Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

x

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

 

For the quarterly period ended September 30, 2013

 

OR

 

o

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

 

For the transition period           to          

 

Commission File No. 814-00663

 

ARES CAPITAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

Maryland

 

33-1089684

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

245 Park Avenue, 44th Floor, New York, NY 10167

(Address of principal executive office)   (Zip Code)

 

(212) 750-7300

(Registrant’s telephone number, including area code)

 


 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 


 

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

 

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

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at November 4, 2013

Common stock, $0.001 par value

 

281,246,111

 

 

 



Table of Contents

 

ARES CAPITAL CORPORATION

 

INDEX

 

Part I.

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheet as of September 30, 2013 (unaudited) and December 31, 2012

2

 

 

 

 

Consolidated Statement of Operations for the three and nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)

3

 

 

 

 

Consolidated Schedule of Investments as of September 30, 2013 (unaudited) and December 31, 2012

5

 

 

 

 

Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2013 (unaudited)

38

 

 

 

 

Consolidated Statement of Cash Flows for the nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)

39

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

40

 

 

 

Item 2.

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

65

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

89

 

 

 

Item 4.

Controls and Procedures

90

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

90

 

 

 

Item 1A.

Risk Factors

90

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

90

 

 

 

Item 3.

Defaults Upon Senior Securities

91

 

 

 

Item 4.

Mine Safety Disclosures

91

 

 

 

Item 5.

Other Information

91

 

 

 

Item 6.

Exhibits

91

 



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in thousands, except per share data)

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Investments at fair value

 

 

 

 

 

Non-controlled/non-affiliate investments

 

$

5,016,880

 

$

3,822,715

 

Non-controlled affiliate company investments

 

278,630

 

323,059

 

Controlled affiliate company investments

 

2,089,775

 

1,778,781

 

Total investments at fair value (amortized cost of $7,277,712 and $5,823,451, respectively)

 

7,385,285

 

5,924,555

 

Cash and cash equivalents

 

135,487

 

269,043

 

Receivable for open trades

 

13,121

 

131

 

Interest receivable

 

120,503

 

108,998

 

Other assets

 

99,749

 

98,497

 

Total assets

 

$

7,754,145

 

$

6,401,224

 

LIABILITIES

 

 

 

 

 

Debt

 

$

3,137,883

 

$

2,195,872

 

Management and incentive fees payable

 

136,196

 

131,585

 

Accounts payable and other liabilities

 

58,202

 

53,178

 

Interest and facility fees payable

 

28,860

 

30,603

 

Payable for open trades

 

648

 

1,640

 

Total liabilities

 

3,361,789

 

2,412,878

 

Commitments and contingencies (Note 6)

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common stock, par value $.001 per share, 500,000 common shares authorized 268,596 and 248,653 common shares issued and outstanding, respectively

 

269

 

249

 

Capital in excess of par value

 

4,465,173

 

4,117,517

 

Accumulated overdistributed net investment income

 

(7,317

)

(27,910

)

Accumulated net realized loss on investments, foreign currency transactions, extinguishment of debt and other assets

 

(173,342

)

(202,614

)

Net unrealized gain on investments

 

107,573

 

101,104

 

Total stockholders’ equity

 

4,392,356

 

3,988,346

 

Total liabilities and stockholders’ equity

 

$

7,754,145

 

$

6,401,224

 

NET ASSETS PER SHARE

 

$

16.35

 

$

16.04

 

 

See accompanying notes to consolidated financial statements.

 

2



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share data)

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30, 2013

 

September 30, 2012

 

September 30, 2013

 

September 30, 2012

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

INVESTMENT INCOME:

 

 

 

 

 

 

 

 

 

From non-controlled/non-affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest income from investments

 

$

102,222

 

$

84,767

 

$

281,734

 

$

234,127

 

Capital structuring service fees

 

18,257

 

20,324

 

35,888

 

40,769

 

Dividend income

 

4,486

 

3,821

 

13,583

 

11,144

 

Management and other fees

 

286

 

334

 

949

 

994

 

Other income

 

3,612

 

2,156

 

12,944

 

9,371

 

Total investment income from non- controlled/non-affiliate company investments

 

128,863

 

111,402

 

345,098

 

296,405

 

 

 

 

 

 

 

 

 

 

 

From non-controlled affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest income from investments

 

4,097

 

6,185

 

15,748

 

16,444

 

Capital structuring service fees

 

 

 

 

895

 

Dividend income

 

5,258

 

147

 

6,421

 

786

 

Management and other fees

 

 

63

 

 

189

 

Other income

 

37

 

38

 

166

 

332

 

Total investment income from non- controlled affiliate company investments

 

9,392

 

6,433

 

22,335

 

18,646

 

 

 

 

 

 

 

 

 

 

 

From controlled affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest income from investments

 

63,304

 

53,686

 

174,287

 

164,994

 

Capital structuring service fees

 

13,298

 

9,251

 

25,807

 

26,838

 

Dividend income

 

25,104

 

5,432

 

62,711

 

15,627

 

Management and other fees

 

5,098

 

4,310

 

13,926

 

12,968

 

Other income

 

1,742

 

58

 

3,815

 

387

 

Total investment income from controlled affiliate company investments

 

108,546

 

72,737

 

280,546

 

220,814

 

 

 

 

 

 

 

 

 

 

 

Total investment income

 

246,801

 

190,572

 

647,979

 

535,865

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Interest and credit facility fees

 

44,424

 

35,702

 

124,032

 

103,496

 

Base management fees

 

27,467

 

22,316

 

75,587

 

63,113

 

Incentive fees

 

35,199

 

34,139

 

88,658

 

83,258

 

Professional fees

 

3,143

 

1,923

 

10,023

 

9,157

 

Administrative fees

 

3,346

 

2,269

 

8,544

 

6,806

 

Other general and administrative

 

3,009

 

2,726

 

10,525

 

8,001

 

Total expenses

 

116,588

 

99,075

 

317,369

 

273,831

 

 

3



Table of Contents

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30, 2013

 

September 30, 2012

 

September 30, 2013

 

September 30, 2012

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

NET INVESTMENT INCOME BEFORE INCOME TAXES

 

130,213

 

91,497

 

330,610

 

262,034

 

 

 

 

 

 

 

 

 

 

 

Income tax expense, including excise tax

 

3,991

 

2,037

 

11,714

 

7,635

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME

 

126,222

 

89,460

 

318,896

 

254,399

 

 

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:

 

 

 

 

 

 

 

 

 

Net realized gains (losses):

 

 

 

 

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

7,877

 

26,134

 

24,305

 

(8,444

)

Non-controlled affiliate company investments

 

63

 

51

 

208

 

122

 

Controlled affiliate company investments

 

1,006

 

1,482

 

4,759

 

(10,579

)

Net realized gains (losses)

 

8,946

 

27,667

 

29,272

 

(18,901

)

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses):

 

 

 

 

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

3,817

 

14,293

 

27,915

 

53,515

 

Non-controlled affiliate company investments

 

(7,812

)

2,425

 

(9,745

)

16,556

 

Controlled affiliate company investments

 

9,624

 

2,710

 

(11,701

)

30,143

 

Net unrealized gains

 

5,629

 

19,428

 

6,469

 

100,214

 

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains from investments

 

14,575

 

47,095

 

35,741

 

81,313

 

 

 

 

 

 

 

 

 

 

 

REALIZED LOSS ON EXTINGUISHMENT OF DEBT

 

 

 

 

(2,678

)

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN STOCKHOLDERS’ EQUITY RESULTING FROM OPERATIONS

 

$

140,797

 

$

136,555

 

$

354,637

 

$

333,034

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED EARNINGS PER COMMON SHARE (Note 9)

 

$

0.52

 

$

0.59

 

$

1.36

 

$

1.49

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING — BASIC AND DILUTED (Note 9)

 

268,312

 

233,126

 

261,120

 

224,049

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Investment Funds and Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AGILE Fund I, LLC (9)

 

Investment partnership

 

Member interest (0.50% interest)

 

 

 

4/1/2010

 

$

 113

 

$

 21

(2)

 

 

CIC Flex, LP (9)

 

Investment partnership

 

Limited partnership units (0.94 units)

 

 

 

9/7/2007

 

962

 

2,908

(2)

 

 

Covestia Capital Partners, LP (9)

 

Investment partnership

 

Limited partnership interest (47.00% interest)

 

 

 

6/17/2008

 

826

 

936

(2)

 

 

Dynamic India Fund IV, LLC (9)

 

Investment company

 

Member interest (5.44% interest)

 

 

 

4/1/2010

 

4,822

 

3,228

 

 

 

HCI Equity, LLC (7)(8)(9)

 

Investment company

 

Member interest (100.00% interest)

 

 

 

4/1/2010

 

182

 

350

 

 

 

Imperial Capital Private Opportunities, LP (9)

 

Investment partnership

 

Limited partnership interest (80.00% interest)

 

 

 

5/10/2007

 

5,731

 

12,571

(2)

 

 

Partnership Capital Growth Fund I, L.P. (9)

 

Investment partnership

 

Limited partnership interest (25.00% interest)

 

 

 

6/16/2006

 

1,424

 

3,938

(2)

 

 

Partnership Capital Growth Investors III, L.P. (9)

 

Investment partnership

 

Limited partnership interest (2.50% interest)

 

 

 

10/5/2011

 

2,632

 

2,610

(2)

 

 

Piper Jaffray Merchant Banking Fund I, L.P. (9)

 

Investment partnership

 

Limited partnership interest (2.00% interest)

 

 

 

8/16/2012

 

596

 

547

(2)

 

 

Senior Secured Loan Fund LLC (7)(10)

 

Co-investment vehicle

 

Subordinated certificates ($1,570,285 par due 12/2022)

 

8.27% (Libor + 8.00%/Q)(22)

 

10/30/2009

 

1,568,578

 

1,593,839

 

 

 

 

 

 

 

Membership interest (87.50% interest)

 

 

 

10/30/2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,568,578

 

1,593,839

 

 

 

VSC Investors LLC (9)

 

Investment company

 

Membership interest (1.95% interest)

 

 

 

1/24/2008

 

619

 

1,175

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,586,485

 

1,622,123

 

36.93

%

Healthcare-Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AxelaCare Holdings, Inc. and AxelaCare Investment Holdings, L.P.

 

Provider of home infusion services

 

First lien senior secured loan ($7,453 par due 4/2019)

 

5.75% (Libor + 4.50%/Q)

 

4/12/2013

 

7,453

 

7,453

(2)(21)

 

 

 

 

 

 

Preferred units (7,425,000 units)

 

 

 

4/12/2013

 

742

 

885

(2)

 

 

 

 

 

 

Common units (75,000 units)

 

 

 

4/12/2013

 

7

 

9

(2)

 

 

 

 

 

 

 

 

 

 

 

 

8,202

 

8,347

 

 

 

California Forensic Medical Group, Incorporated

 

Correctional facility healthcare operator

 

First lien senior secured loan ($53,775 par due 11/2018)

 

9.25% (Libor + 8.00%/Q)

 

11/16/2012

 

53,775

 

53,775

(3)(21)

 

 

CCS Group Holdings, LLC

 

Correctional facility healthcare operator

 

Class A units (601,937 units)

 

 

 

8/19/2010

 

602

 

1,475

(2)

 

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings LLC (6)

 

Healthcare analysis services provider

 

First lien senior secured loan ($5,102 par due 3/2017)

 

8.75% (Base Rate + 5.50%/M)

 

3/15/2011

 

5,102

 

5,102

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($4,837 par due 3/2017)

 

8.75% (Base Rate + 5.50%/M)

 

3/15/2011

 

4,837

 

4,837

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($2,348 par due 3/2017)

 

7.75% (Libor + 6.50%/M)

 

3/15/2011

 

2,348

 

2,348

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($2,226 par due 3/2017)

 

7.75% (Libor + 6.50%/M)

 

3/15/2011

 

2,226

 

2,226

(3)(21)

 

 

 

 

 

 

Class A common stock (9,679 shares)

 

 

 

6/15/2007

 

4,000

 

6,448

(2)

 

 

 

 

 

 

Class C common stock (1,546 shares)

 

 

 

6/15/2007

 

 

1,778

(2)

 

 

 

 

 

 

 

 

 

 

 

 

18,513

 

22,739

 

 

 

Dialysis Newco, Inc.

 

Dialysis provider

 

First lien senior secured loan ($27,245 par due 8/2020)

 

6.50% (Base Rate + 3.25%/Q)

 

8/16/2013

 

27,245

 

27,245

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($56,500 par due 2/2021)

 

9.75% (Libor + 8.50%/Q)

 

8/16/2013

 

56,500

 

56,500

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

83,745

 

83,745

 

 

 

Genocea Biosciences, Inc.

 

Vaccine discovery technology company

 

First lien senior secured loan ($3,500 par due 4/2017)

 

8.00%

 

9/30/2013

 

3,430

 

3,500

(2)

 

 

 

 

 

 

Warrant to purchase up to 689,655 shares of Series C convertible preferred stock

 

 

 

9/30/2013

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,430

 

3,500

 

 

 

 

5



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

INC Research, Inc.

 

Pharmaceutical and biotechnology consulting services

 

Common stock (1,410,000 shares)

 

 

 

9/27/2010

 

1,512

 

1,381

(2)

 

 

Intermedix Corporation

 

Revenue cycle management provider to the emergency healthcare industry

 

Second lien senior secured loan ($112,000 par due 6/2019)

 

10.25% (Libor + 9.00%/Q)

 

12/27/2012

 

112,000

 

112,000

(2)(21)

 

 

JHP Group Holdings, Inc.

 

Marketer and manufacturer of branded and generic specialty pharmaceutical products

 

Series A preferred stock (1,000,000 shares)

 

6.00% PIK

 

2/19/2013

 

1,000

 

1,470

(2)

 

 

LM Acquisition Holdings, LLC

 

Developer and manufacturer of medical equipment

 

Class A units (426 units)

 

 

 

9/27/2013

 

1,000

 

1,000

(2)

 

 

Magnacare Holdings, Inc., Magnacare Administrative Services, LLC, and Magnacare, LLC

 

Healthcare professional provider

 

First lien senior secured loan ($135,610 par due 3/2018)

 

9.00% (Libor + 8.00%/Q)

 

9/15/2010

 

136,251

 

135,610

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($57,017 par due 3/2018)

 

9.00% (Libor + 8.00%/Q)

 

9/15/2010

 

57,017

 

57,017

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($4,747 par due 3/2018)

 

9.00% (Libor + 8.00%/Q)

 

3/16/2012

 

4,747

 

4,747

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

198,015

 

197,374

 

 

 

MW Dental Holding Corp.

 

Dental services provider

 

First lien senior secured revolving loan ($3,500 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

3,500

 

3,500

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($57,605 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

57,605

 

57,605

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($48,881 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

48,881

 

48,881

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($9,825 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

9,825

 

9,825

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

119,811

 

119,811

 

 

 

Napa Management Services Corporation

 

Anesthesia management services provider

 

First lien senior secured loan ($23,555 par due 4/2018)

 

6.50% (Libor + 5.25%/Q)

 

4/15/2011

 

23,555

 

23,555

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($33,350 par due 4/2018)

 

6.50% (Libor + 5.25%/Q)

 

4/15/2011

 

33,283

 

33,350

(3)(21)

 

 

 

 

 

 

Common units (5,000 units)

 

 

 

4/15/2011

 

5,000

 

7,140

(2)

 

 

 

 

 

 

 

 

 

 

 

 

61,838

 

64,045

 

 

 

Netsmart Technologies, Inc. and NS Holdings, Inc.

 

Healthcare technology provider

 

First lien senior secured loan ($2,851 par due 12/2017)

 

7.25% (Libor + 6.00%/Q)

 

12/18/2012

 

2,851

 

2,851

(2)(18)(21)

 

 

 

 

 

 

First lien senior secured loan ($36,492 par due 12/2017)

 

7.25% (Libor + 6.00%/Q)

 

12/18/2012

 

36,492

 

36,492

(2)(18)(21)

 

 

 

 

 

 

Common stock (2,500,000 shares)

 

 

 

6/21/2010

 

2,500

 

2,539

(2)

 

 

 

 

 

 

 

 

 

 

 

 

41,843

 

41,882

 

 

 

New Trident Holdcorp, Inc.

 

Provider of outsourced mobile diagnostic healthcare services

 

Second lien senior secured loan ($80,000 par due 7/2020)

 

10.25% (Libor + 9.00%/Q)

 

8/6/2013

 

78,425

 

80,000

(2)(21)

 

 

OnCURE Medical Corp.

 

Radiation oncology care provider

 

Common stock (857,143 shares)

 

 

 

8/18/2006

 

3,000

 

(2)

 

 

Passport Health Communications, Inc., Passport Holding Corp. and Prism Holding Corp.

 

Healthcare technology provider

 

Series A preferred stock (1,594,457 shares)

 

10.00% PIK

 

7/30/2008

 

5,560

 

7,025

(2)

 

 

 

 

 

 

Common stock (16,106 shares)

 

 

 

7/30/2008

 

100

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,660

 

7,025

 

 

 

PG Mergersub, Inc. and PGA Holdings, Inc.

 

Provider of patient surveys, management reports and national databases for the integrated healthcare delivery system

 

Second lien senior secured loan ($21,316 par due 10/2018)

 

8.25% (Libor + 7.00%/Q)

 

4/19/2012

 

21,316

 

21,316

(2)(21)

 

 

 

 

 

 

Preferred stock (333 shares)

 

 

 

3/12/2008

 

125

 

16

(2)

 

 

 

 

 

 

Common stock (16,667 shares)

 

 

 

3/12/2008

 

167

 

821

(2)

 

 

 

 

 

 

 

 

 

 

 

 

21,608

 

22,153

(2)

 

 

POS I Corp. (fka Vantage Oncology, Inc.)

 

Radiation oncology care provider

 

Common stock (62,157 shares)

 

 

 

2/3/2011

 

4,670

 

2,263

(2)

 

 

RCHP, Inc.

 

Operator of general acute care hospitals

 

First lien senior secured loan ($14,925 par due

 

7.00% (Libor + 5.75%/Q)

 

11/4/2011

 

14,925

 

14,925

(2)(21)

 

 

 

6



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

11/2018)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First lien senior secured loan ($60,670 par due 11/2018)

 

7.00% (Libor + 5.75%/Q)

 

11/4/2011

 

60,647

 

60,670

(3)(21)

 

 

 

 

 

 

Second lien senior secured loan ($85,000 par due 5/2019)

 

11.50% (Libor + 10.00%/Q)

 

11/4/2011

 

85,000

 

85,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

160,572

 

160,595

 

 

 

Reed Group, Ltd.

 

Medical disability management services provider

 

Equity interests

 

 

 

4/1/2010

 

 

(2)

 

 

Respicardia, Inc.

 

Developer of implantable therapies to improve cardiovascular health

 

First lien senior secured loan ($4,400 par due 7/2015)

 

11.00%

 

6/28/2012

 

4,383

 

4,400

(2)

 

 

 

 

 

 

Warrants to purchase up to 99,094 shares of Series C preferred stock

 

 

 

6/28/2012

 

38

 

29

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,421

 

4,429

 

 

 

Sage Products Holdings III, LLC

 

Patient infection control and preventive care solutions provider

 

Second lien senior secured loan ($75,000 par due 6/2020)

 

9.25% (Libor + 8.00%/Q)

 

12/13/2012

 

75,000

 

75,000

(2)(21)

 

 

Sorbent Therapeutics, Inc.

 

Orally-administered drug developer

 

First lien senior secured loan ($6,500 par due 9/2016)

 

10.25%

 

4/23/2013

 

6,500

 

6,500

(2)

 

 

 

 

 

 

Warrant to purchase up to 727,272 shares of Series C preferred stock

 

 

 

4/23/2013

 

 

25

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,500

 

6,525

 

 

 

Soteria Imaging Services, LLC (6)

 

Outpatient medical imaging provider

 

Second lien senior secured loan ($916 par due 11/2010)

 

 

 

4/1/2010

 

714

 

71

(20)

 

 

 

 

 

 

Second lien senior secured loan ($1,309 par due 11/2010)

 

 

 

4/1/2010

 

1,095

 

101

(20)

 

 

 

 

 

 

Preferred member units (1,823,179 units)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,809

 

172

 

 

 

SurgiQuest, Inc.

 

Medical device company

 

First lien senior secured loan ($6,767 par due 10/2016)

 

10.00%

 

9/28/2012

 

6,596

 

6,767

(2)

 

 

 

 

 

 

First lien senior secured loan ($2,000 par due 10/2017)

 

10.69%

 

9/28/2012

 

1,950

 

2,000

(2)

 

 

 

 

 

 

Warrants to purchase up to 54,672 shares of Series D-4 convertible preferred stock

 

 

 

9/28/2012

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

8,546

 

8,767

 

 

 

U.S. Anesthesia Partners, Inc.

 

Anesthesiology service provider

 

First lien senior secured loan ($14,925 par due 12/2018)

 

6.50% (Libor + 5.50%/Q)

 

12/27/2012

 

14,925

 

14,925

(2)(21)

 

 

Young Innovations, Inc.

 

Dental supplies and equipment manufacturer

 

First lien senior secured loan ($30 par due 1/2019)

 

6.75% (Base Rate + 3.50%/Q)

 

1/31/2013

 

30

 

30

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($20 par due 1/2019)

 

6.75% (Base Rate + 3.50%/Q)

 

1/31/2013

 

20

 

20

(4)(21)

 

 

 

 

 

 

First lien senior secured loan ($20,576 par due 1/2019)

 

5.75% (Libor + 4.50%/M)

 

1/31/2013

 

20,576

 

20,576

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($13,938 par due 1/2019)

 

5.75% (Libor + 4.50%/M)

 

1/31/2013

 

13,938

 

13,938

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

34,564

 

34,564

 

 

 

 

 

 

 

 

 

 

 

 

 

1,124,986

 

1,128,962

 

25.70

%

Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Access CIG, LLC

 

Records and information management services provider

 

First lien senior secured loan ($992 par due 10/2017)

 

7.00% (Libor + 5.75%/Q)

 

10/5/2012

 

992

 

992

(2)(21)

 

 

BluePay Processing, Inc.

 

Technology-enabled payment processing solutions provider

 

First lien senior secured loan ($7,500 par due 8/2019)

 

5.00% (Libor + 4.00%/Q)

 

8/30/2013

 

7,500

 

7,500

(2)(21)

 

 

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C. (6)

 

Payroll and accounting services provider to the entertainment industry

 

First lien senior secured loan ($18,360 par due 12/2017)

 

7.50% (Libor + 6.50%/Q)

 

12/24/2012

 

18,360

 

18,360

(2)(16)(21)

 

 

 

 

 

 

First lien senior secured loan ($890 par due 12/2017)

 

8.75% (Base Rate + 5.50%/Q)

 

12/24/2012

 

890

 

890

(2)(16)(21)

 

 

 

 

 

 

First lien senior secured loan ($45,900 par due 12/2017)

 

7.50% (Libor + 6.50%/Q)

 

12/24/2012

 

45,900

 

45,900

(3)(16)(21)

 

 

 

 

 

 

First lien senior secured loan ($2,225 par due

 

8.75% (Base Rate + 5.50%/Q)

 

12/24/2012

 

2,225

 

2,225

(3)(16)(21)

 

 

 

7



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

12/2017)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

2,748

(2)

 

 

 

 

 

 

Class B membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

2,748

(2)

 

 

 

 

 

 

 

 

 

 

 

 

72,375

 

72,871

 

 

 

CIBT Investment Holdings, LLC

 

Expedited travel document processing services

 

Class A shares (2,500 shares)

 

 

 

12/15/2011

 

2,500

 

3,587

(2)

 

 

CitiPostal Inc. (7)

 

Document storage and management services

 

First lien senior secured revolving loan ($500 par due 12/2013)

 

6.50% (Libor + 4.50%/M)

 

4/1/2010

 

500

 

500

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($53,623 par due 12/2013)

 

8.50% Cash, 5.50% PIK

 

4/1/2010

 

53,623

 

53,623

(2)

 

 

 

 

 

 

Senior subordinated loan ($19,399 par due 12/2015)

 

 

 

4/1/2010

 

13,038

 

1,655

(2)(20)

 

 

 

 

 

 

Common stock (37,024 shares)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67,161

 

55,778

 

 

 

Command Alkon, Inc.

 

Software solutions provider to the ready-mix concrete industry

 

Second lien senior secured loan ($39,130 par due 3/2018)

 

9.75% (Libor + 8.50%/Q)

 

9/28/2012

 

39,130

 

39,130

(2)(21)

 

 

Cornerstone Records Management, LLC

 

Physical records storage and management service provider

 

First lien senior secured loan ($16,397 par due 12/2015)

 

9.50% (Libor + 8.00%/Q)

 

8/12/2011

 

16,397

 

16,397

(2)(21)

 

 

Coverall North America, Inc.

 

Commercial janitorial services provider

 

Letter of credit facility

 

 

 

1/17/2013

 

 

(2)(25)

 

 

HCPro, Inc. and HCP Acquisition Holdings, LLC (7)

 

Healthcare compliance advisory services

 

Senior subordinated loan ($8,907 par due 8/2014)

 

 

 

3/5/2013

 

2,691

 

552

(2)(20)

 

 

 

 

 

 

Class A units (14,293,110 units)

 

 

 

6/26/2008

 

12,793

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,484

 

552

 

 

 

IfByPhone Inc.

 

Voice-based marketing automation software provider

 

First lien senior secured loan ($1,733 par due 11/2015)

 

11.00%

 

10/15/2012

 

1,678

 

1,733

(2)

 

 

 

 

 

 

First lien senior secured loan ($933 par due 1/2016)

 

11.00%

 

10/15/2012

 

933

 

933

(2)

 

 

 

 

 

 

Warrant to purchase up to 124,300 shares of Series C preferred stock

 

 

 

10/15/2012

 

88

 

71

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,699

 

2,737

 

 

 

Impact Innovations Group, LLC

 

IT consulting and outsourcing services

 

Member interest (50.00% interest)

 

 

 

4/1/2010

 

 

200

 

 

 

Investor Group Services, LLC (6)

 

Business consulting for private equity and corporate clients

 

Limited liability company membership interest (8.5% interest)

 

 

 

6/22/2006

 

 

624

 

 

 

IronPlanet, Inc.

 

Online auction platform provider for used heavy equipment

 

First lien senior secured loan ($5,000 par due 7/2017)

 

9.25%

 

9/24/2013

 

4,687

 

4,800

(2)

 

 

 

 

 

 

Warrant to purchase to up to 133,333 shares of Series C preferred stock

 

 

 

9/24/2013

 

214

 

214

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,901

 

5,014

 

 

 

Itel Laboratories, Inc.

 

Data services provider for building materials to property insurance industry

 

Preferred units (1,798,391 units)

 

 

 

6/29/2012

 

1,000

 

1,052

(2)

 

 

Keynote Systems, Inc. and Hawaii Ultimate Parent Corp., Inc.

 

Web and mobile cloud performance testing and monitoring services provider

 

First lien senior secured loan ($175,000 par due 2/2020)

 

9.50% (Libor + 8.50%/S)

 

8/22/2013

 

175,000

 

175,000

(2)(21)

 

 

 

 

 

 

Class A common stock (2,970 shares)

 

 

 

8/22/2013

 

2,970

 

2,970

(2)

 

 

 

 

 

 

Class B common stock (1,956,522 shares)

 

 

 

8/22/2013

 

30

 

30

(2)

 

 

 

 

 

 

 

 

 

 

 

 

178,000

 

178,000

 

 

 

Multi-Ad Services, Inc. (6)

 

Marketing services and software provider

 

Preferred units (1,725,280 units)

 

 

 

4/1/2010

 

788

 

2,102

 

 

 

 

 

 

 

Common units (1,725,280 units)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

788

 

2,102

 

 

 

MVL Group, Inc. (7)

 

Marketing research provider

 

Senior subordinated loan ($37,467 par due 7/2012)

 

 

 

4/1/2010

 

34,636

 

6,952

(2)(20)

 

 

 

 

 

 

Junior subordinated loan ($185 par due 7/2012)

 

 

 

4/1/2010

 

 

(2)(20)

 

 

 

 

 

 

Common stock (560,716 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

34,636

 

6,952

 

 

 

NComputing, Inc.

 

Desktop virtualization hardware and software

 

First lien senior secured loan ($6,500 par due

 

10.50%

 

3/20/2013

 

6,500

 

6,500

(2)

 

 

 

8



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

technology service provider

 

7/2016)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant to purchase up to 462,726 shares of Series C preferred stock

 

 

 

3/20/2013

 

 

6

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,500

 

6,506

 

 

 

Pillar Processing LLC and PHL Investors, Inc. (6)

 

Mortgage services

 

First lien senior secured loan ($6,262 par due 11/2018)

 

 

 

7/31/2008

 

5,688

 

4,764

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($7,375 par due 5/2019)

 

 

 

11/20/2007

 

5,862

 

(2)(20)

 

 

 

 

 

 

Class A common stock (576 shares)

 

 

 

7/31/2012

 

3,768

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,318

 

4,764

 

 

 

Powersport Auctioneer Holdings, LLC

 

Powersport vehicle auction operator

 

Common units (1,972 units)

 

 

 

3/2/2012

 

1,000

 

816

(2)

 

 

PSSI Holdings, LLC

 

Provider of mission-critical outsourced cleaning and sanitation services to the food processing industry

 

First lien senior secured loan ($1,000 par due 6/2018)

 

6.00% (Libor + 5.00%/Q)

 

8/7/2013

 

1,000

 

1,000

(2)(21)

 

 

R2 Acquisition Corp.

 

Marketing services

 

Common stock (250,000 shares)

 

 

 

5/29/2007

 

250

 

141

(2)

 

 

Rainstor, Inc.

 

Database solutions provider

 

First lien senior secured loan ($3,000 par due 4/2016)

 

11.25%

 

3/28/2013

 

2,925

 

3,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 142,210 shares of Series C preferred stock

 

 

 

3/28/2013

 

88

 

70

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,013

 

3,070

 

 

 

Strident Holding, Inc.

 

Recovery audit services provider to commercial and governmental healthcare payors

 

First lien senior secured loan ($7,639 par due 7/2018)

 

6.50% (Libor + 5.25%/Q)

 

7/26/2012

 

7,639

 

7,639

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($9,603 par due 7/2018)

 

6.50% (Libor + 5.25%/Q)

 

7/26/2012

 

9,603

 

9,603

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

17,242

 

17,242

 

 

 

Summit Business Media Parent Holding Company LLC

 

Business media consulting services

 

Limited liability company membership interest (45.98% interest)

 

 

 

5/20/2011

 

 

1,489

(2)

 

 

TOA Technologies, Inc.

 

Cloud based, mobile workforce management applications provider

 

First lien senior secured loan ($12,892 par due 11/2016)

 

10.25%

 

10/31/2012

 

12,404

 

12,892

(2)

 

 

 

 

 

 

Warrant to purchase up to 2,509,770 shares of Series D preferred stock

 

 

 

10/31/2012

 

605

 

1,032

(2)

 

 

 

 

 

 

 

 

 

 

 

 

13,009

 

13,924

 

 

 

Tripwire, Inc.

 

IT security software provider

 

First lien senior secured loan ($104,950 par due 5/2018)

 

8.00% (Libor + 6.75%/Q)

 

5/23/2011

 

104,950

 

104,950

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($49,875 par due 5/2018)

 

8.00% (Libor + 6.75%/Q)

 

5/23/2011

 

49,875

 

49,875

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($9,975 par due 5/2018)

 

8.00% (Libor + 6.75%/Q)

 

5/23/2011

 

9,975

 

9,975

(4)(21)

 

 

 

 

 

 

Class A common stock (2,970 shares)

 

 

 

5/23/2011

 

2,970

 

7,555

(2)

 

 

 

 

 

 

Class B common stock (2,655,638 shares)

 

 

 

5/23/2011

 

30

 

76

(2)

 

 

 

 

 

 

 

 

 

 

 

 

167,800

 

172,431

 

 

 

Venturehouse-Cibernet Investors, LLC

 

Financial settlement services for intercarrier wireless roaming

 

Equity interest

 

 

 

4/1/2010

 

 

 

 

 

VSS-Tranzact Holdings, LLC (6)

 

Management consulting services

 

Common membership interest (5.98% interest)

 

 

 

10/26/2007

 

10,204

 

3,479

 

 

 

X Plus Two Solutions, Inc. and X Plus One Solutions, Inc.

 

Provider of open and integrated software for digital marketing optimization

 

First lien senior secured revolving loan ($5,640 par due 9/2014)

 

8.50%

 

4/1/2013

 

5,640

 

5,640

(2)

 

 

 

 

 

 

First lien senior secured loan ($7,000 par due 10/2016)

 

10.00%

 

4/1/2013

 

6,618

 

6,720

(2)

 

 

 

 

 

 

Warrant to purchase up to 999,167 shares of Series C preferred stock

 

 

 

4/1/2013

 

284

 

284

(2)

 

 

 

 

 

 

 

 

 

 

 

 

12,542

 

12,644

 

 

 

 

 

 

 

 

 

 

 

 

 

691,441

 

630,994

 

14.37

%

 

9



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Academy Holdings, LLC

 

Provider of education, training, certification, networking, and consulting services to medical coders and other healthcare professionals

 

First lien senior secured revolving loan ($4,850 par due 3/2019)

 

6.00% (Libor + 5.00%/Q)

 

3/18/2011

 

4,850

 

4,850

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($59,236 par due 3/2019)

 

6.00% (Libor + 5.00%/Q)

 

3/18/2011

 

59,236

 

59,236

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($4,651 par due 3/2019)

 

6.00% (Libor + 5.00%/Q)

 

3/18/2011

 

4,651

 

4,651

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

68,737

 

68,737

 

 

 

Campus Management Corp. and Campus Management Acquisition Corp. (6)

 

Education software developer

 

Preferred stock (485,159 shares)

 

 

 

2/8/2008

 

10,520

 

1,942

(2)

 

 

Community Education Centers, Inc.

