretation and administration by the appropriate regulatory agencies, including but not limited to the Federal Reserve, may restrict the transactions and relationships between Alcentra NY, BNY Mellon and their affiliates, on the one hand, and Alcentra Capital on the other hand, and may restrict Alcentra Capital’s investments, transactions and operations. For example, the BHCA regulations applicable to BNY Mellon and Alcentra Capital may, among other things, restrict Alcentra Capital’s ability to make certain investments or the size of certain investments, impose a maximum holding period on some or all of Alcentra Capital’s investments, and restrict Alcentra NY’s ability to participate in the management and operations of the companies in which Alcentra Capital invests. In addition, certain BHCA regulations may require aggregation of the positions owned, held or controlled by related entities. Thus, in certain circumstances, positions held by BNY Mellon and its affiliates (including Alcentra NY) for client and proprietary accounts may need to be aggregated with positions held by Alcentra Capital. In this case, where BHCA regulations impose a cap on the amount of a position that may be held, BNY Mellon may utilize available capacity to make investments for its proprietary accounts or for the accounts of other clients, which may require Alcentra Capital to limit and/or liquidate certain investments.

These restrictions may materially adversely affect Alcentra Capital by, among other things, affecting Alcentra NY’s ability to pursue certain strategies within Alcentra Capital’s investment program or trade in certain securities. In addition, BNY Mellon may cease in the future to qualify as an FHC, which may subject Alcentra Capital to additional restrictions. Moreover, there can be no assurance that the bank regulatory requirements applicable to BNY Mellon and Alcentra Capital will not change, or that any such change will not have a material adverse effect on Alcentra Capital.

BNY Mellon may in the future, in its sole discretion and without notice to investors, engage in activities impacting Alcentra Capital and/or Alcentra NY in order to comply with the BHCA or other legal requirements applicable to, or reduce or eliminate the impact or applicability of any bank regulatory or other restrictions on, BNY Mellon, Alcentra Capital or other funds and accounts managed by Alcentra NY and its affiliates. BNY Mellon may seek to accomplish this result by causing Alcentra NY to resign as Alcentra NY, voting for changes to the Alcentra Capital Board, causing BNY Mellon personnel to resign from the Alcentra Capital Board, reducing the amount of any BNY Mellon investment in Alcentra Capital (if any), or any combination of the foregoing, or by such other means as it determines in its sole discretion. Any replacement investment adviser appointed by Alcentra Capital may be unaffiliated with BNY Mellon.

 

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Alcentra Capital will be subject to corporate-level U.S. federal income tax if Alcentra Capital is unable to qualify or maintain its tax treatment as a RIC under Subchapter M of the Code.

To maintain Alcentra Capital’s tax treatment as a RIC under Subchapter M of the Code, Alcentra Capital must meet certain source-of-income, asset diversification and distribution requirements. The distribution requirement for a RIC is satisfied if Alcentra Capital distributes at least 90% of its net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to Alcentra Capital’s stockholders on an annual basis. Because Alcentra Capital incurs debt, Alcentra Capital will be subject to certain asset coverage ratio requirements under the Investment Company Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict Alcentra Capital from making distributions necessary to qualify for tax treatment as a RIC. If Alcentra Capital is unable to obtain the necessary funds for distributions, Alcentra Capital may fail to qualify for tax treatment as a RIC and, thus, may be subject to corporate-level U.S. federal income tax. To qualify as a RIC, Alcentra Capital must also meet certain asset diversification requirements at the end of each calendar quarter. Failure to meet these tests may result in Alcentra Capital’s having to dispose of certain investments quickly in order to prevent the loss of Alcentra Capital’s qualification as a RIC. Because most of Alcentra Capital’s investments are in private or thinly traded public companies, any such dispositions may be made at disadvantageous prices and may result in substantial losses.

Alcentra Capital may need to raise additional capital to either sustain its current activities or grow because Alcentra Capital must distribute most of its taxable income to its stockholders.

Alcentra Capital will need additional capital to either sustain its current activities and/or fund new investments. Alcentra Capital intends to access the capital markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain such capital. Unfavorable economic or capital market conditions could increase Alcentra Capital’s funding costs, limit Alcentra Capital’s access to the capital markets or result in a decision by lenders not to extend credit to Alcentra Capital. A reduction in the availability of capital could limit Alcentra Capital’s ability to operate or grow. In addition, Alcentra Capital will be required to distribute at least 90% of Alcentra Capital’s net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to Alcentra Capital’s stockholders to maintain Alcentra Capital’s qualification as a RIC. As a result, these earnings will not be available to fund new or follow-on investments to protect Alcentra Capital’s principal in existing portfolio companies. An inability on Alcentra Capital’s part to access the capital markets successfully could limit its ability to operate or grow its business and execute its business strategy fully and could decrease Alcentra Capital’s earnings, if any, which would have an adverse effect on the value of Alcentra Capital’s securities.

In addition, so long as Alcentra Capital Common Stock trades below NAV, Alcentra Capital will generally not be able to issue additional common stock at the market price without first obtaining the approval of Alcentra Capital’s stockholders and Alcentra Capital’s independent directors. Alcentra Capital does not currently have stockholder approval to sell shares below NAV and may not be able to obtain such approval in the future. Alcentra Capital Common Stock has consistently traded below NAV since Alcentra Capital’s IPO in 2014 except for brief periods of time. As of June 30, 2019, Alcentra Capital’s NAV per share was $11.02. The last reported closing price of a share of Alcentra Capital Common Stock on the Nasdaq Global Select Market on September 20, 2019 was $9.00. Alcentra Capital cannot predict whether Alcentra Capital Common Stock will trade at, above or below NAV.

Alcentra Capital may have difficulty paying its required distributions if it recognizes income before, or without, receiving cash representing such income.

For U.S. federal income tax purposes, Alcentra Capital will include in income certain amounts that it has not yet received in cash, such as the accrual of original issue discount, or OID. This may arise if Alcentra Capital receives warrants in connection with the making of a loan and in other circumstances, or through contractual PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such

 

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OID, which could be significant relative to Alcentra Capital’s overall investment activities, and increases in loan balances as a result of contracted PIK arrangements will be included in income before Alcentra Capital receives any corresponding cash payments. Alcentra Capital also may be required to include in income certain other amounts that Alcentra Capital will not receive in cash.

Since in certain cases Alcentra Capital may recognize income for U.S. federal income tax purposes before or without receiving cash representing such income, it may have difficulty meeting the requirement to distribute at least 90% of its net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to maintain its qualification as a RIC. In such a case, Alcentra Capital may have to sell some of its investments at times it would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If Alcentra Capital is not able to obtain such cash from other sources, it may fail to qualify as a RIC and thus be subject to corporate-level U.S. federal income tax.

PIK interest payments that Alcentra Capital receives increase its assets under management and, as a result, increase the amount of base management fees and incentive fees payable by Alcentra Capital to Alcentra NY.

Certain of Alcentra Capital’s debt investments contain provisions providing for the payment of PIK interest. Because PIK interest results in an increase in the size of the loan balance of the underlying loan, the receipt by Alcentra Capital of PIK interest has the effect of increasing Alcentra Capital’s assets under management. As a result, because the base management fee that Alcentra Capital pays to Alcentra NY is based on the value of Alcentra Capital’s gross assets, the receipt by Alcentra Capital of PIK interest results in an increase in the amount of the base management fee payable by Alcentra Capital.

Regulations governing Alcentra Capital’s operation as a BDC affect its ability to raise, and the way in which it raises, additional capital. As a BDC, the necessity of raising additional capital may expose Alcentra Capital to risks, including the typical risks associated with leverage.

Alcentra Capital has incurred indebtedness under Alcentra Capital Credit Facility, and through the issuance of the debt securities, which are the Alcentra Capital InterNotes. Alcentra Capital may in the future issue additional debt securities or preferred stock and/or borrow additional money from banks or other financial institutions, which Alcentra Capital refers to collectively as “senior securities,” up to the maximum amount permitted by the Investment Company Act.

BDCs are generally able to issue senior securities such that their asset coverage, as defined in the Investment Company Act, equals at least 200% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. In March 2018, the SBCAA amended Section 61(a) of the Investment Company Act to add a new Section 61(a)(2) that reduces the asset coverage requirement applicable to BDCs from 200% to 150% so long as the BDC meets certain disclosure requirements and obtains certain approvals. The reduced asset coverage requirement permit a BDC to have a ratio of total consolidated assets to outstanding indebtedness of 2:1 as compared to a maximum of 1:1 under the 200% asset coverage requirement. Effectiveness of the reduced asset coverage requirement to a BDC requires approval by either (1) a “required majority,” as defined in Section 57(o) of the Investment Company Act, of such BDC’s board of directors with effectiveness one year after the date of such approval or (2) a majority of votes cast at a special or annual meeting of such BDC’s stockholders at which a quorum is present, which is effective the date after such stockholder approval. On May 4, 2018, the Alcentra Capital Board, including a “required majority” (as such term is defined in Section 57(o) of the Investment Company Act) the Alcentra Capital Board, approved the applicability of the modified asset coverage requirements set forth in Section 61(a)(2) of the Investment Company Act, as amended by the SBCAA. As a result, effective on May 4, 2019, Alcentra Capital’s asset coverage requirement applicable to senior securities has been reduced from 200% to 150%, and, accordingly, the risks associated with an investment in Alcentra Capital, including risks relating to leverage, may increase. However, Alcentra Capital remains subject to a 200% minimum asset coverage ratio covenant under the Alcentra

 

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Capital Credit Facility and thus will not be able to take advantage of the reduced asset coverage requirement under the Investment Company Act unless and until it negotiates revised terms and conditions with the lenders under the Alcentra Capital Credit Facility. If the value of Alcentra Capital’s assets declines, Alcentra Capital may be unable to satisfy the then-applicable asset coverage test. If Alcentra Capital issues senior securities, Alcentra Capital will be exposed to typical risks associated with leverage, including an increased risk of loss.

Alcentra Capital is not generally able to issue and sell Alcentra Capital Common Stock at a price below NAV per share. Alcentra Capital may, however, sell Alcentra Capital’s warrants, options or rights to acquire Alcentra Capital Common Stock, at a price below the current NAV of the common stock if the Alcentra Capital Board determines that such sale is in the best interests of Alcentra Capital’s stockholders, and Alcentra Capital’s stockholders approve such sale. Alcentra Capital’s stockholders have authorized Alcentra Capital to issue warrants, options or rights to subscribe for, convert to, or purchase shares of Alcentra Capital Common Stock at a price per share below the NAV per share, subject to the applicable requirements of the Investment Company Act. There is no expiration date on Alcentra Capital’s ability to issue such warrants, options, rights or convertible securities based on this stockholder approval. If Alcentra Capital raises additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, Alcentra Capital Common Stock, the percentage ownership of Alcentra Capital’s stockholders at that time would decrease, and they may experience dilution. Moreover, Alcentra Capital can offer no assurance that Alcentra Capital will be able to issue and sell additional equity securities in the future, on favorable terms or at all.

Incurring additional leverage may magnify Alcentra Capital’s exposure to risks associated with changes in interest rates, including fluctuations in interest rates which could adversely affect Alcentra Capital’s profitability.

As part of Alcentra Capital’s business strategy, it may borrow money and issue additional senior debt securities to banks, insurance companies and other lenders. Holders of these loans or senior securities would have fixed-dollar claims on Alcentra Capital’s assets that are superior to the claims of Alcentra Capital’s stockholders. If the value of Alcentra Capital’s assets decreases, leverage will cause Alcentra Capital’s NAV to decline more sharply than it otherwise would have without leverage. Similarly, any decrease in Alcentra Capital’s income would cause Alcentra Capital’s net income to decline more sharply than it would have if Alcentra Capital had not borrowed. This decline could negatively affect Alcentra Capital’s ability to make dividend payments on Alcentra Capital Common Stock.

If Alcentra Capital incurs additional leverage as a result of the Alcentra Capital Board’s approval to authorize Alcentra Capital to be subject to the reduced asset coverage ratio of at least 150% under the Investment Company Act, effective on or about May 4, 2019, general interest rate fluctuations may have a more significant negative impact on Alcentra Capital’s investments than they would have absent such approval, and, accordingly, may have a material adverse effect on Alcentra Capital’s investment objective and rate of return on investment capital. A portion of Alcentra Capital’s income will depend upon the difference between the rate at which Alcentra Capital borrows funds and the interest rate on the debt securities in which Alcentra Capital invests. Because Alcentra Capital will borrow money to make investments and may issue debt securities, preferred stock or other securities, Alcentra Capital’s net investment income is dependent upon the difference between the rate at which Alcentra Capital borrows funds or pay interest or dividends on such debt securities, preferred stock or other securities and the rate at which Alcentra Capital invests these funds. Typically, Alcentra Capital anticipates that Alcentra Capital’s interest earning investments will accrue and pay interest at variable rates. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on Alcentra Capital’s net investment income.

Changes in laws or regulations governing Alcentra Capital’s operations may adversely affect its business or cause Alcentra Capital to alter its business strategy.

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Alcentra Capital is permitted to make, any of which could harm Alcentra Capital and Alcentra Capital’s stockholders, potentially with retroactive effect.

Additionally, any changes to the laws and regulations governing Alcentra Capital’s operations relating to permitted investments may cause Alcentra Capital to alter Alcentra Capital’s investment strategy in order to avail itself of new or different opportunities. Such changes could result in material differences to the strategies and plans set forth in these risk factors and may result in Alcentra Capital’s investment focus shifting from the areas of expertise of Alcentra Capital’s management team to other types of investments in which Alcentra Capital’s management team may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on Alcentra Capital’s results of operations and the value of your investment.

Alcentra Capital finances its investments with borrowed money, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in Alcentra Capital.

Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in Alcentra Capital’s securities. The use of leverage is generally considered a speculative investment technique and increases the risks associated with investing in Alcentra Capital’s securities. However, Alcentra Capital borrows from, and issues debt securities to, banks, insurance companies and other parties. Lenders of these funds have fixed dollar claims on Alcentra Capital’s assets that are superior to the claims of Alcentra Capital’s securities holders, and Alcentra Capital expects such lenders to seek recovery against Alcentra Capital’s assets in the event of a default. Alcentra Capital has pledged substantially all of Alcentra Capital’s assets under the Alcentra Capital Credit Facility.

If the value of Alcentra Capital’s assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have had Alcentra Capital not leveraged, thereby magnifying losses or eliminating Alcentra Capital’s stake in a leveraged investment. Similarly, any decrease in Alcentra Capital’s revenue or income will cause Alcentra Capital’s net income to decline more sharply than it would have had Alcentra Capital not borrowed.

Alcentra Capital’s ability to service any debt will depend largely on Alcentra Capital’s financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, as the base management fee payable to Alcentra NY is payable based on the value of Alcentra Capital’s gross assets, including those assets acquired through the use of leverage, Alcentra NY may have a financial incentive to incur leverage, which may not be consistent with Alcentra Capital’s stockholders’ interests. In addition, Alcentra Capital’s common stockholders bear the burden of any increase in Alcentra Capital’s expenses as a result of Alcentra Capital’s use of leverage, including interest expenses and any increase in the base management fee payable to Alcentra NY.

The Alcentra Capital Credit Facility and any future indebtedness may impose financial and operating covenants that restrict Alcentra Capital’s business activities, including limitations that hinder Alcentra Capital’s ability to finance additional loans and investments or to make the distributions required to maintain Alcentra Capital’s qualification as a RIC under the Code.

As a BDC, Alcentra Capital generally is required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of Alcentra Capital’s borrowings and any preferred stock that Alcentra Capital may issue in the future, of at least 150%, subject to certain disclosure requirements; however, Alcentra Capital remains subject to a 200% minimum asset coverage ratio covenant under the Alcentra Capital Credit Facility and thus will not be able to take advantage of the reduced asset coverage requirement under the Investment Company Act unless and until it negotiates revised terms and conditions with the lenders under the Alcentra Capital Credit Facility. This requirement limits the amount that Alcentra Capital may borrow. If the value of Alcentra Capital’s assets declines, Alcentra Capital may be unable to satisfy this test. If that happens, Alcentra Capital may be required to sell a portion of Alcentra Capital’s investments and, depending on the nature of Alcentra Capital’s leverage, repay some debt when it is otherwise disadvantageous for Alcentra Capital to do

 

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so. This could have a material adverse effect on Alcentra Capital’s operations, and Alcentra Capital may not be able to make distributions. The amount of leverage that Alcentra Capital employs will depend on Alcentra NY’s and the Alcentra Capital Board’s assessment of market and other factors at the time of any proposed borrowing. Alcentra Capital cannot assure you that Alcentra Capital will be able to obtain credit at all or on terms acceptable to Alcentra Capital.

Alcentra Capital may not be able to pay distributions to its stockholders, its distributions may not grow over time, a portion of distributions paid to Alcentra Capital’s stockholders may be a return of capital and investors in Alcentra Capital’s debt securities may not receive all of the interest income to which they are entitled.

Alcentra Capital intends to pay quarterly distributions to its stockholders out of assets legally available for distribution. Alcentra Capital cannot assure you that it will achieve investment results that will allow it to make a specified level of cash distributions or year-to-year increases in cash distributions. Alcentra Capital’s ability to pay distributions might be harmed by, among other things, the risk factors described herein. In addition, the inability to satisfy the asset coverage test applicable to Alcentra Capital as a BDC could, in the future, limit Alcentra Capital’s ability to pay distributions. All distributions will be paid at the discretion of the Alcentra Capital Board and will depend on Alcentra Capital’s earnings, Alcentra Capital’s financial condition, maintenance of Alcentra Capital’s RIC tax treatment, compliance with applicable BDC regulations, compliance with the covenants of Alcentra Capital’s debt securities and such other factors as the Alcentra Capital Board may deem relevant from time to time. In addition, the Alcentra Capital Credit Facility may restrict the amount of distributions Alcentra Capital is permitted to make. Alcentra Capital cannot assure you that Alcentra Capital will pay distributions to Alcentra Capital’s stockholders in the future.

The above-referenced restrictions on distributions may also inhibit Alcentra Capital’s ability to make required interest payments to holders of Alcentra Capital’s debt securities, which may cause a default under the terms of Alcentra Capital’s debt agreements. Such a default could materially increase Alcentra Capital’s cost of raising capital, as well as cause Alcentra Capital to incur penalties under the terms of Alcentra Capital’s debt agreements.

When Alcentra Capital makes quarterly distributions, Alcentra Capital will be required to determine the extent to which such distributions are paid out of current or accumulated earnings and profits, recognized capital gain or capital. To the extent there is a return of capital, investors will be required to reduce their basis in Alcentra Capital’s stock for U.S. federal income tax purposes, which may result in a higher tax liability when the shares are sold, even if they have not increased in value or have lost value.

Alcentra Capital may have difficulty paying its required distributions if it recognizes income before or without receiving cash representing such income.

For U.S. federal income tax purposes, Alcentra Capital may be required to recognize taxable income in circumstances in which it does not receive a corresponding payment in cash. For example, if Alcentra Capital holds debt obligations that are treated under applicable tax rules as having OID (such as debt instruments with contractual PIK interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), Alcentra Capital must include in income each year a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such income is received by Alcentra Capital in the same taxable year. Investments structured with these features may represent a higher level of credit risk compared to investments generating income which must be paid in cash on a current basis. Alcentra Capital may also have to include in income other amounts that Alcentra Capital has not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. Alcentra Capital anticipates that a portion of Alcentra Capital’s income may constitute OID or other income required to be included in taxable income prior to receipt of cash. Further, Alcentra Capital has elected to amortize market discounts and include such amount, if any, in Alcentra Capital’s annual taxable income, instead of upon disposition, as electing not to do so potentially could limit Alcentra Capital’s ability to deduct interest expenses for U.S. federal income tax purposes.

 

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Because any OID or other amounts accrued will be included in Alcentra Capital’s investment company taxable income for the year of the accrual, Alcentra Capital may be required to make a distribution to its stockholders in order to satisfy the annual distribution requirement, even though Alcentra Capital will not have received any corresponding cash amount. As a result, Alcentra Capital may have difficulty meeting the annual distribution requirement necessary to obtain and maintain RIC tax treatment under the Code. Alcentra Capital may have to sell some of its investments at times and/or at prices it would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If Alcentra Capital is not able to obtain cash from other sources, it may fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax.

Alcentra Capital may default under the Alcentra Capital Credit Facility or any future borrowing facility it enters into or be unable to amend, repay or refinance any such facility on commercially reasonable terms, or at all, which could have a material adverse effect on Alcentra Capital’s business, financial condition, results of operations and cash flows.

In the event Alcentra Capital defaults under the Alcentra Capital Credit Facility or any other future borrowing facility, its business could be adversely affected as Alcentra Capital may be forced to sell a portion of its investments quickly and prematurely at what may be disadvantageous prices to Alcentra Capital in order to meet its outstanding payment obligations and/or support working capital requirements under the Alcentra Capital Credit Facility or such future borrowing facility, any of which would have a material adverse effect on Alcentra Capital’s business, financial condition, results of operations and cash flows. In addition, following any such default, the agent for the lenders under the Alcentra Capital Credit Facility or such future borrowing facility could assume control of the disposition of any or all of Alcentra Capital’s assets, including the selection of such assets to be disposed and the timing of such disposition, which would have a material adverse effect on Alcentra Capital’s business, financial condition, results of operations and cash flows.

Provisions in the Alcentra Capital Credit Facility or any other future borrowing facility may limit Alcentra Capital’s discretion in operating its business.

The Alcentra Capital Credit Facility is, and any future borrowing facility may be, backed by all or a portion of Alcentra Capital’s loans and securities on which the lenders will or, in the case of a future facility, may have a security interest. Alcentra Capital has pledged substantially all of its assets under the Alcentra Capital Credit Facility. Alcentra Capital expects that any security interests it grants will be set forth in a guarantee pledge and security agreement and evidenced by the filing of financing statements by the agent for the lenders. In addition, Alcentra Capital expects that the custodian for Alcentra Capital’s securities serving as collateral for such loan would include in its electronic systems notices indicating the existence of such security interests and, enter into a control agreement that provides that following notice of occurrence of an event of default, if any, and during its continuance, the custodian will only accept transfer instructions with respect to any such securities from the lender or its designee. If Alcentra Capital was to default under the terms of any debt instrument, the agent for the applicable lenders would be able to assume control of the timing of disposition of any or all of Alcentra Capital’s assets securing such debt, which would have a material adverse effect on Alcentra Capital’s business, financial condition, results of operations and cash flows.

In addition, any security interests granted by Alcentra Capital as well as negative covenants under the Alcentra Capital Credit Facility or any other borrowing facility may provide may limit Alcentra Capital’s ability to create liens on assets to secure additional debt and may make it difficult for Alcentra Capital to restructure or refinance indebtedness at or prior to maturity or obtain additional debt or equity financing. For example, under the terms of the Alcentra Capital Credit Facility, Alcentra Capital has agreed not to incur any additional secured indebtedness other than in certain limited circumstances as permitted under the Alcentra Capital Credit Facility. In addition, if Alcentra Capital’s borrowing base under the Alcentra Capital Credit Facility or any other borrowing facility were to decrease, Alcentra Capital would be required to secure additional assets in an amount equal to any borrowing base deficiency. In the event that all of Alcentra Capital’s assets are secured at the time of such a borrowing base

 

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deficiency, Alcentra Capital could be required to repay advances under the Alcentra Capital Credit Facility or any other borrowing facility, which could have a material adverse impact on Alcentra Capital’s ability to fund future investments and to make stockholder distributions.

In addition, under the Alcentra Capital Credit Facility, Alcentra Capital is subject to limitations as to how borrowed funds may be used, which include restrictions on geographic and industry concentrations, loan size, payment frequency and status, average life, collateral interests and investment ratings, as well as regulatory restrictions on leverage which may affect the amount of funding that may be obtained. There may also be certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, a violation of which could limit further advances and, in some cases, result in an event of default. In addition, the Alcentra Capital Credit Facility was recently amended on September 21, 2018 to modify certain covenants, including that Alcentra Capital maintains a minimum asset coverage ratio of 2.00 to 1, a minimum interest coverage ratio of 2.00 to 1 as of the last day of any fiscal quarter, and a minimum value of stockholders’ equity, violations of which would result in an event of default. An event of default under the Alcentra Capital Credit Facility or any other borrowing facility could result in an accelerated maturity date for all amounts outstanding thereunder, which could have a material adverse effect on Alcentra Capital’s business and financial condition. This could reduce Alcentra Capital’s revenues and, by delaying any cash payment allowed to Alcentra Capital under the Alcentra Capital Credit Facility or any other borrowing facility until the lenders have been paid in full, reduce Alcentra Capital’s liquidity and cash flow and impair its ability to grow its business and maintain its qualification as a RIC.

If Alcentra Capital does not invest a sufficient portion of its assets in qualifying assets, it could be precluded from investing according to its current business strategy.

As a BDC, Alcentra Capital may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of Alcentra Capital’s total assets are qualifying assets under Section 55(a) of the Investment Company Act.

Alcentra Capital may be precluded from investing in what Alcentra Capital believes to be attractive investments if such investments are not qualifying assets for purposes of the Investment Company Act. If Alcentra Capital has not invested a sufficient portion of Alcentra Capital’s assets in qualifying assets at the time of a proposed investment, Alcentra Capital will be prohibited from making any additional investment that is not a qualifying asset and could be forced to forego attractive investment opportunities. Similarly, specific rules under the Investment Company Act could prevent Alcentra Capital from making follow-on investments in existing portfolio companies (which could result in the dilution of Alcentra Capital’s position) or could require Alcentra Capital to dispose of investments at inappropriate times in order to comply with the Investment Company Act. If Alcentra Capital needs to dispose of such investments quickly, it would be difficult to dispose of such investments on favorable terms. For example, Alcentra Capital may have difficulty in finding a buyer and, even if it does find a buyer, Alcentra Capital may have to sell the investments at a substantial loss. Any such outcomes would have a material adverse effect on Alcentra Capital’s business, financial condition, results of operations and cash flows.

Most of Alcentra Capital’s portfolio investments are recorded at fair value as determined in good faith by the Alcentra Capital Board and quoted prices or observable inputs may not be available to determine such values, resulting in the use of significant unobservable inputs in Alcentra Capital’s quarterly valuation process.

Most of Alcentra Capital’s portfolio investments take the form of securities that are not publicly traded. The fair value of loans, securities and other investments that are not publicly traded may not be readily determinable, and Alcentra Capital values these investments at fair value as determined in good faith by the Alcentra Capital Board, including to reflect significant events affecting the value of Alcentra Capital’s investments. Most, if not all, of Alcentra Capital’s investments (other than cash and cash equivalents) are classified as Level 3 under Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure, or ASC Topic 820. This means that

 

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Alcentra Capital’s portfolio valuations are based on unobservable inputs and Alcentra Capital’s own assumptions about how market participants would price the asset or liability in question. Inputs into the determination of fair value of Alcentra Capital’s portfolio investments require significant management judgment or estimation. Even if observable market data are available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information. Alcentra Capital has retained the services of an independent service provider to review the valuation of these loans and securities. The types of factors that the Alcentra Capital Board may take into account in determining the fair value of Alcentra Capital’s investments generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, Alcentra Capital’s determinations of fair value may differ materially from the values that would have been used if a ready market for these loans and securities existed. Alcentra Capital’s NAV could be adversely affected if Alcentra Capital’s determinations regarding the fair value of Alcentra Capital’s investments were materially higher than the values that Alcentra Capital ultimately realizes upon the disposal of such loans and securities.

Alcentra Capital will adjust quarterly the valuation of its portfolio to reflect the Alcentra Capital Board’s determination of the fair value of each investment in its portfolio. Any changes in fair value are recorded in Alcentra Capital’s statement of operations as net change in unrealized appreciation or depreciation.

Alcentra Capital is restricted in its ability to enter into transactions with entities deemed to be Alcentra Capital’s affiliates, which may limit the scope of investments available to Alcentra Capital.

As a BDC, Alcentra Capital is prohibited under the Investment Company Act from knowingly participating in certain transactions with its affiliates without, among other things, the prior approval of a majority of Alcentra Capital’s independent directors who have no financial interest in the transaction, or in some cases, the prior approval of the SEC. For example, any person that owns, directly or indirectly, 5% or more of Alcentra Capital’s outstanding voting securities is deemed to be Alcentra Capital’s affiliate for purposes of the Investment Company Act and, if this is the only reason such person is Alcentra Capital’s affiliate, Alcentra Capital is generally prohibited from buying any asset from or selling any asset (other than Alcentra Capital’s capital stock) to such affiliate, absent the prior approval of such directors. The Investment Company Act also prohibits “joint” transactions with an affiliate, which could include co-investments in the same portfolio company, without approval of Alcentra Capital’s independent directors or, in some cases, the prior approval of the SEC. Moreover, except in certain limited circumstances, Alcentra Capital is prohibited from buying any asset from or selling any asset to a holder of more than 25% of Alcentra Capital’s voting securities, absent prior approval of the SEC. The analysis of whether a particular transaction constitutes a joint transaction requires a review of the relevant facts and circumstances then existing.