 

Offender re-entry and in-prison treatment services provider

 

First lien senior secured loan ($14,643 par due 12/2014)

 

6.25% (Libor + 5.25%/Q)

 

12/10/2010

 

14,643

 

14,643

(2)(15)(21)

 

 

 

 

 

 

Second lien senior secured loan ($34,706 par due 12/2015)

 

15.27% (Libor + 8.50% Cash, 6.50% PIK/Q)

 

12/10/2010

 

34,706

 

33,665

(2)

 

 

 

 

 

 

Second lien senior secured loan ($10,475 par due 12/2015)

 

15.28% (Libor + 8.50% Cash, 6.50% PIK/Q)

 

12/10/2010

 

10,475

 

10,161

(2)

 

 

 

 

 

 

Warrants to purchase up to 654,618 shares

 

 

 

12/10/2010

 

 

1,090

(2)

 

 

 

 

 

 

 

 

 

 

 

 

59,824

 

59,559

 

 

 

ELC Acquisition Corp., ELC Holdings Corporation, and Excelligence Learning Corporation (6)

 

Developer, manufacturer and retailer of educational products

 

Preferred stock (99,492 shares)

 

12.00% PIK

 

8/1/2011

 

9,949

 

9,949

(2)

 

 

 

 

 

 

Common stock (50,800 shares)

 

 

 

8/1/2011

 

 

2,307

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,949

 

12,256

 

 

 

Infilaw Holding, LLC

 

Operator of for-profit law schools

 

First lien senior secured revolving loan

 

 

 

8/25/2011

 

 

(2)(23)

 

 

 

 

 

 

First lien senior secured loan ($1 par due 8/2016)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

1

 

1

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($18,943 par due 8/2016)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

18,943

 

18,943

(3)(21)

 

 

 

 

 

 

Series A preferred units (124,890 units)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

124,890

 

124,890

(2)(21)

 

 

 

 

 

 

Series B preferred units (3.91 units)

 

 

 

10/19/2012

 

9,245

 

10,652

(2)

 

 

 

 

 

 

 

 

 

 

 

 

153,079

 

154,486

 

 

 

Instituto de Banca y Comercio, Inc.

 

Private school operator

 

First lien senior secured loan ($39,760 par due 6/2015)

 

10.50% (Libor + 8.25%/Q)

 

4/24/2013

 

39,681

 

38,965

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($14,887 par due 6/2015)

 

10.50% (Libor + 8.25%/Q)

 

4/24/2013

 

14,858

 

14,589

(4)(21)

 

 

 

 

 

 

Series B preferred stock (1,750,000 shares)

 

 

 

8/5/2010

 

5,000

 

7,990

(2)

 

 

 

 

 

 

Series C preferred stock (2,512,586 shares)

 

 

 

6/7/2010

 

689

 

(2)

 

 

 

 

 

 

Common stock (20 shares)

 

 

 

6/7/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

60,228

 

61,544

 

 

 

Lakeland Tours, LLC

 

Educational travel provider

 

First lien senior secured revolving loan ($18,000 par due 12/2016)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

18,000

 

18,000

(2)(21)(24)

 

 

 

 

 

 

First lien senior secured loan ($27,000 par due 12/2016)

 

8.50% (Libor + 7.50%/Q)

 

10/4/2011

 

27,000

 

27,000

(2)(14)(21)

 

 

 

 

 

 

First lien senior secured loan ($61,326 par due 12/2016)

 

8.50% (Libor + 7.50%/Q)

 

10/4/2011

 

61,244

 

61,326

(2)(14)(21)

 

 

 

 

 

 

First lien senior secured loan ($3,968 par due 12/2016)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

3,963

 

3,968

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($40,362 par due 12/2016)

 

8.50% (Libor + 7.50%/Q)

 

10/4/2011

 

40,271

 

40,362

(3)(14)(21)

 

 

 

 

 

 

First lien senior secured loan ($8,465 par due 12/2016)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

8,446

 

8,465

(3)(21)

 

 

 

 

 

 

Common stock (5,000 shares)

 

 

 

10/4/2011

 

5,000

 

5,336

(2)

 

 

 

 

 

 

 

 

 

 

 

 

163,924

 

164,457

 

 

 

R3 Education, Inc. and EIC

 

Medical school operator

 

Preferred stock (8,800

 

 

 

7/30/2008

 

2,200

 

1,936

(2)

 

 

 

10



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Acquisitions Corp.

 

 

 

shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common membership interest (26.27% interest)

 

 

 

9/21/2007

 

15,800

 

30,205

(2)

 

 

 

 

 

 

Warrants to purchase up to 27,890 shares

 

 

 

12/8/2009

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

18,000

 

32,141

 

 

 

RuffaloCODY, LLC

 

Provider of student fundraising and enrollment management services

 

First lien senior secured loan ($30,693 par due 5/2019)

 

5.50% (Libor + 4.25%/Q)

 

5/29/2013

 

30,693

 

30,693

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

574,954

 

585,815

 

13.34

%

Services-Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Investments and Ventures Corp.

 

SCUBA diver training and certification provider

 

First lien senior secured loan ($26,956 par due 8/2018)

 

7.00% (Libor + 5.75%/Q)

 

8/9/2012

 

26,956

 

26,956

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($34,719 par due 8/2018)

 

7.00% (Libor + 5.75%/Q)

 

8/9/2012

 

34,719

 

34,719

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($9,488 par due 8/2018)

 

7.00% (Libor + 5.75%/Q)

 

8/9/2012

 

9,488

 

9,488

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

71,163

 

71,163

 

 

 

Competitor Group, Inc. and Calera XVI, LLC

 

Endurance sports media and event operator

 

First lien senior secured revolving loan ($2,850 par due 11/2018)

 

10.00% (Base Rate + 6.75%/Q)

 

11/30/2012

 

2,850

 

2,565

(2)(21)

 

 

 

 

 

 

First lien senior secured revolving loan ($900 par due 11/2018)

 

9.00% (Libor + 7.75%/Q)

 

11/30/2012

 

900

 

810

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($24,379 par due 11/2018)

 

10.00% (Libor + 7.75% Cash, 1.00% PIK/Q)

 

11/30/2012

 

24,379

 

21,941

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($29,851 par due 11/2018)

 

10.00% (Libor + 7.75% Cash, 1.00% PIK/Q)

 

11/30/2012

 

29,851

 

26,866

(3)(21)

 

 

 

 

 

 

Membership units (2,500,000 units)

 

 

 

11/30/2012

 

2,510

 

658

(2)(9)

 

 

 

 

 

 

 

 

 

 

 

 

60,490

 

52,840

 

 

 

ISS #2, LLC

 

Provider of repairs, refurbishments and services to the broader industrial end user markets

 

First lien senior secured loan ($14,962 par due 6/2018)

 

6.50% (Libor + 5.50%/Q)

 

6/5/2013

 

14,962

 

14,962

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($44,887 par due 6/2018)

 

6.50% (Libor + 5.50%/Q)

 

6/5/2013

 

44,887

 

44,887

(3)(21)

 

 

 

 

 

 

 

 

 

 

 

 

59,849

 

59,849

 

 

 

Massage Envy, LLC

 

Franchisor in the massage industry

 

First lien senior secured loan ($29,366 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

29,366

 

29,366

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($49,609 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

49,609

 

49,609

(3)(21)

 

 

 

 

 

 

Common stock (3,000,000 shares)

 

 

 

9/27/2012

 

3,000

 

3,421

(2)

 

 

 

 

 

 

 

 

 

 

 

 

81,975

 

82,396

 

 

 

McKenzie Sports Products, LLC

 

Designer, manufacturer and distributor of taxidermy forms and supplies

 

First lien senior secured loan ($9,314 par due 3/2017)

 

6.00% (Libor + 4.75%/M)

 

3/30/2012

 

9,314

 

9,314

(4)(21)

 

 

 

 

 

 

First lien senior secured loan ($11 par due 3/2017)

 

7.00% (Base Rate + 3.75%/M)

 

3/30/2012

 

11

 

11

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

9,325

 

9,325

 

 

 

Spin HoldCo Inc.

 

Laundry service and equipment provider

 

Second lien senior secured loan ($140,000 par due 5/2020)

 

9.00% (Libor + 7.75%/M)

 

5/14/2013

 

140,000

 

140,000

(2)(21)

 

 

The Dwyer Group (6)

 

Operator of multiple franchise concepts primarily related to home maintenance or repairs

 

Senior subordinated loan ($25,686 par due 6/2018)

 

12.00% Cash, 1.50% PIK

 

12/22/2010

 

25,686

 

25,686

(2)

 

 

 

 

 

 

Series A preferred units (13,292,377 units)

 

8.00% PIK

 

12/22/2010

 

6,724

 

17,432

(2)

 

 

 

 

 

 

 

 

 

 

 

 

32,410

 

43,118

 

 

 

Wash Multifamily Laundry Systems, LLC

 

Laundry service and equipment provider

 

Second lien senior secured loan ($78,000 par due 2/2020)

 

9.75% (Libor + 8.50%/Q)

 

2/21/2013

 

78,000

 

78,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

533,212

 

536,691

 

12.22

%

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brush Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($91,770 par due 8/2020)

 

6.25% (Libor + 5.25%/Q)

 

8/1/2013

 

91,770

 

91,770

(2)(21)

 

 

 

11



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Centinela Funding, LLC

 

Solar power generation facility developer and operator

 

First lien senior secured loan ($56,000 par due 11/2020)

 

10.00% (Libor + 8.75%/Q)

 

11/14/2012

 

56,000

 

56,000

(2)(21)

 

 

Joule Unlimited Technologies, Inc. and Stichting Joule Global Foundation

 

Renewable fuel and chemical production developer

 

First lien senior secured loan ($7,500 par due 2/2017)

 

10.00%

 

7/25/2013

 

7,428

 

7,500

(2)(19)

 

 

 

 

 

 

Warrant to purchase up to 32,051 shares of Series C-2 preferred stock

 

 

 

7/25/2013

 

 

34

(2)(8)

 

 

 

 

 

 

 

 

 

 

 

 

7,428

 

7,534

 

 

 

La Paloma Generating Company, LLC

 

Natural gas fired, combined cycle plant operator

 

Second lien senior secured loan ($68,000 par due 8/2018)

 

10.25% (Libor + 8.75%/M)

 

8/9/2011

 

67,021

 

67,320

(2)(21)

 

 

Panda Sherman Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($32,500 par due 9/2018)

 

9.00% (Libor + 7.50%/Q)

 

9/14/2012

 

32,500

 

32,500

(2)(21)

 

 

Panda Temple Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($60,000 par due 7/2018)

 

11.50% (Libor + 10.00%/Q)

 

7/17/2012

 

58,338

 

60,000

(2)(21)

 

 

Panda Temple Power II, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($20,000 par due 4/2019)

 

7.25% (Libor + 6.00%/Q)

 

4/3/2013

 

19,813

 

20,000

(2)(21)

 

 

Sunrun Solar Owner Holdco X, LLC

 

Residential solar energy provider

 

First lien senior secured loan ($60,000 par due 6/2019)

 

9.50% (Libor + 8.25%/Q)

 

6/7/2013

 

60,000

 

60,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

392,870

 

395,124

 

9.00

%

Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllBridge Financial, LLC (7)

 

Asset management services

 

Equity interests

 

 

 

4/1/2010

 

5,077

 

7,980

 

 

 

Callidus Capital Corporation (7)

 

Asset management services

 

Common stock (100 shares)

 

 

 

4/1/2010

 

3,000

 

1,725

 

 

 

Ciena Capital LLC (7)

 

Real estate and small business loan servicer

 

First lien senior secured revolving loan ($14,000 par due 12/2014)

 

6.00%

 

11/29/2010

 

14,000

 

14,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($28,000 par due 12/2016)

 

12.00%

 

11/29/2010

 

28,000

 

28,000

(2)

 

 

 

 

 

 

Equity interests

 

 

 

11/29/2010

 

53,374

 

12,907

(2)

 

 

 

 

 

 

 

 

 

 

 

 

95,374

 

54,907

 

 

 

Commercial Credit Group, Inc.

 

Commercial equipment finance and leasing company

 

Senior subordinated loan ($28,000 par due 5/2018)

 

12.75%

 

5/10/2012

 

28,000

 

28,000

(2)

 

 

Cook Inlet Alternative Risk, LLC

 

Risk management services

 

Senior subordinated loan ($2,000 par due 9/2015)

 

9.00%

 

9/30/2011

 

2,000

 

2,000

(2)

 

 

Gordian Acquisition Corp.

 

Financial services firm

 

Common stock (526 shares)

 

 

 

11/30/2012

 

 

(2)

 

 

Imperial Capital Group LLC

 

Investment services

 

Class A common units (7,710 units)

 

 

 

5/10/2007

 

14,997

 

19,280

(2)

 

 

 

 

 

 

2006 Class B common units (2,526 units)

 

 

 

5/10/2007

 

3

 

5

(2)

 

 

 

 

 

 

2007 Class B common units (315 units)

 

 

 

5/10/2007

 

 

1

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

19,286

 

 

 

Ivy Hill Asset Management, L.P. (7)(9)

 

Asset management services

 

Member interest (100.00% interest)

 

 

 

6/15/2009

 

170,961

 

275,462

 

 

 

 

 

 

 

 

 

 

 

 

 

319,412

 

389,360

 

8.86

%

Restaurants and Food Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADF Capital, Inc. & ADF Restaurant Group, LLC

 

Restaurant owner and operator

 

First lien senior secured revolving loan ($1,018 par due 11/2014)

 

6.50% (Libor + 3.50%/Q)

 

11/27/2006

 

1,018

 

1,018

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($9,104 par due 11/2015)

 

12.50% (Libor + 9.50%/Q)

 

11/27/2006

 

9,104

 

9,104

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($10,919 par due 11/2015)

 

12.50% (Libor + 9.50%/Q)

 

11/27/2006

 

10,922

 

10,919

(3)(21)

 

 

 

 

 

 

Promissory note ($21,240,073 par due 11/2016)

 

12.00% PIK

 

11/27/2006

 

17,804

 

21,195

(2)

 

 

 

 

 

 

Warrants to purchase up to 0.61 shares

 

 

 

6/1/2006

 

 

1,411

(2)

 

 

 

 

 

 

 

 

 

 

 

 

38,848

 

43,647

 

 

 

Benihana, Inc.

 

Restaurant owner and operator

 

First lien senior secured loan ($9,950 par due 2/2018)

 

6.75% (Libor + 5.50%/Q)

 

8/21/2012

 

9,950

 

9,950

(4)(21)

 

 

Hojeij Branded Foods, Inc.

 

Airport restaurant operator

 

First lien senior secured revolving loan ($2,350 par due 2/2017)

 

9.00% (Libor + 8.00%/Q)

 

2/15/2012

 

2,350

 

2,350

(2)(21)(24)

 

 

 

 

 

 

First lien senior secured loan ($25,600 par due 2/2017)

 

9.00% (Libor + 8.00%/S)

 

2/15/2012

 

25,112

 

25,600

(2)(21)

 

 

 

 

 

 

Warrants to purchase up to

 

 

 

2/15/2012

 

 

276

(2)

 

 

 

12



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

7.5% of membership interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants to purchase up to 324 shares of Class A common stock

 

 

 

2/15/2012

 

669

 

3,972

(2)

 

 

 

 

 

 

 

 

 

 

 

 

28,131

 

32,198

 

 

 

Orion Foods, LLC (fka Hot Stuff Foods, LLC) (7)

 

Convenience food service retailer

 

First lien senior secured revolving loan ($8,000 par due 9/2014)

 

10.75% (Base Rate + 7.50%/M)

 

4/1/2010

 

8,000

 

8,000

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($33,147 par due 9/2014)

 

10.00% (Libor + 8.50%/Q)

 

4/1/2010

 

33,147

 

33,147

(3)(21)

 

 

 

 

 

 

Second lien senior secured loan ($37,552 par due 9/2014)

 

 

 

4/1/2010

 

19,752

 

21,822

(2)(20)

 

 

 

 

 

 

Preferred units (10,000 units)

 

 

 

10/28/2010

 

 

(2)

 

 

 

 

 

 

Class A common units (25,001 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Class B common units (1,122,452 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

60,899

 

62,969

 

 

 

OTG Management, LLC

 

Airport restaurant operator

 

First lien senior secured loan ($30,500 par due 12/2017)

 

8.75% (Libor + 7.25%/Q)

 

12/11/2012

 

30,500

 

30,500

(2)(21)

 

 

 

 

 

 

Common units (3,000,000 units)

 

 

 

1/5/2011

 

3,000

 

1,804

(2)

 

 

 

 

 

 

Warrants to purchase up to 7.73% of common units

 

 

 

6/19/2008

 

100

 

3,830

(2)

 

 

 

 

 

 

 

 

 

 

 

 

33,600

 

36,134

 

 

 

Performance Food Group, Inc. and Wellspring Distribution Corp

 

Food service distributor

 

Second lien senior secured loan ($74,812 par due 11/2019)

 

6.25% (Libor + 5.25%/Q)

 

5/14/2013

 

74,456

 

74,812

(2)(21)

 

 

 

 

 

 

Class A non-voting common stock (1,366,120 shares)

 

 

 

5/3/2008

 

6,303

 

6,408

(2)

 

 

 

 

 

 

 

 

 

 

 

 

80,759

 

81,220

 

 

 

Restaurant Holding Company, LLC

 

Fast food restaurant operator

 

First lien senior secured loan ($60,417 par due 2/2017)

 

9.00% (Libor + 7.50%/M)

 

2/17/2012

 

59,535

 

60,417

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($9,295 par due 2/2017)

 

9.00% (Libor + 7.50%/M)

 

2/17/2012

 

9,158

 

9,295

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

68,693

 

69,712

 

 

 

S.B. Restaurant Company

 

Restaurant owner and operator

 

Preferred stock (46,690 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Warrants to purchase up to 257,429 shares of common stock

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

320,880

 

335,830

 

7.65

%

Containers-Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ICSH, Inc.

 

Industrial container manufacturer, reconditioner and servicer

 

First lien senior secured revolving loan

 

 

 

8/31/2011

 

 

(2)(23)

 

 

 

 

 

 

First lien senior secured loan ($25,997 par due 8/2016)

 

7.00% (Libor + 6.00%/Q)

 

8/31/2011

 

25,997

 

25,997

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($36,814 par due 8/2016)

 

7.00% (Libor + 6.00%/Q)

 

8/31/2011

 

36,945

 

36,814

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($61,679 par due 8/2016)

 

7.00% (Libor + 6.00%/Q)

 

8/31/2011

 

61,679

 

61,679

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($14,757 par due 8/2016)

 

7.00% (Libor + 6.00%/Q)

 

8/31/2011

 

14,757

 

14,757

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

139,378

 

139,247

 

 

 

Microstar Logistics LLC, Microstar Global Asset Management LLC and MStar Holding Corporation

 

Keg management solutions provider

 

Second lien senior secured loan ($165,000 par due 12/2018)

 

8.50% (Libor + 7.50%/Q)

 

12/14/2012

 

165,000

 

165,000

(2)(21)

 

 

 

 

 

 

Common stock (50,000 shares)

 

 

 

12/14/2012

 

5,000

 

6,242

(2)

 

 

 

 

 

 

 

 

 

 

 

 

170,000

 

171,242

 

 

 

Pregis Corporation, Pregis Intellipack Corp. and Pregis Innovative Packaging Inc.

 

Provider of a broad range of highly-customized, tailored protective packaging solutions

 

First lien senior secured loan ($985 par due 3/2017)

 

7.75% (Libor + 6.25%/M)

 

4/25/2012

 

985

 

985

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

310,363

 

311,474

 

7.09

%

 

13



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Consumer Products- Non-durable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gilchrist & Soames, Inc.

 

Personal care manufacturer

 

First lien senior secured revolving loan ($8,700 par due 10/2013)

 

6.25% (Libor + 5.00%/M)

 

4/1/2010

 

8,700

 

8,700

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($22,393 par due 10/2013)

 

13.44% Cash, 2.00% PIK

 

4/1/2010

 

22,389

 

21,722

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,089

 

30,422

 

 

 

Implus Footcare, LLC

 

Provider of footwear and other accessories

 

Preferred stock (455 shares)

 

6.00% PIK

 

10/31/2011

 

5,095

 

5,095

(2)

 

 

 

 

 

 

Common stock (455 shares)

 

 

 

10/31/2011

 

455

 

853

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,550

 

5,948

 

 

 

Insight Pharmaceuticals Corporation (6)

 

OTC drug products manufacturer

 

Second lien senior secured loan ($19,310 par due 8/2017)

 

13.25% (Libor + 11.75%/Q)

 

8/26/2011

 

19,157

 

19,310

(2)(21)

 

 

 

 

 

 

Class A common stock (155,000 shares)

 

 

 

8/26/2011

 

6,035

 

7,110

(2)

 

 

 

 

 

 

Class B common stock (155,000 shares)

 

 

 

8/26/2011

 

6,035

 

7,110

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,227

 

33,530

 

 

 

Matrixx Initiatives, Inc. and Wonder Holdings Acquisition Corp.

 

Developer and marketer of over-the-counter healthcare products

 

Warrants to purchase up to 1,489 shares of preferred stock

 

 

 

7/27/2011

 

 

1,121

(2)

 

 

 

 

 

 

Warrants to purchase up to 1,654,678 shares of common stock

 

 

 

7/27/2011

 

 

1,144

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

2,265

 

 

 

Oak Parent, Inc.

 

Manufacturer of athletic apparel

 

First lien senior secured loan ($5,624 par due 4/2018)

 

7.50% (Libor + 7.00%/Q)

 

4/2/2012

 

5,603

 

5,624

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($33,386 par due 4/2018)

 

7.50% (Libor + 7.00%/Q)

 

4/2/2012

 

33,263

 

33,386

(3)(21)

 

 

 

 

 

 

First lien senior secured loan ($8,906 par due 4/2018)

 

7.50% (Libor + 7.00%/Q)

 

4/2/2012

 

8,872

 

8,906

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

47,738

 

47,916

 

 

 

PG-ACP Co-Invest, LLC

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

Class A membership units (1,000,0000 units)

 

 

 

8/29/2012

 

1,000

 

1,365

(2)

 

 

The Step2 Company, LLC

 

Toy manufacturer

 

Second lien senior secured loan ($25,600 par due 4/2015)

 

10.00%

 

4/1/2010

 

24,997

 

25,600

(2)

 

 

 

 

 

 

Second lien senior secured loan ($32,450 par due 4/2015)

 

10.00%

 

4/1/2010

 

30,802

 

25,960

(2)

 

 

 

 

 

 

Common units (1,116,879 units)

 

 

 

4/1/2010

 

24

 

 

 

 

 

 

 

 

Warrants to purchase up to 3,157,895 units

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55,823

 

51,560

 

 

 

The Thymes, LLC (7)

 

Cosmetic products manufacturer

 

Preferred units (6,283 units)

 

8.00% PIK

 

6/21/2007

 

5,206

 

4,753

 

 

 

 

 

 

 

Common units (5,400 units)

 

 

 

6/21/2007

 

 

4,635

 

 

 

 

 

 

 

 

 

 

 

 

 

5,206

 

9,388

 

 

 

Woodstream Corporation

 

Pet products manufacturer

 

First lien senior secured loan ($14,377 par due 8/2016)

 

6.00% (Libor + 5.00%/Q)

 

4/18/2012

 

14,377

 

14,377

(4)(21)

 

 

 

 

 

 

Senior subordinated loan ($73,102 par due 2/2017)

 

11.00%

 

4/18/2012

 

70,351

 

72,371

(2)

 

 

 

 

 

 

Senior subordinated loan ($6,898 par due 2/2017)

 

11.00%

 

4/18/2012

 

6,898

 

6,829

(2)

 

 

 

 

 

 

Common stock (4,254 shares)

 

 

 

1/22/2010

 

1,222

 

2,294

(2)

 

 

 

 

 

 

 

 

 

 

1/22/2010

 

92,848

 

95,871

 

 

 

 

 

 

 

 

 

 

 

 

 

270,481

 

278,265

 

6.33

%

Automotive Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Driven Holdings, LLC

 

Automotive aftermarket car care franchisor

 

Preferred stock (247,500 units)

 

 

 

12/16/2011

 

2,475

 

2,797

(2)

 

 

 

 

 

 

Common stock (25,000 units)

 

 

 

12/16/2011

 

25

 

308

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

3,105

 

 

 

Eckler Industries, Inc.

 

Restoration parts and accessories provider for classic automobiles

 

First lien senior secured revolving loan ($1,600 par due 7/2017)

 

8.25% (Base Rate + 5.00%/Q)

 

7/12/2012

 

1,600

 

1,600

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($8,220 par due

 

7.25% (Libor + 6.00%/Q)

 

7/12/2012

 

8,220

 

8,220

(2)(21)

 

 

 

14


 


Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

7/2017)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First lien senior secured loan ($40,807 par due 7/2017)

 

7.25% (Libor + 6.00%/Q)

 

7/12/2012

 

40,807

 

40,807

(3)(21)

 

 

 

 

 

 

Series A preferred stock (1,800 shares)

 

 

 

7/12/2012

 

1,800

 

1,989

(2)

 

 

 

 

 

 

Common stock (20,000 shares)

 

 

 

7/12/2012

 

200

 

261

(2)

 

 

 

 

 

 

 

 

 

 

 

 

52,627

 

52,877

 

 

 

EcoMotors, Inc.

 

Engine developer

 

First lien senior secured loan ($5,000 par due 10/2016)

 

10.83%

 

12/28/2012

 

5,000

 

5,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($5,000 par due 7/2016)

 

10.13%

 

12/28/2012

 

4,878

 

5,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 321,888 shares of Series C preferred stock

 

 

 

12/28/2012

 

 

43

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,878

 

10,043

 

 

 

Service King Paint & Body, LLC

 

Collision repair site operators

 

First lien senior secured loan ($117,850 par due 8/2017)

 

7.25% (Libor + 6.25%/Q)

 

8/20/2012

 

117,850

 

115,724

(2)(17)(21)

 

 

 

 

 

 

First lien senior secured loan ($4,850 par due 8/2017)

 

4.50% (Libor + 3.50%/Q)

 

8/20/2012

 

4,850

 

5,270

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($10,000 par due 8/2017)

 

7.25% (Libor + 6.25%/Q)

 

8/20/2012

 

10,000

 

10,866

(3)(17)(21)

 

 

 

 

 

 

First lien senior secured loan ($9,699 par due 8/2017)

 

4.50% (Libor + 3.50%/Q)

 

8/20/2012

 

9,699

 

10,539

(4)(21)

 

 

 

 

 

 

Membership interest

 

 

 

8/20/2012

 

5,000

 

6,528

(2)

 

 

 

 

 

 

 

 

 

 

 

 

147,399

 

148,927

 

 

 

 

 

 

 

 

 

 

 

 

 

212,404

 

214,952

 

4.89

%

Manufacturing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Argotec, LLC

 

Thermoplastic polyurethane films

 

First lien senior secured revolving loan ($1,125 par due 5/2018)

 

7.00% (Base Rate + 3.75%/M)

 

5/31/2013

 

1,125

 

1,125

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($10,862 par due 5/2019)

 

5.75% (Libor + 4.75%/S)

 

5/31/2013

 

10,862

 

10,862

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($137 par due 5/2019)

 

5.75% (Libor + 4.75%/S)

 

5/31/2013

 

137

 

137

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

12,124

 

12,124

 

 

 

Cambrios Technologies Corporation

 

Nanotechnology-based solutions for electronic devices and computers

 

First lien senior secured loan ($3,485 par due 8/2015)

 

12.00%

 

8/7/2012

 

3,485

 

3,485

(2)

 

 

 

 

 

 

Warrants to purchase up to 400,000 shares of Series D-4 convertible preferred stock

 

 

 

8/7/2012

 

 

6

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,485

 

3,491

 

 

 

Component Hardware Group, Inc.

 

Commercial equipment

 

First lien senior secured loan ($25,766 par due 7/2019)

 

5.50% (Libor + 4.50%/M)

 

7/1/2013

 

25,766

 

25,766

(2)(21)

 

 

Lighting Science Group Corporation

 

Advanced lighting products

 

Letter of credit facility

 

 

 

9/20/2011

 

 

(2)(25)

 

 

MWI Holdings, Inc.

 

Engineered springs, fasteners, and other precision components

 

First lien senior secured loan ($38,274 par due 3/2019)

 

9.38% (Libor + 8.13%/Q)

 

6/15/2011

 

38,274

 

38,274

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($10,000 par due 3/2019)

 

9.38% (Libor + 8.13%/Q)

 

6/15/2011

 

10,000

 

10,000

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

48,274

 

48,274

 

 

 

NetShape Technologies, Inc.

 

Metal precision engineered components

 

First lien senior secured revolving loan ($266 par due 12/2014)

 

7.50% (Libor + 6.50%/S)

 

4/1/2010

 

266

 

266

(2)(21)

 

 

Pelican Products, Inc.

 

Flashlights

 

First lien senior secured loan ($7,900 par due 7/2018)

 

7.00% (Libor + 5.50%/Q)

 

7/13/2012

 

7,900

 

7,900

(4)(21)

 

 

 

 

 

 

Second lien senior secured loan ($32,000 par due 6/2019)

 

11.50% (Libor + 10.00%/Q)

 

7/13/2012

 

32,000

 

32,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

39,900

 

39,900

 

 

 

Protective Industries, Inc. (dba Caplugs)

 

Plastic protection products

 

First lien senior secured revolving loan

 

 

 

11/30/2012

 

 

(2)(23)

 

 

 

 

 

 

Senior subordinated loan ($733 par due 5/2018)

 

8.00% Cash, 7.25% PIK

 

5/23/2011

 

733

 

733

(2)

 

 

 

 

 

 

Preferred stock (2,379,361 shares)

 

 

 

5/23/2011

 

2,307

 

5,541

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,040

 

6,274

 

 

 

 

15



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Saw Mill PCG Partners LLC

 

Metal precision engineered components manufacturer

 

Common units (1,000 units)

 

 

 

1/30/2007

 

1,000

 

(2)

 

 

SSH Environmental Industries, Inc. and SSH Non-Destructive Testing, Inc.

 

Magnetic sensors and supporting sensor products

 

First lien senior secured loan ($11,261 par due 12/2016)

 

9.00% (Libor + 7.50%/Q)

 

3/23/2012

 

11,098

 

11,261

(2)(21)

 

 

TPTM Merger Corp.

 

Time temperature indicator products

 

First lien senior secured revolving loan ($540 par due 9/2018)

 

7.50% (Base Rate + 4.25%/Q)

 

9/12/2013

 

540

 

540

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($33,500 par due 9/2018)

 

6.25% (Libor + 5.25%/Q)

 

9/12/2013

 

33,500

 

33,500

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

34,040

 

34,040

 

 

 

 

 

 

 

 

 

 

 

 

 

178,993

 

181,396

 

4.13

%

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulton Holdings Corp.

 

Airport retail operator

 

First lien senior secured loan ($43,000 par due 5/2018)

 

8.50%

 

5/10/2013

 

43,000

 

43,000

(2)(12)

 

 

 

 

 

 

First lien senior secured loan ($40,000 par due 5/2018)

 

8.50%

 

5/28/2010

 

40,000

 

40,000

(3)(12)

 

 

 

 

 

 

Common stock (19,672 shares)

 

 

 

5/28/2010

 

1,461

 

1,741

(2)

 

 

 

 

 

 

 

 

 

 

 

 

84,461

 

84,741

 

 

 

Paper Source, Inc. and Pine Holdings, Inc.

 

Retailer of fine and artisanal papers, gifts, gift wrap, greeting cards and envelopes

 

First lien senior secured revolving loan ($333 par due 9/2018)

 

7.25% (Libor + 6.25%/Q)

 

9/23/2013

 

333

 

333

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($25,000 par due 9/2018)

 

7.25% (Libor + 6.25%/Q)

 

9/23/2013

 

25,000

 

25,000

(2)(21)

 

 

 

 

 

 

Class A Common Stock (36,364 shares)

 

 

 

9/23/2013

 

6,000

 

6,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,333

 

31,333

 

 

 

Things Remembered Inc. and TRM Holdings Corporation

 

Personalized gifts retailer

 

First lien senior secured loan ($14,850 par due 5/2018)

 

8.00% (Libor + 6.50%/Q)

 

5/24/2012

 

14,850

 

14,850

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

130,644

 

130,924

 

2.98

%

Aerospace and Defense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cadence Aerospace, LLC (fka PRV Aerospace, LLC)

 

Aerospace precision components manufacturer

 

First lien senior secured loan ($1,127 par due 5/2018)

 

6.50% (Libor + 5.25%/Q)

 

5/15/2012

 

1,122

 

1,127

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($8,396 par due 5/2018)

 

6.50% (Libor + 5.25%/Q)

 

5/15/2012

 

8,329

 

8,396

(4)(21)

 

 

 

 

 

 

Second lien senior secured loan ($79,658 par due 5/2019)

 

10.50% (Libor + 9.25%/Q)

 

5/10/2012

 

79,658

 

79,658

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

89,109

 

89,181

 

 

 

ILC Industries, LLC

 

Designer and manufacturer of protective cases and technically advanced lighting systems

 

First lien senior secured loan ($4,796 par due 7/2018)

 

8.00% (Libor + 6.50%/Q)

 

7/13/2012

 

4,720

 

4,700

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($19,427 par due 7/2018)

 

8.00% (Libor + 6.50%/Q)

 

7/13/2012

 

19,102

 

19,038

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

23,822

 

23,738

 

 

 

TurboCombuster Technology, Inc.

 

Manufacturer of complex fabrications for the commercial aerospace, military aerospace and industrial gas turbine markets

 

First lien senior secured loan ($4,987 par due 12/2017)

 

6.00% (Libor + 5.00%/Q)

 

1/31/2013

 

4,965

 

4,987

(4)(21)

 

 

Wyle Laboratories, Inc. and Wyle Holdings, Inc.

 

Provider of specialized engineering, scientific and technical services

 

Senior preferred stock (775 shares)

 

8.00% PIK

 

1/17/2008

 

109

 

109

(2)

 

 

 

 

 

 

Common stock (1,885,195 shares)

 

 

 

1/17/2008

 

2,291

 

1,807

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,400

 

1,916

 

 

 

 

 

 

 

 

 

 

 

 

 

120,296

 

119,822

 

2.73

%

Consumer Products- Durable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bushnell Inc.

 

Sports optics manufacturer

 

Second lien senior secured loan ($48,825 par due 2/2016)

 

9.00% (Libor + 7.50%/Q)

 

4/1/2010

 

44,951

 

48,825

(2)(21)

 

 

 

 

 

 

Second lien senior secured loan ($43,675 par due 2/2016)

 

9.50% (Libor + 8.00%/Q)

 

4/30/2012

 

43,675

 

43,675

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

88,626

 

92,500

 

 

 

 

 

 

 

 

 

 

 

 

 

88,626

 

92,500

 

2.11

%

 

16



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Chemicals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

K2 Pure Solutions Nocal, L.P.

 

Chemical producer

 

First lien senior secured revolving loan ($1,200 par due 8/2019)

 

8.13% (Libor + 7.13%/M)

 

8/19/2013

 

1,200

 

1,200

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($90,000 par due 8/2019)

 

7.00% (Libor + 6.00%/M)

 

8/19/2013

 

90,000

 

90,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

91,200

 

91,200

 

 

 

 

 

 

 

 

 

 

 

 

 

91,200

 

91,200

 

2.08

%

Transportation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eberle Design, Inc.

 

Provider of intelligent transportation systems products in the traffic and rail industries

 

First lien senior secured loan ($43,000 par due 8/2018)

 

7.50% (Libor + 6.25%/Q)

 

8/26/2013

 

42,794

 

43,000

(2)(21)

 

 

PODS Funding Corp.