On December 30, 2015, the SEC granted Alcentra Capital relief sought in an exemptive application that expands Alcentra Capital’s ability to co-invest in portfolio companies with certain other funds managed by Alcentra NY or its affiliates, subject to compliance with certain conditions. On March 27, 2018, the SEC granted Alcentra Capital relief sought in a new exemptive application that further expands Alcentra Capital’s ability to co-invest in portfolio companies with certain other funds managed by Alcentra NY or certain of its affiliates, subject to compliance with certain conditions. The new exemptive relief is substantially similar to the exemptive relief from the SEC Alcentra Capital received on December 30, 2015, except that it also permits Alcentra Capital to co-invest in negotiated transactions with certain funds to which Alcentra NY serves as sub-adviser. Alcentra Capital intends to co-invest with certain of Alcentra Capital’s affiliates, subject to the conditions included in the March 2018 SEC order for exemptive relief.

 

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Alcentra Capital may experience fluctuations in its quarterly operating results.

Alcentra Capital could experience fluctuations in its quarterly operating results due to a number of factors, including the interest rate payable on the loans and debt securities it acquires, the default rate on such loans and securities, the level of its expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which it encounters competition in the markets, and general economic conditions. In light of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Alcentra Capital is an “emerging growth company” under the JOBS Act, and it cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make Alcentra Capital’s securities less attractive to investors.

Alcentra Capital currently is, and expects to remain for so long as it satisfies the applicable standards under the JOBS Act, an “emerging growth company” as defined in the JOBS Act. Alcentra Capital expects to remain an emerging growth company until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of Alcentra Capital’s IPO, (ii) in which Alcentra Capital has total annual gross revenue of at least $1.7 billion, or (iii) in which Alcentra Capital is deemed to be a large accelerated filer, which would occur if the market value of Alcentra Capital Common Stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30, and (b) the date on which Alcentra Capital has issued more than $1.0 billion in non-convertible debt during the prior three-year period. Alcentra Capital expects to cease to qualify as an emerging growth company upon the last day of Alcentra Capital’s fiscal year following the fifth anniversary of the date of Alcentra Capital’s initial public offering, or December 31, 2019; however, Alcentra Capital currently remain eligible to comply with the less rigorous disclosure and other requirements applicable to emerging growth companies under the federal securities laws. For as long as Alcentra Capital remains an emerging growth company Alcentra Capital may take advantage of some or all of the reduced regulatory and disclosure requirements permitted by the JOBS Act and, as a result, some investors may consider Alcentra Capital Common Stock less attractive, which could reduce the market value of Alcentra Capital’s shares and Alcentra Capital’s share price may be more volatile. For example, while Alcentra Capital is an emerging growth company within the meaning of the Exchange Act, Alcentra Capital may take advantage of exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that Alcentra Capital’s independent registered public accounting firm provide an attestation report on the effectiveness of Alcentra Capital’s internal control over financial reporting. This may increase the risk that material weaknesses or other deficiencies in Alcentra Capital’s internal control over financial reporting go undetected.

If Alcentra Capital fails to maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial results or prevent fraud. As a result, security holders could lose confidence in Alcentra Capital’s financial and other public reporting, which would harm its business and the trading price of its securities.

Effective internal control over financial reporting are necessary for Alcentra Capital to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause Alcentra Capital to fail to meet its reporting obligations. In addition, any testing by Alcentra Capital conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by Alcentra Capital’s independent registered public accounting firm (when undertaken, as noted below), may reveal deficiencies in Alcentra Capital’s internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to Alcentra Capital’s consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in Alcentra Capital’s reported financial information, which could have a negative effect on the trading price of Alcentra Capital’s securities.

 

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Alcentra Capital is required to disclose changes made in its internal controls and procedures on a quarterly basis and Alcentra Capital’s management is required to assess the effectiveness of these controls annually. However, for as long as Alcentra Capital is an emerging growth company under the JOBS Act, its independent registered public accounting firm will not be required to attest to the effectiveness of Alcentra Capital’s internal control over financial reporting pursuant to Section 404. Alcentra Capital will likely remain an emerging growth company until December 31, 2019. An independent assessment of the effectiveness of Alcentra Capital’s internal controls could detect problems that Alcentra Capital’s management’s assessment might not. Undetected material weaknesses in Alcentra Capital’s internal controls could lead to financial statement restatements and require Alcentra Capital to incur the expense of remediation.

The Alcentra Capital Board may change Alcentra Capital’s investment objective, operating policies and strategies without prior notice or stockholder approval.

The Alcentra Capital Board has the authority, except as otherwise provided in the Investment Company Act, to modify or waive certain of Alcentra Capital’s operating policies and strategies without prior notice and without stockholder approval. However, absent stockholder approval, Alcentra Capital may not change the nature of Alcentra Capital’s business so as to cease to be, or withdraw Alcentra Capital’s election as, a BDC. Alcentra Capital cannot predict the effect any changes to Alcentra Capital’s current operating policies and strategies would have on its business, operating results and the market price of its securities. Nevertheless, any such changes could adversely affect Alcentra Capital’s business and impair its ability to make principal and interest payments on the Alcentra Capital InterNotes and negatively impact Alcentra Capital’s ability to pay you distributions and cause you to lose all or part of your investment.

Alcentra NY can resign as Alcentra Capital’s investment adviser upon 60 days’ notice and Alcentra Capital may not be able to find a suitable replacement within that time, or at all, resulting in a disruption in Alcentra Capital’s operations that could adversely affect its financial condition, business and results of operations.

Alcentra NY has the right under the Alcentra Capital Investment Advisory Agreement to resign as Alcentra Capital’s investment adviser at any time upon not less than 60 days’ written notice, whether Alcentra Capital has found a replacement or not. If Alcentra NY were to resign, Alcentra Capital may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If Alcentra Capital is unable to do so quickly, Alcentra Capital’s operations are likely to experience a disruption, its financial condition, business and results of operations as well as its ability to pay distributions to Alcentra Capital’s stockholders are likely to be adversely affected and the market price of Alcentra Capital’s shares may decline. In addition, the coordination of Alcentra Capital’s internal management and investment activities, as applicable, is likely to suffer if Alcentra Capital is unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by Alcentra NY. Even if Alcentra Capital is able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with Alcentra Capital’s investment objective may result in additional costs and time delays that may adversely affect Alcentra Capital’s business, financial condition, results of operations and cash flows.

Alcentra Capital is highly dependent on information systems and systems failures could significantly disrupt Alcentra Capital’s business, which may, in turn, negatively affect the market price of Alcentra Capital Common Stock and Alcentra Capital’s ability to make distributions to its stockholders.

Alcentra Capital’s business is highly dependent on the communications and information systems of Alcentra NY. In addition, certain of these systems are provided to Alcentra NY by third-party service providers. Any failure or interruption of such systems, including as a result of the termination of an agreement with any such third-party service provider, could cause delays or other problems in Alcentra Capital’s activities. Alcentra Capital’s financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or

 

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partially beyond Alcentra Capital’s control and may adversely affect its business. There could be: sudden electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes and hurricanes; disease pandemics; events arising from local or larger scale political or social matters, including terrorist acts; and cyber-attacks.

These events, in turn, could have a material adverse effect on Alcentra Capital’s operating results and negatively affect the market price of its securities and its ability to make distributions to its stockholders.

Terrorist attacks, acts of war or natural disasters may affect any market for Alcentra Capital’s securities, impact the businesses in which Alcentra Capital invests and harms its business, operating results and financial condition.

Terrorist acts, acts of war or natural disasters may disrupt Alcentra Capital’s operations, as well as the operations of the businesses in which Alcentra Capital invests. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic instability. Future terrorist activities, military or security operations, or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact the businesses in which Alcentra Capital invests directly or indirectly and, in turn, could have a material adverse impact on Alcentra Capital’s business, operating results and financial condition. Losses from terrorist attacks and natural disasters are generally uninsurable.

Alcentra Capital faces cyber-security risks.

Alcentra Capital’s business operations rely upon secure information technology systems for data processing, storage and reporting. Despite careful security and controls design, implementation and updating, Alcentra Capital’s information technology systems and the information systems of Alcentra NY and other third-party service providers are subject to potential attacks, including through adverse events that threaten the confidentiality, integrity or availability of Alcentra Capital’s information resources (i.e., cyber incidents). These attacks could involve gaining unauthorized access to Alcentra Capital’s information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption and result in disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to Alcentra Capital’s business relationships, any of which could, in turn, have a material adverse effect on Alcentra Capital’s business, financial condition and results of operations and negatively affect the market price of Alcentra Capital’s securities and Alcentra Capital’s ability to pay dividends. As Alcentra Capital’s reliance on technology has increased, so have the risks posed to its information systems, both internal and those provided by Alcentra NY and other third-party service providers.

The failure in cyber security systems, as well as the occurrence of events unanticipated in Alcentra Capital’s disaster recovery systems and management continuity planning could impair Alcentra Capital’s ability to conduct business effectively.

The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in Alcentra Capital’s disaster recovery systems, or a support failure from external providers, could have an adverse effect on Alcentra Capital’s ability to conduct business and on its results of operations and financial condition, particularly if those events affect Alcentra Capital’s computer-based data processing, transmission, storage, and retrieval systems or destroy data. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, Alcentra Capital’s computer systems and networks, or otherwise cause interruptions or malfunctions in Alcentra Capital’s operations, which could result in damage to Alcentra Capital’s reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss. If a significant number of Alcentra Capital’s managers were unavailable in the event of a disaster, Alcentra Capital’s ability to effectively conduct its business could be severely compromised.

 

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Risks Relating to Alcentra Capital’s Investments

Alcentra Capital’s investments are risky and highly speculative, and the lower middle and middle-market companies Alcentra Capital targets may have difficulty accessing the capital markets to meet their future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.

Investing in lower middle and middle-market companies involves a number of significant risks, including: these companies may have limited financial resources and may be unable to meet their obligations under their debt securities that Alcentra Capital holds, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of Alcentra Capital realizing any guarantees it may have obtained in connection with its investment, as well as a corresponding decrease in the value of the equity components of Alcentra Capital’s investments; they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns; they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on Alcentra Capital’s portfolio company and, in turn, on Alcentra Capital; they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, Alcentra Capital’s executive officers, directors and Alcentra NY may, in the ordinary course of business, be named as defendants in litigation arising from Alcentra Capital’s investments in portfolio companies; they generally have less publicly available information about their businesses, operations and financial condition. Alcentra Capital relies on the ability of Alcentra NY’s investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If Alcentra NY is unable to uncover all material information about these companies, it may not make a fully informed investment decision, and Alcentra Capital may lose all or part of its investment; they may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity; and a portion of Alcentra Capital’s income may be non-cash income, such as contractual PIK interest, which represents interest added to the loan balance and due at the end of the loan term. Instruments bearing PIK interest typically carry higher interest rates as a result of their payment deferral and increased credit risk. When Alcentra Capital recognizes income in connection with PIK interest, there is a risk that such income may become uncollectable if the borrower defaults.

In addition to the risks associated with Alcentra Capital’s investments in general, there are unique risks associated with Alcentra Capital’s investments in each of these entities.

Investing in lower middle and middle-market companies involves a high degree of risk and Alcentra Capital’s financial results may be affected adversely if one or more of its significant portfolio investments defaults on its loans or fails to perform as Alcentra Capital expects.

Alcentra Capital’s portfolio consists primarily of debt and equity investments in lower middle and middle-market companies. Investing in lower middle and middle-market companies involves a number of significant risks. Typically, the debt in which Alcentra Capital invests is not initially rated by any rating agency; however, Alcentra Capital believes that if such investments were rated, they would be below investment grade. Compared to larger publicly owned companies, these lower middle and middle-market companies may be in a weaker financial position and experience wider variations in their operating results, which may make them more vulnerable to economic downturns and other business disruptions. Typically, these companies need more capital to compete; however, their access to capital is limited and their cost of capital is often higher than that of their competitors. Alcentra Capital’s portfolio companies face intense competition from larger companies with greater financial, technical and marketing resources and their success typically depends on the managerial talents and efforts of an individual or a small group of persons.

Therefore, the loss of any of its key employees could affect a portfolio company’s ability to compete effectively and harm its financial condition. Further, some of these companies conduct business in regulated industries that

 

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are susceptible to regulatory changes. These factors could impair the cash flow of Alcentra Capital’s portfolio companies and result in other events, such as bankruptcy. These events could limit a portfolio company’s ability to repay its obligations to Alcentra Capital, which may have an adverse effect on the return on, or the recovery of, Alcentra Capital’s investment in these businesses. Deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in the value of the loan’s collateral and the fair market value of the loan.

Some of these companies cannot obtain financing from public capital markets or from traditional credit sources, such as commercial banks. Accordingly, loans made to these types of companies pose a higher default risk than loans made to companies that have access to traditional credit sources.

Economic recessions or downturns could impair Alcentra Capital or its portfolio companies and defaults by its portfolio companies will harm its operating results.

During economic recessions or downturns, Alcentra Capital and other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital in order to grow. Equity capital may be difficult to raise because, subject to some limited exceptions, as a BDC, Alcentra Capital is generally not able to issue additional shares of Alcentra Capital Common Stock at a price less than NAV without first obtaining approval for such issuance from its stockholders and the independent directors of the Alcentra Capital Board. In addition, Alcentra Capital’s ability to incur indebtedness (including by issuing preferred stock) is limited by applicable regulations such that Alcentra Capital’s asset coverage, as calculated in accordance with the Investment Company Act, must equal at least 150%, subject to certain disclosure requirements, immediately after each time Alcentra Capital incurs indebtedness. However, Alcentra Capital remains subject to a 200% minimum asset coverage ratio covenant under the Alcentra Capital Credit Facility and thus will not be able to take advantage of the 150% asset coverage requirement under the Investment Company Act unless and until it negotiates revised terms and conditions with the lenders under the Alcentra Capital Credit Facility. The debt capital that will be available to Alcentra Capital in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what Alcentra Capital currently experiences. Any inability to raise capital could have a negative effect on Alcentra Capital’s business, financial condition and results of operations.