 

Storage and warehousing

 

Junior subordinated loan ($41,064 par due 5/2017)

 

12.75% Cash, 2.75% PIK

 

11/29/2011

 

41,064

 

41,064

(2)

 

 

United Road Towing, Inc.

 

Towing company

 

Warrants to purchase up to 607 shares

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

83,858

 

84,064

 

1.91

%

Printing, Publishing and Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Batanga, Inc.

 

Independent digital media company

 

First lien senior secured loan ($5,359 par due 11/2016)

 

9.60%

 

10/31/2012

 

5,359

 

5,453

(2)(19)

 

 

 

 

 

 

First lien senior secured loan ($4,500 par due 9/2017)

 

9.60%

 

10/31/2012

 

4,500

 

4,500

(2)(19)

 

 

 

 

 

 

 

 

 

 

 

 

9,859

 

9,953

 

 

 

Earthcolor Group, LLC

 

Printing management services

 

Limited liability company interests (9.30%)

 

 

 

5/18/2012

 

 

(2)

 

 

National Print Group, Inc.

 

Printing management services

 

First lien senior secured revolving loan ($685 par due 10/2013)

 

9.00% (Libor + 6.00%/Q)

 

3/2/2006

 

685

 

685

(2)(21)(24)

 

 

 

 

 

 

First lien senior secured revolving loan ($1,850 par due 10/2013)

 

9.00% (Base Rate + 5.00%/Q)

 

3/2/2006

 

1,850

 

1,850

(2)(21)(24)

 

 

 

 

 

 

First lien senior secured loan ($6,540 par due 10/2013)

 

9.00% (Libor + 6.00%/Q)

 

3/2/2006

 

6,283

 

6,540

(2)(21)

 

 

 

 

 

 

Preferred stock (9,344 shares)

 

 

 

3/2/2006

 

2,000

 

561

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,818

 

9,636

 

 

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.

 

Education publications provider

 

First lien senior secured loan ($20,995 par due 3/2017)

 

9.00% (Libor + 7.50%/Q)

 

9/29/2006

 

20,995

 

20,995

(2)(21)

 

 

 

 

 

 

First lien senior secured loan ($9,751 par due 3/2017)

 

9.00% (Libor + 7.50%/Q)

 

9/29/2006

 

9,751

 

9,751

(4)(21)

 

 

 

 

 

 

Preferred stock (10,663 shares)

 

 

 

9/29/2006

 

1,066

 

3,334

(2)

 

 

 

 

 

 

Common stock (15,393 shares)

 

 

 

9/29/2006

 

3

 

8

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,815

 

34,088

 

 

 

 

 

 

 

 

 

 

 

 

 

52,492

 

53,677

 

1.22

%

Environmental Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AWTP, LLC (7)

 

Water treatment services

 

Second lien senior secured loan ($4,212 par due 6/2015)

 

10.00%

 

4/18/2011

 

4,212

 

4,212

(2)

 

 

 

 

 

 

Second lien senior secured loan ($6,121 par due 6/2015)

 

15.00%

 

4/18/2011

 

6,121

 

6,121

(2)

 

 

 

 

 

 

Membership interests (90% interest)

 

 

 

4/18/2011

 

 

7,905

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,333

 

18,238

 

 

 

Genomatica, Inc.

 

Developer of a biotechnology platform for the production of chemical products

 

First lien senior secured loan ($1,500 par due 10/2016)

 

9.26%

 

3/28/2013

 

1,434

 

1,500

(2)

 

 

 

 

 

 

Warrant to purchase 322,422 shares of Series D preferred stock

 

 

 

3/28/2013

 

 

6

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,434

 

1,506

 

 

 

RE Community Holdings II, Inc.and Pegasus Community Energy, LLC.

 

Operator of municipal recycling facilities

 

Preferred stock (1,000 shares)

 

 

 

3/1/2011

 

8,839

 

800

(2)

 

 

Waste Pro USA, Inc

 

Waste management services

 

Preferred Class A common equity (611,615 shares)

 

 

 

11/9/2006

 

12,263

 

26,978

(2)

 

 

 

 

 

 

 

 

 

 

 

 

32,869

 

47,522

 

1.08

%

Commercial Real Estate Finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10th Street, LLC (6)

 

Real estate holding company

 

Senior subordinated loan ($25,986 par due 11/2014)

 

8.93% Cash, 4.07% PIK

 

4/1/2010

 

25,987

 

25,987

(2)

 

 

 

 

 

 

Member interest (10.00%

 

 

 

4/1/2010

 

594

 

7,251

 

 

 

 

17



Table of Contents

 

As of September 30, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

interest)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Option (25,000 units)

 

 

 

4/1/2010

 

25

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

26,606

 

33,263

 

 

 

American Commercial Coatings, Inc.

 

Real estate property

 

Commercial mortgage loan ($2,417 par due 12/2025)

 

8.75% (Libor + 7.25%/Q)

 

4/1/2010

 

706

 

2,061

(2)(21)

 

 

Cleveland East Equity, LLC

 

Hotel operator

 

Real estate equity interests

 

 

 

4/1/2010

 

1,026

 

4,444

 

 

 

Commons R-3, LLC

 

Real estate developer

 

Real estate equity interests

 

 

 

4/1/2010

 

 

 

 

 

Crescent Hotels & Resorts, LLC and affiliates (7)

 

Hotel operator

 

Senior subordinated loan ($2,236 par due 9/2011)

 

 

 

4/1/2010

 

 

(2)(20)

 

 

 

 

 

 

Senior subordinated loan ($2,092 par due 6/2017)

 

 

 

4/1/2010

 

 

(2)(20)

 

 

 

 

 

 

Common equity interest

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hot Light Brands, Inc. (7)

 

Real estate holding company

 

First lien senior secured loan ($32,957 par due 2/2011)

 

 

 

4/1/2010

 

1,664

 

1,633

(2)(20)

 

 

 

 

 

 

Common stock (93,500 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,664

 

1,633

 

 

 

NPH, Inc.

 

Hotel property

 

Real estate equity interests

 

 

 

4/1/2010

 

5,291

 

5,833

 

 

 

 

 

 

 

 

 

 

 

 

 

35,293

 

47,234

 

1.08

%

Oil and Gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geotrace Technologies, Inc.

 

Reservoir processing and development

 

Warrants to purchase up to 69,978 shares of common stock

 

 

 

4/1/2010

 

88

 

(2)

 

 

 

 

 

 

Warrants to purchase up to 210,453 shares of preferred stock

 

 

 

4/1/2010

 

2,805

 

2,158

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,893

 

2,158

 

 

 

UL Holding Co., LLC and Universal Lubricants, LLC (6)

 

Petroleum product manufacturer

 

Second lien senior secured loan ($9,926 par due 12/2014)

 

 

 

4/30/2012

 

9,786

 

7,269

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($5,144 par due 12/2014)

 

 

 

4/30/2012

 

5,089

 

3,767

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($44,434 par due 12/2014)

 

 

 

4/30/2012

 

43,434

 

32,537

(3)(20)

 

 

 

 

 

 

Class A common units (151,236 units)

 

 

 

6/17/2011

 

1,512

 

(2)

 

 

 

 

 

 

Class B-5 common units (599,200 units)

 

 

 

4/25/2008

 

5,472

 

(2)

 

 

 

 

 

 

Class B-4 common units (50,000 units)

 

 

 

6/17/2011

 

500

 

(2)

 

 

 

 

 

 

Class C common units (758,546 units)

 

 

 

4/25/2008

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

65,793

 

43,573

 

 

 

 

 

 

 

 

 

 

 

 

 

68,686

 

45,731

 

1.04

%

Health Clubs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Athletic Club Holdings, Inc.

 

Premier health club operator

 

First lien senior secured loan ($34,000 par due 3/2019)

 

7.25% (Libor + 6.00%/M)

 

10/11/2007

 

34,000

 

34,000

(2)(13)(21)

 

 

CFW Co-Invest, L.P. and NCP Curves, L.P.

 

Health club franchisor

 

Limited partnership interest (4,152,165 shares)

 

 

 

7/31/2012

 

4,152

 

3,338

(2)

 

 

 

 

 

 

Limited partnership interest (1,847,835 shares)

 

 

 

7/31/2012

 

1,848

 

1,486

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,000

 

4,824

 

 

 

 

 

 

 

 

 

 

 

 

 

40,000

 

38,824

 

0.88

%

Telecommunications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Broadband Communications, LLC, American Broadband Holding Company, Cameron Holdings of NC, Inc.

 

Broadband communication services

 

Warrants to purchase up to 378 shares

 

 

 

11/7/2007

 

 

4,982

(2)

 

 

 

 

 

 

Warrants to purchase up to 200 shares

 

 

 

9/1/2010

 

 

2,636

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

7,618

 

 

 

Quantance, Inc.

 

Designer of semiconductor products to the mobile wireless market

 

First lien senior secured loan ($3,500 par due 9/2016)

 

10.25%

 

8/23/2013

 

3,396

 

3,430

(2)

 

 

 

 

 

 

Warrant to purchase up to 130,432 shares of Series D preferred stock

 

 

 

8/23/2013

 

74

 

74

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,470

 

3,504

 

 

 

Startec Equity, LLC (7)

 

Communication services

 

Member interest

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,470

 

11,122

 

0.25

%

Food and Beverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apple & Eve, LLC and US Juice Partners, LLC (6)

 

Juice manufacturer

 

Senior units (50,000 units)

 

 

 

10/5/2007

 

5,000

 

4,201

 

 

 

Charter Baking Company, Inc.

 

Baked goods manufacturer

 

Senior subordinated loan ($2,750 par due 6/2015)

 

17.50% PIK

 

2/6/2008

 

2,750

 

2,750

(2)

 

 

 

 

 

 

Preferred stock (6,258 shares)

 

 

 

9/1/2006

 

2,567

 

1,848

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,317

 

4,598

 

 

 

Distant Lands Trading Co.

 

Coffee manufacturer

 

Class A common stock (1,294 shares)

 

 

 

4/1/2010

 

980

 

(2)

 

 

 

 

 

 

Class A-1 common stock (2,157 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,297

 

8,799

 

0.20

%

Wholesale Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BECO Holding Company, Inc.

 

Wholesale distributor of first response fire protection equipment and related parts

 

Common stock (25,000 shares)

 

 

 

7/30/2010

 

2,500

 

2,880

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

2,880

 

0.07

%

 

 

 

 

 

 

 

 

 

 

$

7,277,712

 

$

7,385,285

 

168.14

%

 

18


 


Table of Contents

 


(1)                                 Other than Ares Capital Corporation’s (the “Company”) investments listed in footnote 7 below (subject to the limitations set forth therein), the Company does not “Control” any of its portfolio companies, for the purposes of the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In general, under the Investment Company Act, the Company would “Control” a portfolio company if the Company owned more than 25% of its outstanding voting securities (i.e., securities with the right to elect directors) and/or had the power to exercise control over the management or policies of such portfolio company. All of the Company’s portfolio company investments, which as of September 30, 2013 represented 168% of the Company’s net assets or 95% of the Company’s total assets, are subject to legal restrictions on sales.

 

(2)                                 These assets are pledged as collateral for the Revolving Credit Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Revolving Credit Facility (see Note 5 to the consolidated financial statements).

 

(3)                                 These assets are owned by the Company’s consolidated subsidiary Ares Capital CP Funding LLC (“Ares Capital CP”), are pledged as collateral for the Revolving Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than Ares Capital CP’s obligations under the Revolving Funding Facility (see Note 5 to the consolidated financial statements).

 

(4)                                 These assets are owned by the Company’s consolidated subsidiary Ares Capital JB Funding LLC (“ACJB”), are pledged as collateral for the SMBC Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than ACJB’s obligations under the SMBC Funding Facility (see Note 5 to the consolidated financial statements).

 

(5)                                 Investments without an interest rate are non-income producing.

 

(6)                                 As defined in the Investment Company Act, the Company is deemed to be an “Affiliated Person” of a portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the nine months ended September 30, 2013 in which the issuer was an Affiliated company (but not a portfolio company that the Company “Controls”) are as follows:

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

Redemptions

 

Sales

 

Interest

 

structuring

 

Dividend

 

Other

 

Net realized

 

Net unrealized

 

Company

 

(cost)

 

(cost)

 

(cost)

 

income

 

service fees

 

income

 

income

 

gains (losses)

 

gains (losses)

 

10th Street, LLC

 

$

 

$

 

$

 

$

2,508

 

$

 

$

 

$

 

$

 

$

6,775

 

Apple & Eve, LLC and US Juice Partners, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

2,803

 

Campus Management Corp. and Campus Management Acquisition Corp

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(4,647

)

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C.

 

$

 

$

2,625

 

$

30,000

 

$

4,793

 

$

 

$

86

 

$

129

 

$

 

$

495

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings, LLC

 

$

 

$

225

 

$

 

$

865

 

$

 

$

3

 

$

 

$

 

$

2,727

 

The Dwyer Group

 

$

 

$

 

$

 

$

2,584

 

$

 

$

387

 

$

 

$

 

$

3,083

 

ELC Acquisition Corp. and ELC Holdings Corporation

 

$

 

$

1,682

 

$

 

$

 

$

 

$

5,785

 

$

 

$

 

$

(1,705

)

Insight Pharmaceuticals Corporation

 

$

 

$

 

$

 

$

1,961

 

$

 

$

 

$

 

$

 

$

(2,354

)

Investor Group Services, LLC

 

$

 

$

 

$

 

$

 

$

 

$

160

 

$

 

$

106

 

$

(87

)

Multi-Ad Services, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

64

 

Pillar Processing LLC and PHL Holding Co.

 

$

 

$

1,820

 

$

 

$

 

$

 

$

 

$

 

$

46

 

$

(971

)

Soteria Imaging Services, LLC

 

$

 

$

240

 

$

 

$

 

$

 

$

 

$

 

$

55

 

$

(429

)

VSS-Tranzact Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(173

)

UL Holding Co., LLC

 

$

 

$

295

 

$

 

$

3,037

 

$

 

$

 

$

37

 

$

1

 

$

(15,326

)

 

19



Table of Contents

 

(7)                                 As defined in the Investment Company Act, the Company is deemed to be both an “Affiliated Person” and “Control” this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the nine months ended September 30, 2013 in which the issuer was both an Affiliated company and a portfolio company that the Company is deemed to Control are as follows:

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

Redemptions

 

Sales

 

Interest

 

structuring

 

Dividend

 

Other

 

Net realized

 

Net unrealized

 

Company

 

Purchases

 

(cost)

 

(cost)

 

income

 

service fees

 

income

 

income

 

gains (losses)

 

gains (losses)

 

AllBridge Financial, LLC

 

$

 

$

598

 

$

 

$

 

$

 

$

 

$

 

$

 

$

764

 

AWTP, LLC

 

$

 

$

 

$

 

$

1,002

 

$

 

$

 

$

75

 

$

 

$

3,325

 

Callidus Capital Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

7

 

Ciena Capital LLC

 

$

 

$

4,000

 

$

 

$

3,422

 

$

 

$

 

$

 

$

 

$

(5,709

)

Citipostal, Inc.

 

$

500

 

$

3,727

 

$

 

$

5,416

 

$

 

$

 

$

24

 

$

 

$

99

 

Crescent Hotels & Resorts, LLC and affiliates

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

194

 

$

 

HCI Equity, LLC

 

$

 

$

270

 

$

 

$

 

$

 

$

 

$

 

$

 

$

173

 

HCP Acquisition Holdings, LLC

 

$

6,696

 

$

 

$

3,559

 

$

 

$

 

$

 

$

 

$

(809

)

$

(2,585

)

Hot Light Brands, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

505

 

Ivy Hill Asset Management, L.P.

 

$

 

$

 

$

 

$

 

$

 

$

62,407

 

$

 

$

 

$

(18,796

)

MVL Group, Inc.

 

$

 

$

806

 

$

 

$

11

 

$

 

$

 

$

 

$

 

$

1,622

 

Orion Foods, LLC

 

$

1,200

 

$

5,273

 

$

 

$

3,206

 

$

 

$

 

$

606

 

$

 

$

7,957

 

Senior Secured Loan Fund LLC*

 

$

405,686

 

$

74,996

 

$

 

$

161,230

 

$

25,807

 

$

 

$

17,036

 

$

5,374

 

$

(494

)

The Thymes, LLC

 

$

 

$

 

$

 

$

 

$

 

$

304

 

$

 

$

 

$

1,431

 

 

*                                         Together with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”), the Company co-invests through the Senior Secured Loan Fund LLC d/b/a the “Senior Secured Loan Program” (the “SSLP”). The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required); therefore, although the Company owns more than 25% of the voting securities of the SSLP, the Company does not believe that it has control over the SSLP (for purposes of the Investment Company Act or otherwise) because, among other things, these “voting securities” do not afford the Company the right to elect directors of the SSLP or any other special rights (see Note 4 to the consolidated financial statements).

 

(8)                                 Non-U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(9)                                 Excepted from the definition of investment company under Section 3(c) of the Investment Company Act and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(10)                          In the first quarter of 2011, the staff of the Securities and Exchange Commission (the “Staff”) informally communicated to certain business development companies the Staff’s belief that certain entities, which would be classified as an “investment company” under the Investment Company Act but for the exception from the definition of “investment company” set forth in Rule 3a-7 promulgated under the Investment Company Act, could not be treated as eligible portfolio companies (as defined in Section 2(a)(46) of the Investment Company Act). Subsequently, in August 2011 the Securities and Exchange Commission issued a concept release (the “Concept Release”) which states that “[a]s a general matter, the Commission presently does not believe that Rule 3a-7 issuers are the type of small, developing and financially troubled businesses in which Congress intended BDCs primarily to invest” and requested comment on whether or not a 3a-7 issuer should be considered an “eligible portfolio company”. The Company provided a comment letter in respect of the Concept Release and continues to believe that the language of Section 2(a)(46) of the Investment Company Act permits a business development company to treat as “eligible portfolio companies” entities that rely on the 3a-7 exception. However, given the current uncertainty in this area (including the language in the Concept Release) and subsequent discussions with the Staff, the Company has, solely for purposes of calculating the composition of its portfolio pursuant to Section 55(a) of the Investment Company Act, identified these entities in the Company’s schedule of investments as “non-qualifying assets” should the Staff ultimately disagree with the Company’s position.

 

(11)                          Variable rate loans to the Company’s portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). For each such loan, the Company has provided the interest rate in effect on the date presented.

 

20



Table of Contents

 

(12)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 6.00% on $12 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(13)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on $18 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(14)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.25% on $61 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(15)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 1.13% on $18 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(16)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on $29 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(17)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.75% on $71 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(18)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.13% on $55 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(19)                          The Company is entitled to receive a fixed fee upon the occurrence of certain events as defined in the credit agreement governing the Company’s debt investment in the portfolio company. The fair value of such fee is included in the fair value of the debt investment.

 

(20)                          Loan was on non-accrual status as of September 30, 2013.

 

(21)                          Loan includes interest rate floor feature.

 

(22)                          In addition to the interest earned based on the stated contractual interest rate of this security, the certificates entitle the holders thereof to receive a portion of the excess cash flow from the SSLP’s loan portfolio, which may result in a return to the Company greater than the contractual stated interest rate.

 

(23)                          As of September 30, 2013, no amounts were funded by the Company under this first lien senior secured revolving loan, however, there were standby letters of credit issued and outstanding through a financial intermediary under the loan.  See Note 6 to the consolidated financial statements for further information on standby letters of credit commitments related to certain portfolio companies.

 

(24)                         As of September 30, 2013, in addition to the amounts funded by the Company under this first lien senior secured revolving loan, there were also standby letters of credit issued and outstanding through a financial intermediary under the loan.  See Note 6 to the consolidated financial statements for further information on standby letters of credit commitments related to certain portfolio companies.

 

(25)                          As of September 30, 2013, no amounts were funded by the Company under this letter of credit facility, however, there were standby letters of credit issued and outstanding through a financial intermediary under the letter of credit facility.  See Note 6 to the consolidated financial statements for further information on standby letters of credit commitments related to certain portfolio companies.

 

21



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Investment Funds and Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AGILE Fund I, LLC(9)

 

Investment partnership

 

Member interest (0.50% interest)

 

 

 

4/1/2010

 

$

 124

 

$

 29

(2)

 

 

CIC Flex, LP(9)

 

Investment partnership

 

Limited partnership units (0.94 unit)

 

 

 

9/7/2007

 

2,302

 

3,570

(2)

 

 

Covestia Capital Partners, LP(9)

 

Investment partnership

 

Limited partnership interest (47.00% interest)

 

 

 

6/17/2008

 

1,059

 

1,135

(2)

 

 

Dynamic India Fund IV, LLC(9)

 

Investment company

 

Member interest (5.44% interest)

 

 

 

4/1/2010

 

4,822

 

3,104

 

 

 

HCI Equity, LLC(7)(8)(9)

 

Investment company

 

Member interest (100.00% interest)

 

 

 

4/1/2010

 

452

 

447

 

 

 

Imperial Capital Private Opportunities, LP(9)

 

Investment partnership

 

Limited partnership interest (80.00% interest)

 

 

 

5/10/2007

 

6,051

 

8,341

(2)

 

 

Partnership Capital Growth Fund I, L.P.(9)

 

Investment partnership

 

Limited partnership interest (25.00% interest)

 

 

 

6/16/2006

 

1,596

 

4,197

(2)

 

 

Partnership Capital Growth Fund III, L.P.(9)

 

Investment partnership

 

Limited partnership interest (2.50% interest)

 

 

 

10/5/2011

 

1,964

 

1,819

(2)

 

 

Piper Jaffray Merchant Banking Fund I, L.P.(9)

 

Investment partnership

 

Limited partnership interest (2.00% interest)

 

 

 

8/16/2012

 

286

 

259

(2)

 

 

Senior Secured Loan Fund LLC(7)(10)

 

Co-investment vehicle

 

Subordinated certificates ($1,244,969 par due 12/2022)

 

8.31% (Libor + 8.00%/Q)(21)

 

10/30/2009

 

1,237,887

 

1,263,644

 

 

 

 

 

 

 

Membership interest (87.50% interest)

 

 

 

10/30/2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,237,887

 

1,263,644

 

 

 

VSC Investors LLC(9)

 

Investment company

 

Membership interest (1.95% interest)

 

 

 

1/24/2008

 

387

 

854

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,256,930

 

1,287,399

 

32.28

%

Healthcare—Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

California Forensic Medical Group, Incorporated

 

Correctional facility healthcare operator

 

First lien senior secured revolving loan ($2,000 par due 11/2018)

 

10.25% (Base Rate + 7.00%/Q)

 

11/16/2012

 

2,000

 

2,000

(2)(20)(23)

 

 

 

 

 

 

First lien senior secured loan ($54,182 par due 11/2018)

 

9.25% (Libor + 8.00%/Q)

 

11/16/2012

 

54,182

 

54,182

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

56,182

 

56,182

 

 

 

CCS Group Holdings, LLC

 

Correctional facility healthcare operator

 

Class A units (601,937 units)

 

 

 

8/19/2010

 

602

 

1,205

(2)

 

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings LLC(6)

 

Healthcare analysis services

 

First lien senior secured loan ($7,565 par due 3/2017)

 

7.75% (Libor + 6.50%/Q)

 

3/15/2011

 

7,565

 

7,263

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($7,172 par due 3/2017)

 

7.75% (Libor + 6.50%/Q)

 

3/15/2011

 

7,172

 

6,885

(3)(20)

 

 

 

 

 

 

Class A common stock (9,679 shares)

 

 

 

6/15/2007

 

4,000

 

4,772

(2)

 

 

 

 

 

 

Class C common stock (1,546 shares)

 

 

 

6/15/2007

 

 

1,316

(2)

 

 

 

 

 

 

 

 

 

 

 

 

18,737

 

20,236

 

 

 

INC Research, Inc.

 

Pharmaceutical and biotechnology consulting services

 

Common stock (1,410,000 shares)

 

 

 

9/27/2010

 

1,512

 

929

(2)

 

 

Intermedix Corporation

 

Revenue cycle management provider to the emergency healthcare industry

 

Second lien senior secured loan ($112,000 par due 6/2019)

 

10.25% (Libor + 9.00%/Q)

 

12/27/2012

 

112,000

 

112,000

(2)(20)

 

 

Magnacare Holdings, Inc., Magnacare Administrative Services, LLC, and Magnacare, LLC

 

Healthcare professional provider

 

First lien senior secured loan ($15,298 par due 3/2018)

 

9.75% (Libor + 8.75%/Q)

 

9/15/2010

 

15,298

 

15,298

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($42,846 par due 3/2018)

 

9.75% (Libor + 8.75%/Q)

 

9/15/2010

 

42,846

 

42,846

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($4,869 par due 3/2018)

 

9.75% (Libor + 8.75%/Q)

 

9/15/2010

 

4,869

 

4,869

(4)(20)

 

 

 

 

 

 

First lien senior secured loan ($55,307 par due 3/2018)

 

9.75% (Libor + 8.75%/Q)

 

3/16/2012

 

55,307

 

55,307

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($15,579 par due 3/2018)

 

9.75% (Libor + 8.75%/Q)

 

3/16/2012

 

15,579

 

15,579

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

133,899

 

133,899

 

 

 

 

22



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

MW Dental Holding Corp.

 

Dental services

 

First lien senior secured revolving loan ($3,000 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

3,000

 

3,000

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($55,034 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

55,034

 

55,034

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($49,253 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

49,253

 

49,253

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,900 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

9,900

 

9,900

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

117,187

 

117,187

 

 

 

Napa Management Services Corporation

 

Anesthesia management services provider

 

First lien senior secured revolving loan ($5,250 par due 4/2016)

 

7.50% (Libor + 6.00%/M)

 

4/15/2011

 

5,250

 

5,250

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,062 par due 4/2016)

 

7.50% (Libor + 6.00%/Q)

 

4/15/2011

 

8,984

 

9,062

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($28,125 par due 4/2016)

 

7.50% (Libor + 6.00%/Q)

 

4/15/2011

 

28,125

 

28,125

(3)(20)

 

 

 

 

 

 

Common units (5,000 units)

 

 

 

4/15/2011

 

5,000

 

6,169

(2)

 

 

 

 

 

 

 

 

 

 

 

 

47,359

 

48,606

 

 

 

Netsmart Technologies, Inc. and NS Holdings, Inc.

 

Healthcare technology provider

 

First lien senior secured loan ($40,095 par due 12/2017)

 

7.25% (Libor + 6.00%/Q)

 

12/18/2012

 

40,095

 

40,095

(2)(17)(20)

 

 

 

 

 

 

Common stock (2,500,000 shares)

 

 

 

6/21/2010

 

2,500

 

2,611

(2)

 

 

 

 

 

 

 

 

 

 

 

 

42,595

 

42,706

 

 

 

OnCURE Medical Corp.

 

Radiation oncology care provider

 

Common stock (857,143 shares)

 

 

 

8/18/2006

 

3,000

 

(2)

 

 

Passport Health Communications, Inc., Passport Holding Corp. and Prism Holding Corp.

 

Healthcare technology provider

 

Series A preferred stock (1,594,457 shares)

 

 

 

7/30/2008

 

11,156

 

11,448

(2)

 

 

 

 

 

 

Common stock (16,106 shares)

 

 

 

7/30/2008

 

100

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

11,256

 

11,448

 

 

 

PG Mergersub, Inc. and PGA Holdings, Inc.

 

Provider of patient surveys, management reports and national databases for the integrated healthcare delivery system

 

Second lien senior secured loan ($45,000 par due 10/2018)

 

8.25% (Libor + 7.00%/Q)

 

4/19/2012

 

45,000

 

45,000

(2)(20)

 

 

 

 

 

 

Preferred stock (333 shares)

 

 

 

3/12/2008

 

125

 

14

(2)

 

 

 

 

 

 

Common stock (16,667 shares)

 

 

 

3/12/2008

 

167

 

697

(2)

 

 

 

 

 

 

 

 

 

 

 

 

45,292

 

45,711

 

 

 

RCHP, Inc.

 

Operator of general acute care hospitals

 

Second lien senior secured loan ($15,000 par due 5/2019)

 

11.50% (Libor + 10.00%/S)

 

11/4/2011

 

15,000

 

15,000

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($50,000 par due 5/2019)

 

11.50% (Libor + 10.00%/S)

 

11/4/2011

 

50,000

 

50,000

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

65,000

 

65,000

 

 

 

Reed Group, Ltd.

 

Medical disability management services provider

 

Equity interests

 

 

 

4/1/2010

 

 

435

(2)

 

 

Respicardia, Inc.

 

Developer of implantable therapies to improve cardiovascular health

 

First lien senior secured loan ($6,000 par due 7/2015)

 

11.00%

 

6/28/2012

 

5,968

 

6,000

(2)

 

 

 

 

 

 

Warrants to purchase up to 99,094 shares of Series C preferred stock

 

 

 

6/28/2012

 

38

 

29

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,006

 

6,029

 

 

 

Sage Products Holdings III, LLC

 

Patient infection control and preventive care solutions provider

 

Second lien senior secured loan ($75,000 par due 6/2020)

 

9.25% (Libor + 8.00%/Q)

 

12/13/2012

 

75,000

 

75,000

(2)(20)

 

 

Soteria Imaging Services, LLC(6)

 

Outpatient medical imaging provider

 

Second lien senior secured loan ($2,521 par due 11/2010)

 

 

 

4/1/2010

 

2,050

 

843

(2)(19)

 

 

 

 

 

 

Preferred member units (1,823,179 units)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,050

 

843

 

 

 

SurgiQuest, Inc.

 

Medical device manufacturer

 

First lien senior secured loan ($7,000 par due 10/2016)

 

10.00%

 

9/28/2012

 

6,801

 

7,000

(2)

 

 

 

23



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Warrants to purchase up to 54,672 shares of Series D-4 convertible preferred stock

 

 

 

9/28/2012

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,801

 

7,000

 

 

 

U.S. Anesthesia Partners, Inc.

 

Anesthesiology service provider

 

First lien senior secured loan ($15,000 par due 12/2018)

 

6.50% (Libor + 5.50%/Q)

 

12/27/2012

 

15,000

 

15,000

(2)(20)

 

 

Vantage Oncology, Inc.

 

Radiation oncology care provider

 

Common stock (62,157 shares)

 

 

 

2/3/2011

 

4,670

 

2,616

(2)

 

 

 

 

 

 

 

 

 

 

 

 

764,148

 

762,032

 

19.11

%

Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Academy Holdings, LLC

 

Provider of education, training, certification, networking, and consulting services to medical coders and other healthcare professionals

 

First lien senior secured loan ($541 par due 3/2016)

 

9.50% (Libor + 8.50%/Q)

 

3/18/2011

 

541

 

541

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($10,357 par due 3/2016)

 

9.50% (Libor + 8.50%/Q)

 

3/18/2011

 

10,357

 

10,357

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($60,904 par due 3/2016)

 

9.50% (Libor + 8.50%/Q)

 

3/18/2011

 

60,904

 

60,904

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($4,782 par due 3/2016)

 

9.50% (Libor + 8.50%/Q)

 

3/18/2011

 

4,782

 

4,782

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

76,584

 

76,584

 

 

 

Campus Management Corp. and Campus Management Acquisition Corp.(6)

 

Education software developer

 

Preferred stock (485,159 shares)

 

 

 

2/8/2008

 

10,520

 

6,589

(2)

 

 

Community Education Centers, Inc.

 

Offender re-entry and in-prison treatment services provider

 

First lien senior secured loan ($15,000 par due 12/2014)

 

6.25% (Libor + 5.25%/Q)

 

12/10/2010

 

15,000

 

15,000

(2)(15)(20)

 

 

 

 

 

 

First lien senior secured loan ($714 par due 12/2014)

 

7.50% (Base Rate + 4.25%/Q)

 

12/10/2010

 

714

 

714

(2)(15)(20)

 

 

 

 

 

 

Second lien senior secured loan ($33,150 par due 12/2015)

 

15.33% (Libor + 8.50% Cash, 6.50% PIK/Q)

 

12/10/2010

 

33,150

 

29,837

(2)

 

 

 

 

 

 

Second lien senior secured loan ($9,978 par due 12/2015)

 

15.31% (Libor + 8.50% Cash, 6.50% PIK/Q)

 

12/10/2010

 

9,978

 

8,980

(2)

 

 

 

 

 

 

Warrants to purchase up to 654,618 shares

 

 

 

12/13/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

58,842

 

54,531

 

 

 

eInstruction Corporation

 

Developer, manufacturer and retailer of educational products

 

Second lien senior secured loan ($17,000 par due 7/2014)

 

 

 

4/1/2010

 

15,257

 

(2)(19)

 

 

 

 

 

 

Senior subordinated loan ($31,997 par due 1/2015)

 

 

 

4/1/2010

 

24,151

 

(2)(19)

 

 

 

 

 

 

Common stock (2,406 shares)

 

 

 

4/1/2010

 

926

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

40,334

 

 

 

 

ELC Acquisition Corp., ELC Holdings Corporation, and Excelligence Learning Corporation(6)

 

Developer, manufacturer and retailer of educational products

 

Preferred stock (99,492 shares)

 

12.00% PIK

 

8/1/2011

 

10,492

 

11,766

(2)

 

 

 

 

 

 

Common stock (50,800 shares)

 

 

 

8/1/2011

 

51

 

2,789

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,543

 

14,555

 

 

 

Infilaw Holding, LLC

 

Operator of three for-profit law schools

 

First lien senior secured revolving loan

 

 

8/25/2011

 

 

(22)

 

 

 

 

 

 

First lien senior secured loan ($1 par due 8/2016)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

1

 

1

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($19,157 par due 8/2016)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

19,157

 

19,157

(3)(20)

 

 

 

 

 

 

Series A preferred units (124,890 units)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

124,890

 

124,890

(2)(20)

 

 

 

 

 

 

Series B preferred stock (3.91 units)

 

 

 

10/19/2012

 

9,245

 

9,524

(2)

 

 

 

 

 

 

 

 

 

 

 

 

153,293

 

153,572

 

 

 

Instituto de Banca y Comercio, Inc. & Leeds IV Advisors, Inc.

 

Private school operator

 

Series B preferred stock (1,750,000 shares)

 

 

 

8/5/2010

 

5,000

 

7,143

(2)

 

 

 

 

 

 

Series C preferred stock (2,512,586 shares)

 

 

 

6/7/2010

 

689

 

159

(2)

 

 

 

 

 

 

Common stock (20 shares)

 

 

 

6/7/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,689

 

7,302

 

 

 

 

24



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Lakeland Tours, LLC

 

Educational travel provider

 

First lien senior secured revolving loan

 

 

10/4/2011

 

 

(22)

 

 

 

 

 

 

First lien senior secured loan ($58,826 par due 12/2016)

 

9.25% (Libor + 8.25%/Q)

 

10/4/2011

 

58,670

 

58,826

(14)(20)

 

 

 

 

 

 

First lien senior secured loan ($1,793 par due 12/2016)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

1,789

 

1,793

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($40,362 par due 12/2016)

 

9.25% (Libor + 8.25%/Q)

 

10/4/2011

 

40,255

 

40,362

(3)(14)(20)

 

 

 

 

 

 

First lien senior secured loan ($8,967 par due 12/2016)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

8,943

 

8,967

(3)(20)

 

 

 

 

 

 

Common stock (5,000 shares)

 

 

 

10/4/2011

 

5,000

 

4,555

(2)

 

 

 

 

 

 

 

 

 

 

 

 

114,657

 

114,503

 

 

 

R3 Education, Inc. and EIC Acquisitions Corp.

 

Medical school operator

 

Preferred stock (8,800 shares)

 

 

 

7/30/2008

 

2,200

 

1,936

(2)

 

 

 

 

 

 

Common membership interest (26.27% interest)

 

 

 

9/21/2007

 

15,800

 

29,829

(2)

 

 

 

 

 

 

Warrants to purchase up to 27,890 shares

 

 

 

12/8/2009

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

18,000

 

31,765

 

 

 

 

 

 

 

 

 

 

 

 

 

488,462

 

459,401

 

11.52

%

Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllBridge Financial, LLC(7)

 

Asset management services

 

Equity interests

 

 

 

4/1/2010

 

5,675

 

7,814

 

 

 

Callidus Capital Corporation(7)

 

Asset management services

 

Common stock (100 shares)

 

 

 

4/1/2010

 

3,000

 

1,718

 

 

 

Ciena Capital LLC(7)

 

Real estate and small business loan servicer

 

First lien senior secured revolving loan ($14,000 par due 12/2014)

 

6.00%

 

11/29/2010

 

14,000

 

14,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($32,000 par due 12/2016)

 

12.00%

 

11/29/2010

 

32,000

 

32,000

(2)

 

 

 

 

 

 

Equity interests

 

 

 

11/29/2010

 

53,374

 

18,616

(2)

 

 

 

 

 

 

 

 

 

 

 

 

99,374

 

64,616

 

 

 

Commercial Credit Group, Inc.

 

Commercial equipment finance and leasing company

 

Senior subordinated loan ($28,000 par due 5/2018)

 

12.75%

 

5/10/2012

 

28,000

 

28,000

(2)

 

 

Cook Inlet Alternative Risk, LLC

 

Risk management services

 

Senior subordinated loan ($2,750 par due 9/2015)

 

9.00%

 

9/30/2011

 

2,750

 

2,750

(2)

 

 

Financial Pacific Company

 

Commercial finance leasing

 

Preferred stock (6,500 shares)

 

8.00% PIK

 

10/13/2010

 

3,733

 

13,687

 

 

 

 

 

 

 

Common stock (650,000 shares)

 

 

 

10/13/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,733

 

13,687

 

 

 

Gordian Acquisition Corporation

 

Financial services firm

 

Common stock (526 shares)

 

 

 

11/30/2012

 

 

 

 

 

Imperial Capital Group LLC

 

Investment services

 

Class A common units (7,710 units)

 

 

 

5/10/2007

 

14,997

 

18,954

(2)

 

 

 

 

 

 

2006 Class B common units (2,526 units)

 

 

 

5/10/2007

 

3

 

4

(2)

 

 

 

 

 

 

2007 Class B common units (315 units)

 

 

 

5/10/2007

 

 

1

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

18,959

 

 

 

Ivy Hill Asset Management, L.P.(7)(9)

 

Asset management services

 

Member interest (100.00% interest)

 

 

 

6/15/2009

 

170,961

 

294,258

 

 

 

 

 

 

 

 

 

 

 

 

 

328,493

 

431,802

 

10.83

%

Restaurants and Food Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADF Capital, Inc. & ADF Restaurant Group, LLC

 

Restaurant owner and operator

 

First lien senior secured revolving loan ($1,468 par due 11/2013)

 

6.50% (Libor + 3.50%/Q)

 

11/27/2006

 

1,468

 

1,468

(2)(20)

 

 

 

 

 

 

First lien senior secured revolving loan ($200 par due 11/2013)

 

6.50% (Base Rate + 2.50%/Q)

 

11/27/2006

 

200

 

200

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,200 par due 11/2014)

 

12.50% (Libor + 9.50%/Q)

 

11/27/2006

 

9,200

 

9,200

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($11,034 par due 11/2014)

 

12.50% (Libor + 9.50%/Q)

 

11/27/2006

 

11,037

 

11,034

(3)(20)

 

 

 

 

 

 

Promissory note ($14,897,360 par due 11/2016)

 

12.00% PIK

 

11/27/2006

 

16,001

 

18,719

(2)

 

 

 

 

 

 

Warrants to purchase up to 0.61 shares

 

 

 

6/1/2006

 

 

5,496

(2)

 

 

 

 

 

 

 

 

 

 

 

 

37,906

 

46,117

 

 

 

Benihana, Inc.

 

Restaurant owner and

 

First lien senior secured

 

9.25%

 

8/21/2012

 

431

 

431

(2)(20)

 

 

 

25



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

operator

 

revolving loan ($431 par due 8/2017)

 

(Libor + 8.00%/M)

 

 

 

 

 

 

 

 

 

 

 

 

 

First lien senior secured loan ($21,769 par due 2/2018)

 

9.25% (Libor + 8.00%/Q)

 

8/21/2012

 

21,769

 

21,769

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($10,000 par due 2/2018)

 

9.25% (Libor + 8.00%/Q)

 

8/21/2012

 

10,000

 

10,000

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

32,200

 

32,200

 

 

 

Hojeij Branded Foods, Inc.

 

Airport restaurant operator

 

First lien senior secured revolving loan ($1,900 par due 2/2017)

 

9.00% (Libor + 8.00%/Q)

 

2/15/2012

 

1,900

 

1,900

(2)(20)(23)

 

 

 

 

 

 

First lien senior secured loan ($22,600 par due 2/2017)

 

9.00% (Libor + 8.00%/Q)

 

2/15/2012

 

22,025

 

22,600

(2)(20)

 

 

 

 

 

 

Warrants to purchase up to 7.5% of membership interest

 

 

 

2/15/2012

 

 

132

(2)

 

 

 

 

 

 

Warrants to purchase up to 324 shares of Class A common stock

 

 

 

2/15/2012

 

669

 

1,899

(2)

 

 

 

 

 

 

 

 

 

 

 

 

24,594

 

26,531

 

 

 

Orion Foods, LLC (fka Hot Stuff Foods, LLC)(7)

 

Convenience food service retailer

 

First lien senior secured revolving loan ($7,800 par due 9/2014)

 

10.75% (Base Rate + 7.50%/M)

 

4/1/2010

 

7,800

 

7,800

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($33,477 par due 9/2014)

 

10.00% (Libor + 8.50%/Q)

 

4/1/2010

 

33,477

 

33,477

(3)(20)

 

 

 

 

 

 

Second lien senior secured loan ($37,552 par due 9/2014)

 

 

 

4/1/2010

 

23,695

 

17,807

(2)(19)

 

 

 

 

 

 

Preferred units (10,000 units)

 

 

 

10/28/2010

 

 

(2)

 

 

 

 

 

 

Class A common units (25,001 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Class B common units (1,122,452 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

64,972

 

59,084

 

 

 

OTG Management, LLC

 

Airport restaurant operator

 

First lien senior secured loan ($25,000 par due 12/2017)

 

8.75% (Libor + 7.25%/Q)

 

12/11/2012

 

25,000

 

25,000

(2)(20)

 

 

 

 

 

 

Common units (3,000,000 units)

 

 

 

1/5/2011

 

3,000

 

2,042

(2)

 

 

 

 

 

 

Warrants to purchase up to 7.73% of common units

 

 

 

6/19/2008

 

100

 

4,334

(2)

 

 

 

 

 

 

 

 

 

 

 

 

28,100

 

31,376

 

 

 

Performance Food Group, Inc. and Wellspring Distribution Corp.

 

Food service distributor

 

Second lien senior secured loan ($50,000 par due 5/2015)

 

11.00%

 

5/30/2012

 

50,000

 

50,000

(2)

 

 

 

 

 

 

Second lien senior secured loan ($50,250 par due 5/2015)

 

11.00%

 

5/23/2008

 

49,529

 

50,250

(2)

 

 

 

 

 

 

Second lien senior secured loan ($50,000 par due 5/2015)

 

11.00%

 

5/23/2008

 

49,705

 

50,000

(3)

 

 

 

 

 

 

Class A non-voting common stock (1,366,120 shares)

 

 

 

5/3/2008

 

7,500

 

6,732

(2)

 

 

 

 

 

 

 

 

 

 

 

 

156,734

 

156,982

 

 

 

Restaurant Holding Company, LLC

 

Fast food restaurant operator

 

First lien senior secured loan ($61,333 par due 2/2017)

 

9.00% (Libor + 7.50%/M)

 

2/17/2012

 

60,280

 

61,333

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,436 par due 2/2017)

 

9.00% (Libor + 7.50%/M)

 

2/17/2012

 

9,272

 

9,436

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

69,552

 

70,769

 

 

 

S.B. Restaurant Company

 

Restaurant owner and operator

 

Preferred stock (46,690 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Warrants to purchase up to 257,429 shares of common stock

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

414,058

 

423,059

 

10.61

%

Services—Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Investments and Ventures Corp.

 

SCUBA diver training and certification provider

 

First lien senior secured loan ($64,837 par due 8/2018)

 

8.50% (Libor + 7.25%/Q)

 

8/9/2012

 

64,837

 

64,837

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,975 par due 8/2018)

 

8.50% (Libor + 7.25%/Q)

 

8/9/2012

 

9,975

 

9,975

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

74,812

 

74,812

 

 

 

 

26



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Competitor Group, Inc. and Calera XVI, LLC

 

Endurance sports media and event operator

 

First lien senior secured revolving loan ($2,850 par due 11/2018)

 

10.00% (Base Rate + 6.75%/Q)

 

11/30/2012

 

2,850

 

2,850

(2)(20)

 

 

 

 

 

 

First lien senior secured revolving loan ($900 par due 11/2018)

 

9.00% (Libor + 7.75%/Q)

 

11/30/2012

 

900

 

900

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($54,500 par due 11/2018)

 

9.00% (Libor + 7.75%/Q)

 

11/30/2012

 

54,500

 

54,500

(2)(20)

 

 

 

 

 

 

Membership units (2,500,000 units)

 

 

 

11/30/2012

 

2,500

 

2,500

(2)(9)

 

 

 

 

 

 

 

 

 

 

 

 

60,750

 

60,750

 

 

 

Massage Envy, LLC

 

Franchiser in the massage industry

 

First lien senior secured loan ($80,494 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

80,494

 

80,494

(2)(20)

 

 

 

 

 

 

Common stock (3,000,000 shares)

 

 

 

9/27/2012

 

3,000

 

3,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

83,494

 

83,494

 

 

 

McKenzie Sports Products, LLC

 

Designer, manufacturer and distributor of taxidermy forms and supplies

 

First lien senior secured loan ($11,833 par due 3/2017)

 

7.00% (Libor + 5.50%/M)

 

3/30/2012

 

11,833

 

11,833

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($28 par due 3/2017)

 

7.75% (Base Rate + 4.50%/M)

 

3/30/2012

 

28

 

28

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,902 par due 3/2017)

 

7.00% (Libor + 5.50%/M)

 

3/30/2012

 

9,902

 

9,902

(4)(20)

 

 

 

 

 

 

First lien senior secured loan ($23 par due 3/2017)

 

7.75% (Base Rate + 4.50%/M)

 

3/30/2012

 

23

 

23

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

21,786

 

21,786

 

 

 

The Dwyer Group(6)

 

Operator of multiple franchise concepts primarily related to home maintenance or repairs

 

Senior subordinated loan ($25,400 par due 6/2018)

 

12.00% Cash, 1.50% PIK

 

12/22/2010

 

25,400

 

25,400

(2)

 

 

 

 

 

 

Series A preferred units (13,292,377 units)

 

8.00% PIK

 

12/22/2010

 

6,337

 

13,962

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,737

 

39,362

 

 

 

Wash Multifamily Laundry Systems, LLC (fka Web Services Company, LLC)

 

Laundry service and equipment provider

 

First lien senior secured loan ($27,172 par due 8/2014)

 

7.00% (Base Rate + 3.75%/Q)

 

6/26/2012

 

27,091

 

27,172

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($40,000 par due 8/2015)

 

10.88% (Libor + 9.38%/Q)

 

1/25/2011

 

40,000

 

40,000

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($50,000 par due 8/2015)

 

10.88% (Libor + 9.38%/Q)

 

1/25/2011

 

50,000

 

50,000

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

117,091

 

117,172

 

 

 

 

 

 

 

 

 

 

 

 

 

389,670

 

397,376

 

9.96

%

Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Access CIG, LLC

 

Records and information management services provider

 

First lien senior secured loan ($1,000 par due 10/2017)

 

7.00% (Libor + 5.75%/Q)

 

10/5/2012

 

1,000

 

1,000

(2)(20)

 

 

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C.(6)

 

Payroll and accounting services provider to the entertainment industry

 

First lien senior secured loan ($100,000 par due 12/2017)

 

7.50% (Libor + 6.50%/Q)

 

12/24/2012

 

100,000

 

100,000

(2)(20)

 

 

 

 

 

 

Class A membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

2,500

(2)

 

 

 

 

 

 

Class B membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

2,500

(2)

 

 

 

 

 

 

 

 

 

 

 

 

105,000

 

105,000

 

 

 

CIBT Investment Holdings, LLC

 

Expedited travel document processing services

 

Class A shares (2,500 shares)

 

 

 

12/15/2011

 

2,500

 

3,543

(2)

 

 

CitiPostal Inc.(7)

 

Document storage and management services

 

First lien senior secured revolving loan ($1,000 par due 12/2013)

 

6.75% (Base Rate + 3.25%/Q)

 

4/1/2010

 

1,000

 

1,000

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($523 par due 12/2013)

 

8.50% Cash, 5.50% PIK

 

4/1/2010

 

523

 

523

(2)

 

 

 

 

 

 

First lien senior secured loan ($53,561 par due 12/2013)

 

8.50% Cash, 5.50% PIK

 

4/1/2010

 

53,561

 

53,561

(3)

 

 

 

 

 

 

Senior subordinated loan ($17,224 par due 12/2015)

 

 

 

4/1/2010

 

13,038

 

1,556

(2)(19)

 

 

 

 

 

 

Common stock (37,024 shares)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68,122

 

56,640

 

 

 

 

27



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Command Alkon, Inc.

 

Software solutions provider to the ready-mix concrete industry

 

Second lien senior secured loan ($39,130 par due 3/2018)

 

9.75% (Libor + 8.50%/Q)

 

9/28/2012

 

39,130

 

39,130

(2)(20)

 

 

Cornerstone Records Management, LLC

 

Physical records storage and management service provider

 

First lien senior secured loan ($18,460 par due 8/2016)

 

10.50% (Libor + 9.00%/Q)

 

8/12/2011

 

18,460

 

17,722

(2)(20)

 

 

HCP Acquisition Holdings, LLC(7)

 

Healthcare compliance advisory services

 

Class A units (12,287,082 units)

 

 

 

6/26/2008

 

12,347

 

(2)

 

 

IfByPhone Inc.

 

Voice-based marketing automation software provider

 

First lien senior secured loan ($2,000 par due 11/2015)

 

11.00%

 

10/15/2012

 

1,917

 

2,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($1,000 par due 1/2016)

 

11.00%

 

10/15/2012

 

1,000

 

1,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 124,300 shares of Series C preferred stock

 

 

 

10/15/2012

 

88

 

88

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,005

 

3,088

 

 

 

Impact Innovations Group, LLC

 

IT consulting and outsourcing services

 

Member interest (50.00% interest)

 

 

 

4/1/2010

 

 

200

 

 

 

Investor Group Services, LLC(6)

 

Business consulting for private equity and corporate clients

 

Limited liability company membership interest (10.00% interest)

 

 

 

6/22/2006

 

 

711

 

 

 

Itel Laboratories, Inc.

 

Data services provider for building materials to property insurance industry

 

First lien senior secured loan ($12,263 par due 6/2018)

 

6.25% (Libor + 5.00%/Q)

 

6/29/2012

 

12,263

 

12,263

(2)(20)

 

 

 

 

 

 

Preferred units (1,798,391 units)

 

 

 

6/29/2012

 

1,000

 

1,093

(2)

 

 

 

 

 

 

 

 

 

 

 

 

13,263

 

13,356

 

 

 

Multi-Ad Services, Inc.(6)

 

Marketing services and software provider

 

Preferred units (1,725,280 units)

 

 

 

4/1/2010

 

788

 

2,037

 

 

 

 

 

 

 

Common units (1,725,280 units)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

788

 

2,037

 

 

 

MVL Group, Inc.(7)

 

Marketing research provider

 

First lien senior secured revolving loan ($806 par due 6/2012)

 

4.94% (Libor + 4.50%/Q)

 

6/28/2012

 

806

 

806

(2)

 

 

 

 

 

 

Senior subordinated loan ($36,766 par due 7/2012)

 

 

 

4/1/2010

 

34,636

 

5,330

(2)(19)

 

 

 

 

 

 

Junior subordinated loan ($185 par due 7/2012)

 

 

 

4/1/2010

 

 

(2)(19)

 

 

 

 

 

 

Common stock (560,716 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

35,442

 

6,136

 

 

 

Performant Financial Corporation

 

Collections services

 

Common stock (772,130 shares)

 

 

 

4/1/2010

 

1,191

 

7,799

(2)

 

 

 

 

 

 

Common stock (207,912 shares)

 

 

 

2/5/2005

 

241

 

2,100

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,432

 

9,899

 

 

 

Pillar Processing LLC and PHL Holding Co.(6)

 

Mortgage services

 

First lien senior secured loan ($7,033 par due 11/2018)

 

 

 

7/31/2008

 

6,709

 

7,033

(2)(19)

 

 

 

 

 

 

First lien senior secured loan ($7,375 par due 5/2019)

 

 

 

11/20/2007

 

6,661

 

522

(2)(19)

 

 

 

 

 

 

Class A common stock (576 shares)

 

 

 

7/31/2012

 

3,768

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

17,138

 

7,555

 

 

 

Powersport Auctioneer Holdings, LLC

 

Powersport vehicle auction operator

 

Common units (1,972 units)

 

 

 

3/2/2012

 

1,000

 

736

(2)

 

 

Prommis Holdings, LLC

 

Bankruptcy and foreclosure processing services

 

Class B common units (1,727 units)

 

 

 

6/12/2012

 

 

(2)

 

 

Promo Works, LLC

 

Marketing services

 

First lien senior secured loan ($8,655 par due 12/2013)

 

 

 

4/1/2010

 

3,249

 

2,042

(2)(19)

 

 

R2 Acquisition Corp.

 

Marketing services

 

Common stock (250,000 shares)

 

 

 

5/29/2007

 

250

 

137

(2)

 

 

Strident Holding, Inc.

 

Recovery audit services provider to commercial and governmental healthcare payors

 

First lien senior secured loan ($7,935 par due 7/2018)

 

6.50% (Libor + 5.25%/Q)

 

7/26/2012

 

7,935

 

7,935

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,975 par due 7/2018)

 

6.50% (Libor + 5.25%/Q)

 

7/26/2012

 

9,975

 

9,975

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

17,910

 

17,910

 

 

 

Summit Business Media Parent Holding Company LLC

 

Business media consulting services

 

Limited liability company membership interest

 

 

 

5/20/2011

 

 

873

(2)

 

 

 

28



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

(45.98% interest)

 

 

 

 

 

 

 

 

 

 

 

TOA Technologies, Inc.

 

Cloud based, mobile workforce management applications provider

 

First lien senior secured loan ($13,000 par due 10/2016)

 

10.25%

 

10/31/2012

 

12,415

 

12,480

(2)

 

 

 

 

 

 

Warrant to purchase up to 2,509,770 shares of Series D preferred stock

 

 

 

10/31/2012

 

605

 

617

(2)

 

 

 

 

 

 

 

 

 

 

 

 

13,020

 

13,097

 

 

 

Tradesmen International, Inc.

 

Construction labor support

 

Warrants to purchase up to 771,036 shares

 

 

 

4/1/2010

 

 

10,150

 

 

 

Tripwire, Inc.

 

IT security software provider

 

First lien senior secured loan ($50,000 par due 5/2018)

 

6.00% (Libor + 4.75%/Q)

 

5/23/2011

 

50,000

 

50,000

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($10,000 par due 5/2018)

 

6.00% (Libor + 4.75%/Q)

 

5/23/2011

 

10,000

 

10,000

(4)(20)

 

 

 

 

 

 

Class A common stock (2,970 shares)

 

 

 

5/23/2011

 

2,970

 

6,941

(2)

 

 

 

 

 

 

Class B common stock (2,655,638 shares)

 

 

 

5/23/2011

 

30

 

70

(2)

 

 

 

 

 

 

 

 

 

 

 

 

63,000

 

67,011

 

 

 

Venturehouse-Cibernet Investors, LLC

 

Financial settlement services for intercarrier wireless roaming

 

Equity interest

 

 

 

4/1/2010

 

 

(2)

 

 

VSS-Tranzact Holdings, LLC(6)

 

Management consulting services

 

Common membership interest (5.98% interest)

 

 

 

10/26/2007

 

10,204

 

3,652

 

 

 

 

 

 

 

 

 

 

 

 

 

426,260

 

381,625

 

9.57

%

Containers—Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ICSH, Inc.

 

Industrial container manufacturer, reconditioner and servicer

 

First lien senior secured revolving loan

 

 

8/31/2011

 

 

(22)

 

 

 

 

 

 

First lien senior secured loan ($22,569 par due 8/2016)

 

8.00% (Libor + 7.00%/Q)

 

8/31/2011

 

22,569

 

22,569

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($3,750 par due 8/2016)

 

9.25% (Base Rate + 6.00%/Q)

 

8/31/2011

 

3,750

 

3,750

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($24,217 par due 8/2016)

 

8.04% (Libor + 7.00%/Q)

 

8/31/2011

 

24,217

 

24,217

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($67,961 par due 8/2016)

 

8.04% (Libor + 7.00%/Q)

 

8/31/2011

 

67,961

 

67,961

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($353 par due 8/2016)

 

8.00% (Libor + 7.00%/Q)

 

8/31/2011

 

353

 

353

(3)(20)

 

 

 

 

 

 

First lien senior secured loan ($14,795 par due 8/2016)

 

8.04% (Libor + 7.00%/Q)

 

8/31/2011

 

14,795

 

14,795

(4)(20)

 

 

 

 

 

 

First lien senior secured loan ($77 par due 8/2016)

 

8.00% (Libor + 7.00%/Q)

 

8/31/2011

 

77

 

77

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

133,722

 

133,722

 

 

 

Microstar Logistics LLC, Microstar Global Asset Management LLC and MStar Holding Corporation

 

Keg management solutions provider

 

Second lien senior secured loan ($165,000 par due 12/2018)

 

8.50% (Libor + 7.50%/Q)

 

12/14/2012

 

165,000

 

165,000

(2)(20)

 

 

 

 

 

 

Common Stock (50,000 shares)

 

 

 

12/14/2012

 

5,000

 

5,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

170,000

 

170,000

 

 

 

Pregis Corporation, Pregis Intellipack Corp. and Pregis Innovative Packaging Inc.

 

Provider of highly-customized, tailored protective packaging solutions

 

First lien senior secured loan ($3 par due 3/2017)

 

8.50% (Base Rate + 5.25%/Q)

 

4/25/2012

 

3

 

3

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($992 par due 3/2017)

 

7.75% (Libor + 6.25%/Q)

 

4/25/2012

 

992

 

992

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

995

 

995

 

 

 

 

 

 

 

 

 

 

 

 

 

304,717

 

304,717

 

7.64

%

Consumer Products—Non-durable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gilchrist & Soames, Inc.

 

Personal care manufacturer

 

First lien senior secured revolving loan ($9,200 par due 10/2013)

 

6.25% (Libor + 5.00%/M)

 

4/1/2010

 

9,200

 

9,200

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($21,941 par due 10/2013)

 

13.44%

 

4/1/2010

 

21,710

 

20,847

(2)

 

 

 

 

 

 

 

 

 

 

 

 

30,910

 

30,047

 

 

 

Implus Footcare, LLC

 

Provider of footwear and other accessories

 

Preferred stock (455 shares)

 

6.00% PIK

 

10/31/2011

 

4,873

 

4,873

(2)

 

 

 

 

 

 

Common stock (455 shares)

 

 

 

10/31/2011

 

455

 

196

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,328

 

5,069

 

 

 

 

29



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Insight Pharmaceuticals Corporation(6)

 

OTC drug products manufacturer

 

Second lien senior secured loan ($19,310 par due 8/2017)

 

13.25% (Libor + 11.75%/Q)

 

8/26/2011

 

19,136

 

19,310

(3)(20)

 

 

 

 

 

 

Class A common stock (155,000 shares)

 

 

 

8/26/2011

 

6,035

 

8,277

(2)

 

 

 

 

 

 

Class B common stock (155,000 shares)

 

 

 

8/26/2011

 

6,035

 

8,277

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,206

 

35,864

 

 

 

Matrixx Initiatives, Inc. and Wonder Holdings Acquisition Corp.

 

Developer and marketer of over-the-counter healthcare products

 

First lien senior secured revolving loan ($9,500 par due 6/2016)

 

13.00% (Libor + 12.00%/M)

 

6/30/2011

 

9,500

 

8,550

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($38,781 par due 6/2016)

 

13.00% (Libor + 12.00%/Q)

 

6/30/2011

 

38,581

 

34,903

(3)(20)

 

 

 

 

 

 

Warrants to purchase up to 1,654,678 shares of common stock

 

 

 

7/27/2011

 

 

(2)

 

 

 

 

 

 

Warrants to purchase up to 1,489 shares of preferred stock

 

 

 

7/27/2011

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

48,081

 

43,453

 

 

 

Oak Parent, Inc.

 

Manufacturer of athletic apparel

 

First lien senior secured loan ($41,299 par due 4/2018)

 

8.00% (Libor + 7.00%/Q)

 

4/2/2012

 

41,125

 

41,299

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,428 par due 4/2018)

 

8.00% (Libor + 7.00%/Q)

 

4/2/2012

 

9,388

 

9,428

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

50,513

 

50,727

 

 

 

PG-ACP Co-Invest, LLC

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

Class A membership units (1,000,0000 units)

 

 

 

8/29/2012

 

1,000

 

1,293

(2)

 

 

The Step2 Company, LLC

 

Toy manufacturer

 

Second lien senior secured loan ($27,000 par due 4/2015)

 

10.00%

 

4/1/2010

 

26,092

 

27,000

(2)

 

 

 

 

 

 

Second lien senior secured loan ($32,814 par due 4/2015)

 

10.00% Cash, 6.00% PIK

 

4/1/2010

 

31,859

 

28,876

(2)

 

 

 

 

 

 

Common units (1,116,879 units)

 

 

 

4/1/2010

 

24

 

94

 

 

 

 

 

 

 

Warrants to purchase up to 3,157,895 units

 

 

 

4/1/2010

 

 

269

 

 

 

 

 

 

 

 

 

 

 

 

 

57,975

 

56,239

 

 

 

The Thymes, LLC(7)

 

Cosmetic products manufacturer

 

Preferred units (6,283 units)

 

8.00% PIK

 

6/21/2007

 

5,631

 

5,244

 

 

 

 

 

 

 

Common units (5,400 units)

 

 

 

6/21/2007

 

 

3,138

 

 

 

 

 

 

 

 

 

 

 

 

 

5,631

 

8,382

 

 

 

Woodstream Corporation

 

Pet products manufacturer

 

First lien senior secured loan ($3,000 par due 8/2014)

 

6.50% (Libor + 5.00%/Q)

 

4/18/2012

 

3,000

 

3,000

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($15,000 par due 8/2014)

 

6.50% (Libor + 5.00%/Q)

 

4/18/2012

 

15,000

 

15,000

(4)(20)

 

 

 

 

 

 

Senior subordinated loan ($45,000 par due 2/2015)

 

12.00%

 

1/22/2010

 

41,637

 

45,000

(2)

 

 

 

 

 

 

Common stock (4,254 shares)

 

 

 

1/22/2010

 

1,222

 

2,999

(2)

 

 

 

 

 

 

 

 

 

 

 

 

60,859

 

65,999

 

 

 

 

 

 

 

 

 

 

 

 

 

291,503

 

297,073

 

7.45

%

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Centinela Funding, LLC

 

Solar power generation facility developer and operator

 

First lien senior secured loan ($45,000 par due 11/2020)

 

10.00% (Libor + 8.75%/Q)

 

11/14/2012

 

45,000

 

45,000

(2)(20)

 

 

EquiPower Resources Holdings, LLC

 

Gas-fired power generation facilities operator

 

Second lien senior secured loan ($22,500 par due 6/2019)

 

10.00% (Libor + 8.50%/Q)

 

6/27/2012

 

22,073

 

22,500

(2)(20)

 

 

La Paloma Generating Company, LLC

 

Natural gas fired, combined cycle plant operator

 

Second lien senior secured loan ($59,000 par due 8/2018)

 

10.25% (Libor + 8.75%/Q)

 

8/9/2011

 

57,908

 

56,640

(2)(20)

 

 

Panda Sherman Power, LLC

 

Developer and operator of a gas turbine power plant

 

First lien senior secured loan ($32,500 par due 9/2018)

 

9.00% (Libor + 7.50%/Q)

 

9/14/2012

 

32,500

 

32,500

(2)(20)

 

 

Panda Temple Power, LLC

 

Developer and operator of a gas turbine power plant

 

First lien senior secured loan ($60,000 par due 7/2018)

 

11.50% (Libor + 10.00%/Q)

 

7/17/2012

 

58,157

 

60,000

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

215,638

 

216,640

 

5.43

%

Automotive Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Driven Holdings, LLC

 

Automotive aftermarket car care franchisor

 

Preferred stock (247,500 units)

 

 

 

12/16/2011

 

2,475

 

2,688

(2)

 

 

 

30


 


Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Common stock (25,000 units)

 

 

 

12/16/2011

 

25

 

137

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

2,825

 

 

 

Eckler Industries, Inc.

 

Restoration parts and accessories provider for classic automobiles

 

First lien senior secured revolving loan ($1,300 par due 7/2017)

 

8.25% (Base Rate + 5.00%/M)

 

7/12/2012

 

1,300

 

1,300

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($52,071 par due 7/2017)

 

7.25% (Libor + 6.00%/M)

 

7/12/2012

 

52,071

 

52,071

(2)(20)

 

 

 

 

 

 

Series A preferred stock (1,800 shares)

 

 

 

7/12/2012

 

1,800

 

1,871

(2)

 

 

 

 

 

 

Common stock (20,000 shares)

 

 

 

7/12/2012

 

200

 

200

(2)

 

 

 

 

 

 

 

 

 

 

 

 

55,371

 

55,442

 

 

 

EcoMotors, Inc.

 

Engine developer

 

First lien senior secured loan ($5,000 par due 7/2016)

 

10.13%

 

12/28/2012

 

4,850

 

5,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 321,888 shares of Series C Preferred Stock

 

 

 

12/28/2012

 

 

84

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,850

 

5,084

 

 

 

Service King Paint & Body, LLC

 

Collision repair site operators

 

First lien senior secured loan ($122,850 par due 8/2017)

 

8.50% (Libor + 7.25%/Q)

 

8/20/2012

 

122,850

 

122,850

(2)(16)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,925 par due 8/2017)

 

5.50% (Libor + 4.25%/Q)

 

8/20/2012

 

9,925

 

9,925

(2)(20)

 

 

 

 

 

 

Membership interest

 

 

 

8/20/2012

 

5,000

 

6,684

(2)

 

 

 

 

 

 

 

 

 

 

 

 

137,775

 

139,459

 

 

 

 

 

 

 

 

 

 

 

 

 

200,496

 

202,810

 

5.09

%

Manufacturing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambrios Technologies Corporation

 

Nanotechnology-based solutions for electronic devices and computers

 

First lien senior secured loan ($4,848 par due 8/2015)

 

12.00%

 

8/7/2012

 

4,848

 

4,848

(2)

 

 

 

 

 

 

Warrants to purchase up to 400,000 shares of Series D-4 convertible preferred stock

 

 

 

8/2/2012

 

 

8

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,848

 

4,856

 

 

 

Component Hardware Group, Inc.

 

Commercial equipment

 

Second lien senior secured loan ($3,202 par due 12/2014)

 

7.00% Cash, 3.00% PIK

 

8/4/2010

 

3,202

 

3,202

(2)

 

 

 

 

 

 

Senior subordinated loan ($11,142 par due 12/2014)

 

7.50% Cash, 5.00% PIK

 

4/1/2010

 

8,343

 

11,142

(2)

 

 

 

 

 

 

Warrants to purchase up to 1,462,500 shares of common stock

 

 

 

8/4/2010

 

 

7,322

(2)

 

 

 

 

 

 

 

 

 

 

 

 

11,545

 

21,666

 

 

 

Lighting Science Group Corporation

 

Advanced lighting products

 

Letter of credit facility

 

 

9/20/2011

 

 

(24)

 

 

MWI Holdings, Inc.

 

Provider of engineered springs, fasteners, and other precision components

 

First lien senior secured loan ($38,274 par due 6/2017)

 

10.00% (Libor + 8.00%/Q)

 

6/15/2011

 

38,274

 

38,274

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($10,000 par due 6/2017)

 

10.00% (Libor + 8.00%/Q)

 

6/15/2011

 

10,000

 

10,000

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

48,274

 

48,274

 

 

 

NetShape Technologies, Inc.

 

Metal precision engineered components

 

First lien senior secured revolving loan ($415 par due 2/2013)

 

3.96% (Libor + 3.75%/M)

 

4/1/2010

 

415

 

373

(2)

 

 

Pelican Products, Inc.

 

Flashlights

 

First lien senior secured loan ($7,960 par due 7/2018)

 

7.00% (Libor + 5.50%/Q)

 

7/13/2012

 

7,960

 

7,960

(4)(20)

 

 

 

 

 

 

Second lien senior secured loan ($32,000 par due 6/2019)

 

11.50% (Libor + 10.00%/Q)

 

7/13/2012

 

32,000

 

32,000

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

39,960

 

39,960

 

 

 

Protective Industries, Inc. dba Caplugs

 

Plastic protection products

 

First lien senior secured revolving loan ($1,633 par due 5/2016)

 

5.75% (Libor + 4.25%/M)

 

5/23/2011

 

1,633

 

1,633

(2)(20)(23)

 

 

 

 

 

 

First lien senior secured loan ($1,500 par due 5/2017)

 

5.75% (Libor + 4.25%/M)

 

11/30/2012

 

1,500

 

1,500

(2)(20)

 

 

 

 

 

 

Senior subordinated loan ($695 par due 5/2018)

 

8.00% Cash, 7.25% PIK

 

5/23/2011

 

695

 

695

(2)

 

 

 

 

 

 

Preferred stock (2,379,361 shares)

 

 

 

5/23/2011

 

2,307

 

4,644

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,135

 

8,472

 

 

 

Saw Mill PCG Partners LLC

 

Metal precision

 

Common units (1,000 units)

 

 

 

1/30/2007

 

1,000

 

(2)

 

 

 

31



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

engineered components

 

 

 

 

 

 

 

 

 

 

 

 

 

Sigma International Group, Inc.