Portfolio companies are likely to be susceptible to economic slowdowns or recessions and may be unable to repay Alcentra Capital’s loans during such periods. Therefore, the portion of Alcentra Capital’s investment portfolio composed of non-performing assets are likely to increase and the value of Alcentra Capital’s portfolio is likely to decrease during such periods. Adverse economic conditions may decrease the value of collateral securing some of Alcentra Capital’s loans and debt securities and the value of Alcentra Capital’s equity investments. Economic slowdowns or recessions could lead to financial losses in Alcentra Capital’s portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase Alcentra Capital’s funding costs, limit Alcentra Capital’s access to the capital markets or result in a decision by lenders not to extend credit to Alcentra Capital. These events could prevent Alcentra Capital from increasing its investments and harm its operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by Alcentra Capital or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets, which could trigger cross-defaults under other agreements and jeopardize Alcentra Capital’s portfolio company’s ability to meet its obligations under the loans and debt securities that Alcentra Capital holds. Alcentra Capital may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company. In addition, lenders in certain cases can be subject to lender liability claims for actions taken by them when they become too involved in the borrower’s business or exercise control over a borrower. It is possible that Alcentra Capital could become subject to a lender’s liability claim, including as a result of actions taken if Alcentra Capital renders significant managerial assistance to the borrower. Furthermore, if one of Alcentra Capital’s portfolio companies were to file for bankruptcy protection, a bankruptcy court might re-characterize Alcentra Capital’s debt holding and

 

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subordinate all or a portion of Alcentra Capital’s claim to claims of other creditors, even though Alcentra Capital may have structured its investment as senior secured debt. The likelihood of such a re-characterization would depend on the facts and circumstances, including the extent to which Alcentra Capital provided managerial assistance to that portfolio company.

Changes to United States tariff and import/export regulations may have a negative effect on Alcentra Capital’s portfolio companies and, in turn, harm Alcentra Capital.

There has been on-going discussion and commentary regarding potential significant changes to United States trade policies, treaties and tariffs. The current U.S. presidential administration, along with the U.S. Congress, has created significant uncertainty about the future relationship between the United States and other countries with respect to the trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States. Any of these factors could depress economic activity and restrict Alcentra Capital’s portfolio companies’ access to suppliers or customers and have a material adverse effect on their business, financial condition and results of operations, which in turn would negatively impact Alcentra Capital.

Alcentra Capital’s investments in leveraged portfolio companies may be risky, and Alcentra Capital could lose all or part of its investment.

Investment in leveraged companies involves a number of significant risks. Leveraged companies in which Alcentra Capital invests may have limited financial resources and may be unable to meet their obligations under their loans and debt securities that Alcentra Capital holds. Such developments may be accompanied by deterioration in the value of any collateral and a reduction in the likelihood of Alcentra Capital’s realizing any guarantees that it may have obtained in connection with its investment. Smaller leveraged companies also may have less predictable operating results and may require substantial additional capital to support their operations, finance their expansion or maintain their competitive position.

Significant U.K. or European developments stemming from the U.K.’s decision to withdraw from the European Union may create significant risks for global markets and Alcentra Capital’s investments.

Negotiations for Brexit have created political and economic uncertainty, particularly in the United Kingdom and the European Union, and this uncertainty may last for years. There are many ways in which Alcentra Capital and its investments could be affected, only some of which Alcentra Capital is able to currently identify. In particular, currency volatility may mean that Alcentra Capital’s returns and the returns of Alcentra Capital’s portfolio companies will be adversely affected by market movements and may make it more difficult, or more expensive, for Alcentra Capital to implement appropriate currency hedging. Potential declines in the value of the British pound and/or the euro against other currencies, along with the potential downgrading of the United Kingdom’s sovereign credit rating, may also have an impact on the performance of any of Alcentra Capital’s portfolio companies located in the United Kingdom or Europe.

Alcentra Capital may hold the loans and debt securities of leveraged companies that may, due to the significant operating volatility typical of such companies, enter into bankruptcy proceedings.

Leveraged companies may experience bankruptcy or similar financial distress. The bankruptcy process has a number of significant inherent risks. Many events in a bankruptcy proceeding are the product of contested matters and adversary proceedings and are beyond the control of the creditors. A bankruptcy filing by a portfolio company may adversely and permanently affect that company. If the proceeding is converted to a liquidation, the value of the portfolio company may not equal the liquidation value that was believed to exist at the time of the investment. The duration of a bankruptcy proceeding is also difficult to predict, and a creditor’s return on investment can be adversely affected by delays until the plan of reorganization or liquidation ultimately becomes

 

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effective. The administrative costs in connection with a bankruptcy proceeding are frequently high and would be paid out of the debtor’s estate prior to any return to creditors. Because the standards for classification of claims under bankruptcy law are vague, Alcentra Capital’s influence with respect to the class of securities or other obligations Alcentra Capital owns may be lost by increases in the number and amount of claims in the same class or by different classification and treatment. In the early stages of the bankruptcy process, it is often difficult to estimate the extent of, or even to identify, any contingent claims that might be made. In addition, certain claims that have priority by law (for example, claims for taxes) may be substantial.

Depending on the facts and circumstances of Alcentra Capital’s investments and the extent of its involvement in the management of a portfolio company, upon the bankruptcy of a portfolio company, a bankruptcy court may recharacterize Alcentra Capital’s debt investments as equity investments and subordinate all or a portion of Alcentra Capital’s claim to that of other creditors. This could occur regardless of how Alcentra Capital may have structured its investment. In addition, Alcentra Capital cannot assure you that a bankruptcy court would not take actions contrary to Alcentra Capital’s interests.

The lack of liquidity in Alcentra Capital’s investments may adversely affect its business.

All of Alcentra Capital’s assets may be invested in illiquid loans and securities, and a substantial portion of Alcentra Capital’s investments in leveraged companies will be subject to legal and other restrictions on resale or will otherwise be less liquid than more broadly traded public securities. The illiquidity of these investments may make it difficult for Alcentra Capital to sell such investments if the need arises. In addition, if Alcentra Capital is required to liquidate all or a portion of its portfolio quickly, it may realize significantly less than the value at which it has previously recorded its investments. Also, as noted above, Alcentra Capital may be limited or prohibited in its ability to sell or otherwise exit certain positions in its portfolio as such a transaction could be considered a joint transaction prohibited by the Investment Company Act. In addition, Alcentra Capital may face other restrictions on its ability to liquidate an investment in a portfolio company to the extent that Alcentra Capital has material non-public information regarding such portfolio company.

Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of Alcentra Capital’s portfolio investments, reducing Alcentra Capital’s NAV through increased net unrealized depreciation.

As a BDC, Alcentra Capital is required to carry its investments at fair value or, if no market value is ascertainable, at fair value as determined in good faith by the Alcentra Capital Board. As part of the valuation process, Alcentra Capital may take into account the following types of factors, if relevant, in determining the fair value of its investments: available current market data, including relevant and applicable market trading and transaction comparables; applicable market yields and multiples; security covenants; call protection provisions; information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments, its earnings and discounted cash flows and the markets in which it does business; comparisons of financial ratios of peer companies that are public; comparable merger and acquisition transactions; and the principal market and enterprise values.

When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, Alcentra Capital uses the pricing indicated by the external event to corroborate Alcentra Capital’s valuation. Alcentra Capital records decreases in the market values or fair values of its investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in Alcentra Capital’s portfolio. The effect of all of these factors on Alcentra Capital’s portfolio may reduce its NAV by increasing net unrealized depreciation in Alcentra Capital’s portfolio. Depending on market conditions, Alcentra Capital could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse effect on Alcentra Capital’s business, financial condition, results of operations and cash flows.

 

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Alcentra Capital is a non-diversified investment company within the meaning of the Investment Company Act, and therefore Alcentra Capital is not limited with respect to the proportion of its assets that may be invested in securities of a single issuer.

Alcentra Capital is classified as a non-diversified investment company within the meaning of the Investment Company Act, which means that Alcentra Capital is not limited by the Investment Company Act with respect to the proportion of its assets that it may invest in securities of a single issuer. Beyond the asset diversification requirements associated with Alcentra Capital’s qualification as a RIC under the Code, Alcentra Capital does not have fixed guidelines for diversification. To the extent that Alcentra Capital assumes large positions in the securities of a small number of issuers or Alcentra Capital’s investments are concentrated in relatively few industries, its NAV 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. Alcentra Capital may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company.

Because Alcentra Capital generally does not hold controlling equity interests in its portfolio companies, it may not be able to exercise control over its portfolio companies or to prevent decisions by management of its portfolio companies that could decrease the value of its investments.

Alcentra Capital does not generally hold controlling equity positions in the majority of the portfolio companies included in its portfolio. In addition, Alcentra Capital expects to not hold controlling equity positions in portfolio companies in which it will make future investments. As a result, Alcentra Capital is subject to the risk that a portfolio company may make business decisions with which Alcentra Capital disagrees, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to Alcentra Capital’s interests. Due to the lack of liquidity of the debt and equity investments that Alcentra Capital expects to hold in its portfolio companies, Alcentra Capital may not be able to dispose of its investments in the event Alcentra Capital disagrees with the actions of a portfolio company and may therefore suffer a decrease in the value of Alcentra Capital’s investments.

Prepayments of Alcentra Capital’s debt investments by its portfolio companies could adversely impact Alcentra Capital’s results of operations and ability to make stockholder distributions and result in a decline in the market price of shares of Alcentra Capital Common Stock.

Alcentra Capital is subject to the risk that the debt investments it makes in its portfolio companies may be repaid prior to maturity. Alcentra Capital expects that its investments will generally allow for repayment at any time subject to certain penalties. When this occurs, Alcentra Capital intends to generally reinvest these proceeds in temporary investments, pending their future investment in accordance with its investment strategy. These temporary investments will typically have substantially lower yields than the debt being prepaid, and Alcentra Capital could experience significant delays in reinvesting these amounts. Any future investment may also be at lower yields than the debt that was repaid. As a result, Alcentra Capital’s results of operations could be materially adversely affected if one or more of its portfolio companies elects to prepay amounts owed to Alcentra Capital. Additionally, prepayments could negatively impact Alcentra Capital’s ability to make, or the amount of, principal and interest payments on the Alcentra Capital InterNotes, which could result in a decline in the market price of Alcentra Capital’s securities.

Alcentra Capital’s portfolio companies may incur debt that ranks equally with, or senior to, Alcentra Capital’s investments in such companies.

Alcentra Capital has historically invested and may continue to invest in second lien and subordinated loans issued by its portfolio companies. The portfolio companies usually have, or may be permitted to incur, other debt that ranks equally with, or senior to, the loans in which Alcentra Capital invests. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which Alcentra Capital is entitled to receive payments in respect of the loans in which Alcentra Capital

 

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invests. These debt instruments would usually prohibit the portfolio companies from paying interest on or repaying Alcentra Capital’s investments in the event of and during the continuance of a default under such debt. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to Alcentra Capital’s investment in that portfolio company would typically be entitled to receive payment in full before Alcentra Capital receives any distribution in respect of its investment. After repaying senior creditors, a portfolio company may not have any remaining assets to use for repaying its obligation to Alcentra Capital. In the case of debt ranking equally with loans in which Alcentra Capital invests, Alcentra Capital would have to share any distributions on an equal and ratable basis with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

Additionally, certain loans that Alcentra Capital may make to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by first priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of the collateral to repay their obligations in full before Alcentra Capital. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds were not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then Alcentra Capital, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.

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

The rights Alcentra Capital may have with respect to the collateral securing the loans Alcentra Capital makes to its portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that Alcentra Capital enters into with the holders of such senior debt. Under a typical intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past defaults under collateral documents.

Alcentra Capital may not have the ability to control or direct such actions, even if its rights are adversely affected.

 

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If Alcentra Capital makes second lien and subordinated debt investments, the obligors or the portfolio companies may not generate sufficient cash flow to service their debt obligations to Alcentra Capital.

Alcentra Capital may make second lien and subordinated debt investments that rank below other obligations of the obligor in right of payment. Second lien and subordinated debt investments are subject to greater risk of default than senior obligations as a result of adverse changes in the financial condition of the obligor or economic conditions in general. If Alcentra Capital makes a second lien or subordinated debt investment in a portfolio company, the portfolio company may be highly leveraged, and its relatively high debt-to-equity ratio may create increased risks that its operations might not generate sufficient cash flow to service all of its debt obligations.

The disposition of Alcentra Capital’s investments may result in contingent liabilities.

Alcentra Capital currently expects that substantially all of its investments will continue to involve loans and private securities. In connection with the disposition of an investment in loans and private securities, Alcentra Capital may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. Alcentra Capital may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to potential liabilities. These arrangements may result in contingent liabilities that ultimately result in funding obligations that Alcentra Capital must satisfy through its return of distributions previously made to Alcentra Capital.

Alcentra Capital may not realize gains from its equity investments.

When Alcentra Capital invests in loans and debt securities, it may acquire warrants or other equity securities of portfolio companies as well. Alcentra Capital may also invest in equity securities directly. To the extent Alcentra Capital holds equity investments, it will attempt to dispose of them and realize gains upon its disposition of them. However, the equity interests Alcentra Capital receives may not appreciate in value and may decline in value. As a result, Alcentra Capital may not be able to realize gains from its equity interests, and any gains that Alcentra Capital does realize on the disposition of any equity interests may not be sufficient to offset any other losses Alcentra Capital experiences.

Alcentra Capital’s investments in non-U.S. companies may involve significant risks in addition to the risks inherent in U.S. investments.

Alcentra Capital’s investment strategy contemplates potential investments in securities of non-U.S. companies to the extent permissible under the Investment Company Act. Investing in non-U.S. companies may expose Alcentra Capital to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of non-U.S. taxes (potentially at confiscatory levels), less liquid markets, less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.

Alcentra Capital’s investments that are denominated in a non-U.S. currency will be subject to the risk that the value of a particular currency will change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. Alcentra Capital may employ hedging techniques to minimize these risks, but Alcentra Capital cannot assure you that such strategies will be effective or without risk to Alcentra Capital.

Alcentra Capital may expose itself to risks if it engages in hedging transactions.

If Alcentra Capital engages in hedging transactions, it may expose itself to risks associated with such transactions. Such hedging may utilize instruments such as forward contract currency options and interest rate

 

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swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of Alcentra Capital’s portfolio positions from changes in currency exchange rates and market interest rates. Use of these hedging instruments may include counter-party credit risk.

Hedging against a decline in the values of Alcentra Capital’s portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that Alcentra Capital is not able to enter into a hedging transaction at an acceptable price.

The success of any hedging transactions Alcentra Capital may enter into will depend on its ability to correctly predict movements in currencies and interest rates. Therefore, while Alcentra Capital may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if Alcentra Capital had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, Alcentra Capital may not seek to (or be able to) establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent Alcentra Capital from achieving the intended hedge and expose it to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. Alcentra Capital’s ability to engage in hedging transactions may also be adversely affected by rules adopted by the Commodity Futures Trading Commission (the “CFTC”).

The effect of global climate change may impact the operations of Alcentra Capital’s portfolio companies.

There may be evidence of global climate change. Climate change creates physical and financial risk and some of Alcentra Capital’s portfolio companies may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity. To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and magnitude of any changes. Increases in the cost of energy could adversely affect the cost of operations of Alcentra Capital’s portfolio companies if the use of energy products or services is material to their business. A decrease in energy use due to weather changes may affect some of Alcentra Capital’s portfolio companies’ financial condition, through decreased revenues. Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stresses, including service interruptions. Energy companies could also be affected by the potential for lawsuits against or taxes or other regulatory costs imposed on greenhouse gas emitters, based on links drawn between greenhouse gas emissions and climate change.

Changes in laws or regulations governing Alcentra Capital’s operations or the operations of its portfolio companies, changes in the interpretation thereof or newly enacted laws or regulations and any failure by Alcentra Capital or its portfolio companies to comply with these laws or regulations, could require changes to certain business practices of Alcentra Capital or its portfolio companies, negatively impact the operations, cash flows or financial condition of Alcentra Capital or its portfolio companies, impose additional costs on Alcentra Capital or its portfolio companies or otherwise adversely affect Alcentra Capital’s business or the business of its portfolio companies.

Alcentra Capital and its portfolio companies are subject to regulation by laws and regulations at the local, state, federal and, in some cases, foreign levels. These laws and regulations, as well as their interpretation, may be changed from time to time, and new laws and regulations may be enacted. Accordingly, any change in these laws

 

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or regulations, changes in their interpretation, or newly enacted laws or regulations and any failure by Alcentra Capital or its portfolio companies to comply with these laws or regulations, could require changes to certain business practices of Alcentra Capital or its portfolio companies, negatively impact the operations, cash flows or financial condition of Alcentra Capital or its portfolio companies, impose additional costs on Alcentra Capital or its portfolio companies or otherwise adversely affect Alcentra Capital’s business or the business of its portfolio companies.

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

Additionally, changes to the laws and regulations governing Alcentra Capital’s operations related to permitted investments may cause Alcentra Capital to alter its investment strategy in order to avail itself of new or different opportunities. Such changes could result in material differences to the strategies and plan and may shift Alcentra Capital’s investment focus from the areas of expertise of Alcentra NY to other types of investments in which Alcentra NY may have little or no expertise or experience. Any such changes, if they occur, could have a material adverse effect on Alcentra Capital’s results of operations and the value of your investment.

Alcentra Capital’s portfolio companies in the healthcare and pharmaceutical services industry sector are subject to extensive government regulation and certain other risks particular to that industry.

One of Alcentra Capital’s key industry sectors for investment is healthcare and pharmaceutical services. Alcentra Capital’s investments in portfolio companies that operate in this sector are subject to certain significant risks particular to that industry. The laws and rules governing the business of healthcare companies and interpretations of those laws and rules are subject to frequent change. Broad latitude is given to the agencies administering those regulations. Existing or future laws and rules could force Alcentra Capital’s portfolio companies engaged in healthcare to change how they do business, restrict revenue, increase costs, change reserve levels and change business practices. Healthcare companies often must obtain and maintain regulatory approvals to market many of their products, change prices for certain regulated products and consummate some of their acquisitions and divestitures. Delays in obtaining or failing to obtain or maintain these approvals could reduce revenue or increase costs. Policy changes on the local, state and federal level, such as the expansion of the government’s role in the healthcare arena and alternative assessments and tax increases specific to the healthcare industry or healthcare products as part of federal health care reform initiatives, could fundamentally change the dynamics of the healthcare industry. Additionally, because of the continued uncertainty surrounding the healthcare industry under the current U.S. presidential administration, including the potential for further legal challenges or repeal of existing legislation, Alcentra Capital cannot quantify or predict with any certainty the likely impact on its portfolio companies, its business model, prospects, financial condition or results of operations. Alcentra Capital also anticipates that Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations effecting additional fundamental changes in the healthcare delivery system. Alcentra Capital cannot assure you as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact of any such potential legislation on certain of Alcentra Capital’s portfolio companies, its business model, prospects, financial condition or results of operations. Any of these factors could materially adversely affect the operations of a portfolio company in this industry sector and, in turn, impair Alcentra Capital’s ability to timely collect principal and interest payments owed to it.

 

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Alcentra Capital’s portfolio companies in the defense, homeland security and government services industry sector are subject to certain risks particular to that industry.

One of Alcentra Capital’s key industry sectors for investment is defense, homeland security and government services. Investments in this sector are subject to certain significant risks particular to that industry. These businesses depend upon continued U.S. government expenditures on defense, homeland security and other services. These expenditures have not remained constant over time, have been reduced in certain periods and, recently, have been affected by the U.S. government’s efforts to improve efficiency and reduce costs affecting federal government programs generally. These expenditures are also subject to budgetary constraints affecting U.S. government spending generally or specific agencies in particular. Furthermore, these businesses are generally subject to changes in the political climate and general economic conditions, including a slowdown of the economy or unstable economic conditions and responses to conditions, such as emergency spending, that reduce funds available for other government priorities.

Portfolio companies operating in the defense, homeland security and government services industry sector may be required to comply with laws and regulations relating to the formation, administration, and performance of U.S. government contracts. Such laws and regulations may potentially impose added costs on these businesses and may subject them to civil or criminal penalties, termination of U.S. government contracts, and/or suspension or debarment from contracting with federal agencies, in the event they fail to comply. Further, these portfolio companies may derive significant amounts of their revenue from contracts awarded through a competitive bidding process. Their revenue may be adversely affected if they are unable to compete effectively in the process or there are delays caused by their competitors protecting contract awards.

Any of these factors could materially adversely affect the operations of a portfolio company in this industry sector and, in turn, impair Alcentra Capital’s ability to timely collect principal and interest payments owed to it.

Alcentra Capital’s failure to make follow-on investments in its portfolio companies could impair the value of its portfolio.

Following an initial investment in a portfolio company, Alcentra Capital may make additional investments in that portfolio company as “follow-on” investments, in seeking to: increase or maintain in whole or in part Alcentra Capital’s position as a creditor or equity ownership percentage in a portfolio company; exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or preserve or enhance the value of Alcentra Capital’s investment.

Alcentra Capital has discretion to make follow-on investments, subject to the availability of capital resources. Failure on Alcentra Capital’s part to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and Alcentra Capital’s initial investment, or may result in a missed opportunity for Alcentra Capital to increase its participation in a successful operation. Even if Alcentra Capital has sufficient capital to make a desired follow-on investment, it may elect not to make a follow-on investment because it may not want to increase its level of risk, because Alcentra Capital prefers other opportunities or because it is inhibited by compliance with BDC requirements of the Investment Company Act or the desire to maintain its qualification as a RIC.

Risks Relating to the Transactions

There is currently no market for Crescent Capital BDC Common Stock or Crescent Capital Maryland BDC Common Stock, and there can be no certainty as to trading prices of the Crescent Capital Maryland BDC Common Stock following consummation of the Mergers.

There is currently no market for the Crescent Capital BDC Common Stock or Crescent Capital Maryland BDC Common Stock, and there can be no assurance that an active trading market for Crescent Capital Maryland BDC Common Stock will develop or be sustained following the Mergers. Factors such as government regulatory

 

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action, tax laws, interest rates and market conditions in general could have significant impact on the future market price of the Crescent Capital Maryland BDC Common Stock and there can be no assurance as to whether the market value of the shares of Crescent Capital Maryland BDC Common Stock received by Alcentra Capital stockholders in the Merger will be less than, equal to or greater than the market value of shares of Alcentra Capital Common Stock held by such stockholders prior to the consummation of the Merger. In addition, the trading volume of the Crescent Capital Maryland BDC Common Stock may be limited, which could also have a significant effect on its future market price.

If a market for the Crescent Capital Maryland BDC Common Stock does not develop or is not sustained, it may be difficult for you to sell your shares of Crescent Capital Maryland BDC Common Stock at an attractive price or at all. The Merger Consideration relative to the market price of Alcentra Capital Common Stock may not be indicative of the market price of the Crescent Capital Maryland BDC Common Stock following consummation of the Transactions. In the absence of an active trading market for the Crescent Capital Maryland BDC Common Stock, investors may not be able to sell their shares at the price or time that they would like to sell. It is impossible to predict with certainty the price at which the Crescent Capital Maryland BDC Common Stock will trade following consummation of the Transactions. It is possible that in one or more future periods the combined company’s results of operations may be below the expectations of public market analysts and investors and, as a result of these and other factors, the price of the Crescent Capital Maryland BDC Common Stock may fall.

The Exchange Ratio will not be adjusted for changes in the price of Alcentra Capital Common Stock, and because there is no trading market for the Crescent Capital Maryland BDC Common Stock and because the NAV of Crescent Capital BDC may change, Alcentra Capital stockholders cannot be sure of the value of the stock portion of the consideration they will receive.

The Exchange Ratio of 0.4041 shares of Crescent Capital Maryland BDC Common Stock for each share of Alcentra Capital Common Stock was fixed on August 12, 2019, the date of the signing of the Merger Agreement, and is not subject to adjustment based on changes in the trading price of Alcentra Capital Common Stock or fluctuations in the NAV of Crescent Capital Maryland BDC before the Effective Time.

As discussed above under “—There is currently no market for Crescent Capital BDC Common Stock or Crescent Capital Maryland BDC Common Stock, and there can be no certainty as to trading prices of the Crescent Capital Maryland BDC Common Stock following consummation of the Mergers,” there is currently no trading market for the Crescent Capital Maryland BDC Common Stock and there can be no assurance as to the market prices of Crescent Capital Maryland BDC Common Stock following the Effective Time.

Accordingly, at the time of the Alcentra Capital Special Meeting, Alcentra Capital stockholders will not know or be able to calculate the market value of the stock portion of the Merger Consideration they would receive upon the completion of the Transactions. Neither Alcentra Capital nor Crescent Capital BDC is permitted to terminate the Merger Agreement or re-solicit the vote of Alcentra Capital’s or Crescent Capital BDC’s stockholders solely because of changes in the market price of Alcentra Capital Common Stock or changes in the NAV of either company. There will be no adjustment to the calculation of the Merger Consideration for changes in the market price of Alcentra Capital Common Stock.

The value of the stock portion of the Merger Consideration that Alcentra Capital stockholders will receive at the Effective Time, and of the Crescent Capital Maryland BDC Common Stock that Crescent Capital BDC stockholders will hold following the Reincorporation may be affected, either positively or negatively, by the trading performance of Crescent Capital Maryland BDC Common Stock following the Mergers.

There is currently no public trading market for Crescent Capital BDC Common Stock or Crescent Capital Maryland BDC Common Stock and there is no way to predict with certainty how the shares of Crescent Capital Maryland BDC Common Stock, including the shares of Crescent Capital Maryland BDC Common Stock to be issued in the First Merger and the Reincorporation, will trade following consummation of the Mergers. Any

 

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change in the trading price of Crescent Capital Maryland BDC Common Stock following completion of the Mergers will affect the value (either positively or negatively) of the stock portion of the Merger Consideration or the value of the Crescent Capital Maryland BDC Common Stock a Crescent Capital BDC stockholder owns after completion of the Reincorporation. Stock price changes may result from a variety of factors, including, among other things:

 

   

changes in the business, operations or prospects of the combined company;

 

   

the financial condition of current or prospective portfolio companies of the combined company;

 

   

interest rates or general market or economic conditions;

 

   

supply and demand for the Crescent Capital Maryland BDC Common Stock following completion of the Mergers; and

 

   

market perception of the future profitability of the combined company.

These factors are generally beyond the control of Alcentra Capital, Crescent Capital BDC and Crescent Capital Maryland BDC prior to completion of the Mergers, and following completion of the Mergers, beyond the control of the combined company. As noted above, there is currently no public trading market for Crescent Capital BDC Common Stock or Crescent Capital Maryland BDC Common Stock, and there is no way to predict with certainty how the Crescent Capital Maryland BDC Common Stock will trade following completion of the Mergers. During the 12-month period ended June 30, 2019, the NAV per share of Crescent Capital BDC Common Stock varied from a low of $19.43 to a high of $19.97, the NAV per share of Alcentra Capital Common Stock varied from a low of $11.01 to a high of $11.17 and the closing price per share of Alcentra Capital Common Stock varied from a low of $5.58 to a high of $8.74. However, the historical NAV per share of Crescent Capital BDC Common Stock, and the historic trading prices of Alcentra Capital Common Stock, are not necessarily indicative of future performance of Crescent Capital Maryland BDC Common Stock following the Mergers.

Shares of closed-end investment companies such as Crescent Capital BDC and Alcentra Capital frequently trade at a discount from NAV. For example, as of June 30, 2019, the NAV per share of Alcentra Capital Common Stock was $11.02, but its closing price on July 1, 2019 (the nearest trading day to June 30, 2019) was $8.25. Similarly, Crescent Capital Maryland BDC Common Stock may also be discounted in the market. This characteristic of closed-end investment companies is separate and distinct from the risk that the NAV per share of Crescent Capital Maryland BDC Common Stock may decline. BDCs as an industry, including Alcentra Capital, have been trading below NAV as a result of recent stock market volatility. During any period when Crescent Capital Maryland BDC Common Stock trades below its NAV, Crescent Capital Maryland BDC will generally not be able to sell additional shares of its common stock to the public at its market price without, among other things, the requisite stockholder approval and approval of Crescent Capital Maryland BDC’s independent directors.

The market price of Crescent Capital Maryland BDC Capital Common Stock may fluctuate significantly following the Listing.

The market price and liquidity of the market for shares of Crescent Capital Maryland BDC Common Stock following the Listing may be significantly affected by numerous factors, some of which will beyond the control of the combined company and may not be directly related to the combined company’s operating performance. These factors include:

 

   

significant volatility in the market price and trading volume of securities of publicly traded RICs, BDCs or other companies in the combined company’s sector, which are not necessarily related to the operating performance of these companies;

 

   

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

 

   

the inclusion or exclusion of Crescent Capital Maryland BDC Common Stock from certain indices;

 

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

 

   

loss of RIC status;

 

   

changes in earnings or variations in operating results;

 

   

changes in the value of the combined company’s portfolio of investments;

 

   

announcements with respect to significant transactions;

 

   

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

 

   

departure of key personnel of the combined company or Crescent Cap Advisors;

 

   

operating performance of companies comparable to the combined company;

 

   

short-selling pressure with respect to shares of Crescent Capital Maryland BDC Common Stock or BDCs generally;

 

   

general economic trends and other external factors; and

 

   

loss of a major funding source.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility in the price of the Crescent Capital Maryland BDC Common Stock, the combined company may become the target of securities litigation in the future. If the combined company were to become involved in securities litigation, it could result in substantial costs, divert management’s attention and resources from the business and adversely affect the business.