 

Water treatment parts

 

Second lien senior secured loan ($4,195 par due 4/2014)

 

10.00% (Libor + 5.00% Cash, 5.00% PIK/Q)

 

7/8/2011

 

4,195

 

4,195

(2)(20)

 

 

SSH Environmental Industries, Inc. and SSH Non-Destructive Testing, Inc.

 

Magnetic sensors and supporting sensor products

 

First lien senior secured loan ($11,625 par due 12/2016)

 

9.00% (Libor + 7.50%/Q)

 

3/23/2012

 

11,424

 

11,625

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

127,796

 

139,421

 

3.50

%

Aerospace and Defense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ILC Industries, LLC

 

Designer and manufacturer of protective cases and technically advanced lighting systems

 

First lien senior secured loan ($4,925 par due 7/2018)

 

7.50% (Libor + 6.00%/Q)

 

7/13/2012

 

4,838

 

4,925

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($19,950 par due 7/2018)

 

7.50% (Libor + 6.00%/Q)

 

7/13/2012

 

19,574

 

19,950

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

24,412

 

24,875

 

 

 

PRV Aerospace, LLC

 

Aerospace precision components manufacturer

 

First lien senior secured loan ($1,136 par due 5/2018)

 

6.50% (Libor + 5.25%/Q)

 

5/15/2012

 

1,130

 

1,136

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($8,460 par due 5/2018)

 

6.50% (Libor + 5.25%/Q)

 

5/15/2012

 

8,383

 

8,460

(4)(20)

 

 

 

 

 

 

Second lien senior secured loan ($80,000 par due 5/2019)

 

10.50% (Libor + 9.25%/Q)

 

5/10/2012

 

80,000

 

80,000

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

89,513

 

89,596

 

 

 

Wyle Laboratories, Inc. and Wyle Holdings, Inc.

 

Provider of specialized engineering, scientific and technical services

 

Senior preferred stock (775 shares)

 

8.00% PIK

 

1/17/2008

 

103

 

103

(2)

 

 

 

 

 

 

Common stock (1,885,195 shares)

 

 

 

1/17/2008

 

2,291

 

2,346

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,394

 

2,449

 

 

 

 

 

 

 

 

 

 

 

 

 

116,319

 

116,920

 

2.93

%

Telecommunications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Broadband Communications, LLC, American Broadband Holding Company, Cameron Holdings of NC, Inc., and Dialog Telecom LLC

 

Broadband communication services

 

First lien senior secured loan ($7,666 par due 9/2013)

 

7.50% (Libor + 5.50%/Q)

 

9/1/2010

 

7,666

 

7,666

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($16,476 par due 12/2013)

 

12.00% (Libor + 11.50%/Q)

 

6/20/2011

 

16,476

 

16,476

(2)(20)

 

 

 

 

 

 

Senior subordinated loan ($10,741 par due 11/2014)

 

12.00% Cash, 2.00% PIK

 

9/1/2010

 

10,741

 

10,312

(2)

 

 

 

 

 

 

Senior subordinated loan ($34,104 par due 11/2014)

 

12.00% Cash, 2.00% PIK

 

11/7/2007

 

34,104

 

32,740

(3)

 

 

 

 

 

 

Senior subordinated loan ($23,513 par due 11/2014)

 

10.00% Cash, 4.00% PIK

 

11/7/2007

 

23,513

 

22,574

(2)

 

 

 

 

 

 

Warrants to purchase up to 378 shares

 

 

 

11/7/2007

 

 

2,533

 

 

 

 

 

 

 

Warrants to purchase up to 200 shares

 

 

 

9/1/2010

 

 

1,340

(2)

 

 

 

 

 

 

 

 

 

 

 

 

92,500

 

93,641

 

 

 

Startec Equity, LLC(7)

 

Communication services

 

Member interest

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

92,500

 

93,641

 

2.35

%

Consumer Products—Durable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bushnell Inc.

 

Sports optics manufacturer

 

Second lien senior secured loan ($48,825 par due 2/2016)

 

9.00% (Libor + 7.50%/Q)

 

4/1/2010

 

44,000

 

48,338

(2)(20)

 

 

 

 

 

 

Second lien senior secured loan ($43,675 par due 2/2016)

 

9.50% (Libor + 8.00%/Q)

 

4/30/2012

 

43,675

 

43,675

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

87,675

 

92,013

 

2.31

%

Oil and Gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geotrace Technologies, Inc.

 

Reservoir processing and development

 

Warrants to purchase up to 69,978 shares of common stock

 

 

 

4/1/2010

 

88

 

(2)

 

 

 

 

 

 

Warrants to purchase up to 210,453 shares of preferred stock

 

 

 

4/1/2010

 

2,805

 

1,757

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,893

 

1,757

 

 

 

UL Holding Co., LLC and Universal Lubricants, LLC(6)

 

Petroleum product manufacturer

 

Second lien senior secured loan ($4,935 par due 12/2014)

 

9.19% (Libor + 7.19% Cash, 2.00% PIK/Q)

 

4/30/2012

 

4,935

 

4,935

(2)

 

 

 

 

 

 

Second lien senior secured loan ($25,413 par due 12/2014)

 

9.19% (Libor + 7.19% Cash, 2.00% PIK/Q)

 

4/30/2012

 

25,413

 

25,413

(3)

 

 

 

32



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Second lien senior secured loan ($4,920 par due 12/2014)

 

12.00% Cash, 2.00% PIK

 

4/30/2012

 

4,920

 

4,920

(2)

 

 

 

 

 

 

Second lien senior secured loan ($5,078 par due 12/2014)

 

12.00% Cash, 3.00% PIK

 

4/30/2012

 

5,078

 

5,078

(2)

 

 

 

 

 

 

Second lien senior secured loan ($18,614 par due 12/2014)

 

12.00% Cash, 2.00% PIK

 

4/30/2012

 

18,614

 

18,614

(3)

 

 

 

 

 

 

Class A common units (151,236 units)

 

 

 

6/17/2011

 

1,512

 

57

(2)

 

 

 

 

 

 

Class B-5 common units (599,200 units)

 

 

 

4/25/2008

 

5,472

 

226

(2)

 

 

 

 

 

 

Class B-4 common units (50,000 units)

 

 

 

6/17/2011

 

500

 

19

(2)

 

 

 

 

 

 

Class C common units (758,546 units)

 

 

 

4/25/2008

 

 

287

(2)

 

 

 

 

 

 

 

 

 

 

 

 

66,444

 

59,549

 

 

 

 

 

 

 

 

 

 

 

 

 

69,337

 

61,306

 

1.54

%

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulton Holdings Corp.

 

Airport retail operator

 

First lien senior secured loan ($40,000 par due 5/2016)

 

12.50%

 

5/28/2010

 

40,000

 

40,000

(3)(12)

 

 

 

 

 

 

Common stock (19,672 shares)

 

 

 

5/28/2010

 

1,967

 

1,873

 

 

 

 

 

 

 

 

 

 

 

 

 

41,967

 

41,873

 

 

 

Things Remembered Inc. and TRM Holdings Corporation

 

Personalized gifts retailer

 

First lien senior secured loan ($14,962 par due 5/2018)

 

8.00% (Libor + 6.50%/Q)

 

5/24/2012

 

14,962

 

14,962

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

56,929

 

56,835

 

1.43

%

Printing, Publishing and Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Batanga, Inc.

 

Independent digital media company

 

First lien senior secured loan ($5,500 par due 10/2016)

 

9.60%

 

10/31/2012

 

5,500

 

5,594

(2)(18)

 

 

Earthcolor Group, LLC

 

Printing management services

 

Limited liability company interests (9.30%)

 

 

 

5/18/2012

 

 

 

 

 

National Print Group, Inc.

 

Printing management services

 

First lien senior secured revolving loan ($913 par due 10/2013)

 

9.00% (Libor + 6.00%/Q)

 

3/2/2006

 

913

 

895

(2)(20)(23)

 

 

 

 

 

 

First lien senior secured revolving loan ($1,038 par due 10/2013)

 

9.00% (Base Rate + 5.00%/M)

 

3/2/2006

 

1,038

 

1,017

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($6,903 par due 10/2013)

 

10.00% (Libor + 9.00% Cash, 1.00% PIK/Q)

 

3/2/2006

 

6,631

 

6,834

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($331 par due 10/2013)

 

10.00% (Base Rate + 9.00% Cash, 1.00% PIK/Q)

 

3/2/2006

 

318

 

327

(2)(20)

 

 

 

 

 

 

Preferred stock (9,344 shares)

 

 

 

3/2/2006

 

2,000

 

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

10,900

 

9,073

 

 

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.

 

Education publications provider

 

First lien senior secured loan ($21,319 par due 3/2017)

 

9.00% (Libor + 7.50%/Q)

 

9/29/2006

 

21,319

 

21,319

(2)(20)

 

 

 

 

 

 

First lien senior secured loan ($9,902 par due 3/2017)

 

9.00% (Libor + 7.50%/Q)

 

9/29/2006

 

9,902

 

9,902

(4)(20)

 

 

 

 

 

 

Preferred stock (10,663 shares)

 

 

 

9/29/2006

 

1,066

 

3,225

(2)

 

 

 

 

 

 

Common stock (15,393 shares)

 

 

 

9/29/2006

 

3

 

8

(2)

 

 

 

 

 

 

 

 

 

 

 

 

32,290

 

34,454

 

 

 

 

 

 

 

 

 

 

 

 

 

48,690

 

49,121

 

1.23

%

Environmental Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AWTP, LLC(7)

 

Water treatment services

 

Second lien senior secured loan ($4,212 par due 6/2015)

 

10.00%

 

4/18/2011

 

4,212

 

4,212

(2)

 

 

 

 

 

 

Second lien senior secured loan ($6,121 par due 6/2015)

 

15.00% PIK

 

4/18/2011

 

6,121

 

6,121

(2)

 

 

 

 

 

 

Membership interests (90% interest)

 

 

 

4/18/2011

 

 

4,580

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,333

 

14,913

 

 

 

RE Community Holdings II, Inc. and Pegasus Community Energy, LLC.

 

Operator of municipal recycling facilities

 

Preferred stock (1,000 shares)

 

 

 

3/1/2011

 

8,839

 

1,487

(2)

 

 

Waste Pro USA, Inc

 

Waste management services

 

Preferred Class A common equity (611,615 shares)

 

 

 

11/9/2006

 

12,263

 

24,219

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,435

 

40,619

 

1.02

%

 

33



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Transportation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PODS Funding Corp.

 

Storage and warehousing

 

Junior subordinated loan ($40,228 par due 5/2017)

 

12.75% Cash, 2.75% PIK

 

11/29/2011

 

40,228

 

40,228

(2)

 

 

United Road Towing, Inc.

 

Towing company

 

Warrants to purchase up to 607 shares

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,228

 

40,228

 

1.01

%

Commercial Real Estate Finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10th Street, LLC(6)

 

Real estate holding company

 

Senior subordinated loan ($25,208 par due 11/2014)

 

8.93% Cash, 4.07% PIK

 

4/1/2010

 

25,208

 

25,208

(2)

 

 

 

 

 

 

Member interest (10.00% interest)

 

 

 

4/1/2010

 

594

 

 

 

 

 

 

 

 

Option (25,000 units)

 

 

 

4/1/2010

 

25

 

501

 

 

 

 

 

 

 

 

 

 

 

 

 

25,827

 

25,709

 

 

 

American Commercial Coatings, Inc.

 

Real estate property

 

Commercial mortgage loan ($2,505 par due 12/2025)

 

 

 

4/1/2010

 

926

 

2,061

(19)

 

 

Cleveland East Equity, LLC

 

Hotel operator

 

Real estate equity interests

 

 

 

4/1/2010

 

1,026

 

3,639

 

 

 

Commons R-3, LLC

 

Real estate developer

 

Real estate equity interests

 

 

 

4/1/2010

 

 

 

 

 

Crescent Hotels & Resorts, LLC and affiliates(7)

 

Hotel operator

 

Senior subordinated loan ($2,236 par due 9/2011)

 

 

 

4/1/2010

 

 

(2)(19)

 

 

 

 

 

 

Senior subordinated loan ($2,092 par due 6/2017)

 

 

 

4/1/2010

 

 

(2)(19)

 

 

 

 

 

 

Common equity interest

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

Limited liability company membership interest (100% interest)

 

 

 

6/19/2012

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hot Light Brands, Inc.(7)

 

Real estate holding company

 

First lien senior secured loan ($32,957 par due 2/2011)

 

 

 

4/1/2010

 

1,664

 

1,128

(2)(19)

 

 

 

 

 

 

Common stock (93,500 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,664

 

1,128

 

 

 

NPH, Inc.

 

Hotel property

 

Real estate equity interests

 

 

 

4/1/2010

 

5,291

 

6,123

 

 

 

 

 

 

 

 

 

 

 

 

 

34,734

 

38,660

 

0.97

%

Health Clubs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Athletic Club Holdings, Inc.

 

Premier health club operator

 

First lien senior secured loan ($11,500 par due 10/2013)

 

4.71% (Libor + 4.50%/M)

 

10/11/2007

 

11,500

 

11,500

(2)(13)

 

 

CFW Co-Invest, L.P. and NCP Curves, L.P.

 

Health club franchisor

 

Limited partnership interest (4,152,165 shares)

 

 

 

7/31/2012

 

4,152

 

4,152

(2)

 

 

 

 

 

 

Limited partnership interest (1,847,835 shares)

 

 

 

7/31/2012

 

1,848

 

1,848

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,000

 

6,000

 

 

 

 

 

 

 

 

 

 

 

 

 

17,500

 

17,500

 

0.43

%

Food and Beverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apple & Eve, LLC and US Juice Partners, LLC(6)

 

Juice manufacturer

 

Senior units (50,000 units)

 

 

 

10/5/2007

 

5,000

 

1,398

 

 

 

Charter Baking Company, Inc.

 

Baked goods manufacturer

 

Senior subordinated loan ($8,885 par due 2/2013)

 

16.00% PIK

 

2/6/2008

 

8,885

 

8,885

(2)

 

 

 

 

 

 

Preferred stock (6,258 shares)

 

 

 

9/1/2006

 

2,568

 

1,617

(2)

 

 

 

 

 

 

 

 

 

 

 

 

11,453

 

10,502

 

 

 

Distant Lands Trading Co.

 

Coffee manufacturer

 

Class A common stock (1,294 shares)

 

 

 

4/1/2010

 

980

 

(2)

 

 

 

 

 

 

Class A-1 common stock (2,157 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,433

 

11,900

 

0.29

%

Wholesale Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BECO Holding Company, Inc.

 

Wholesale distributor of first response fire protection equipment and related parts

 

Common stock (25,000 shares)

 

 

 

7/30/2010

 

2,500

 

2,457

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

2,457

 

0.05

%

 

 

 

 

 

 

 

 

 

 

$

5,823,451

 

$

5,924,555

 

148.55

%

 


(1)                                 Other than the Company’s investments listed in footnote 7 below (subject to the limitations set forth therein), the Company does not “Control” any of its portfolio companies, for the purposes of the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In general, under the Investment Company Act, the Company would “Control” a portfolio company if the Company owned more than 25% of its outstanding voting securities (i.e., securities with the right to elect directors) and/or had the power to exercise control over the management or policies of such portfolio company. All of the Company’s portfolio company investments, which as of December 31, 2012 represented 149% of the Company’s net assets or 93% of the Company’s total assets, are subject to legal restrictions on sales.

 

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(2)                                 These assets are pledged as collateral for the Revolving Credit Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Revolving Credit Facility (see Note 5 to the consolidated financial statements).

 

(3)                                 These assets are owned by the Company’s consolidated subsidiary Ares Capital CP Funding LLC (“Ares Capital CP”), are pledged as collateral for the Revolving Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than Ares Capital CP’s obligations under the Revolving Funding Facility (see Note 5 to the consolidated financial statements).

 

(4)                                 These assets are owned by the Company’s consolidated subsidiary Ares Capital JB Funding LLC (“ACJB”), are pledged as collateral for the SMBC Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than ACJB’s obligations under the SMBC Funding Facility (see Note 5 to the consolidated financial statements).

 

(5)                                 Investments without an interest rate are non-income producing.

 

(6)                                 As defined in the Investment Company Act, the Company is deemed to be an “Affiliated Person” of a portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the year ended December 31, 2012 in which the issuer was an Affiliated company (but not a portfolio company that the Company “Controls”) are as follows:

 

Company

 

Purchases
(cost)

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net
realized
gains (losses)

 

Net
unrealized
gains (losses)

 

10th Street, LLC

 

$

 

$

 

$

 

$

3,227

 

$

 

$

 

$

 

$

 

$

(54

)

Apple & Eve, LLC and US Juice Partners, LLC

 

$

500

 

$

32,344

 

$

 

$

3,393

 

$

 

$

 

$

44

 

$

 

$

(1,928

)

Campus Management Corp. and Campus Management Acquisition Corp

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(4,508

)

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C.

 

$

105,000

 

$

 

$

 

$

167

 

$

2,788

 

$

36

 

$

2

 

$

 

$

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings, LLC

 

$

 

$

188

 

$

 

$

1,169

 

$

 

$

 

$

 

$

 

$

(3,898

)

Direct Buy Holdings, Inc. and Direct Buy Investors, LP

 

$

 

$

 

$

10,927

 

$

 

$

 

$

 

$

 

$

(10,927

)

$

10,927

 

The Dwyer Group

 

$

 

$

 

$

 

$

2,959

 

$

162

 

$

785

 

$

85

 

$

 

$

5,027

 

ELC Acquisition Corp. and ELC Holdings Corporation

 

$

 

$

 

$

 

$

 

$

 

$

343

 

$

6

 

$

 

$

5,058

 

Firstlight Financial Corporation

 

$

 

$

28,890

 

$

84,153

 

$

1,773

 

$

 

$

 

$

200

 

$

(25,959

)

$

43,321

 

Insight Pharmaceuticals Corporation

 

$

 

$

5,636

 

$

 

$

3,242

 

$

 

$

 

$

171

 

$

54

 

$

(1,649

)

Investor Group Services, LLC

 

$

 

$

 

$

 

$

 

$

 

$

160

 

$

15

 

$

 

$

(148

)

Multi-Ad Services, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

209

 

Pillar Processing LLC and PHL Holding Co.

 

$

 

$

5,479

 

$

 

$

 

$

 

$

 

$

9

 

$

2

 

$

1,110

 

Soteria Imaging Services, LLC

 

$

 

$

441

 

$

 

$

 

$

 

$

 

$

 

$

64

 

$

(584

)

VSS-Tranzact Holdings, LLC

 

$

 

$

 

$

867

 

$

 

$

 

$

 

$

 

$

 

$

3,453

 

UL Holding Co., LLC

 

$

44,532

 

$

13,766

 

$

 

$

5,837

 

$

732

 

$

 

$

197

 

$

 

$

(6,953

)

 

(7)                                 As defined in the Investment Company Act, the Company is deemed to be both an “Affiliated Person” and “Control” this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the year ended December 31, 2012 in which the issuer was both an Affiliated company and a portfolio company that the Company is deemed to Control are as follows:

 

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Table of Contents

 

Company

 

Purchases

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net
realized
gains (losses)

 

Net
unrealized
gains (losses)

 

AGILE Fund I, LLC

 

$

 

$

9

 

$

 

$

 

$

 

$

1

 

$

 

$

 

$

(19

)

Allied Capital REIT, Inc.

 

$

 

$

 

$

375

 

$

 

$

 

$

41

 

$

 

$

147

 

$

(314

)

AllBridge Financial, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

1,801

 

Aviation Properties Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

291

 

$

 

AWTP, LLC

 

$

 

$

 

$

 

$

1,296

 

$

 

$

 

$

50

 

$

 

$

6,229

 

BenefitMall Holdings, Inc.

 

$

 

$

40,326

 

$

53,510

 

$

2,440

 

$

 

$

 

$

167

 

$

12,546

 

$

(6,479

)

Callidus Capital Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

942

 

Ciena Capital LLC

 

$

 

$

 

$

 

$

4,758

 

$

 

$

 

$

 

$

 

$

(1,436

)

Citipostal, Inc.

 

$

 

$

2,710

 

$

 

$

7,715

 

$

 

$

 

$

112

 

$

 

$

(18

)

Crescent Hotels & Resorts, LLC and affiliates

 

$

 

$

 

$

2,843

 

$

20

 

$

 

$

 

$

 

$

(5,473

)

$

5,595

 

HCI Equity, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(108

)

HCP Acquisition Holdings, LLC

 

$

1,254

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(6,177

)

Hot Light Brands, Inc.

 

$

 

$

2,282

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(282

)

Huddle House Inc.

 

$

 

$

20,801

 

$

 

$

678

 

$

 

$

 

$

187

 

$

(2,291

)

$

1,701

 

Ivy Hill Asset Management, L.P.

 

$

58,085

 

$

 

$

 

$

 

$

 

$

19,939

 

$

 

$

 

$

41,576

 

Ivy Hill Middle Market Credit Fund, Ltd.

 

$

 

$

25,000

 

$

30,515

 

$

3,943

 

$

 

$

 

$

 

$

1,655

 

$

1,515

 

LVCG Holdings, LLC

 

$

 

$

 

$

6,600

 

$

 

$

 

$

 

$

 

$

(6,590

)

$

6,600

 

Making Memories Wholesale, Inc.

 

$

 

$

2,229

 

$

 

$

 

$

 

$

 

$

 

$

(12,281

)

$

12,476

 

MVL Group, Inc.

 

$

2,540

 

$

25,607

 

$

 

$

4,394

 

$

 

$

 

$

 

$

 

$

(27,867

)

Orion Foods, LLC

 

$

6,500

 

$

5,142

 

$

 

$

7,200

 

$

 

$

 

$

806

 

$

 

$

(10,260

)

Senior Secured loan Fund LLC*

 

$

269,967

 

$

66,334

 

$

 

$

184,701

 

$

40,348

 

$

 

$

17,865

 

$

3,641

 

$

833

 

Stag-Parkway, Inc.

 

$

 

$

34,500

 

$

3,090

 

$

4,218

 

$

 

$

733

 

$

251

 

$

29,998

 

$

(16,639

)

The Thymes, LLC

 

$

 

$

560

 

$

 

$

 

$

 

$

481

 

$

 

$

 

$

1,687

 

 

*                                         Together with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”), the Company co-invests through the Senior Secured Loan Fund LLC d/b/a the “Senior Secured Loan Program” (the “SSLP”). The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required); therefore, although the Company owns more than 25% of the voting securities of the SSLP, the Company does not believe that it has control over the SSLP (for purposes of the Investment Company Act or otherwise) because, among other things, these “voting securities” do not afford the Company the right to elect directors of the SSLP or any other special rights (see Note 4 to the consolidated financial statements).

 

(8)                                 Non-U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(9)                                 Excepted from the definition of investment company under Section 3(c) of the Investment Company Act and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(10)                         In the first quarter of 2011, the staff of the Securities and Exchange Commission (the “Staff”) informally communicated to certain business development companies the Staff’s belief that certain entities, which would be classified as an “investment company” under the Investment Company Act but for the exception from the definition of “investment company” set forth in Rule 3a-7 promulgated under the Investment Company Act, could not be treated as eligible portfolio companies (as defined in Section 2(a)(46) of the Investment Company Act). Subsequently, in August 2011 the Securities and Exchange Commission issued a concept release (the “Concept Release”) which states that “[a]s a general matter, the Commission presently does not believe that Rule 3a-7 issuers are the type of small, developing and financially troubled businesses in which Congress intended BDCs primarily to invest” and requested comment on whether or not a 3a-7 issuer should be considered an “eligible portfolio company”. The Company provided a comment letter in respect of the Concept Release and continues to believe that the language of Section 2(a)(46) of the Investment Company Act permits a business development company to treat as “eligible portfolio companies” entities that rely on the 3a-7 exception. However, given the current uncertainty in this area (including the language in the Concept Release) and subsequent discussions with the Staff, the Company has, solely for purposes of calculating the composition of its portfolio pursuant to Section 55(a) of the Investment Company Act, identified these entities in the Company’s schedule of investments as “non-qualifying assets” should the Staff ultimately disagree with the Company’s position.

 

(11)                          Variable rate loans to the Company’s portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). For each such loan, the Company has provided the interest rate in effect on the date presented.

 

(12)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 5.00% on $16 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(13)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.50% on $12 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

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Table of Contents

 

(14)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 4.00% on $65 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(15)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 1.13% on $19 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(16)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on $73 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(17)                         In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.13% on $56 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(18)                          The Company is entitled to receive a fixed fee upon the occurrence of certain events as defined in the credit agreement governing the Company’s debt investment in the portfolio company. The fair value of such fee is included in the fair value of the debt investment.

 

(19)                          Loan was on non-accrual status as of December 31, 2012.

 

(20)                          Loan includes interest rate floor feature.

 

(21)                          In addition to the interest earned based on the stated contractual interest rate of this security, the certificates entitle the holders thereof to receive a portion of the excess cash flow from the SSLP’s loan portfolio, which may result in a return to the Company greater than the contractual stated interest rate.

 

(22)                          As of December 31, 2012, no amounts were funded by the Company under this first lien senior secured revolving loan, however, there were standby letters of credit issued and outstanding through a financial intermediary under the loan.  See Note 6 to the consolidated financial statements for further information on standby letters of credit commitments related to certain portfolio companies.

 

(23)                          As of December 31, 2012, in addition to the amounts funded by the Company under this first lien senior secured revolving loan, there were also standby letters of credit issued and outstanding through a financial intermediary under the loan.  See Note 6 to the consolidated financial statements for further information on standby letters of credit commitments related to certain portfolio companies.

 

(24)                          As of December 31, 2012, no amounts were funded by the Company under this letter of credit facility, however, there were standby letters of credit issued and outstanding through a financial intermediary under the letter of credit facility.  See Note 6 to the consolidated financial statements for further information on standby letters of credit commitments related to certain portfolio companies.

 

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Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2013

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Realized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Transactions,

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

Overdistributed

 

Extinguishment of

 

Net Unrealized

 

Total

 

 

 

Common Stock

 

Excess of

 

Net Investment

 

Debt and

 

Gain on

 

Stockholders’

 

 

 

Shares

 

Amount

 

Par Value

 

Income

 

Other Assets

 

Investments

 

Equity

 

Balance at December 31, 2012

 

248,653

 

$

249

 

$

4,117,517

 

$

(27,910

)

$

(202,614

)

$

101,104

 

$

3,988,346

 

Issuance of common stock in add-on offering (net of offering and underwriting costs)

 

19,148

 

19

 

333,141

 

 

 

 

 

 

 

333,160

 

Shares issued in connection with dividend reinvestment plan

 

796

 

1

 

13,933

 

 

 

 

13,934

 

Issuance of Convertible Unsecured Notes (See Note 5)

 

 

 

582

 

 

 

 

582

 

Net increase in stockholders’ equity resulting from operations

 

 

 

 

318,896

 

29,272

 

6,469

 

354,637

 

Dividends declared ($1.14 per share)

 

 

 

 

(298,303

)

 

 

(298,303

)

Balance at September 30, 2013

 

268,596

 

$

269

 

$

4,465,173

 

$

(7,317

)

$

(173,342

)

$

107,573

 

$

4,392,356

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

 

 

 

For the nine months ended

 

 

 

September 30, 2013

 

September 30, 2012

 

 

 

(unaudited)

 

(unaudited)

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net increase in stockholders’ equity resulting from operations

 

$

354,637

 

$

333,034

 

Adjustments to reconcile net increase in stockholders’ equity resulting from operations:

 

 

 

 

 

Realized loss on extinguishment of debt

 

 

2,678

 

Net realized (gains) losses on investments

 

(29,272

)

18,901

 

Net unrealized gains on investments

 

(6,469

)

(100,214

)

Net accretion of discount on investments

 

(3,953

)

(10,393

)

Increase in payment-in-kind interest and dividends

 

(15,189

)

(19,756

)

Collections of payment-in-kind interest and dividends

 

19,388

 

7,835

 

Amortization of debt issuance costs

 

10,444

 

9,730

 

Accretion of discount on notes payable

 

10,103

 

8,203

 

Depreciation

 

593

 

601

 

Proceeds from sales and repayments of investments

 

988,329

 

1,309,054

 

Purchases of investments

 

(2,429,441

)

(2,101,964

)

Changes in operating assets and liabilities:

 

 

 

 

 

Interest receivable

 

(11,505

)

(15,783

)

Other assets

 

(1,327

)

8,295

 

Management and incentive fees payable

 

4,611

 

19,223

 

Accounts payable and other liabilities

 

5,024

 

(1,133

)

Interest and facility fees payable

 

(1,743

)

(4,562

)

Net cash used in operating activities

 

(1,105,770

)

(536,251

)

FINANCING ACTIVITIES:

 

 

 

 

 

Net proceeds from issuance of common stock

 

333,160

 

679,787

 

Borrowings on debt

 

4,294,491

 

2,117,100

 

Repayments and repurchases of debt

 

(3,362,000

)

(1,981,531

)

Debt issuance costs

 

(9,068

)

(38,052

)

Dividends paid

 

(284,369

)

(256,372

)

Net cash provided by financing activities

 

972,214

 

520,932

 

CHANGE IN CASH AND CASH EQUIVALENTS

 

(133,556

)

(15,319

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

269,043

 

120,782

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

135,487

 

$

105,463

 

Supplemental Information:

 

 

 

 

 

Interest paid during the period

 

$

99,411

 

$

86,680

 

Taxes, including excise tax, paid during the period

 

$

13,012

 

$

9,355

 

Dividends declared during the period

 

$

298,303

 

$

270,719

 

 

See accompanying notes to consolidated financial statements.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated;

for example, with the words “million,” “billion” or otherwise)

 

1.                                      ORGANIZATION

 

Ares Capital Corporation (the “Company” or “ARCC”) is a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland. The Company has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). The Company has elected to be treated as a regulated investment company, or a “RIC”, under the Internal Revenue Code of 1986, as amended (the “Code”) and operates in a manner so as to qualify for the tax treatment applicable to RICs.

 

The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. The Company invests primarily in first lien senior secured loans (including “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component. To a lesser extent, the Company also makes equity investments.

 

The Company is externally managed by Ares Capital Management LLC (“Ares Capital Management” or the Company’s “investment adviser”), a wholly owned subsidiary of Ares Management LLC (“Ares Management”), a global alternative asset manager and a Securities and Exchange Commission (“SEC”) registered investment adviser. Ares Operations LLC (“Ares Operations” or the Company’s “administrator”), a wholly owned subsidiary of Ares Management, provides the administrative services necessary for the Company to operate.

 

2.                                      SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with GAAP, and include the accounts of the Company and its consolidated subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition as of and for the periods presented. All significant intercompany balances and transactions have been eliminated.

 

Interim financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2013.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include funds from time to time deposited with financial institutions and short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value.

 

Concentration of Credit Risk

 

The Company places its cash and cash equivalents with financial institutions and, at times, cash held in money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

 

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Investments

 

Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized.

 

Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, the Company looks at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available (i.e., substantially all of the Company’s investments) are valued at fair value as determined in good faith by the Company’s board of directors, based on, among other things, the input of the Company’s investment adviser, audit committee and independent third-party valuation firms that have been engaged at the direction of the Company’s board of directors to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing 12 month period (with certain de minimis exceptions) and under a valuation policy and a consistently applied valuation process. The valuation process is conducted at the end of each fiscal quarter, and a minimum of 50% of the Company’s portfolio at fair value is subject to review by an independent valuation firm each quarter. In addition, the Company’s independent registered public accounting firm obtains an understanding of, and performs select procedures relating to, the Company’s investment valuation process within the context of performing the integrated audit.

 

As part of the valuation process, the Company may take into account the following types of factors, if relevant, in determining the fair value of the Company’s investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), 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, a comparison of the portfolio company’s securities to any similar publicly traded securities, changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments would trade in their principal markets and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company considers the pricing indicated by the external event to corroborate its valuation.

 

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

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

 

The Company’s board of directors undertakes a multi-step valuation process each quarter, as described below:

 

·                  The Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the Company’s portfolio management team.

 

·                  Preliminary valuations are reviewed and discussed with the Company’s investment adviser’s management and investment professionals, and then valuation recommendations are presented to the Company’s board of directors.

 

·                  The audit committee of the Company’s board of directors reviews these valuations, as well as the input of third parties, including independent third-party valuation firms, with respect to the valuations of a minimum of 50% of the Company’s portfolio at fair value.

 

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·                  The Company’s board of directors discusses valuations and ultimately determines the fair value of each investment in the Company’s portfolio without a readily available market quotation in good faith based on, among other things, the input of the Company’s investment adviser, audit committee and, where applicable, independent third-party valuation firms.

 

See Note 7 for more information on the Company’s valuation process.

 

Interest and Dividend Income Recognition

 

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this if the loan has sufficient collateral value and is in the process of collection.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

 

Payment-in-Kind Interest

 

The Company has loans in its portfolio that contain payment-in-kind (“PIK”) provisions. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends, even though the Company has not yet collected the cash.

 

Capital Structuring Service Fees and Other Income

 

The Company’s investment adviser seeks to provide assistance to its portfolio companies and in return the Company may receive fees for capital structuring services. These fees are generally only available to the Company as a result of the Company’s underlying investments, are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. The services that the Company’s investment adviser provides vary by investment, but generally include reviewing existing credit facilities, arranging bank financing, arranging equity financing, structuring financing from multiple lenders, structuring financing from multiple equity investors, restructuring existing loans, raising equity and debt capital, and providing general financial advice, which concludes upon closing of the investment. Any services of the above nature subsequent to the closing would generally generate a separate fee payable to the Company. In certain instances where the Company is invited to participate as a co-lender in a transaction and does not provide significant services in connection with the investment, a portion of loan fees paid to the Company in such situations will be deferred and amortized over the estimated life of the loan. The Company’s investment adviser may also take a seat on the board of directors of a portfolio company, or observe the meetings of the board of directors without taking a formal seat.

 

Other income includes fees for management and consulting services, loan guarantees, commitments, amendments and other services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered.

 

Foreign Currency Translation

 

The Company’s books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

 

(1)                                 Fair value of investment securities, other assets and liabilities—at the exchange rates prevailing at the end of the period.

 

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(2)                                 Purchases and sales of investment securities, income and expenses—at the exchange rates prevailing on the respective dates of such transactions, income or expenses.