Sales of shares of Crescent Capital Maryland BDC Common Stock after the completion of the Transactions may cause the market price of Crescent Capital Maryland BDC Common Stock to fall.

Based on the number of outstanding shares of Alcentra Capital Common Stock as of September 20, 2019, Crescent Capital Maryland BDC would issue approximately 5.2 million shares of Crescent Capital Maryland BDC Common Stock pursuant to the Merger Agreement to Alcentra Capital stockholders. Many Alcentra Capital stockholders may decide not to hold the shares of Crescent Capital Maryland BDC Common Stock they will receive pursuant to the Merger Agreement. Such sales of Crescent Capital Maryland BDC Common Stock could have the effect of depressing the market price for Crescent Capital Maryland BDC Common Stock and may take place promptly following the completion of the Transactions.

In addition, as of September 20, 2019, there were an approximately 19.5 million shares of Crescent Capital BDC Common Stock issued and outstanding. As described below under “—The Crescent Capital BDC Maryland Charter will impose certain restrictions on transfer of the Crescent Capital Maryland BDC Common Stock currently held by Crescent Capital Maryland BDC stockholders in addition to those otherwise imposed applicable law or by contract,” following the Reincorporation, the shares of Crescent Capital Maryland BDC Common Stock issued to holders of such shares pursuant to the Reincorporation Merger will be subject to transfer restrictions in the Crescent Capital BDC Maryland Charter for a period ending 365 days following the Listing of the Crescent Capital Maryland BDC Common Stock on a national securities exchange, the effect of which will be that 1/3 of such shares will not be transferable until 180 days following the Listing, another 1/3 will not be transferable until 270 days following the Listing, and the remaining 1/3 will not be transferable until 365 days following the Listing without prior written consent of the Crescent Capital Maryland BDC Board, with all such transfers remaining subject to applicable securities laws (including applicable volume restrictions with respect to affiliate sales).

Sales of a substantial number of shares of Crescent Capital Maryland BDC Common Stock held by current Crescent Capital Maryland BDC stockholders in the public market could occur at any time after the expiration of

 

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such periods of transfer restrictions under the Crescent Capital BDC Maryland Charter. These sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of the Crescent Capital Maryland BDC Common Stock.

Crescent Capital Maryland BDC’s stockholders will experience dilution in their ownership percentage if they opt out of Crescent Capital Maryland BDC’s DRIP.

Crescent Capital Maryland BDC is expected to adopt a DRIP, pursuant to which it will reinvest all cash distributions authorized by the Crescent Capital Maryland BDC Board on behalf of stockholders who do not elect to receive their distributions in cash. As a result, if the Crescent Capital Maryland BDC Board authorizes and Crescent Capital Maryland BDC declares a cash distribution, then Crescent Capital Maryland BDC’s stockholders who have not opted out of the DRIP will have their cash distributions automatically reinvested in additional Crescent Capital Maryland BDC Common Stock, rather than receiving the cash distribution. See “Crescent Capital Maryland BDC Dividend Reinvestment Plan” for a description of the DRIP. Following the Listing, the number of shares to be issued to a plan participant will be determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of Crescent Capital Maryland BDC Common Stock at the close of regular trading on NASDAQ on the date of such distribution. The market price per share of Crescent Capital Maryland BDC Common Stock on a particular date will be the closing price for such shares on NASDAQ on such date, or, if no sale is reported for such date, at the average of their reported bid and asked prices. However, if the market price per share exceeds the most recently computed net asset value per share, Crescent Capital Maryland BDC will issue shares at the greater of (i) the most recently computed net asset value per share and (ii) 95% of the current market price per share (or such lesser discount to the current market price per share that still exceeds the most recently computed net asset value per share). Accordingly, participants in the DRIP may receive a greater number shares of Crescent Capital Maryland BDC Common Stock than the number of shares associated with the market price of the Crescent Capital Maryland BDC Common Stock, resulting in dilution for other stockholders. Stockholders that opt out of the DRIP will experience dilution in their ownership percentage of the Crescent Capital Maryland BDC Common Stock over time.

Crescent Capital BDC and Alcentra Capital may fail to consummate the Mergers. If the Mergers do not close, Crescent Capital BDC and Alcentra Capital will not benefit from the expenses incurred in their pursuit.

While there can be no assurances as to the exact timing, or that the Mergers will be completed at all, Crescent Capital BDC and Alcentra Capital are working to complete the Mergers in the fourth quarter of 2019. The consummation of the Mergers is subject to certain conditions, including, among others, Alcentra Capital’s stockholder approval, Crescent Capital BDC’s stockholder approval, required regulatory approvals (including expiration of the waiting period under the HSR Act (as to which early termination was granted on September 10, 2019)), and other customary closing conditions. Crescent Capital BDC and Alcentra Capital intend to consummate the Mergers as soon as possible; however, there can be no assurance that the conditions required to consummate the Mergers will be satisfied or waived on the anticipated schedule, or at all. If the Mergers are not completed, Crescent Capital BDC and Alcentra Capital will have incurred substantial expenses for which no ultimate benefit will have been received.

Consummation of the Transactions will cause immediate dilution to Crescent Capital BDC stockholders’ and the Alcentra Capital’s stockholders’ voting interests and may cause immediate dilution to the NAV per share of the combined company’s common stock.

Upon consummation of the Mergers, each share of Alcentra Capital Common Stock issued and outstanding immediately prior to the Effective Time of the Mergers will be converted into and become exchangeable for 0.4041 shares of Crescent Capital Maryland BDC Common Stock (in addition to the approximately $3.1784 per share Alcentra Capital stockholders will receive in cash), subject to the payment of cash instead of fractional shares. If the Mergers are consummated, current Crescent Capital BDC stockholders will own approximately

 

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[●]% of the combined company’s outstanding common stock and Alcentra Capital stockholders will own approximately [●]% of the combined company’s outstanding common stock based on the number of shares of Crescent Capital BDC Common Stock and Alcentra Capital Common Stock outstanding on [●], 2019. Consequently, Crescent Capital BDC’s stockholders should expect to exercise less influence over the management and policies of the combined company following the Mergers than they currently exercise over Crescent Capital BDC’s management and policies. Similarly, Alcentra Capital’s stockholders should expect to exercise less influence over the management and policies of the combined company following the completion of the Transactions than they currently exercise over the management and policies of Alcentra Capital.

The Exchange Ratio of 0.4041 of a share of Crescent Capital Maryland BDC Common Stock for each share of Alcentra Capital Common Stock was fixed on August 12, 2019, the date of the signing of the Merger Agreement, and is not subject to adjustment based on changes in the trading price of Alcentra Capital Common Stock before the closing of the Mergers. Any change in the NAV of Crescent Capital BDC Common Stock prior to completion of the Transactions will affect the value of the Merger Consideration that Alcentra Capital stockholders will receive upon completion of the Mergers. It is possible that the conversion of Alcentra Capital Common Stock into Crescent Capital Maryland BDC Common Stock may result in the issuance of Crescent Capital Maryland BDC Common Stock at a price below NAV per share at the time of such conversion, which would result in dilution to the NAV per share of Crescent Capital Maryland BDC Common Stock.

Crescent Capital Maryland BDC and Alcentra Capital cannot assure you that the Transactions will be consummated as scheduled, or at all.

The combined company may be unable to realize the benefits anticipated by the Mergers, including estimated cost savings and synergies, or it may take longer than anticipated to achieve such benefits.

The realization of certain benefits anticipated as a result of the Mergers will depend in part on the integration of Alcentra Capital’s investment portfolio with Crescent Capital BDC’s investment portfolio and the integration of Alcentra Capital’s business with Crescent Capital BDC’s business. There can be no assurance that Alcentra Capital’s and Crescent Capital BDC’s businesses can be operated profitably or integrated successfully into Crescent Capital BDC’s operations in a timely fashion, or at all. The dedication of management resources to such integration may detract attention from the day-to-day business of Crescent Capital BDC and Alcentra Capital, and following the Mergers, of Crescent Capital Maryland BDC, and there can be no assurance that there will not be substantial costs associated with the transition process or there will not be other material adverse effects as a result of these integration efforts. Such effects, including, but not limited to, incurring unexpected costs or delays in connection with such integration and failure of Alcentra Capital’s investment portfolio to perform as expected, could have a material adverse effect on financial results of the combined company.

Crescent Capital BDC also expects to achieve certain cost savings and synergies from the Mergers when the two companies have fully integrated their portfolios. It is possible that Crescent Capital BDC’s estimates of the potential cost savings and synergies could turn out to be incorrect. As is shown in more detail in “Comparative Fees and Expenses,” based on the assumptions described in that section (and without giving effect to such synergies and cost savings), following the completion of the Transactions, annual expenses as a percentage of consolidated net assets attributable to common stock is estimated to increase for Crescent Capital BDC stockholders on a pro forma combined basis. If the estimates turn out to be incorrect or the combined company cannot integrate their investment portfolios and businesses, the anticipated cost savings and synergies may not be fully realized, or realized at all, or may take longer to realize than expected.

The Mergers may trigger certain “change of control” provisions and other restrictions in certain of Crescent Capital BDC’s and Alcentra Capital’s contracts and the failure to obtain any required consents or waivers could adversely impact the combined company.

Certain agreements of Alcentra Capital and Crescent Capital BDC or their controlled affiliates will or may require the consent of one or more counterparties in connection with the Mergers. The failure to obtain any such

 

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consent may permit such counter-parties to terminate, or otherwise increase their rights or Crescent Capital BDC’s or Alcentra Capital’s obligations under, any such agreement because the Mergers may violate an anti-assignment, change of control or similar provision. If this happens, Crescent Capital BDC or Alcentra Capital may have to seek to replace that agreement with a new agreement or seek a waiver or amendment to such agreement. Crescent Capital BDC and Alcentra Capital cannot assure you that Crescent Capital BDC or Alcentra Capital will be able to replace, amend or obtain a waiver under any such agreement on comparable terms or at all.

If any such agreement is material, the failure to obtain consents, amendments or waivers under, or to replace on similar terms or at all, any of these agreements could adversely affect the financial performance or results of operations of the combined company following the Mergers, including preventing Crescent Capital Maryland BDC from operating a material part of Alcentra Capital’s business.

In addition, the consummation of the Mergers may violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, or result in the termination, cancellation, acceleration or other change of any right or obligation (including any payment obligation) under Crescent Capital BDC’s or Alcentra Capital’s agreements. Any such violation, conflict, breach, loss, default or other effect could, either individually or in the aggregate, have a material adverse effect on the financial condition, results of operations, assets or business of the combined company following completion of the Mergers.

The opinions obtained by Crescent Capital BDC and Alcentra Capital from their respective financial advisors will not reflect changes in circumstances between signing the Merger Agreement and completion of the Transactions.

Neither Crescent Capital BDC nor Alcentra Capital has obtained an updated opinion as of the date of this joint proxy statement/prospectus from their respective financial advisors and neither anticipates obtaining an updated opinion prior to the Effective Time. Changes in the operations and prospects of Crescent Capital BDC or Alcentra Capital, general market and economic conditions and other factors that may be beyond the control of Crescent Capital BDC or Alcentra Capital, and on which their respective financial advisors’ opinions were based, may significantly alter the value of Alcentra Capital or the prices of shares of Crescent Capital Maryland BDC Common Stock or Alcentra Capital Common Stock by the time the Transactions are completed. The opinions do not speak as of the time the Transactions will be completed or as of any date other than the date of such opinions. Because neither Crescent Capital BDC nor Alcentra Capital currently anticipates asking their respective financial advisors to update their opinions, the opinions will not address the fairness of the Crescent Capital BDC Consideration or the Merger Consideration, respectively, from a financial point of view at the time the Transactions are completed. The recommendations of the Crescent Capital BDC Board and the Alcentra Capital Board that their respective stockholders vote “FOR” the approval of the matters described in this joint proxy statement/prospectus are made as of the date of this joint proxy statement/prospectus. For a description of the opinion that Alcentra Capital received from its financial advisor, see “Description of the Transactions—Opinion of the Financial Advisor to the Independent Director Committee of the Alcentra Capital Board.” For a description of the opinion that Crescent Capital BDC received from its financial advisor, see “Description of the Transactions—Opinion of the Financial Advisor to the Crescent Capital BDC Board.”

Termination of the Merger Agreement could negatively impact Alcentra Capital and Crescent Capital BDC.

If the Merger Agreement is terminated, there may be various consequences, including:

 

   

Alcentra Capital’s and Crescent Capital BDC’s businesses may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Transactions, without realizing any of the anticipated benefits of completing the Transactions;

 

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in the case of Alcentra Capital, the market price of its common stock might decline to the extent that the market price prior to termination reflects a market assumption that the Transactions will be completed;

 

   

in the case of Alcentra Capital, it may not be able to find a party willing to pay an equivalent or more attractive price than the price Crescent Capital BDC has agreed to pay in the Transactions;

 

   

in the case of Crescent Capital BDC, it may have difficulty pursuing an initial public offering or other strategic transaction and/or the price it may obtain in any such offering or transaction may be adversely affected; and

 

   

the payment of any termination fee or reimbursement of the counterparties’ fees and expenses, if required under the circumstances, could adversely affect the financial condition and liquidity of Alcentra Capital or Crescent Capital BDC.

Under certain circumstances, Alcentra Capital may be obligated to pay Crescent Capital BDC a termination fee upon termination of the Merger Agreement.

No assurance can be given that the Transactions will be completed. The Merger Agreement provides for the payment by Alcentra Capital to Crescent Capital BDC of a termination fee of approximately $4.3 million if the Merger Agreement is terminated by Alcentra Capital or Crescent Capital BDC under certain circumstances. See “Description of the Merger Agreement—Termination of the Merger Agreement” for a discussion of the circumstances that could result in the payment of a termination fee.

The Merger Agreement limits Alcentra Capital’s ability to pursue alternatives to the Transactions; however, in specified circumstances, Alcentra Capital may terminate the Merger Agreement to accept a superior proposal.