 

Results of operations based on changes in foreign exchange rates are separately disclosed in the statement of operations, if any. Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

 

Equity Offering Expenses

 

The Company’s offering costs, excluding underwriters’ fees, are charged against the proceeds from equity offerings when received.

 

Debt Issuance Costs

 

Debt issuance costs are amortized over the life of the related debt instrument using the straight line method, which closely approximates the effective yield method.

 

Income Taxes

 

The Company has elected to be treated as a RIC under the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, timely distribute to its stockholders at least 90% of its investment company taxable income, as defined by the Code, for each year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal income taxes.

 

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

 

Certain of the Company’s consolidated subsidiaries are also subject to U.S. federal and state income taxes.

 

Dividends to Common Stockholders

 

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by the Company’s board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed, although the Company may decide to retain such capital gains for investment.

 

The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions the Company declares in cash on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Company’s board of directors authorizes, and the Company declares, a cash dividend, then the Company’s stockholders who have not “opted out” of the Company’s dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend. The Company intends to use primarily newly issued shares to implement the dividend reinvestment plan (so long as the Company is trading at a premium to net asset value). If the Company’s shares are trading at a significant enough discount to net asset value and the Company is otherwise permitted under applicable law to purchase such shares, the Company intends to purchase shares in the open market in connection with the Company’s obligations under the dividend reinvestment plan. However, the Company reserves the right to issue new shares of the Company’s common stock in connection with the Company’s obligations under the dividend reinvestment plan even if the Company’s shares are trading below net asset value.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of actual and contingent assets and liabilities at the date of the financial statements and the reported amounts of income or loss and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation of investments.

 

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Recent Accounting Pronouncements

 

In June 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2013-08, Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements (“ASU 2013-08”).  ASU 2013-08 amends the criteria that define an investment company, clarifies the measurement guidance and requires certain additional disclosures. Public companies are required to apply ASU 2013-08 prospectively for interim and annual reporting periods beginning after December 15, 2013. The Company has evaluated the impact of the adoption of ASU 2013-08 on its financial statements and disclosures and determined the adoption of ASU 2013-08 will not have a material effect on the Company’s financial condition and results of operations.

 

3.                                     AGREEMENTS

 

Investment Advisory and Management Agreement

 

The Company is party to an investment advisory and management agreement (the “investment advisory and management agreement”) with Ares Capital Management. Subject to the overall supervision of the Company’s board of directors, Ares Capital Management provides investment advisory and management services to the Company. For providing these services, Ares Capital Management receives a fee from the Company consisting of two components—a base management fee and an incentive fee.

 

The base management fee is calculated at an annual rate of 1.5% based on the average value of the Company’s total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed calendar quarters. The base management fee is payable quarterly in arrears.

 

The incentive fee has two parts. The first part is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income for the quarter. Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, any expenses payable under the administration agreement, and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities, accrued income that the Company has not yet received in cash. The Company’s investment adviser is not under any obligation to reimburse the Company for any part of the incentive fees it received that was based on accrued interest that the Company never actually received.

 

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses, unrealized capital appreciation, unrealized capital depreciation or income tax expense related to realized gains. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter where the Company incurs a loss. For example, if the Company receives pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, the Company will pay the applicable incentive fee even if the Company has incurred a loss in that quarter due to realized and/or unrealized capital losses.

 

Pre-incentive fee net investment income, expressed as a rate of return on the value of the Company’s net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed “hurdle rate” of 1.75% per quarter. If market credit spreads rise, the Company may be able to invest its funds in debt instruments that provide for a higher return, which may increase the Company’s pre-incentive fee net investment income and make it easier for the Company’s investment adviser to surpass the fixed hurdle rate and receive an incentive fee based on such net investment income. To the extent the Company has retained pre-incentive fee net investment income that has been used to calculate this part of the incentive fee, it is also included in the amount of the Company’s total assets (other than cash and cash equivalents but including assets purchased with borrowed funds) used to calculate the 1.5% base management fee.

 

The Company pays its investment adviser an incentive fee with respect to the Company’s pre-incentive fee net investment income in each calendar quarter as follows:

 

·                  no incentive fee in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the hurdle rate;

 

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·                  100% of the Company’s pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter. The Company refers to this portion of its pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 2.1875%) as the “catch-up” provision. The “catch-up” is meant to provide the Company’s investment adviser with 20% of the pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeded 2.1875% in any calendar quarter; and

 

·                  20% of the amount of the Company’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter.

 

These calculations are adjusted for any share issuances or repurchases during the quarter.

 

The second part of the incentive fee (the “Capital Gains Fee”), is determined and payable in arrears as of the end of each calendar year (or, upon termination of the investment advisory and management agreement, as of the termination date) and is calculated at the end of each applicable year by subtracting (a) the sum of the Company’s cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (b) the Company’s cumulative aggregate realized capital gains, in each case calculated from October 8, 2004 (the date the Company completed its initial public offering). Realized capital gains and losses include gains and losses on investments and foreign currencies, as well as gains and losses on extinguishment of debt and other assets. If such amount is positive at the end of such year, then the Capital Gains Fee for such year is equal to 20% of such amount, less the aggregate amount of Capital Gains Fees paid in all prior years. If such amount is negative, then there is no Capital Gains Fee for such year.

 

The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net sales price of each investment in the Company’s portfolio when sold and (b) the accreted or amortized cost basis of such investment.

 

The cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the net sales price of each investment in the Company’s portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.

 

The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the valuation of each investment in the Company’s portfolio as of the applicable Capital Gains Fee calculation date and (b) the accreted or amortized cost basis of such investment.

 

Notwithstanding the foregoing, as a result of an amendment to the capital gains portion of the incentive fee under the investment advisory and management agreement that was adopted on June 6, 2011, if the Company is required by GAAP to record an investment at its fair value as of the time of acquisition instead of at the actual amount paid for such investment by the Company (including, for example, as a result of the application of the acquisition method of accounting), then solely for the purposes of calculating the Capital Gains Fee, the “accreted or amortized cost basis” of an investment shall be an amount (the “Contractual Cost Basis”) equal to (1) (x) the actual amount paid by the Company for such investment plus (y) any amounts recorded in the Company’s financial statements as required by GAAP that are attributable to the accretion of such investment plus (z) any other adjustments made to the cost basis included in the Company’s financial statements, including PIK interest or additional amounts funded (net of repayments) minus (2) any amounts recorded in the Company’s financial statements as required by GAAP that are attributable to the amortization of such investment, whether such calculated Contractual Cost Basis is higher or lower than the fair value of such investment (as determined in accordance with GAAP) at the time of acquisition.

 

The Company defers cash payment of any incentive fee otherwise earned by the Company’s investment adviser if during the most recent four full calendar quarter period ending on or prior to the date such payment is to be made the sum of (a) the aggregate distributions to the Company’s stockholders and (b) the change in net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) is less than 7.0% of the Company’s net assets (defined as total assets less indebtedness) at the beginning of such period. Any deferred incentive fees are carried over for payment in subsequent calculation periods to the extent such payment is payable under the investment advisory and management agreement.

 

The Capital Gains Fee payable to the Company’s investment adviser as calculated under the investment advisory and management agreement (as described above) for the three and nine months ended September 30, 2013 was $0. However, in accordance with GAAP, the Company had an accrued capital gains incentive fee of $76,445 as of September 30, 2013 that is not currently due under the investment advisory and management agreement. GAAP requires that the capital gains incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the investment advisory and management agreement. This GAAP accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the Capital Gains Fee plus the aggregate cumulative unrealized capital appreciation. If such amount is positive at the end of a period, then GAAP requires the Company to record a capital gains fee equal to 20% of such cumulative amount, less the aggregate amount of actual Capital Gains Fees paid or capital gains incentive fees accrued under GAAP in all prior periods. As of September 30, 2013, the Company has paid Capital Gains Fees since inception totaling $15,986, of which $11,523 was paid in the first quarter of 2013. The resulting accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reversal of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. There can be no assurance that such unrealized capital appreciation will be realized in the future.

 

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For the three and nine months ended September 30, 2013, base management fees were $27,467 and $75,587, respectively, incentive fees related to pre-incentive fee net investment income were $32,284 and $81,510, respectively, and the incentive fees related to capital gains calculated in accordance with GAAP were $2,915 and $7,148, respectively.

 

As of September 30, 2013, $136,196 was included in “management and incentive fees payable” in the accompanying consolidated balance sheet, of which $59,751 is currently payable to the Company’s investment adviser under the investment advisory and management agreement.

 

For the three and nine months ended September 30, 2012, base management fees were $22,316 and $63,113, respectively, incentive fees related to pre-incentive fee net investment income were $24,720 and $67,532, respectively, and incentive fees related to capital gains accrued in accordance with GAAP were $9,419 and $15,726, respectively.

 

Administration Agreement

 

The Company is party to an administration agreement, referred to herein as the “administration agreement”, with its administrator, Ares Operations. Pursuant to the administration agreement, Ares Operations furnishes the Company with office equipment and clerical, bookkeeping and record keeping services at the Company’s office facilities. Under the administration agreement, Ares Operations also performs, or oversees the performance of, the Company’s required administrative services, which include, among other things, providing assistance in accounting, legal, compliance, operations, investor relations and technology, being responsible for the financial records that the Company is required to maintain and preparing reports to its stockholders and reports filed with the SEC. In addition, Ares Operations assists the Company in determining and publishing its net asset value, assists the Company in providing managerial assistance to its portfolio companies, oversees the preparation and filing of the Company’s tax returns and the printing and dissemination of reports to its stockholders, and generally oversees the payment of its expenses and the performance of administrative and professional services rendered to the Company by others. Payments under the Company’s administration agreement are equal to an amount based upon its allocable portion of Ares Operations’ overhead and other expenses (including travel expenses) incurred by Ares Operations in performing its obligations under the administration agreement, including the Company’s allocable portion of the compensation of certain of its officers (including the Company’s chief compliance officer, chief financial officer, general counsel, treasurer and assistant treasurer) and their respective staffs. The administration agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

 

For the three and nine months ended September 30, 2013, the Company incurred $3,346 and $8,544, respectively, in administrative fees.  For the three and nine months ended  September 30, 2012, we incurred $2,269 and $6,806, respectively, in administrative fees. As of September 30, 2013, $3,346 of these fees were unpaid and included in “accounts payable and other liabilities” in the accompanying consolidated balance sheet.

 

4.             INVESTMENTS

 

As of September 30, 2013 and December 31, 2012, investments consisted of the following:

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

Amortized Cost(1)

 

Fair Value

 

Amortized Cost(1)

 

Fair Value

 

First lien senior secured loans

 

$

3,377,450

 

$

 3,368,396

 

$

2,329,844

 

$

 2,321,272

 

Second lien senior secured loans

 

1,402,473

 

1,388,832

 

1,257,926

 

1,233,872

 

Subordinated Certificates of the SSLP (2)

 

1,568,578

 

1,593,839

 

1,237,887

 

1,263,644

 

Senior subordinated debt

 

253,835

 

214,579

 

321,331

 

259,820

 

Preferred equity securities

 

232,700

 

239,563

 

238,837

 

250,118

 

Other equity securities

 

435,653

 

567,738

 

430,380

 

584,005

 

Commercial real estate

 

7,023

 

12,338

 

7,246

 

11,824

 

Total

 

$

7,277,712

 

$

 7,385,285

 

$

5,823,451

 

$

 5,924,555

 

 


(1)                                 The amortized cost represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

(2)                                 The proceeds from these certificates were applied to co-investments with GE Global Sponsor Finance LLC and General Electric Capital Corporation to fund first lien senior secured loans to 44 and 36 different borrowers as of September 30, 2013 and December 31, 2012, respectively.

 

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The industrial and geographic compositions of our portfolio at fair value as of September 30, 2013 and December 31, 2012 were as follows:

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

Industry

 

 

 

 

 

Investment Funds and Vehicles(1)

 

22.0

%

21.7

%

Healthcare Services

 

15.3

 

12.9

 

Business Services

 

8.5

 

6.4

 

Education

 

7.9

 

7.8

 

Other Services

 

7.3

 

6.7

 

Energy

 

5.4

 

3.7

 

Financial Services

 

5.3

 

7.3

 

Consumer Products

 

5.0

 

6.6

 

Restaurants and Food Services

 

4.6

 

7.1

 

Containers and Packaging

 

4.2

 

5.1

 

Automotive Services

 

2.9

 

3.4

 

Manufacturing

 

2.5

 

2.4

 

Retail

 

1.8

 

1.0

 

Aerospace and Defense

 

1.6

 

2.0

 

Chemicals

 

1.2

 

 

Other

 

4.5

 

5.9

 

Total

 

100.0

%

100.0

%

 


(1)                                 Includes the Company’s investment in the SSLP, which had made first lien senior secured loans to 44 and 36 different borrowers as of September 30, 2013 and December 31, 2012, respectively. The portfolio companies in the SSLP are in industries similar to the companies in the Company’s portfolio.

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

Geographic Region

 

 

 

 

 

West

 

48.9

%

49.1

%

Midwest

 

20.2

 

19.2

 

Southeast

 

13.5

 

14.7

 

Mid Atlantic

 

11.0

 

12.8

 

Northeast

 

4.1

 

2.3

 

International

 

2.3

 

1.9

 

Total

 

100.0

%

100.0

%

 

As of September 30, 2013, 2.0% of total investments at amortized cost (or 1.1% of total investments at fair value) were on non-accrual status. As of December 31, 2012, 2.3% of total investments at amortized cost (or 0.6% of total investments at fair value) were on non-accrual status.

 

Senior Secured Loan Program

 

The Company co-invests in first lien senior secured loans of middle market companies with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”) through an unconsolidated Delaware limited liability company, the Senior Secured Loan Fund LLC (d/b/a the “Senior Secured Loan Program”) or the “SSLP”. The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required). The Company provides capital to the SSLP in the form of subordinated certificates (the “SSLP Certificates”).

 

As of September 30, 2013 and December 31, 2012, the SSLP had available capital of $9.0 billion of which approximately $7.6 billion and $6.3 billion in aggregate principal amount, respectively, was funded.  As of September 30, 2013 and December 31, 2012, the Company had agreed to make available to the SSLP approximately $1.8 billion of which approximately $1.6 billion and $1.2 billion in aggregate principal amount, respectively, was funded.  Investment of any unfunded amount must be approved by the investment committee of the SSLP described above. See Note 15 for more information on a subsequent event relating to the SSLP.

 

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As of September 30, 2013 and December 31, 2012, the SSLP had total assets of $7.6 billion and $6.3 billion, respectively. As of September 30, 2013 and December 31, 2012, GE’s investment in the SSLP consisted of senior notes of $5.8 billion and $4.8 billion, respectively, and SSLP Certificates of $224 million and $178 million, respectively. The SSLP Certificates are junior in right of payment to the senior notes held by GE. As of September 30, 2013 and December 31, 2012, the Company and GE owned 87.5% and 12.5%, respectively, of the outstanding SSLP Certificates. The SSLP’s portfolio consisted of first lien senior secured loans to 44 and 36 different borrowers as of September 30, 2013 and December 31, 2012, respectively. As of September 30, 2013 and December 31, 2012, the portfolio was comprised of all first lien senior secured loans to U.S. middle-market companies and none of these loans was on non-accrual status. As of September 30, 2013 and December 31, 2012, the largest loan to a single borrower in the SSLP’s portfolio in aggregate principal amount was $323.8 million and $330.0 million, respectively, and the five largest loans to borrowers in the SSLP each totaled $1.4 billion. The portfolio companies in the SSLP are in industries similar to the companies in the Company’s portfolio.  Additionally, as of September 30, 2013 and December 31, 2012, the SSLP had commitments to fund various delayed draw investments to certain of its portfolio companies of $403 million and $157 million, respectively, which had been approved by the SSLP investment committee.  As of September 30, 2013 and December 31, 2012, the Company had commitments to co-invest in the SSLP for its portion of the SSLP’s commitments to fund such delayed draw investments of up to $74 million and $26 million, respectively.

 

The amortized cost and fair value of the SSLP Certificates held by the Company were $1.6 billion and $1.6 billion, respectively, as of September 30, 2013 and $1.2 billion and $1.3 billion, respectively, as of December 31, 2012.  The SSLP Certificates pay a weighted average coupon of approximately LIBOR plus 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the loan portfolio, which may result in a return to the holders of the SSLP Certificates that is greater than the contractual coupon.  The Company’s yield on its investment in the SSLP at fair value was 15.3% and 15.4% as of September 30, 2013 and December 31, 2012, respectively.  For the three and nine months ended September 30, 2013, the Company earned interest income of $59.2 million and $161.2 million, respectively, from its investment in the SSLP Certificates.  For the three and nine months ended September 30, 2012, the Company earned interest income of $47.5 million and $135.2 million, respectively, from its investment in the SSLP Certificates.  The Company is also entitled to certain fees in connection with the SSLP.

 

Effective March 30, 2012, Ares Capital Management assumed from the Company the role of co-manager of the SSLP. However, this change did not impact the Company’s economics in respect of its participation in the SSLP and Ares Capital Management does not receive any remuneration in respect of its co-manager role.

 

5.                                      DEBT

 

In accordance with the Investment Company Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, calculated pursuant to the Investment Company Act, is at least 200% after such borrowing. As of September 30, 2013 the Company’s asset coverage was 240%.

 

The Company’s outstanding debt as of September 30, 2013 and December 31, 2012 were as follows:

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

Total

 

 

 

 

 

Total

 

 

 

 

 

 

 

Aggregate

 

 

 

 

 

Aggregate

 

 

 

 

 

 

 

Principal

 

 

 

 

 

Principal

 

 

 

 

 

 

 

Amount

 

Principal

 

 

 

Amount

 

Principal

 

 

 

 

 

Available/

 

Amount

 

Carrying

 

Available/

 

Amount

 

Carrying

 

 

 

Outstanding(1)

 

Outstanding

 

Value

 

Outstanding(1)

 

Outstanding

 

Value

 

Revolving Credit Facility

 

$

1,035,000

(2)

$

535,000

 

$

535,000

 

$

900,000

 

$

 

$

 

Revolving Funding Facility

 

620,000

(3)

402,000

 

402,000

 

620,000

 

300,000

 

300,000

 

SMBC Funding Facility

 

400,000

 

 

 

400,000

 

 

 

February 2016 Convertible Notes

 

575,000

 

575,000

 

554,417

(4)

575,000

 

575,000

 

548,521

(4)

June 2016 Convertible Notes

 

230,000

 

230,000

 

221,013

(4)

230,000

 

230,000

 

218,761

(4)

2017 Convertible Notes

 

162,500

 

162,500

 

158,988

(4)

162,500

 

162,500

 

158,312

(4)

2018 Convertible Notes

 

270,000

 

270,000

 

263,773

(4)

270,000

 

270,000

 

262,829

(4)

2019 Convertible Notes

 

300,000

 

300,000

 

295,073

(4)

 

 

 

February 2022 Notes

 

143,750

 

143,750

 

143,750

 

143,750

 

143,750

 

143,750

 

October 2022 Notes

 

182,500

 

182,500

 

182,500

 

182,500

 

182,500

 

182,500

 

2040 Notes

 

200,000

 

200,000

 

200,000

 

200,000

 

200,000

 

200,000

 

2047 Notes

 

230,000

 

230,000

 

181,369

(5)

230,000

 

230,000

 

181,199

(5)

 

 

$

4,348,750

 

$

3,230,750

 

$

3,137,883

 

$

3,913,750

 

$

2,293,750

 

$

2,195,872

 

 

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(1)                                 Subject to borrowing base and leverage restrictions. Represents the total aggregate amount committed or outstanding, as applicable, under such instrument.

 

(2)                                 Provides for a feature that allows the Company, under certain circumstances, to increase the size of the Revolving Credit Facility to a maximum of $1,400,000.

 

(3)                                 Provides for a feature that allows the Company and Ares Capital CP, under certain circumstances, to increase the size of the Revolving Funding Facility to a maximum of $865,000.

 

(4)                                 Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes (as defined below) less the unaccreted discount initially recorded upon issuance of the Convertible Unsecured Notes. The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes was $20,583, $8,987, $3,512, $6,227 and $4,927, respectively, as of September 30, 2013. The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes was $26,479, $11,239, $4,188 and $7,171, respectively, as of December 31, 2012.

 

(5)                                 Represents the aggregate principal amount outstanding less the unaccreted purchased discount initially recorded as a part of the Allied Acquisition (as defined below). The total unaccreted purchased discount on the 2047 Notes was $48,631 and $48,801 as of September 30, 2013 and December 31, 2012, respectively.

 

The weighted average stated interest rate and weighted average maturity, both on aggregate principal amount, of all the Company’s outstanding debt as of September 30, 2013 were 4.7% and 7.8 years, respectively, and as of December 31, 2012 were 5.5% and 9.8 years, respectively.

 

Revolving Credit Facility

 

In December 2005, the Company entered into a senior secured revolving credit facility (as amended and restated, the “Revolving Credit Facility”), which as of September 30, 2013, allows the Company to borrow up to $1,035,000 at any one time outstanding. See Note 15 for a subsequent event relating to the Revolving Credit Facility. The end of the revolving period and the stated maturity date for the Revolving Credit Facility are May 4, 2017 and May 4, 2018, respectively. The Revolving Credit Facility also includes a feature that allows, under certain circumstances, for an increase in the size of the facility to a maximum of $1,400,000. The Revolving Credit Facility generally requires payments of interest at the end of each LIBOR interest period, but no less frequently than quarterly, on LIBOR based loans, and monthly payments of interest on other loans. From the end of the revolving period to the stated maturity date, the Company is required to repay outstanding principal amounts under the Revolving Credit Facility on a monthly basis in an amount equal to 1/12th of the outstanding principal amount at the end of the revolving period.

 

Under the Revolving Credit Facility, the Company is required to comply with various covenants, reporting requirements and other customary requirements for similar revolving credit facilities, including, without limitation, covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain investments, (c) limitations on certain restricted payments, (d) maintaining a certain minimum stockholders’ equity, (e) maintaining a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of the Company and its consolidated subsidiaries of not less than 2.0:1.0, (f) limitations on pledging certain unencumbered assets, and (g) limitations on the creation or existence of agreements that prohibit liens on certain properties of the Company and certain of its subsidiaries. These covenants are subject to important limitations and exceptions that are described in the documents governing the Revolving Credit Facility. Borrowings under the Revolving Credit Facility (and the incurrence of certain other permitted debt) are also subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Company’s portfolio that are pledged as collateral. As of September 30, 2013, the Company was in compliance in all material respects with the terms of the Revolving Credit Facility.

 

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As of September 30, 2013 and December 31, 2012, there were $535,000 and no amounts outstanding, respectively, under the Revolving Credit Facility. The Revolving Credit Facility also provides for a sub-limit for the issuance of letters of credit for up to an aggregate amount of $125,000. As of September 30, 2013 and December 31, 2012, the Company had $43,561 and $43,667, respectively, in standby letters of credit issued through the Revolving Credit Facility. The amount available for borrowing under the Revolving Credit Facility is reduced by any standby letters of credit issued. As of September 30, 2013, there was $456,439 available for borrowing (net of standby letters of credit issued) under the Revolving Credit Facility.

 

Since May 2, 2013, subject to certain exceptions, the interest rate charged on the Revolving Credit Facility is based on LIBOR plus an applicable spread of 2.00% or a “base rate” (as defined in the agreements governing the Revolving Credit Facility) plus an applicable spread of 1.00%. From May 5, 2012 through May 1, 2013, the interest rate charged on the Revolving Credit Facility was based on LIBOR plus an applicable spread of 2.25% or a “base rate” plus an applicable spread of 1.25%. Prior to and including May 4, 2012, the interest rate charged on the Revolving Credit Facility was based on LIBOR plus an applicable spread of between 2.50% and 4.00% or on a “base rate” plus an applicable spread of between 1.50% and 3.00%, in each case, based on a pricing grid depending upon the Company’s credit ratings. As of September 30, 2013, the one, two, three and six month LIBOR was 0.18%, 0.22%, 0.25% and 0.37%, respectively. As of December 31, 2012, the one, two, three and six month LIBOR was 0.21%, 0.25%, 0.31% and 0.51%, respectively. In addition to the stated interest expense on the Revolving Credit Facility, since May 4, 2012, the Company is required to pay a commitment fee of 0.375% per annum on any unused portion of the Revolving Credit Facility.  Prior to and including May 4, 2012, the commitment fee was 0.50%.  Since May 2, 2013, the Company is also required to pay a letter of credit fee of 2.25% per annum on letters of credit issued.  From May 5, 2012 through May 1, 2013, the letter of credit fee was 2.50% and prior to and including May 4, 2012, the letter of credit fee was 3.25%.

 

The Revolving Credit Facility is secured by certain assets in the Company’s portfolio and excludes investments held by Ares Capital CP under the Revolving Funding Facility and those held by ACJB under the SMBC Funding Facility, each as discussed below, and certain other investments.

 

For the three and nine months ended September 30, 2013 and 2012, the components of interest and credit facility fees expense, cash paid for interest expense, average interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the Revolving Credit Facility were as follows:

 

 

 

For the three months ended September 30,

 

For the nine months ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Stated interest expense

 

$

1,700

 

$

1,556

 

$

2,353

 

$

3,485

 

Facility fees

 

855

 

882

 

2,933

 

3,160

 

Amortization of debt issuance costs

 

622

 

802

 

2,105

 

3,405

 

Total interest and credit facility fees expense

 

$

3,177

 

$

3,240

 

$

7,391

 

$

10,050

 

Cash paid for interest expense

 

$

1,736

 

$

1,917

 

$

2,097

 

$

3,997

 

Average stated interest rate

 

2.19

%

2.53

%

2.19

%

2.80

%

Average outstanding balance

 

$

304,163

 

$

240,511

 

$

141,751

 

$

164,770

 

 

Revolving Funding Facility

 

In October 2004, the Company established through its consolidated subsidiary, Ares Capital CP Funding LLC (“Ares Capital CP”), a revolving funding facility (as amended, the “Revolving Funding Facility”), which allows Ares Capital CP to borrow up to $620,000 at any one time outstanding. The Revolving Funding Facility is secured by all of the assets held by, and the membership interest in, Ares Capital CP. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility are April 18, 2015 and April 18, 2017, respectively. The Revolving Funding Facility also includes a feature that allows, under certain circumstances for an increase in the Revolving Funding Facility to a maximum of $865,000.

 

Amounts available to borrow under the Revolving Funding Facility are subject to a borrowing base that applies different advance rates to different types of assets held by Ares Capital CP. Ares Capital CP is also subject to limitations with respect to the loans securing the Revolving Funding Facility, including restrictions on sector concentrations, loan size, payment frequency and status, collateral interests, loans with fixed rates and loans with certain investment ratings, as well as restrictions on portfolio company leverage, which may also affect the borrowing base and therefore amounts available to borrow. The Company and Ares Capital CP are also required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. These covenants are subject to important limitations and exceptions that are described in the agreements governing the Revolving Funding Facility. As of September 30, 2013, the Company and Ares Capital CP were in compliance in all material respects with the terms of the Revolving Funding Facility.

 

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Table of Contents

 

As of September 30, 2013 and December 31, 2012, there was $402,000 and $300,000 outstanding, respectively, under the Revolving Funding Facility. Since January 25, 2013, the interest charged on the Revolving Funding Facility is based on applicable spreads ranging from 2.25% to 2.50% over LIBOR and ranging from 1.25% to 1.50% over “base rate” (as defined in the agreements governing the Revolving Funding Facility) in each case, determined monthly based on the composition of the borrowing base relative to outstanding borrowings under the Revolving Funding Facility. From January 18, 2012 through January 24, 2013, the interest rate charged on the Revolving Funding Facility was based on LIBOR plus an applicable spread of 2.50% or on a “base rate” plus an applicable spread of 1.50%. Prior to January 18, 2012, the interest rate charged on the Revolving Funding Facility was based on LIBOR plus an applicable spread of between 2.25% and 3.75% or on a “base rate” plus an applicable spread of between 1.25% to 2.75%, in each case, based on a pricing grid depending upon the Company’s credit ratings. As of September 30, 2013 and December 31, 2012, the interest rate in effect was based on one month LIBOR, which was 0.18% and 0.21%, respectively. Ares Capital CP is also required to pay a commitment fee of between 0.50% and 1.75% depending on the size of the unused portion of the Revolving Funding Facility.

 

For the three and nine months ended September 30, 2013 and 2012, the components of interest and credit facility fees expense, cash paid for interest expense, average stated interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the Revolving Funding Facility were as follows:

 

 

 

For the three months ended September 30,

 

For the nine months ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Stated interest expense

 

$

2,244

 

$

2,657

 

$

4,445

 

$

8,528

 

Facility fees

 

438

 

300

 

2,791

 

535

 

Amortization of debt issuance costs

 

504

 

496

 

1,510

 

1,273

 

Total interest and credit facility fees expense

 

$

3,186

 

$

3,453

 

$

8,746

 

$

10,336

 

Cash paid for interest expense

 

$

1,727

 

$

2,696

 

$

4,231

 

$

9,322

 

Average stated interest rate

 

2.43

%

2.74

%

2.45

%

2.78

%

Average outstanding balance

 

$

360,641

 

$

380,087

 

$

239,546

 

$

405,358

 

 

SMBC Funding Facility

 

In January 2012, the Company established through its consolidated subsidiary, Ares Capital JB Funding LLC (“ACJB”), a revolving funding facility (as amended, the “SMBC Funding Facility”) with ACJB, as the borrower, Sumitomo Mitsui Banking Corporation (“SMBC”), as the administrative agent, collateral agent, and lender, which allows ACJB to borrow up to $400,000 at any one time outstanding.  The SMBC Funding Facility is secured by all of the assets held by ACJB. The end of the reinvestment period and the stated maturity date for the SMBC Funding Facility are September 14, 2015 and September 14, 2020, respectively. The reinvestment period and the stated maturity date are both subject to two one-year extensions by mutual agreement.

 

Amounts available to borrow under the SMBC Funding Facility are subject to a borrowing base that applies an advance rate to assets held by ACJB. The Company and ACJB are also required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. These covenants are subject to important limitations and exceptions that are described in the documents governing the SMBC Funding Facility. As of September 30, 2013, the Company and ACJB were in compliance in all material respects with the terms of the SMBC Funding Facility.

 

As of September 30, 2013 and December 31, 2012, there were no amounts outstanding under the SMBC Funding Facility. Subject to certain exceptions, the interest rate charged on the SMBC Funding Facility is based on one month LIBOR plus an applicable spread of 2.125% or a “base rate” (as defined in the agreements governing the SMBC Funding Facility) plus an applicable spread of 1.125%. As of September 30, 2013 and December 31, 2012, one month LIBOR was 0.18% and 0.21%, respectively. ACJB was not required to pay a commitment fee until September 15, 2013, at which time ACJB is required to pay a commitment fee of 0.50% depending on the size of the unused portion of the SMBC Funding Facility.

 

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For the three and nine months ended September 30, 2013 and 2012, the components of interest and credit facility fees expense, cash paid for interest expense, average interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the SMBC Funding Facility were as follows:

 

 

 

For the three months ended September 30,

 

For the nine months ended September 30,

 

 

 

2013

 

 

 

2013

 

2012

 

Stated interest expense

 

$

 

$

791

 

$

 

$

1,317

 

Facility fees

 

67

 

 

67

 

 

Amortization of debt issuance costs

 

269

 

184

 

773

 

451

 

Total interest and credit facility fees expense

 

$

336

 

$

975

 

$

840

 

$

1,768

 

Cash paid for interest expense

 

$

 

$

785

 

$

16

 

$

1,196

 

Average stated interest rate

 

%

2.39

%

%

2.39

%

Average outstanding balance

 

$

 

$

129,663

 

$

 

$

73,063

 

 

Debt Securitization

 

In July 2006, through ARCC Commercial Loan Trust 2006, a vehicle serviced by the Company’s consolidated subsidiary, ARCC CLO 2006 LLC (“ARCC CLO”), the Company completed a $400,000 debt securitization (the “Debt Securitization”) and issued approximately $314,000 aggregate principal amount of asset backed notes to third parties (the “CLO Notes”) that were secured by a pool of middle market loans that were purchased or originated by the Company. In June 2012, the Company repaid in full the $60,049 aggregate principal amount outstanding of the CLO Notes and terminated or discharged the agreements governing the Debt Securitization. In connection with the repayment in full of the CLO Notes ahead of their scheduled maturities, the remaining unamortized debt issuance costs related to the CLO Notes of $2,678 were expensed for the nine months ended September 30, 2012 and recorded as a “realized loss on extinguishment of debt” in the accompanying consolidated statement of operations.

 

The interest charged under the Debt Securitization was based on three month LIBOR and spreads ranged from 0.25% to 0.70% depending on the class of the note.

 

For the nine months ended September 30, 2012, the components of interest and credit facility fees expense, cash paid for interest expense, average interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the Debt Securitization were as follows:

 

 

 

For the nine months ended
September 30,

 

 

 

2012

 

Stated interest expense

 

$

321

 

Amortization of debt issuance costs

 

179

 

Total interest and credit facility fees expense

 

$

500

 

Cash paid for interest expense

 

$

347

 

Average stated interest rate

 

1.00

%

Average outstanding balance

 

$

42,516

 

 

Unsecured Notes

 

Convertible Unsecured Notes

 

In January 2011, the Company issued $575,000 aggregate principal amount of unsecured convertible senior notes that mature on February 1, 2016 (the “February 2016 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In March 2011, the Company issued $230,000 aggregate principal amount of unsecured convertible senior notes that mature on June 1, 2016 (the “June 2016 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In March 2012, the Company issued $162,500 aggregate principal amount of unsecured convertible senior notes that mature on March 15, 2017 (the “2017 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In the fourth quarter of 2012, the Company issued $270,000 aggregate principal amount of unsecured convertible senior notes that mature on January 15, 2018 (the “2018 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In July 2013, the Company issued $300,000 aggregate principal amount of unsecured convertible senior notes that mature on January 15, 2019 (the “2019 Convertible Notes” and together with the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes, the “Convertible Unsecured Notes”), unless previously converted or repurchased in accordance with their terms. The Company does not have the right to redeem the Convertible Unsecured Notes prior to maturity. The February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes bear interest at a rate of 5.750%, 5.125%, 4.875% , 4.750% and 4.375%, respectively, per year, payable semi-annually.

 

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In certain circumstances, the Convertible Unsecured Notes will be convertible into cash, shares of the Company’s common stock or a combination of cash and shares of its common stock, at the Company’s election, at their respective conversion rates (listed below as of September 30, 2013) subject to customary anti-dilution adjustments and the requirements of their respective indenture (the “Convertible Unsecured Notes Indentures”). Prior to the close of business on the business day immediately preceding their respective conversion date (listed below), holders may convert their Convertible Unsecured Notes only under certain circumstances set forth in the Convertible Unsecured Notes Indentures. On or after their respective conversion dates until the close of business on the scheduled trading day immediately preceding their respective maturity date, holders may convert their Convertible Unsecured Notes at any time. In addition, if the Company engages in certain corporate events as described in their respective Convertible Unsecured Notes Indenture, holders of the Convertible Unsecured Notes may require the Company to repurchase for cash all or part of the Convertible Unsecured Notes at a repurchase price equal to 100% of the principal amount of the Convertible Unsecured Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

 

Certain key terms related to the convertible features for each of the Convertible Unsecured Notes are listed below.

 

 

 

February 2016

 

June 2016

 

2017

 

2018

 

2019

 

 

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Conversion premium

 

17.5

%

17.5

%

17.5

%

17.5

%

15.0

%

Closing stock price at issuance

 

$

16.28

 

$

16.20

 

$

16.46

 

$

16.91

 

$

17.53

 

Closing stock price date

 

January 19, 2011

 

March 22, 2011

 

March 8, 2012

 

October 3, 2012

 

July 15, 2013

 

Conversion price as of September 30, 2013(1)

 

$

18.80

 

$

18.70

 

$

19.18

 

$

19.81

 

$

20.16

 

Conversion rate as of September 30, 2013 (shares per one thousand dollar principal amount) (1)

 

53.2047

 

53.4674

 

52.1509

 

50.4731

 

49.6044

 

Conversion dates

 

August 15, 2015

 

December 15, 2015

 

September 15, 2016

 

July 15, 2017

 

July 15, 2018

 

 


(1)   Represents conversion price and conversion rate, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.

 

As of September 30, 2013, the principal amounts of each series of the Convertible Unsecured Notes exceeded the value of the underlying shares multiplied by the per share closing price of the Company’s common stock.

 

The Convertible Unsecured Notes Indentures contain certain covenants, including covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act and to provide financial information to the holders of the Convertible Unsecured Notes under certain circumstances. These covenants are subject to important limitations and exceptions that are described in the Convertible Unsecured Notes Indentures. As of September 30, 2013, the Company was in compliance in all material respects with the terms of the Convertible Unsecured Notes Indentures.

 

The Convertible Unsecured Notes are accounted for in accordance with Accounting Standards Codification (“ASC”) 470-20. Upon conversion of any of the Convertible Unsecured Notes, the Company intends to pay the outstanding principal amount in cash and to the extent that the conversion value exceeds the principal amount, the Company has the option to pay in cash or shares of the Company’s common stock (or a combination of cash and shares) in respect of the excess amount, subject to the requirements of the Convertible Unsecured Notes Indentures. The Company has determined that the embedded conversion options in the Convertible Unsecured Notes are not required to be separately accounted for as a derivative under GAAP. In accounting for the Convertible Unsecured Notes, the Company estimated at the time of issuance separate debt and equity components for each of the Convertible Unsecured Notes. An original issue discount equal to the equity components of the Convertible Unsecured Notes was recorded in “capital in excess of par value” in the accompanying consolidated balance sheet.  Additionally, the issuance costs associated with the Convertible Unsecured Notes were allocated to the debt and equity components in proportion to the allocation of the proceeds and accounted for as debt issuance costs and equity issuance costs, respectively.

 

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The debt and equity component percentages, the issuance costs and the equity component amounts for each of the Convertible Unsecured Notes are listed below.

 

 

 

February 2016

 

June 2016

 

2017

 

2018

 

2019

 

 

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Debt and equity component percentages, respectively(1)

 

93.0% and 7.0%

 

93.0% and 7.0%

 

97.0% and 3.0%

 

98.0% and 2.0%

 

99.8% and 0.2%

 

Debt issuance costs(1)

 

$

15,778

 

$

5,913

 

$

4,813

 

$

5,712

 

$

4,475

 

Equity issuance costs(1)

 

$

1,188

 

$

445

 

$

149

 

$

116

 

$

9

 

Equity component, net of issuance costs(2)

 

$

39,062

 

$

15,654

 

$

4,724

 

$

5,243

 

$

582

 

 


(1)         At time of issuance.

(2)         At time of issuance and as of September 30, 2013.

 

In addition to the original issue discount equal to the equity components of the Convertible Unsecured Notes, the 2018 Convertible Notes and the 2019 Convertible Notes were issued at a discount. The Company records interest expense comprised of both stated interest expense as well as accretion of any original issue discount.

 

As of September 30, 2013, the components of the carrying value of the Convertible Unsecured Notes, the stated interest rate and the effective interest rate were as follows:

 

 

 

February 2016

 

June 2016

 

2017

 

2018

 

2019

 

 

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Principal amount of debt

 

$

575,000

 

$

230,000

 

$

162,500

 

$

270,000

 

$

300,000

 

Original issue discount, net of accretion

 

(20,583

)

(8,987

)

(3,512

)

(6,227

)

(4,927

)

Carrying value of debt

 

$

554,417

 

$

221,013

 

$

158,988

 

$

263,773

 

$

295,073

 

Stated interest rate

 

5.750

%

5.125

%

4.875

%

4.750

%

4.375

%

Effective interest rate(1)

 

7.1

%

6.5

%

5.4

%

5.2

%

4.6

%

 


(1)  The effective interest rate of the debt component of the Convertible Unsecured Notes is equal to the stated interest rate plus the accretion of original issue discount.

 

For the three and nine months ended September 30, 2013 and 2012, the components of interest expense and cash paid for

interest expense for the Convertible Notes were as follows:

 

 

 

For the three months ended September 30,

 

For the nine months ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Stated interest expense

 

$

19,024

 

$

13,101

 

$

51,822

 

$

37,881

 

Amortization of debt issuance costs

 

1,794

 

1,342

 

5,009

 

3,849

 

Accretion of original issue discount

 

3,476

 

2,789

 

9,933

 

8,047

 

Total interest expense

 

$

24,294

 

$

17,232

 

$

66,764

 

$

49,777

 

Cash paid for interest expense

 

$

30,289

 

$

20,514

 

$

56,675

 

$

42,939

 

 

February 2022 Notes

 

In February 2012, the Company issued $143,750 aggregate principal amount of senior unsecured notes that mature on February 15, 2022 (the “February 2022 Notes”). The February 2022 Notes bear interest at a rate of 7.00% per year, payable quarterly and all principal is due upon maturity. The February 2022 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after February 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest. Total proceeds from the issuance of the February 2022 Notes, net of underwriting discounts and offering costs, were $138,338.

 

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October 2022 Notes

 

In September 2012 and October 2012, the Company issued $182,500 aggregate principal amount of senior unsecured notes that mature on October 1, 2022 (the “October 2022 Notes”). The October 2022 Notes bear interest at a rate of 5.875% per year, payable quarterly and all principal is due upon maturity. The October 2022 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after October 1, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest. Total proceeds from the issuance of the October 2022 Notes, net of underwriting discounts and offering costs, were $176,054.

 

2040 Notes

 

In October 2010, the Company issued $200,000 aggregate principal amount of senior unsecured notes that mature on October 15, 2040 (the “2040 Notes”). The 2040 Notes bear interest at a rate of 7.75% per year, payable quarterly and all principal is due upon maturity. The 2040 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after October 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest. Total proceeds from the issuance of the 2040 Notes, net of underwriting discounts and offering costs, were $192,664.

 

2047 Notes

 

As part of the acquisition of Allied Capital Corporation (“Allied Capital”) in April 2010 (the “Allied Acquisition”), the Company assumed $230,000 aggregate principal amount of senior unsecured notes due on April 15, 2047 (the “2047 Notes”). The 2047 Notes bear interest at a rate of 6.875%, payable quarterly and all principal is due upon maturity. The 2047 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option, at a par redemption price of $25.00 per security plus accrued and unpaid interest. As of September 30, 2013 and December 31, 2012 the outstanding principal was $230,000 and the carrying value was $181,369 and $181,199, respectively.  The carrying value represents the principal amount of the 2047 Notes less the unaccreted purchased discount initially recorded as a part of the Allied Acquisition.

 

For the three and nine months ended September 30, 2013 and 2012, the components of interest expense and cash paid for interest expense for the February 2022 Notes, the October 2022 Notes, the 2040 Notes and the 2047 Notes were as follows:

 

 

 

For the three months ended September 30,

 

For the nine months ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Stated interest expense

 

$

13,024

 

$

10,515

 

$

39,074

 

$

30,336

 

Amortization of debt issuance costs

 

349

 

234

 

1,047

 

573

 

Accretion of purchase discount

 

58

 

53

 

170

 

156

 

Total interest expense

 

$

13,431

 

$

10,802

 

$

40,291

 

$

31,065

 

Cash paid for interest expense

 

$

13,024

 

$

10,344

 

$

36,392

 

$

28,879

 

 

The February 2022 Notes, the October 2022 Notes, the 2040 Notes and the 2047 Notes contain certain covenants, including covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act and to provide financial information to the holders of such notes under certain circumstances. These covenants are subject to important limitations and exceptions set forth in the indentures governing such notes. As of September 30, 2013, the Company was in compliance in all material respects with the terms of the indentures governing the February 2022 Notes, the October 2022 Notes, the 2040 Notes and the 2047 Notes.

 

The Convertible Unsecured Notes and the Unsecured Notes are the Company’s senior unsecured obligations and rank senior in right of payment to its existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Unsecured Notes and the Unsecured Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not expressly subordinated; effectively junior in right of payment to any of its secured indebtedness (including existing unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.

 

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6.                                      COMMITMENTS AND CONTINGENCIES

 

The Company has various commitments to fund investments in its portfolio as described below.

 

As of September 30, 2013 and December 31, 2012, the Company had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to fund which are at (or substantially at) the Company’s discretion:

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

Total revolving and delayed draw commitments

 

$

710,210

 

$

441,630

 

Less: funded commitments

 

(92,535

)

(82,121

)

Total unfunded commitments

 

617,675

 

359,509

 

Less: commitments substantially at discretion of the Company

 

(16,000

)

(6,000

)

Less: unavailable commitments due to borrowing base or other covenant restrictions

 

(2,231

)

(571

)

Total net adjusted unfunded revolving and delayed draw commitments

 

$

599,444

 

$

352,938

 

 

Included within the total revolving and delayed draw commitments as of September 30, 2013 were commitments to issue up to $36,875 in standby letters of credit through a financial intermediary on behalf of certain portfolio companies. As of September 30, 2013, the Company had $14,467 in standby letters of credit issued and outstanding under these commitments on behalf of portfolio companies. In addition to these letters of credit included as a part of the total revolving and delayed draw commitments to portfolio companies, as of September 30, 2013 the Company also had $27,000 of standby letters of credit issued and outstanding on behalf of other portfolio companies.  For all these standby letters of credit issued and outstanding, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. None of these letters of credit issued and outstanding are recorded as a liability on the Company’s balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company. Of these letters of credit $2,075 expire in 2013 and $39,392 expire in 2014.

 

As of September 30, 2013 and December 31, 2012, the Company was party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

Total private equity commitments

 

$

60,500

 

$

131,042

 

Less: funded private equity commitments

 

(12,022

)

(66,533

)

Total unfunded private equity commitments

 

48,478

 

64,509

 

Less: private equity commitments substantially at discretion of the Company

 

(43,206

)

(53,088

)

Total net adjusted unfunded private equity commitments

 

$

5,272

 

$

11,421

 

 

In the ordinary course of business, the Company may sell certain of its investments to third party purchasers. In particular, in connection with the sale of certain controlled portfolio company equity investments (as well as certain other sales) the Company has, and may continue to do so in the future, agreed to indemnify such purchasers for future liabilities arising from the investments and the related sale transaction. Such indemnification provisions may give rise to future liabilities.

 

As of September 30, 2013, one of the Company’s portfolio companies, Ciena Capital LLC (“Ciena”), had one non-recourse securitization Small Business Administration (“SBA”) loan warehouse facility, which has reached its maturity date but remains outstanding. Ciena is working with the providers of the SBA loan warehouse facility with regard to the repayment of that facility. Allied Capital had previously issued a performance guaranty (which the Company succeeded to as a result of the Allied Acquisition) whereby the Company must indemnify the warehouse providers for any damages, losses, liabilities and related costs and expenses that they may incur as a result of Ciena’s failure to perform any of its obligations as loan originator, loan seller or loan servicer under the warehouse facility. As of September 30, 2013, there are no known issues or claims with respect to this performance guaranty.

 

7.                                      FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company follows ASC 825-10, which provides companies the option to report selected financial assets and liabilities at fair value. ASC 825-10 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect of the company’s choice to use fair value on its earnings. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. The Company has not elected the ASC 825-10 option to report selected financial assets and liabilities at fair value. With the exception of the line items entitled “other assets” and “debt,” which are reported at amortized cost, all assets and liabilities approximate fair value on the balance sheet. The carrying value of the line items entitled “interest receivable,” “receivable for open trades,” “payable for open trades,” “accounts payable and other liabilities,” “management and incentive fees payable” and “interest and facility fees payable” approximate fair value due to their short maturity.

 

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Table of Contents

 

The Company also follows ASC 820-10, which expands the application of fair value accounting. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure of fair value measurements. ASC 820-10 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Company to assume that the portfolio investment is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820-10, the Company has considered its principal market as the market in which the Company exits its portfolio investments with the greatest volume and level of activity. ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below:

 

·                  Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

 

·                  Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

·                  Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

In addition to using the above inputs in investment valuations, the Company continues to employ the net asset valuation policy approved by the Company’s board of directors that is consistent with ASC 820-10 (see Note 2). Consistent with the Company’s valuation policy, it evaluates the source of inputs, including any markets in which the Company’s investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. The Company’s valuation policy considers the fact that because there is not a readily available market value for most of the investments in the Company’s portfolio, the fair value of the investments must typically be determined using unobservable inputs.

 

The Company’s portfolio investments (other than as discussed below in the following paragraph) are typically valued using two different valuation techniques. The first valuation technique is an analysis of the enterprise value (“EV”) of the portfolio company. Enterprise value means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The primary method for determining EV uses a multiple analysis whereby appropriate multiples are applied to the portfolio company’s EBITDA (net income before net interest expense, income tax expense, depreciation and amortization). EBITDA multiples are typically determined based upon review of market comparable transactions and publicly traded comparable companies, if any. The second method for determining EV uses a discounted cash flow analysis whereby future expected cash flows of the portfolio company are discounted to determine a present value using estimated discount rates (typically a weighted average cost of capital based on costs of debt and equity consistent with current market conditions). The EV analysis is performed to determine the value of equity investments, the value of debt investments in portfolio companies where the Company has control or could gain control through an option or warrant security, and to determine if there is credit impairment for debt investments. If debt investments are credit impaired, an EV analysis may be used to value such debt investments; however, in addition to the methods outlined above, other methods such as a liquidation or wind-down analysis may be utilized to estimate enterprise value. The second valuation technique is a yield analysis, which is typically performed for non-credit impaired debt investments in portfolio companies where the Company does not own a controlling equity position. To determine fair value using a yield analysis, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk. In the yield analysis, the Company considers the current contractual interest rate, the maturity and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the enterprise value of the portfolio company. As debt investments held by the Company are substantially illiquid with no active transaction market, the Company depends on primary market data, including newly funded transactions, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.

 

For other portfolio investments such as investments in collateralized loan obligations and the SSLP Certificates, discounted cash flow analysis is the primary technique utilized to determine fair value. Expected future cash flows associated with the investment are discounted to determine a present value using a discount rate that reflects estimated market return requirements.

 

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The following tables summarize the significant unobservable inputs the Company used to value the majority of its investments categorized within Level 3 as of September 30, 2013 and December 31, 2012. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.

 

As of September 30, 2013

 

 

 

 

 

 

 

Unobservable Input

 

 

 

Fair

 

 

 

Unobservable

 

Estimated

 

Weighted

 

Asset Category

 

Value

 

Valuation Techniques

 

Input

 

Range

 

Average

 

First lien senior secured loans

 

$

3,368,396

 

Yield analysis

 

Market yield

 

4.5% - 19.0%

 

8.3

%

Second lien senior secured loans

 

1,388,832

 

Yield analysis

 

Market yield

 

6.3% - 25.3%

 

10.2

%

Subordinated Certificates of the SSLP

 

1,593,839

 

Discounted cash flow analysis

 

Discount rate

 

11.0% - 14.0%

 

12.8

%

Senior subordinated debt

 

214,579

 

Yield analysis

 

Market yield

 

9.0% - 17.5%

 

12.9

%

Preferred equity securities

 

239,563

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 10.5x

 

7.8x

 

Other equity securities and other

 

580,076

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 15.9x

 

8.1x

 

Total

 

$

7,385,285

 

 

 

 

 

 

 

 

 

 

As of December 31, 2012

 

 

 

 

 

 

 

Unobservable Input

 

 

 

Fair

 

 

 

Unobservable

 

Estimated

 

Weighted

 

Asset Category

 

Value

 

Valuation Techniques

 

Input

 

Range

 

Average

 

First lien senior secured loans

 

$

2,321,272

 

Yield analysis

 

Market yield

 

5.3% - 21.5%

 

9.2

%

Second lien senior secured loans

 

1,233,872

 

Yield analysis

 

Market yield

 

8.3% - 21.9%

 

10.9

%

Subordinated Certificates of the SSLP

 

1,263,644

 

Discounted cash flow analysis

 

Discount rate

 

11.5% - 14.5%

 

13.5

%

Senior subordinated debt

 

259,820

 

Yield analysis

 

Market yield

 

10.0% - 18.6%

 

14.9

%

Preferred equity securities

 

250,118

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 10.5x

 

8.1x

 

Other equity securities and other

 

585,931

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 12.8x

 

7.4x

 

Total

 

$

5,914,657

 

 

 

 

 

 

 

 

 

 

Changes in market yields, discount rates or EBITDA multiples, each in isolation, may change the fair value of certain of the Company’s investments. Generally, an increase in market yields or discount rates or decrease in EBITDA multiples may result in a decrease in the fair value of certain of the Company’s investments.

 

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it.

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

 

The following table presents fair value measurements of cash and cash equivalents and investments as of September 30,

2013:

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

135,487

 

$

135,487

 

$

 

$

 

Investments

 

$

7,385,285

 

$

 

$

 

$

7,385,285

 

 

The following table presents fair value measurements of cash and cash equivalents and investments as of December 31,

2012:

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

269,043

 

$

269,043

 

$

 

$

 

Investments

 

$

5,924,555

 

$

9,898

 

$

 

$

5,914,657

 

 

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The following table presents changes in investments that use Level 3 inputs as of and for the three and nine months ended

September 30, 2013:

 

 

 

As of and for the

 

 

 

three months ended

 

 

 

September 30, 2013

 

Balance as of June 30, 2013

 

$

6,814,960

 

Net realized gains

 

8,946

 

Net unrealized gains

 

5,629

 

Purchases

 

931,814

 

Sales

 

(218,033

)

Redemptions

 

(163,620

)

Payment-in-kind interest and dividends

 

4,606

 

Accretion of discount on securities

 

983

 

Net transfers in and/or out of Level 3

 

 

Balance as of September 30, 2013

 

$

7,385,285

 

 

 

 

As of and for the

 

 

 

nine months ended

 

 

 

September 30, 2013

 

Balance as of December 31, 2012

 

$

5,914,657

 

Net realized gains

 

20,710

 

Net unrealized gains

 

14,935

 

Purchases

 

2,428,449

 

Sales

 

(393,351

)

Redemptions

 

(619,257

)

Payment-in-kind interest and dividends

 

15,189

 

Accretion of discount on securities

 

3,953

 

Net transfers in and/or out of Level 3

 

 

Balance as of September 30, 2013

 

$

7,385,285

 

 

As of September 30, 2013, the net unrealized appreciation on the investments that use Level 3 inputs was $107,573.

 

For the three and nine months ended September 30, 2013, the total amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to the Company’s Level 3 assets still held as of September 30, 2013, and reported within the net unrealized gains (losses) from investments in the Company’s consolidated statement of operations was $9,442 and $1,530, respectively.

 

The following table presents changes in investments that use Level 3 inputs as of and for the three and nine months ended

September 30, 2012:

 

 

 

As of and for the

 

 

 

three months ended

 

 

 

September 30, 2012

 

Balance as of June 30, 2012

 

$

5,504,813

 

Net realized gains

 

26,026

 

Net unrealized gains

 

14,042

 

Purchases

 

1,015,581

 

Sales

 

(335,028

)

Redemptions

 

(303,398

)

Payment-in-kind interest and dividends

 

6,205

 

Accretion of discount on securities

 

2,890

 

Net transfers in and/or out of Level 3

 

(5,482

)

Balance as of September 30, 2012

 

$

5,925,649

 

 

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As of and for the

 

 

 

nine months ended

 

 

 

September 30, 2012

 

Balance as of December 31, 2011

 

$

5,094,506

 

Net realized losses

 

(20,543

)

Net unrealized gains

 

94,829

 

Purchases

 

2,101,964

 

Sales

 

(456,829

)

Redemptions

 

(912,945

)

Payment-in-kind interest and dividends

 

19,756

 

Accretion of discount on securities

 

10,393

 

Net transfers in and/or out of Level 3

 

(5,482

)

Balance as of September 30, 2012

 

$

5,925,649

 

 

As of September 30, 2012, the net unrealized appreciation on the investments that use Level 3 inputs was $76,973.

 

For the three and nine months ended September 30, 2012, the total amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to the Company’s Level 3 assets still held as of September 30, 2012 and reported within the net unrealized gains (losses) from investments in the Company’s consolidated statement of operations was $11,656 and $28,629, respectively.

 

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

 

Following are the carrying and fair values of the Company’s debt obligations as of September 30, 2013 and December 31, 2012. Fair value is estimated by discounting remaining payments using applicable current market rates, which take into account changes in the Company’s marketplace credit ratings, or market quotes, if available.

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

Carrying
value(1)

 

Fair value

 

Carrying
value(1)

 

Fair value

 

Revolving Credit Facility

 

$

535,000

 

$

535,000

 

$

 

$

 

Revolving Funding Facility

 

402,000

 

402,000

 

300,000

 

303,209

 

SMBC Funding Facility

 

 

 

 

 

February 2016 Convertible Notes (principal amount outstanding of $575,000)

 

554,417

(2)

615,727

 

548,521

(2)

617,550

 

June 2016 Convertible Notes (principal amount outstanding of $230,000)

 

221,013

(2)

244,060

 

218,761

(2)

243,797

 

2017 Convertible Notes (principal amount outstanding of $162,500)

 

158,988

(2)

168,522

 

158,312

(2)

168,495

 

2018 Convertible Notes (principal amount outstanding of $270,000)

 

263,773

(2)

275,305

 

262,829

(2)

272,813

 

2019 Convertible Notes (principal amount outstanding of $300,000)

 

295,073

(2)

295,614

 

 

 

February 2022 Notes (principal amount outstanding of $143,750)

 

143,750

 

147,467

 

143,750

 

151,549

 

October 2022 Notes (principal amount outstanding of $182,500)

 

182,500

 

176,243

 

182,500

 

179,361

 

2040 Notes (principal amount outstanding of $200,000)

 

200,000

 

201,288

 

200,000

 

208,968

 

2047 Notes (principal amount outstanding of $230,000)

 

181,369

(3)

211,022

 

181,199

(3)

225,558

 

 

 

$

3,137,883

(4)

$

3,272,248

 

$

2,195,872

(4)

$

2,371,300

 

 


(1)                                 Except for the Convertible Unsecured Notes and the 2047 Notes, all carrying values are the same as the principal amounts outstanding.

 

(2)                                 Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes less the unaccreted discount initially recorded upon issuance of each respective series of the Convertible Unsecured Notes.

 

(3)                                 Represents the aggregate principal amount outstanding of the 2047 Notes less the unaccreted purchased discount.

 

(4)                                 Total principal amount of debt outstanding totaled $3,230,750 and $2,293,750 as of September 30, 2013 and December 31, 2012, respectively.

 

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The following table presents fair value measurements of the Company’s debt obligations as of September 30, 2013 and December 31, 2012:

 

 

 

As of

 

Fair Value Measurements Using

 

September 30, 2013

 

December 31, 2012

 

Level 1

 

$

736,020

 

$

765,436

 

Level 2

 

2,536,228

 

1,605,864

 

Total

 

$

3,272,248

 

$

2,371,300

 

 

8.                                      STOCKHOLDERS’ EQUITY

 

The following table summarizes the total shares issued and proceeds received in public offerings of the Company’s common stock net of underwriting discounts and offering costs for the nine months ended September 30, 2013 and 2012:

 

 

 

 

 

 

 

Proceeds net of

 

 

 

 

 

Offering price

 

underwriting and

 

 

 

Shares issued

 

per share

 

offering costs

 

April 2013 public offering

 

19,148

 

$

17.43

(1)

$

333,160

 

Total for the nine months ended September 30, 2013

 

19,148

 

 

 

$

333,160

 

 

 

 

 

 

 

 

 

August 2012 public offering

 

25,875

 

$

16.55

(2)

427,372

 

January 2012 public offering

 

16,422

 

$

15.41

(3)

$

252,415

 

Total for the nine months ended September 30, 2012

 

42,297

 

 

 

$

679,787

 

 


(1)         The shares were sold to the underwriters for a price of $17.43 per share, which the underwriters were then permitted to sell at variable prices to the public.

(2)         The shares were sold to the underwriters for a price of $16.55 per share, which the underwriters were then permitted to sell at variable prices to the public.

(3)         The shares were sold to the underwriters for a price of $15.41 per share, which the underwriters were then permitted to sell at variable prices to the public.

 

The Company used the net proceeds from the above public equity offerings to repay outstanding indebtedness and for general corporate purposes, which included funding investments in accordance with its investment objective. See Note 15 for a subsequent event relating to an equity offering completed subsequent to September 30, 2013.

 

9                                         EARNINGS PER SHARE

 

The following information sets forth the computations of basic and diluted net increase in stockholders’ equity resulting

from operations per share for the three and nine months ended September 30, 2013 and 2012:

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30, 2013

 

September 30, 2012

 

September 30, 2013

 

September 30, 2012

 

Net increase in stockholders’ equity resulting from operations available to common stockholders:

 

$

140,797

 

$

136,555

 

$

354,637

 

$

333,034

 

Weighted average shares of common stock outstanding—basic and diluted:

 

268,312

 

233,126

 

261,120

 

224,049

 

Basic and diluted net increase in stockholders’ equity resulting from operations per share:

 

$

0.52

 

$

0.59

 

$

1.36

 

$

1.49

 

 

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For the purpose of calculating diluted net increase in stockholders’ equity resulting from operations per share, the average closing price of the Company’s common stock for the three and nine months ended September 30, 2013 as well as from the time of issuance of the 2019 Convertible Notes through September 30, 2013 was each less than the conversion price for each of the Convertible Unsecured Notes outstanding as of September 30, 2013.  For the three and nine months ended September 30, 2012, the time of issuance of the 2018 Convertible Notes through September 30, 2012 and the time of issuance of the 2017 Convertible Notes through September 30, 2012, the average closing price of the Company’s common stock for such period was each less than the conversion price for each of the Convertible Unsecured Notes outstanding as of September 30, 2012. Therefore, for all periods presented in the financial statements, the underlying shares for the intrinsic value of the embedded options in the Convertible Unsecured Notes have no impact on the computation of diluted net increase in stockholders’ equity resulting from operations per share.

 

10.                               DIVIDENDS AND DISTRIBUTIONS

 

The following table summarizes the Company’s dividends declared during the nine months ended September 30, 2013 and 2012:

 

 

 

 

 

 

 

Per Share

 

Total

 

Date Declared

 

Record Date

 

Payment Date

 

Amount

 

Amount

 

August 6, 2013

 

September 16, 2013

 

September 30, 2013

 

$

0.38

 

$

101,959

 

May 7, 2013

 

June 14, 2013

 

June 28, 2013

 

$

0.38

 

$

101,856

 

February 27, 2013

 

March 15, 2013

 

March 29, 2013

 

$

0.38

 

$

94,488

 

Total declared for the nine months ended September 30, 2013

 

 

 

 

 

$

1.14

 

$

298,303

 

 

 

 

 

 

 

 

 

 

 

August 7, 2012

 

September 14, 2012

 

September 28, 2012

 

$

0.05

(1)

$

12,401

 

August 7, 2012

 

September 14, 2012

 

September 28, 2012

 

$

0.38

 

$

94,250

 

May 8, 2012

 

June 15, 2012

 

June 29, 2012

 

$

0.37

 

$

82,094

 

February 28, 2012

 

March 15, 2012

 

March 30, 2012

 

$

0.37

 

$

81,974

 

Total declared for the nine months ended September 30, 2012

 

 

 

 

 

$

1.17

 

$

270,719

 

 


(1) Represents an additional dividend.

 

The Company has a dividend reinvestment plan that was amended effective March 28, 2012, whereby the Company may buy shares of its common stock in the open market or issue new shares in order to satisfy dividend reinvestment requests. Prior to the amendment, if the Company issued new shares to implement the dividend reinvestment plan, the issue price was equal to the closing price of its common stock on the dividend record date. As a result of the amendment, when the Company issues new shares in connection with the dividend reinvestment plan, the issue price is equal to the closing price of its common stock on the dividend payment date. Dividend reinvestment plan activity for the nine months ended September 30, 2013 and 2012, was as follows:

 

 

 

For the nine months ended September 30,

 

 

 

2013

 

2012

 

Shares issued

 

796

 

888

 

Average price per share

 

$

17.51

 

$

16.49

 

 

11.                               RELATED PARTY TRANSACTIONS

 

In accordance with the investment advisory and management agreement, the Company bears all costs and expenses of the operation of the Company and reimburses its investment adviser or its affiliates for certain of such costs and expenses incurred in the operation of the Company. For the three and nine months ended September 30, 2013, the Company’s investment adviser or its affiliates incurred such expenses totaling $1,969 and $4,146, respectively. For the three and nine months ended September 30, 2012, the Company’s investment adviser incurred such expenses totaling $1,025 and $2,888, respectively. As of September 30, 2013, $3,688 was unpaid and such payable is included in “accounts payable and other liabilities” in the accompanying consolidated balance sheet.

 

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The Company previously entered into separate subleases with Ares Management and Ivy Hill Asset Management, L.P. (“IHAM”), a wholly owned portfolio company of the Company, pursuant to which Ares Management and IHAM subleased approximately 15% and 20%, respectively, of the Company’s New York office space (the “43rd/44th Floor Space”) for a rent equal to 15% and 20%, respectively, of the base annual rent payable by the Company under the Company’s lease for the 43rd/44th Floor Space, plus certain additional costs and expenses. In September 2013, these subleases were amended to provide that Ares Management and IHAM sublease approximately 35% and 18%, respectively, of the 43rd/44th Floor Space for a rent equal to 35% and 18%, respectively, of the base annual rent payable by the Company under the Company’s lease for the 43rd/44th Floor Space, plus certain additional costs and expenses.  In September 2013, the Company also entered into a sublease with Ares Management for additional New York office space leased by the Company in early 2013 (the “42nd Floor Space”), pursuant to which Ares Management subleases 100% of the 42nd Floor Space for a rent equal to 100% of the base annual rent payable by the Company under the Company’s lease for the 42nd Floor Space, plus certain additional costs and expenses.  In September 2013, the Company entered into an office sublease with Ares Management, pursuant to which Ares Management subleases approximately 54% of the Company’s Washington, D.C. office space for a rent equal to 54% of the basic annual rent payable by the Company under its office lease, plus certain additional costs and expenses.  For the three and nine months ended September 30, 2013, amounts payable to the Company under these subleases described above totaled $628 and $1,450, respectively. For the three and nine months ended September 30, 2012, amounts payable to the Company under these subleases totaled $405 and $1,180, respectively.

 

In September 2013, the Company entered into two office subleases with Ares Management, pursuant to which (i) the Company subleases approximately 42% of Ares Management’s Chicago office space for a rent equal to 42% of the base annual rent payable by Ares Management under its office lease, plus certain additional costs and expenses and (ii) the Company subleases approximately 7% of certain of Ares Management’s Los Angeles office space for a rent equal to 7% of the base annual rent payable by Ares Management under such office lease, plus certain additional costs and expenses. For the three and nine months ended September 30, 2013, amounts payable under these subleases by the Company to Ares Management totaled $104.

 

The current allocations in connection with the Company’s subleases described above are subject to future review. These percentages are subject to change depending on the composition of, and functions performed by, the staff in each of these offices.

 

In April 2012, the Company entered into an office sublease with Ares Commercial Real Estate Management LLC (“ACREM”), a wholly owned subsidiary of Ares Management and manager of Ares Commercial Real Estate Corporation, pursuant to which the Company was subleasing approximately 12% of ACREM’s Chicago office space for a fixed rent equal to 12% of the basic annual rent payable by ACREM under its office lease, plus certain additional costs and expenses. For the nine months ended September 30, 2013, such amounts incurred under this sublease by the Company and payable to ACREM totaled $26. For the three and nine months ended September 30, 2012, amounts payable under this sublease by the Company to ACREM totaled $13 and $39, respectively. The Company’s office sublease with ACREM was terminated on June 30, 2013.

 

As of September 30, 2013, Ares Investments Holdings LLC, an affiliate of Ares Management, owned approximately 2.9 million shares of the Company’s common stock representing approximately 1.1% of the total shares outstanding as of September 30, 2013.

 

See Notes 3 and 12 for descriptions of other related party transactions.

 

12.                               IVY HILL ASSET MANAGEMENT, L.P.

 

The Company has made investments in its portfolio company, IHAM, which became a SEC registered investment adviser, effective March 30, 2012, and previously made investments in certain vehicles managed by IHAM. As of September 30, 2013, IHAM managed 13 vehicles and served as the sub-manager/sub-servicer for three other vehicles (these vehicles managed or sub-managed/sub-serviced by IHAM are collectively, the “IHAM Vehicles”).

 

As of September 30, 2013, the Company’s total investment in IHAM at fair value was $275,462, including unrealized appreciation of $104,501. As of December 31, 2012, the Company’s total investment in IHAM at fair value was $294,258, including unrealized appreciation of $123,297.  For the three and nine months ended September 30, 2013, the Company received distributions consisting entirely of dividend income from IHAM of $25,000 and $62,407, respectively. The dividend income for the nine months ended September 30, 2013 included additional dividends of $17,363 and $15,000 that were paid in the first quarter and third quarter, respectively, of 2013 in addition to the quarterly dividend generally paid by IHAM. IHAM paid the additional dividends out of accumulated earnings that had previously been retained by IHAM.  For the three and nine months ended September 30, 2012, the Company received distributions consisting entirely of quarterly dividend income from IHAM of $5,124 and $14,648, respectively.