Under the Merger Agreement, Alcentra Capital has agreed not to (1) take certain actions to solicit proposals relating to alternative transactions or (2) subject to certain exceptions, including the receipt of a “Superior Proposal” (as such term is defined herein under the heading “Description of the Merger Agreement—Additional Covenants—No Solicitation”), enter into discussions or an agreement concerning, or provide confidential information in connection with, any proposals for alternative transactions. However, in specified circumstances, Alcentra Capital may terminate the Merger Agreement and enter into an agreement with a third party who makes a Superior Proposal, subject to certain procedural requirements and the payment to Crescent Capital BDC of a termination fee of approximately $4.3 million.

These provisions, which are typical for transactions of this type, might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of Alcentra Capital from considering or proposing such an acquisition even if such potential competing acquiror were prepared to pay consideration with a higher per share market price than the price per share market price to be paid by Crescent Capital BDC pursuant to the Merger Agreement or might result in a potential competing acquiror proposing to pay a lower per share price to acquire Alcentra Capital than it might otherwise have proposed to pay.

The Transactions are subject to closing conditions, including certain stockholder approvals, that, if not satisfied or waived, will result in the Transactions not being completed, which may result in material adverse consequences to Alcentra Capital’s business and operations.

The Transactions are subject to closing conditions, including certain approvals of Alcentra Capital’s and Crescent Capital BDC’s respective stockholders that, if not satisfied, will prevent the Transactions from being completed. The closing condition that Alcentra Capital stockholders approve the First Merger may not be waived under applicable law and must be satisfied for the Transactions to be completed. Alcentra Capital currently expects that all directors and executive officers of Alcentra Capital will vote their shares of Alcentra Capital Common Stock in favor of the proposals presented at the Alcentra Capital Special Meeting required to complete

 

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the Transactions. If Alcentra Capital stockholders do not approve the First Merger and the Transactions are not completed, the resulting failure of the Transactions could have a material adverse impact on Alcentra Capital’s and Crescent Capital BDC’s respective businesses and operations. The closing condition that Crescent Capital BDC’s stockholders approve the Reincorporation, the Proposed Crescent Capital BDC Investment Advisory Agreement and the issuance of the shares of Crescent Capital Maryland BDC Common Stock to be issued pursuant to the Merger Agreement, at a price below its then-current NAV per share, if applicable, must be satisfied or waived for the Transactions to be completed. Crescent Capital BDC currently expects that all directors and executive officers of Crescent Capital BDC will vote their shares of Crescent Capital BDC Common Stock in favor of the proposals presented at the Crescent Capital BDC Special Meeting required to complete the Transactions.

In addition to the required approvals of Alcentra Capital’s and Crescent Capital BDC’s stockholders, the Transactions are subject to a number of other conditions beyond Alcentra Capital’s and Crescent Capital BDC’s control that may prevent, delay or otherwise materially adversely affect its completion. Neither Alcentra Capital nor Crescent Capital BDC can predict with certainty whether and when these other conditions will be satisfied.

Alcentra Capital and Crescent Capital BDC may waive one or more conditions to the Transactions without resoliciting stockholder approval.

Certain conditions to Alcentra Capital’s and Crescent Capital BDC’s obligations to complete the Transactions may be waived, in whole or in part, to the extent legally allowed, either unilaterally or by agreement of Alcentra Capital and Crescent Capital BDC. In the event that any such waiver does not require resolicitation of stockholders, the parties to the Merger Agreement will have the discretion to complete the Transactions without seeking further stockholder approval. The conditions requiring the approval of Alcentra Capital’s and Crescent Capital BDC’s stockholders, however, cannot be waived.

Certain persons related to Alcentra Capital have interests in the Transactions that differ from the interests of Alcentra Capital stockholders.

Alcentra Capital’s directors and executive officers have certain interests in the Transactions that are different from, or in addition to, the interests of Alcentra Capital stockholders. The members of the Alcentra Capital Board and the Independent Director Committee were aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Transactions and in recommending to Alcentra Capital’s stockholders that the First Merger be approved. These interests are described in more detail in the section of this joint proxy statement/prospectus entitled “Description of the Transactions—Interests of Certain Persons Related to Alcentra Capital in the Transactions.”

Alcentra Capital will be subject to operational uncertainties and contractual restrictions while the Mergers are pending.

Uncertainty about the effect of the Mergers may have an adverse effect on Alcentra Capital and, consequently, on the combined company following completion of the Mergers. These uncertainties may cause those that deal with Alcentra Capital to seek to change their existing business relationships with Alcentra. In addition, the Mergers agreement restricts Alcentra from taking actions that it might otherwise consider to be in their best interests. These restrictions may prevent Alcentra Capital from pursuing certain business opportunities that may arise prior to the completion of the Mergers. Please see the section entitled “Description of the Merger Agreement—Conduct of Business Pending Completion of the Mergers” for a description of the restrictive covenants to which Alcentra Capital is subject.

 

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Crescent Capital Maryland BDC expects to apply to list shares of Crescent Capital Maryland BDC Common Stock on NASDAQ, with such listing to be effective at the Effective Time. After such listing, shares of Crescent Capital Maryland BDC Common Stock may trade at a discount from NAV, which could limit Crescent Capital Maryland BDC’s ability to raise additional equity capital.

Crescent Capital Maryland BDC expects to apply to list shares of Crescent Capital Maryland BDC Common Stock on NASDAQ. After such listing, shares of Crescent Capital Maryland BDC Common Stock may trade at a discount from NAV, which could limit Crescent Capital Maryland BDC’s ability to raise additional equity capital. There has been no public market for Crescent Capital BDC Common Stock or Crescent Capital Maryland BDC Common Stock, and there can be no assurance that the market price of the combined company will not decline following the closing of the Mergers. Crescent Capital BDC cannot assure you that a trading market will develop for Crescent Capital Maryland BDC Common Stock after the Mergers or, if one develops, that such trading market can be sustained. In addition, Crescent Capital BDC cannot predict the prices at which Crescent Capital Maryland BDC Common Stock will trade, whether at, above or below NAV. As noted above, shares of closed-end investment companies, including BDCs, frequently trade at a discount from NAV, and Crescent Capital Maryland BDC Common Stock may also be discounted in the market, and if so discounted, sales of Crescent Capital Maryland BDC Common Stock will require the approval of stockholders and the combined company’s independent directors.

The shares of Crescent Capital Maryland BDC Common Stock to be received by Alcentra Capital stockholders as a result of the Transactions and by the current Crescent Capital BDC stockholders pursuant to the Reincorporation will have different rights associated with them than the shares of Alcentra Capital Common Stock or current Crescent Capital BDC Common Stock, as the case may be, currently held by them.

Upon completion of the Transactions, the rights of Alcentra Capital stockholders and, upon completion of the reincorporation, the rights of current Crescent Capital BDC stockholders will be governed by the Crescent Capital BDC Maryland Charter, the Crescent Capital BDC Maryland Bylaws and applicable Maryland law. While there will be substantial similarities between their rights after completion of the transactions and their rights as Alcentra Capital or current Crescent Capital BDC stockholders prior to the Transactions or the Reincorporation, as the case may be, various differences are noted in “Comparison of Stockholder Rights.”

Provisions of the Maryland General Corporation Law and of the Crescent Capital BDC Maryland Charter and the Crescent Capital BDC Maryland Bylaws could deter takeover attempts and have an adverse effect on the price of the Crescent Capital Maryland BDC Common Stock.

Upon completion of the Reincorporation, certain provisions of the MGCL may discourage, delay or make more difficult a change in control of Crescent Capital Maryland BDC, including (i) the Maryland Business Combination Act (the “Business Combination Act”), which, subject to any applicable requirements of the Investment Company Act and certain other limitations, will prohibit certain business combinations between Crescent Capital Maryland BDC and an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of Crescent Capital Maryland BDC’s outstanding shares of voting stock or an affiliate or associate of Crescent Capital Maryland BDC who, at any time within the two-year period prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of Crescent Capital Maryland BDC’s then outstanding shares of stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter will impose special appraisal rights and supermajority voting requirements on these combinations and (ii) the Maryland Control Share Acquisition Act (the “Control Share Acquisition Act”), which, subject to any applicable requirements of the Investment Company Act, will provide that “control shares” of Crescent Capital Maryland BDC (defined as shares which, when aggregated with other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting

 

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rights except to the extent approved by Crescent Capital Maryland BDC’s stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares. Upon completion of the Reincorporation, the Crescent Capital Maryland BDC Board will adopt a resolution exempting from the Business Combination Act any business combination between Crescent Capital Maryland BDC and any other person, provided that the business combination is first approved by the Crescent Capital Maryland BDC Board, including a majority of the independent directors, and the Crescent Capital BDC Maryland Bylaws will exempt from the Control Share Acquisition Act acquisitions of Crescent Capital Maryland BDC stock by any person. However, if the resolution exempting business combinations is repealed or the Crescent Capital Maryland BDC Board or independent directors do not approve a business combination or Crescent Capital Maryland BDC amends the Crescent Capital Maryland BDC Maryland Bylaws to repeal the exemption from the Control Share Acquisition Act, subject to any applicable requirements of the Investment Company Act, the Business Combination Act or Control Share Acquisition Act, as the case may be, may discourage third parties from trying to acquire control of Crescent Capital Maryland BDC and may increase the difficulty of consummating such an offer.

Upon completion of the Reincorporation, Crescent Capital Maryland BDC will also be subject to other measures that may make it difficult for a third party to obtain control of Crescent Capital Maryland BDC, including provisions of the Crescent Capital BDC Maryland Charter that (i) classify the Crescent Capital Maryland BDC Board into three classes serving staggered three-year terms and require that any vacancies be filled by a majority of directors remaining in office, (ii) require a two-thirds vote and cause for director removal, (iii) authorize the Crescent Capital Maryland BDC Board to classify any unissued shares of stock and reclassify any previously classified but unissued shares of stock into other classes or series of stock, including preferred stock, and to cause the issuance of additional shares of Crescent Capital Maryland BDC Common Stock and (iv) authorize the Crescent Capital Maryland BDC Board to amend the Crescent Capital BDC Maryland Charter, without stockholder approval, to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that Crescent Capital Maryland BDC has authority to issue. These provisions, as well as other provisions in the Crescent Capital BDC Maryland Charter and the Crescent Capital BDC Maryland Bylaws, may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of the Crescent Capital Maryland BDC stockholders.

The Crescent Capital BDC Maryland Charter will impose certain restrictions on transfer of the Crescent Capital Maryland BDC Common Stock currently held by Crescent Capital BDC stockholders in addition to those otherwise imposed by applicable law or by contract.

The Crescent Capital BDC Maryland Charter provides that during the period beginning with the Reincorporation and ending 365 days after the date of the Listing of Crescent Capital Maryland BDC Common Stock on a national securities exchange, any transfer (whether by sale, gift, merger, operation of law or otherwise), exchange, assignment, pledge, hypothecation or other disposition or encumbrance of any shares of Crescent Capital Maryland BDC Common Stock acquired by a stockholder attendant to the Reincorporation is prohibited, and therefore not effective, until 180 days after the date of the Listing for one third of the shares of Crescent Capital Maryland BDC Common Stock acquired by a stockholder in the Reincorporation, 270 days after the date of the Listing for another one-third of the shares of Crescent Capital Maryland BDC Common Stock acquired by a stockholder in the Reincorporation and 365 days after the date of the Listing for the final one-third of the shares of Crescent Capital Maryland BDC Common Stock acquired by a stockholder in the Reincorporation, unless the Crescent Capital Maryland BDC Board provides prior written consent permitting an earlier effective date and the transfer, exchange, assignment, pledge, hypothecation or other disposition or encumbrance is made in accordance with applicable securities and other laws. The Crescent Capital Maryland BDC Board may impose certain conditions in connection with granting its consent to an earlier effective date and any such consent shall be granted in the sole discretion of the Crescent Capital Maryland BDC Board. Any purported transfer, exchange, assignment, pledge, hypothecation or other disposition or encumbrance of any shares of Crescent Capital Maryland BDC Common Stock effected on an earlier effective date in violation of the Crescent Capital BDC Maryland Charter will have no force or effect, and Crescent Capital Maryland BDC will not register or permit

 

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registration of (and will direct its transfer agent, if any, not to register or permit registration of) any such purported transfer, exchange, assignment, pledge, hypothecation or other disposition or encumbrance on its books and records until the applicable effective date.

Such transfer restrictions are applicable only to shares received by Crescent Capital BDC stockholders in the Reincorporation, and not to shares of Crescent Capital Maryland BDC Common Stock issued to Alcentra Capital stockholders in the First Merger and will be in addition to any transfer restrictions applicable by law or any applicable agreements between the stockholder and Crescent Capital Maryland BDC.

Upon completion of the Reincorporation Merger, the Crescent Capital BDC Maryland Charter will designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Crescent Capital Maryland BDC stockholders, which could limit Crescent Capital Maryland BDC stockholders’ ability to obtain a favorable judicial forum for disputes with Crescent Capital Maryland BDC or its directors, officers or other employees.

Upon completion of the Reincorporation, the Crescent Capital BDC Maryland Charter will provide that, unless Crescent Capital Maryland BDC consents in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that Court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on Crescent Capital Maryland BDC’s behalf; (ii) any Internal Corporate Claim, as such term is defined in Section 1-101(p) of the MGCL, including, without limitation, (a) any action asserting a claim of breach of any duty owed by any of Crescent Capital Maryland BDC’s directors or officers or other employees to Crescent Capital Maryland BDC or to its stockholders or (b) any action asserting a claim against Crescent Capital Maryland BDC or any of its directors or officers or other employees arising pursuant to any provision of the MGCL or the Crescent Capital BDC Maryland Charter or the Crescent Capital BDC Maryland Bylaws; or (iii) any action asserting a claim against Crescent Capital Maryland BDC or any of its directors or officers or other employees that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of Crescent Capital Maryland BDC Common Stock will be deemed to have notice of and to have consented and waived any objection to this exclusive forum provision of the Crescent Capital BDC Maryland Charter, as the same may be amended from time to time. The Crescent Capital BDC Maryland Charter includes this provision so that Crescent Capital Maryland BDC can respond to litigation more efficiently, reduce the costs associated with its responses to such litigation, particularly litigation that might otherwise be brought in multiple forums, and make it less likely that plaintiffs’ attorneys will be able to employ such litigation to coerce Crescent Capital Maryland BDC into otherwise unjustified settlements. However, this exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that such stockholder believes is favorable for disputes with Crescent Capital Maryland BDC or its directors, officers or other employees, if any, and may discourage lawsuits against Crescent Capital Maryland BDC and its directors, officers or other employees, if any. Crescent Capital Maryland BDC believes the risk of a court declining to enforce this exclusive forum provision is remote, as the General Assembly of Maryland has specifically amended the MGCL to authorize the adoption of such provision. However, if a court were to find such provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings notwithstanding that the MGCL expressly provides that the charter or bylaws of a Maryland corporation may require that any Internal Corporate Claim be brought only in courts sitting in one or more specified jurisdictions, Crescent Capital Maryland BDC may incur additional costs that it does not currently anticipate associated with resolving such matters in other jurisdictions, which could adversely affect its business, financial condition and results of operations.

Crescent Capital Maryland BDC will incur significant costs as a result of the Listing.

Companies with outstanding, registered securities listed on a national securities exchange incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Exchange Act, as well as additional corporate governance requirements,

 

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including Nasdaq requirements and requirements under the Sarbanes-Oxley Act. Accordingly, while Crescent Capital BDC currently files annual, quarterly and current reports with respect to its business and financial condition under the Exchange Act, Crescent Capital Maryland BDC will incur significant additional costs as a result of the Listing. These requirements may place a strain on its systems and resources. The Sarbanes-Oxley Act requires that Crescent Capital Maryland BDC maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and improve the effectiveness of Crescent Capital Maryland BDC’s disclosure controls and procedures and internal controls, significant resources and management oversight will be required. Crescent Capital Maryland BDC will be implementing additional procedures, processes, policies and practices for the purpose of addressing the standards and requirements applicable to listed public companies. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on the combined company’s business, financial condition, results of operations and cash flows. Crescent Capital Maryland BDC expects to incur significant additional annual expenses related to these steps and, among other things, directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, additional administrative expenses payable to CCAP Administration to compensate it for hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses.

If the Mergers do not qualify as reorganizations under Section 368(a) of the Code, Alcentra Capital stockholders may be required to pay substantial U.S. federal income taxes.

Alcentra Capital’s obligation to effect the Mergers is conditioned on its receipt of an opinion from its tax counsel, Dechert LLP (or, if Dechert LLP is unable to deliver such an opinion, of Kirkland & Ellis LLP), to the effect that, for U.S. federal income tax purposes, the Mergers, taken together, will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, with respect to Alcentra Capital and Crescent Capital BDC. The opinion will be based on certain assumptions and representations as to factual matters from Alcentra Capital and Crescent Capital BDC, as well as certain covenants by those parties. The opinion cannot be relied upon if any of the assumptions, representations or covenants are incorrect, incomplete or inaccurate or are violated in any material respect. In addition, the opinion is based on current law and cannot be relied upon if current law changes with retroactive effect. The opinion of counsel is not binding upon the Internal Revenue Service (the “IRS”) or the courts, and there is no assurance that the IRS or a court will not take a contrary position. Alcentra Capital and Crescent Capital BDC do not intend to request a ruling from the IRS regarding any aspects of the U.S. federal income tax consequences of the mergers. If the IRS or a court determines that the Mergers should not be treated as described in the opinion, an Alcentra Capital U.S. stockholder (as defined herein under the heading “Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers”) would generally recognize gain or loss for U.S. federal income tax purposes upon the exchange of Alcentra Capital Common Stock for Crescent Capital Maryland BDC Common Stock and cash in the Mergers. For more information on the Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and of the Mergers, see the section entitled “Material U.S. Federal Income Tax Consequences of the Reincorporation Merger and the Mergers” beginning on page [●].

 

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SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA OF ALCENTRA CAPITAL

The following selected consolidated financial data of Alcentra Capital as of and for the six months ended June 30, 2019 and 2018 are derived from the unaudited consolidated financial statements of Alcentra Capital, and the selected consolidated financial data as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 is derived from the audited consolidated financial statements of Alcentra Capital. The financial data should be read in conjunction with Alcentra Capital’s consolidated financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alcentra Capital” included elsewhere in this joint proxy statement/prospectus.

 

    Alcentra Capital Corporation     BNY
Mellon-
Alcentra
Mezzanine
III, L.P.
    For the
period from
May 8, 2014*
through
December 31,
2014
 
    As of and for the six
months ended June 30,
    As of and for the years ended December 31,     For the
period
from
January 1,
2014
through
May 7,
2014
 
  2019     2018     2018     2017     2016     2015  

Statement of Operations Date:

               

Total investment income

  $ 12,567,051     $ 15,435,515     $ 28,967,980     $ 33,351,509     $ 40,602,599     $ 33,916,249     $ 7,761,894     $ 16,166,214  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Base management fee (net of waivers)

    1,422,653       2,161,704       3,713,496       3,644,929       5,209,684       4,943,886       699,473       1,455,126  

Incentive fee (net of waivers)

    (691,991     —         (404,189     638,244       3,255,167       1,268,983       —         —    

Interest and other debt financing expenses

    2,740,328       3,440,372       6,649,567       6,434,924       5,657,154       4,142,013       50,214       1,016,505  

All other expenses

    3,683,994       2,573,691       5,092,716       4,309,273       4,071,408       4,263,198       84,649       2,092,851  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

    5,412,067       7,259,748       13,916,390       18,324,139       22,409,186       19,298,169       6,927,558       11,601,732  

Net realized gain (loss) on investments and foreign currency transactions

    1,147,236       (20,290,609     (35,359,238     (11,434,891     (4,281,983     2,722,992       51,961       279,211  

Net change in unrealized appreciation (depreciation) on investments and FX

    (1,327,398     13,313,582       26,517,171       (28,598,870     (9,972,997     (11,641,204     2,974,591       4,551,082  

Benefit/(Provision) for taxes on unrealized gain (loss) on investments

    (1,124,675     1,017,228       447,809       2,607,880       635,580       2,231,817       —         (1,697,004

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

    (1,304,837     (5,959,799     (8,394,258     (37,425,881     (13,619,400     (6,686,395     3,026,552       3,133,289  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

    4,107,230       1,299,949       5,522,132       (19,101,742     8,789,786       12,611,774       9,954,110       14,735,021  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per share data:

               

Net asset value

  $ 11.02     $ 11.01     $ 11.13     $ 11.09     $ 13.72     $ 14.43     $ —       $ $14.87  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

    0.42       0.52       1.01       1.32       1.66       1.43       —         0.86  

Net realized and unrealized gains (losses)

    0.07       (0.31     (0.28     (2.84     (1.06     (0.68     —         0.57  

Benefit/(Provision) for taxes on unrealized gain (loss) on investments

    (0.09     0.07       0.03       0.19       0.05       0.17       —         (0.13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

    0.40       0.28       0.40       (1.33     0.65       0.92       —         1.30  

Per share distributions declared

                —      

From net investment income

    (0.51     (0.36     (0.72     (1.27     (1.36     (1.36       (0.86

From net realized gains

    —         —         —         (0.03     —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dollar amount of distributions declared

    (0.51     (0.36     (0.72     (1.30     (1.36     (1.36     —         (0.86

 

*

Commencement of operations of Alcentra Capital.

 

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    Alcentra Capital Corporation  
    As of and for the six
months ended June 30,
    As of and for the years ended December 31,  
  2019     2018     2018     2017     2016     2015     2014  

Balance Sheet data at period end:

             

Investments, at fair value

  $ 219,207,200     $ 246,159,860     $ 234,797,816     $ 287,554,545     $ 276,272,950     $ 296,341,611     $ 258,633,854  

Cash

    7,796,536       12,704,301       11,049,499       13,882,956       3,891,606       4,866,972       10,022,617  

Other assets

    9,763,037       10,612,088       7,931,113       8,888,649       8,033,491       7,443,846       3,562,904  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 236,766,773     $ 269,476,249     $ 253,778,428     $ 310,326,150     $ 288,198,047     $ 308,652,429     $ 272,219,375  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total debt

  $ 80,922,277     $ 112,517,068     $ 82,681,008     $ 143,451,108     $ 92,638,211     $ 103,504,738     $ 62,499,154  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities (including debt)

  $ 94,828,778     $ 119,881,505     $ 107,975,896     $ 152,611,975     $ 103,673,456     $ 113,620,218     $ 71,230,067  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net assets

  $ 141,937,995     $ 149,594,744     $ 145,802,532     $ 157,714,175     $ 184,524,591     $ 195,032,211     $ 200,989,308  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other data

             

Number of investments at period end

    29       35       30       29       32       32       28  

Shares outstanding at end of period

    12,875,566       13,582,751       13,105,295       14,222,945       13,451,633       13,516,766       13,516,766  

Weighted Average Shares outstanding

    12,875,566       13,960,729       13,721,109       13,928,869       13,496,128       13,516,766       13,516,766  

 

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SELECTED QUARTERLY DATA (UNAUDITED)

 

     2019  
     For the
quarter ended
June 30
    For the
quarter ended
March 31
 

Total investment income

   $ 6,139,935     $ 6,427,116  

Total Investment income per common share(1)

     0.48       0.50  

Net investment income

     2,530,575       2,881,492  

New investment income per common share(1)

     0.20       0.22  

Net realized and unrealized (loss) gain

     (385,640     (919,197

Net realized and unrealized (loss) gain per common share(1)

     (0.30     (0.07

Net (decrease) increase in net assets resulting from operations

     2,144,935       1,962,295  

Basic and diluted earnings per common share(1)

     0.17       0.15  

Net asset value per common share at the end of quarter

     11.02       11.17  

Weighted average Shares of Common Stock Outstanding

     12,875,566       12,906,379  

 

     2018  
     For the
quarter ended
December 31
    For the
quarter ended
September 30
     For the
quarter ended
June 30
    For the
quarter ended
March 31
 

Total investment income

   $ 6,979,385     $ 6,553,080      $ 7,253,950     $ 8,181,565  

Total investment income per common share(1)

     0.52       0.48        0.53       0.58  

Net investment income

     3,690,986       2,965,656        3,483,588       3,776,160  

Net investment income per common share(1)

     0.27       0.22        0.25       0.27  

Net realized and unrealized (loss) gain

     (2,550,805     116,346        (5,722,599     (237,200

Net realized and unrealized (loss) gain per common share(1)

     (0.19     0.01        (0.42     (0.02

Net (decrease) increase in net asset resulting from operations

     1,140,181       3,082,002        (2,239,011     3,538,960  

Basic and diluted earnings per common share(1)

     0.08       0.23        (0.16     0.25  

Net asset value per common share at the end of quarter

     11.13       11.08        11.01       11.22  

Weighted average Share of common Stock Outstanding

     13,721,109       13,530,129        13,725,423       14,198,651  

 

     2017  
     For the
quarter ended
December 31
    For the
quarter ended
September 30
    For the
quarter ended
June 30
    For the
quarter ended
March 31
 

Total investment income

   $ 8,201,431     $ 7,610,521     $ 8,338,109     $ 9,201,448  

Total investment income per common share(1)

     0.58       0.53       0.61       0.68  

Net investment income

     4,044,773       4,843,375       4,843,375       4,592,616  

Net investment income per common share(1)

     0.28       0.34       0.36       0.34  

Net realized and unrealized (loss) gain

     (17,413,043     (6,454,859     (9,996,441     (3,561,538

Net realized and unrealized (loss) gain per common share(1)

     (1.25     (0.45     (0.73     (0.26

Net (decrease) increase in net asset resulting from operations

     (13,368,270     (1,611,484     (5,153,066     1,031,078  

Basic and diluted earnings per common share(1)

     (0.96     (0.11     (0.38     0.08  

Net asset value per common share at the end of quarter

     11.09       12.27       12.73       13.43  

Weighted average Share of common Stock Outstanding

     13,928,869       14,245,220       13,612,059       13,438,800  

 

(1)

Quarterly amounts may not equal full-year amounts due to changes in weighted average shares outstanding.

 

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SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA OF CRESCENT CAPITAL BDC

The following selected financial and other data as of and for the years ended December 31, 2018, 2017, 2016 and 2015 are derived from Crescent Capital BDC’s audited consolidated financial statements. The selected financial and other data as of and for the six months ended June 30, 2019 and June 30, 2018 and other quarterly financial information is derived from Crescent Capital BDC’s unaudited financial statements, but in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments) that are necessary to present fairly the results of such interim periods. Interim results as of and for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The data should be read in conjunction with Crescent Capital BDC’s consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Crescent Capital BDC” and “Senior Securities of Crescent Capital BDC,” which are included elsewhere in this joint proxy statement/prospectus.

 

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CRESCENT CAPITAL BDC, INC. AND SUBSIDIARIES

SELECTED FINANCIAL DATA

AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND JUNE 30, 2018 AND

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2018, 2017, 2016 AND 2015

 

    As of and For the
Six Months Ended
June 30,
    For the years ended     For the
period from
February 5,
2015
(Inception)
to
December 31,
2015(1)
 
  2019     2018     December 31,
2018
    December 31,
2017
    December 31,
2016
 
  (Unaudited)     (Unaudited)  

Consolidated Statements of Operations Data

           

Income

           

Total investment income

  $ 23,974,086     $ 14,061,933     $ 33,295,124     $ 22,291,677     $ 13,887,777     $ 3,302,668  

Expenses

           

Net expenses and income and excise taxes

    9,769,157       7,177,690       15,567,285       12,384,112       7,479,618       2,400,667  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income (loss)

    14,204,889       6,884,243     $ 17,727,839     $ 9,907,565     $ 6,408,159     $ 902,001  

Net realized gain (loss) on investments—non-controlled/non-affiliated(2)

    (920,576     (219,319     (545,881     (345,718     (83,952     (73,241

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

    4,510,134       (1,558,648     (8,997,011     (289,512     5,444,486       (2,983,802

Net change in unrealized appreciation (depreciation) on foreign currency forward contracts

    281,981       —         17,406       —         —         —    

Benefit/(Provision) for taxes on unrealized appreciation (depreciation) on investments

    (479,715     5,499       (87,779     (217,149     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

  $ 17,373,024     $ 5,116,935     $ 8,114,574     $ 9,055,186     $ 11,768,693     $ (2,155,042
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per Common Share Data

           

Net asset value

  $ 19.75     $ 19.93     $ 19.43     $ 20.10     $ 20.08     $ 19.13  

Earnings Per Share(3)

           

Net investment income

    0.94       0.74       1.65       1.31       1.23       0.55  

Net realized gain (loss) on investments

    (0.03     (0.02     (0.05     (0.04     (0.01     (0.05

Net change in unrealized appreciation (depreciation) on investments

    0.22       (0.17     (0.84     (0.07