 

From time to time, IHAM or certain IHAM Vehicles may purchase investments from or sell investments to the Company. For any such purchases or sales by the IHAM Vehicles from or to the Company, the IHAM Vehicles must obtain approval from third parties unaffiliated with the Company or IHAM, as applicable. During the nine months ended September 30, 2013, the Company purchased $131,749 of investments from certain of the IHAM Vehicles. During the nine months ended September 30, 2012, the Company did not purchase any investments from IHAM Vehicles. During the nine months ended September 30, 2013 and 2012, IHAM or certain of the IHAM Vehicles purchased investments from the Company of $139,781 and $182,167, respectively.  A net realized loss of $134 was recorded on such transactions with certain of the IHAM Vehicles for the nine months ended September 30, 2013.  A net realized gain of $2,084 was recorded on such transactions with certain of the IHAM Vehicles for the nine months ended September 30, 2012.

 

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IHAM is party to an administration agreement, referred to herein as the “IHAM administration agreement,” with Ares Operations. Pursuant to the IHAM administration agreement, Ares Operations provides IHAM with, among other things, office facilities, equipment, clerical, bookkeeping and record keeping services, services relating to the marketing and sale of interests in vehicles managed by IHAM, services of, and oversight of, custodians, depositories, accountants, attorneys, underwriters and such other persons in any other capacity deemed to be necessary. Under the IHAM administration agreement, IHAM reimburses Ares Operations for all of the actual costs associated with such services, including Ares Operations’ allocable portion of overhead and the cost of its officers, employees and respective staff in performing its obligations under the IHAM administration agreement.

 

13.                               FINANCIAL HIGHLIGHTS

 

The following is a schedule of financial highlights as of and for the nine months ended September 30, 2013 and 2012:                        

 

 

 

For the nine months ended

 

Per Share Data:

 

September 30, 2013

 

September 30, 2012

 

Net asset value, beginning of period(1)

 

$

16.04

 

$

15.34

 

 

 

 

 

 

 

Issuance of common stock

 

0.10

 

0.06

 

Issuance of the Convertible Unsecured Notes

 

 

0.02

 

Net investment income for period(2)

 

1.22

 

1.14

 

Net realized and unrealized gains for period(2)

 

0.13

 

0.35

 

Net increase in stockholders’ equity

 

1.45

 

1.57

 

Total distributions to stockholders

 

(1.14

)

(1.17

)

Net asset value at end of period(1)

 

$

16.35

 

$

15.74

 

 

 

 

 

 

 

Per share market value at end of period

 

$

17.29

 

$

17.14

 

Total return based on market value(3)

 

5.31

%

18.51

%

Total return based on net asset value(4)

 

8.48

%

9.67

%

Shares outstanding at end of period

 

268,596

 

248,315

 

 

 

 

 

 

 

Ratio/Supplemental Data:

 

 

 

 

 

Net assets at end of period

 

$

4,392,356

 

$

3,908,726

 

Ratio of operating expenses to average net assets(5)(6)

 

10.03

%

10.39

%

Ratio of net investment income to average net assets(5)(7)

 

10.08

%

9.65

%

Portfolio turnover rate(5)

 

20

%

34

%

 


(1)    The net assets used equals the total stockholders’ equity on the consolidated balance sheets.

 

(2)    Weighted average basic per share data.

 

(3)    For the nine months ended September 30, 2013, the total return based on market value equaled the decrease of the ending market value at September 30, 2013 of $17.29 per share from the ending market value at December 31, 2012 of $17.50 per share plus the declared dividends of $1.14 per share for the nine months ended September 30, 2013, divided by the market value at December 31, 2012. For the nine months ended September 30, 2012, the total return based on market value equaled the increase of the ending market value at September 30, 2012 of $17.14 per share over the ending market value at December 31, 2011 of $15.45 per share plus the dividends of $1.17 per share for the nine months ended September 30, 2012, divided by the market value at December 31, 2011. Total return based on market value is not annualized. The Company’s shares fluctuate in value. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

 

 

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(4)    For the nine months ended September 30, 2013, the total return based on net asset value equaled the change in net asset value during the period plus the declared dividends of $1.14 per share for the nine months ended September 30, 2013, divided by the beginning net asset value. For the nine months ended September 30, 2012, the total return based on net asset value equaled the change in net asset value during the period plus the declared dividends of $1.17 per share for the nine months ended September 30, 2012, divided by the beginning net asset value. These calculations are adjusted for shares issued in connection with the dividend reinvestment plan, the issuance of common stock in connection with any equity offerings and the equity components of any convertible notes issued during the period. Total return based on net asset value is not annualized. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

 

(5)    The ratios reflect an annualized amount.

 

(6)    For the nine months ended September 30, 2013, the ratio of operating expenses to average net assets consisted of 2.39% of base management fees, 2.80% of incentive fees, 3.92% of the cost of borrowing and 0.92% of other operating expenses. For the nine months ended September 30, 2012, the ratio of operating expenses to average net assets consisted of 2.39% of base management fees, 3.16% of incentive fees, 3.93% of the cost of borrowing and 0.91% of other operating expenses. These ratios reflect annualized amounts.

 

(7)    The ratio of net investment income to average net assets excludes income taxes related to realized gains.

 

14.                               LITIGATION

 

The Company is party to certain lawsuits in the normal course of business. In addition, Allied Capital was involved in various legal proceedings that the Company assumed in connection with the Allied Acquisition. Furthermore, third parties may try to seek to impose liability on the Company in connection with the Company’s activities or the activities of its portfolio companies. While the outcome of any such legal proceedings cannot at this time be predicted with certainty, the Company does not expect that these legal proceedings will materially affect its business, financial condition or results of operations.

 

The Company has been named as one of several defendants in an action filed by the bankruptcy trustee of DSI Renal Holdings LLC and two related companies. The complaint in the action alleges, among other things, that each of the named defendants participated in a purported “fraudulent transfer” involving the restructuring of a subsidiary of DSI Renal Holdings LLC. Among other things, the complaint seeks, jointly and severally from all defendants, (1) damages of approximately $425 million, of which the complaint states the Company’s individual share is approximately $117 million, and (2) punitive damages. Given the limited amount of time that has passed since the filing of the complaint in this action, the Company is currently unable to assess with any certainty whether it may have any exposure in this action. The Company believes the claims are without merit and intends to vigorously defend itself in this action.

 

15.                               SUBSEQUENT EVENTS

 

The Company’s management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the Consolidated Financial Statements as of and for the nine months ended September 30, 2013, except as disclosed below.

 

In October 2013, the Company completed a public equity offering (the “October 2013 Offering”) pursuant to which the Company sold 12,650,000 shares of common stock at a price of $16.98 per share to the participating underwriters. Total proceeds from the October 2013 Offering, net of estimated offering expenses payable by the Company, were approximately $214.2 million. The Company used the net proceeds of the October 2013 Offering to repay certain outstanding indebtedness under its debt facilities and for general corporate purposes, which included investing in portfolio companies in accordance with its investment objective.

 

In October 2013, the Company increased total commitments of the Revolving Credit Facility from $1,035,000 to $1,060,000.

 

In November 2013, the SSLP’s total available capital was increased from $9.0 billion to $11.0 billion.  In connection with this expansion, GE agreed to make available to the SSLP up to approximately $8.7 billion and the Company agreed to make available to the SSLP up to approximately $2.3 billion.  Investment of any unfunded amount must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required).

 

In November 2013, the Company declared the following dividends: (i) a fourth quarter 2013 dividend of $0.38 per share payable on December 31, 2013 to stockholders of record as of December 16, 2013, (ii) an additional dividend of $0.05 per share payable on December 31, 2013 to stockholders of record as of December 16, 2013 and (iii) another additional dividend of $0.05 per share payable on March 28, 2014 to stockholders of record as of March 14, 2014. Payment of the additional March 2014 dividend is subject to the satisfaction of certain Maryland law requirements.

 

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.

 

The information contained in this section should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Quarterly Report. In addition, some of the statements in this report (including in the following discussion) constitute forward- looking statements, which relate to future events or the future performance or financial condition of Ares Capital Corporation (the “Company,” “ARCC,” “Ares Capital,” “we,” “us,” or “our”). The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning:

 

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

 

·                  the return or impact of current and future investments;

 

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

 

·                  the impact of fluctuations in interest rates on our business;

 

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·                  the impact of changes in laws or regulations (including the interpretation thereof) governing our operations or the operations of our portfolio companies;

 

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

 

·                  our ability to recover unrealized losses;

 

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

 

·                  our contractual arrangements and relationships with third parties;

 

·                  Middle East turmoil and the potential for rising energy prices and its impact on the industries in which we invest;

 

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

 

·                  the uncertainty surrounding the strength of the U.S. economic recovery;

 

·                  European sovereign debt issues;

 

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

 

·                  our expected financings and investments;

 

·                  our ability to successfully complete and integrate any acquisitions;

 

·                  the adequacy of our cash resources and working capital;

 

·                  the timing, form and amount of any dividend distributions;

 

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

 

·                  the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments.

 

We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward- looking statements, although not all forward looking statements include these words. Our actual results and condition could differ materially from those expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2012.

 

We have based the forward-looking statements included in this Quarterly Report on information available to us on the date of this Quarterly Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.

 

OVERVIEW

 

We are a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”).

 

We are externally managed by Ares Capital Management LLC (“Ares Capital Management” or our “investment adviser”), a wholly owned subsidiary of Ares Management LLC (“Ares Management”), a global alternative asset manager and a SEC registered investment adviser, pursuant to our investment advisory and management agreement. Ares Operations LLC (“Ares Operations” or our “administrator”), a wholly owned subsidiary of Ares Management, provides certain administrative and other services necessary for us to operate.

 

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Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in first lien senior secured loans (including unitranche loans), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component like warrants.

 

To a lesser extent, we also make preferred and/or common equity investments, which have generally been non-control equity investments, of less than $20 million (usually in conjunction with a concurrent debt investment). However, we may increase the size or change the nature of these investments.

 

Since our initial public offering on October 8, 2004 through September 30, 2013, our realized gains have exceeded our realized losses by approximately $223 million (excluding the one-time gain on the acquisition of Allied Capital Corporation (the “Allied Acquisition”) and gains/losses from the extinguishment of debt and other assets). For this same time period, our exited investments have resulted in an aggregate cash flow realized internal rate of return to us of approximately 13% (based on original cash invested, net of syndications, of approximately $7.4 billion and total proceeds from such exited investments of approximately $9.0 billion). Approximately 73% of these exited investments resulted in an aggregate cash flow realized internal rate of return to us of 10% or greater. Internal rate of return is the discount rate that makes the net present value of all cash flows related to a particular investment equal to zero. Internal rate of return is gross of expenses related to investments as these expenses are not allocable to specific investments. Investments are considered to be exited when the original investment objective has been achieved through the receipt of cash and/or non-cash consideration upon the repayment of a debt investment or sale of an investment or through the determination that no further consideration was collectible and, thus, a loss may have been realized. These internal rates of return results are historical results relating to our past performance and are not necessarily indicative of future results, the achievement of which cannot be assured.

 

Additionally, since our initial public offering on October 8, 2004 through September 30, 2013, our average annualized net realized gain rate was approximately 1.1% (excluding the one-time gain on the Allied Acquisition and realized gains/losses from the extinguishment of debt and other assets).  Net realized gain/loss rates are the amount of net realized gains/losses in a particular period divided by the average quarterly investments at amortized cost in the same period.

 

As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities and indebtedness of private U.S. companies and certain public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. We also may invest up to 30% of our portfolio in non-qualifying assets, as permitted by the Investment Company Act. Specifically, as part of this 30% basket, we may invest in entities that are not considered “eligible portfolio companies” (as defined in the Investment Company Act), including companies located outside of the United States, entities that are operating pursuant to certain exceptions under the Investment Company Act, and publicly traded entities whose public equity market capitalization exceeds the levels provided for under the Investment Company Act.

 

We have elected to be treated as a regulated investment company (“RIC”) under the Code, and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders generally at least 90% of our investment company taxable income, as defined by the Code, for each year. Pursuant to this election, we generally will not have to pay corporate level taxes on any income that we distribute to our stockholders provided that we satisfy those requirements.

 

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PORTFOLIO AND INVESTMENT ACTIVITY

 

The Company’s investment activity for the three months ended September 30, 2013 and 2012 is presented below (information presented herein is at amortized cost unless otherwise indicated).

 

 

 

For the three months ended

 

(dollar amounts in millions)

 

September 30, 2013

 

September 30, 2012

 

New investment commitments (1):

 

 

 

 

 

New portfolio companies

 

$

842.3

 

$

918.9

 

Existing portfolio companies(2)

 

289.7

 

103.4

 

Total new investment commitments

 

1,132.0

 

1,022.3

 

Less:

 

 

 

 

 

Investment commitments exited

 

391.1

 

652.6

 

Net investment commitments

 

$

740.9

 

$

369.7

 

Principal amount of investments funded:

 

 

 

 

 

First lien senior secured loans

 

$

603.7

 

$

771.3

 

Second lien senior secured loans

 

134.9

 

65.9

 

Subordinated Certificates of the Senior Secured Loan Fund, LLC (the “SSLP”)(3)

 

182.4

 

95.5

 

Senior subordinated debt

 

 

65.2

 

Other equity securities

 

10.7

 

17.7

 

Total

 

$

931.7

 

$

1,015.6

 

Principal amount of investments sold or repaid:

 

 

 

 

 

First lien senior secured loans

 

$

190.9

 

$

370.6

 

Second lien senior secured loans

 

42.9

 

140.3

 

Subordinated Certificates of the SSLP(3)

 

25.3

 

 

Senior subordinated debt

 

106.1

 

65.4

 

Collateralized loan obligations

 

 

15.5

 

Preferred equity securities

 

5.5

 

2.0

 

Other equity securities

 

2.1

 

6.9

 

Commercial real estate

 

 

12.1

 

Total

 

$

372.8

 

$

612.8

 

Number of new investment commitments (4)

 

25

 

22

 

Average new investment commitment amount

 

$

45.3

 

$

46.5

 

Weighted average term for new investment commitments (in months)

 

79

 

66

 

Percentage of new investment commitments at floating rates

 

95

%

90

%

Percentage of new investment commitments at fixed rates

 

4

%

8

%

Weighted average yield of debt and other income producing securities (5):

 

 

 

 

 

Funded during the period at amortized cost

 

9.5

%

10.0

%

Funded during the period at fair value (6)

 

9.5

%

9.9

%

Exited or repaid during the period at amortized cost

 

10.4

%

9.1

%

Exited or repaid during the period at fair value (6)

 

10.3

%

9.1

%

 


(1)                                 New investment commitments include new agreements to fund revolving credit facilities or delayed draw loans.

 

(2)                                Includes investment commitments to the SSLP to make co-investments with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”) in first lien senior secured loans of middle market companies of $221.5 million and $95.5 million for the three months ended September 30, 2013 and 2012, respectively.

 

(3)                                 See “Senior Secured Loan Program” below and Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2013 for more detail on the SSLP.

 

(4)                                Number of new investment commitments represents each commitment to a particular portfolio company.

 

(5)                                “Weighted average yield of debt and other income producing securities at amortized cost” is computed as the (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount earned on accruing debt and other income producing securities, divided by (b) total accruing debt and other income producing securities at amortized cost. “Weighted average yield of debt and other income producing securities at fair value” is computed as the (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount earned on accruing debt and other income producing securities, divided by (b) total accruing debt and other income producing securities at fair value.

 

(6)                                Represents fair value for investments in the portfolio as of the most recent prior quarter end, if applicable.

 

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As of September 30, 2013 and December 31, 2012, our investments consisted of the following:

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

(in millions)

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

First lien senior secured loans

 

$

3,377.4

 

$

3,368.4

 

$

2,329.9

 

$

2,321.2

 

Second lien senior secured loans

 

1,402.5

 

1,388.8

 

1,257.9

 

1,233.9

 

Subordinated Certificates of the SSLP(1)

 

1,568.6

 

1,593.8

 

1,237.9

 

1,263.6

 

Senior subordinated debt

 

253.8

 

214.6

 

321.3

 

259.8

 

Preferred equity securities

 

232.7

 

239.6

 

238.8

 

250.1

 

Other equity securities

 

435.7

 

567.8

 

430.4

 

584.1

 

Commercial real estate

 

7.0

 

12.3

 

7.3

 

11.9

 

 

 

$

7,277.7

 

$

7,385.3

 

$

5,823.5

 

$

5,924.6

 

 


(1)                                 The proceeds from these certificates were applied to co-investments with GE to fund first lien senior secured loans to 44 and 36 different borrowers as of September 30, 2013 and December 31, 2012, respectively.

 

The weighted average yields at amortized cost and fair value of the following portions of our portfolio as of September 30, 2013 and December 31, 2012 were as follows:

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

Debt and other income producing securities

 

10.6

%

10.5

%

11.4

%

11.3

%

Total portfolio

 

9.6

%

9.5

%

10.1

%

10.0

%

Senior term debt

 

8.6

%

8.7

%

9.5

%

9.6

%

First lien senior secured loans

 

8.3

%

8.3

%

9.0

%

9.0

%

Second lien senior secured loans

 

9.5

%

9.6

%

10.5

%

10.7

%

Subordinated Certificates of the SSLP (1)

 

15.5

%

15.3

%

15.8

%

15.4

%

Senior subordinated debt

 

10.6

%

12.6

%

11.7

%

14.5

%

Income producing equity securities

 

10.2

%

9.3

%

9.9

%

8.8

%

 


(1)                                 The proceeds from these certificates were applied to co-investments with GE to fund first lien senior secured loans.

 

Ares Capital Management, our investment adviser, employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our investment adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. Under this system, investments with a grade of 4 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit. Investments graded 3 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 3. Investments graded 2 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due. An investment grade of 1 indicates that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 1, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 1, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit. For investments graded 1 or 2, our investment adviser enhances its level of scrutiny over the monitoring of such portfolio company. Our investment adviser grades the investments in our portfolio at least each quarter and it is possible that the grade of a portfolio investment may be reduced or increased over time.

 

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Set forth below is the grade distribution of our portfolio companies as of September 30, 2013 and December 31, 2012:

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

Fair

 

 

 

Number of

 

 

 

Fair

 

 

 

Number of

 

 

 

(dollar amounts in millions)

 

Value

 

%

 

Companies

 

%

 

Value

 

%

 

Companies

 

%

 

Grade 1

 

$

63.4

 

0.9

%

7

 

4.0

%

$

75.1

 

1.3

%

9

 

5.9

%

Grade 2

 

286.4

 

3.9

%

13

 

7.4

%

136.7

 

2.3

%

9

 

5.9

%

Grade 3

 

6,373.3

 

86.2

%

140

 

80.0

%

5,108.8

 

86.2

%

121

 

79.7

%

Grade 4

 

662.2

 

9.0

%

15

 

8.6

%

604.0

 

10.2

%

13

 

8.5

%

 

 

$

7,385.3

 

100.0

%

175

 

100.0

%

$

5,924.6

 

100.0

%

152

 

100.0

%

 

As of September 30, 2013 and December 31, 2012, the weighted average grade of the investments in our portfolio at fair value was 3.0 and 3.1, respectively.

 

As of September 30, 2013, loans on non-accrual status represented 2.0% and 1.1% of the total investments at amortized cost and at fair value, respectively. As of December 31, 2012, loans on non-accrual status represented 2.3% and 0.6% of the total investments at amortized cost and at fair value, respectively.

 

Senior Secured Loan Program

 

The Company co-invests in first lien senior secured loans of middle market companies with GE through an unconsolidated Delaware limited liability company, the Senior Secured Loan Fund LLC (d/b/a “The Senior Secured Loan Program”) or the SSLP. The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required). The Company provides capital to the SSLP in the form of subordinated certificates (the “SSLP Certificates”).

 

As of September 30, 2013 and December 31, 2012, the SSLP had available capital of $9.0 billion of which approximately $7.6 billion and $6.3 billion in aggregate principal amount, respectively, was funded. As of September 30, 2013 and December 31, 2012, the Company had agreed to make available to the SSLP approximately $1.8 billion, of which approximately $1.6 billion and $1.2 billion in aggregate principal amount, respectively, was funded. Investment of any unfunded amount must be approved by the investment committee of the SSLP as described above. See “Recent Developments” as well as Note 15 to our consolidated financial statements for the three and nine months ended September 30, 2013 for more information on the SSLP.

 

As of September 30, 2013 and December 31, 2012, the SSLP had total assets of $7.6 billion and $6.3 billion, respectively. As of September 30, 2013 and December 31, 2012, GE’s investment in the SSLP consisted of senior notes of $5.8 billion and $4.8 billion, respectively, and SSLP Certificates of $224 million and $178 million, respectively. The SSLP Certificates are junior in right of payment to the senior notes held by GE. As of September 30, 2013 and December 31, 2012, the Company and GE owned 87.5% and 12.5%, respectively, of the outstanding SSLP Certificates.

 

As of September 30, 2013 and December 31, 2012, the SSLP’s portfolio was comprised of all first lien senior secured loans to U.S. middle-market companies and none of these loans was on non-accrual status. The portfolio companies in the SSLP are in industries similar to the companies in the Company’s portfolio. Additionally, as of September 30, 2013 and December 31, 2012, the SSLP had commitments to fund various delayed draw investments to certain of its portfolio companies of $403 million and $157 million, respectively, which had been approved by the SSLP investment committee.  As of September 30, 2013 and December 31, 2012, the Company had commitments to co-invest in the SSLP for its portion of the SSLP’s commitments to fund such delayed draw investments of up to $74 million and $26 million, respectively.

 

Below is a summary of the SSLP’s portfolio, followed by a listing of the individual first lien senior secured loans in the SSLP’s portfolio as of September 30, 2013 and December 31, 2012:

 

 

 

As of

 

(dollar amounts in millions)

 

September 30, 2013

 

December 31, 2012

 

Total first lien senior secured loans(1)

 

$

7,566.0

 

$

5,998.1

 

Weighted average yield on first lien senior secured loans(2)

 

7.5

%

8.0

%

Number of borrowers in the SSLP

 

44

 

36

 

Largest loan to a single borrower(1)

 

$

323.8

 

$

330.0

 

Total of five largest loans to borrowers(1)

 

$

1,424.1

 

$

1,441.4

 

 


(1)                                 At principal amount.

 

(2)                                 Computed as the (a) annual stated interest rate on accruing first lien senior secured loans, divided by (b) total first lien senior secured loans at principal amount.

 

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SSLP Loan Portfolio as of September 30, 2013

 

(dollar amounts in millions)
Portfolio Company

 

Business Description

 

Maturity
Date

 

Stated
Interest
Rate(1)

 

Principal
Amount

 

Access CIG, LLC(2)

 

Records and information management services provider

 

10/2017

 

7.0

%

$

157.6

 

ADG, LLC

 

Dental services

 

9/2019

 

8.1

%

208.4

 

AMZ Products Merger Corporation

 

Specialty chemicals manufacturer

 

12/2018

 

6.8

%

238.2

 

Argon Medical Devices, Inc.

 

Manufacturer and marketer of single-use specialty medical devices

 

4/2018

 

6.5

%

239.8

 

BECO Holding Company, Inc.(4)

 

Wholesale distributor of first response fire protection equipment and related parts

 

12/2017

 

8.3

%

149.8

 

Cambridge International, Inc.

 

Manufacturer of custom designed and engineered metal products

 

4/2018

 

8.0

%

86.5

 

CCS Group Holdings, LLC(4)

 

Correctional facility healthcare operator

 

4/2016

 

8.0

%

136.6

 

Chariot Acquisition, LLC

 

Distributor and designer of aftermarket golf cart parts and accessories

 

1/2019

 

7.8

%

143.2

 

CIBT Holdings, Inc.(4)

 

Expedited travel document processing services

 

12/2018

 

6.8

%

178.4

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings LLC(2)(4)

 

Healthcare analysis services provider

 

3/2017

 

8.4

%

280.6

 

CWD, LLC

 

Supplier of automotive aftermarket brake parts

 

6/2016

 

10.0

%

131.6

 

Drayer Physical Therapy Institute, LLC

 

Outpatient physical therapy provider

 

7/2018

 

7.5

%

137.1

 

Driven Holdings, LLC(4)

 

Automotive aftermarket car care franchisor

 

3/2017

 

7.0

%

159.5

 

Excelligence Learning Corporation(4)

 

Developer, manufacturer and retailer of educational products

 

8/2018

 

7.8

%

174.0

 

Fleischmann’s Vinegar Company, Inc.

 

Manufacturer and marketer of industrial vinegar

 

5/2016

 

8.0

%

74.9

 

Fox Hill Holdings, LLC

 

Third party claims administrator on behalf of insurance carriers

 

6/2018

 

6.8

%

291.0

 

III US Holdings, LLC

 

Provider of library automation software and systems

 

3/2018

 

7.6

%

201.4

 

Implus Footcare, LLC(4)

 

Provider of footwear and other accessories

 

10/2016

 

9.0

%

210.7

 

Instituto de Banca y Comercio, Inc. & Leeds IV Advisors, Inc.(2)(4)

 

Private school operator

 

6/2015

 

10.5

%

83.1

 

Intermedix Corporation(3)

 

Revenue cycle management provider to the emergency healthcare industry

 

12/2018

 

6.3

%

323.8

 

iParadigms, LLC

 

Provider of anti-plagiarism software to the education industry

 

4/2019

 

6.5

%

164.6

 

JHP Pharmaceuticals, LLC(4)

 

Manufacturer of specialty pharmaceutical products

 

2/2019

 

6.3

%

99.5

 

Laborie Medical Technologies Corp(4)

 

Provider of medical diagnostics products

 

10/2018

 

6.8

%

93.5

 

LJSS Acquisition, Inc.

 

Fluid power distributor

 

10/2017

 

6.8

%

159.8

 

MWI Holdings, Inc.(2)

 

Provider of engineered springs, fasteners, and other precision components

 

3/2019

 

7.4

%

261.5

 

Noranco Manufacturing (USA) Ltd.

 

Supplier of complex machined and sheet metal components for the aerospace industry

 

4/2019

 

6.8

%

136.4

 

Nordco, Inc.

 

Designer and manufacturer of railroad maintenance-of-way machinery

 

8/2019

 

7.0

%

230.0

 

Oak Parent, Inc.(2)

 

Manufacturer of athletic apparel

 

4/2018

 

7.5

%

267.2

 

Opinionology, LLC and Survey Sampling International LLC

 

Provider of outsourced data collection to the market research industry

 

7/2017

 

8.5

%

147.0

 

Passport Health Communications, Inc.(4)

 

Healthcare technology provider

 

5/2019

 

6.8

%

238.4

 

Penn Detroit Diesel Allison, LLC

 

Distributor of new equipment and aftermarket parts to the heavy-duty truck industry

 

12/2016

 

9.0

%

59.6

 

PetroChoice Holdings, LLC

 

Provider of lubrication solutions

 

1/2017

 

10.0

%

159.3

 

Powersport Auctioneer Holdings, LLC(4)

 

Powersport vehicle auction operator

 

12/2016

 

8.5

%

37.7

 

Pregis Corporation, Pregis Intellipack Corp. and Pregis Innovative Packaging Inc.(2)

 

Provider of highly-customized, tailored protective packaging solutions

 

3/2017

 

7.8

%

152.8

 

PSSI Holdings, LLC(2)

 

Provider of mission-critical outsourced cleaning and sanitation services to the food processing industry

 

6/2018

 

6.0

%

224.4

 

Restaurant Technologies, Inc.

 

Provider of bulk cooking oil management services to the restaurant and fast food service industries

 

6/2018

 

7.0

%

204.0

 

Selig Sealing Products, Inc.

 

Manufacturer of container sealing products for rigid packaging applications

 

3/2019

 

6.5

%

159.5

 

Singer Sewing Company

 

Manufacturer of consumer sewing machines

 

6/2017

 

7.3

%

197.5

 

SRS DR Holdco LLC

 

Provider of software solutions to the automotive industry

 

7/2019

 

8.0

%

186.0

 

Strategic Partners, Inc.(4)

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

8/2018

 

7.8

%

232.6

 

Talent Partners G.P. and Print Payroll Services, G.P.

 

Provider of technology-enabled payroll to the advertising industry

 

10/2017

 

8.0

%

62.9

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.(2)(4)

 

Education publications provider

 

3/2017

 

9.0

%

112.1

 

Universal Services of America, LP

 

Provider of security officer and guard services

 

7/2019

 

6.0

%

210.5

 

WB Merger Sub, Inc.

 

Importer, distributor and developer of premium wine and spirits

 

12/2016

 

9.0

%

163.0

 

 

 

 

 

 

 

 

 

$

7,566.0

 

 


(1)                                 Represents the weighted average annual stated interest rate as of September 30, 2013. All interest rates are payable in cash.

 

(2)                                 The Company also holds a portion of this company’s first lien senior secured loan.

 

(3)                                 The Company also holds this company’s second lien senior secured loan.

 

(4)                                 The Company holds an equity investment in this company.

 

71


 


Table of Contents

 

SSLP Loan Portfolio as of December 31, 2012

 

(dollar amounts in millions)
Portfolio Company

 

Business Description

 

Maturity
Date

 

Stated
Interest
Rate(1)

 

Principal
Amount

 

Fair
Value(2)

 

Access CIG, LLC(3)

 

Records and information management services provider

 

10/2017

 

7.0

%

$

152.8

 

$

152.8

 

ADG, LLC

 

Dental services

 

10/2016

 

8.8

%

199.4

 

199.4

 

AMZ Products Merger Corporation

 

Specialty chemicals manufacturer

 

12/2018

 

6.8

%

240.0

 

240.0

 

BECO Holding Company, Inc.(5)

 

Wholesale distributor of first response fire protection equipment and related parts

 

12/2017

 

8.3

%

160.0

 

160.0

 

Cambridge International, Inc.

 

Manufacturer of custom designed and engineered metal products

 

4/2018

 

8.0

%

88.3

 

83.9

 

CCS Group Holdings, LLC(5)

 

Correctional facility healthcare operator

 

4/2016

 

8.0

%

142.8

 

142.8

 

Chariot Acquisition, LLC

 

Distributor and designer of aftermarket golf cart parts and accessories

 

1/2018

 

8.8

%

146.8

 

146.8

 

CIBT Holdings, Inc.(5)

 

Expedited travel document processing services

 

12/2017

 

8.5

%

146.4

 

146.4

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings LLC(3)(5)

 

Healthcare analysis services provider

 

3/2017

 

7.8

%

284.9

 

273.5

 

CWD, LLC

 

Supplier of automotive aftermarket brake parts

 

3/2014

 

8.8

%

119.8

 

110.2

 

Drayer Physical Therapy Institute, LLC

 

Outpatient physical therapy provider

 

7/2018

 

7.5

%

138.1

 

138.1

 

Driven Holdings, LLC(5)

 

Automotive aftermarket car care franchisor

 

3/2017

 

7.0

%

160.4

 

160.4

 

Excelligence Learning Corporation(5)

 

Developer, manufacturer and retailer of educational products

 

8/2016

 

8.0

%

115.8

 

115.8

 

Fleischmann’s Vinegar Company, Inc.

 

Manufacturer and marketer of industrial vinegar

 

5/2016

 

8.9

%

59.6

 

59.6

 

Fox Hill Holdings, LLC

 

Third party claims administrator on behalf of insurance carriers

 

12/2017

 

8.0

%

292.5

 

292.5

 

III US Holdings, LLC

 

Provider of library automation software and systems

 

3/2018

 

7.6

%

202.9

 

202.9

 

Implus Footcare, LLC(5)

 

Provider of footwear and other accessories

 

10/2016

 

9.5

%

178.0

 

178.0

 

Instituto de Banca y Comercio, Inc. & Leeds IV Advisors, Inc.(5)

 

Private school operator

 

6/2015

 

10.5

%

165.6

 

165.6

 

Intermedix Corporation(4)

 

Revenue cycle management provider to the emergency healthcare industry

 

12/2018

 

6.3

%

330.0

 

330.0

 

LJSS Acquisition, Inc.

 

Fluid power distributor

 

9/2017

 

6.8

%

163.9

 

163.9

 

MWI Holdings, Inc.(3)

 

Highly engineered springs, fasteners, and other precision components

 

6/2017

 

8.0

%

251.2

 

251.2

 

Nordco, Inc.

 

Designer and manufacturer of railroad maintenance-of-way machinery

 

6/2016

 

7.0

%

113.2

 

113.2

 

Oak Parent, Inc.(3)

 

Manufacturer of athletic apparel

 

4/2018

 

8.0

%

282.8

 

282.8

 

Opinionology, LLC and Survey Sampling International LLC

 

Provider of outsourced data collection to the market research industry

 

7/2017

 

8.5

%

152.3

 

152.3

 

Penn Detroit Diesel Allison, LLC

 

Distributor of new equipment and aftermarket parts to the heavy-duty truck industry

 

12/2016

 

9.0

%

65.3

 

65.3

 

PetroChoice Holdings, LLC

 

Provider of lubrication solutions

 

1/2017

 

10.0

%

162.4

 

162.4

 

Power Buyer, LLC

 

Provider of emergency maintenance services for power transmission, distribution, and substation infrastructure

 

12/2018

 

8.8

%

208.0

 

208.0

 

Powersport Auctioneer Holdings, LLC(5)

 

Powersport vehicle auction operator

 

12/2016

 

8.5

%

40.7

 

40.7

 

Pregis Corporation, Pregis Intellipack Corp. and Pregis Innovative Packaging Inc.(3)

 

Provider of highly-customized and tailored protective packaging solutions

 

3/2017

 

7.8

%

125.9

 

125.9

 

PSSI Holdings, LLC

 

Provider of mission-critical outsourced cleaning and sanitation services to the food processing industry

 

6/2017

 

6.8

%

161.7

 

161.7

 

Selig Sealing Products, Inc.

 

Manufacturer of container sealing products for rigid packaging applications

 

7/2018

 

7.8

%

169.6

 

169.6

 

Singer Sewing Company

 

Manufacturer of consumer sewing machines

 

6/2017

 

7.3

%

199.0

 

199.0

 

Strategic Partners, Inc(5).

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

8/2018

 

7.8

%

234.4

 

234.4

 

Talent Partners G.P. and Print Payroll Services, G.P.

 

Provider of technology-enabled payroll to the advertising industry

 

10/2017

 

8.0

%

65.5

 

65.5

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.(3)(5)

 

Education publications provider

 

3/2017

 

9.0

%

113.9

 

113.9

 

WB Merger Sub, Inc.

 

Importer, distributor and developer of premium wine and spirits

 

12/2016

 

9.0

%

164.2

 

164.2

 

 

 

 

 

 

 

 

 

$

5,998.1

 

$

5,972.7

 

 


(1)                                 Represents the weighted average annual stated interest rate as of December 31, 2012. All interest rates are payable in cash.

 

(2)                                 Represents the fair value in accordance with ASC 820-10. The determination of such fair value is not included in the Company’s board of directors valuation process described elsewhere herein.

 

(3)                                 The Company also holds a portion of this company’s first lien senior secured loan.

 

(4)                                 The Company also holds this company’s second lien senior secured loan.

 

(5)                                 The Company holds an equity investment in this company.

 

72



Table of Contents

 

The amortized cost and fair value of the SSLP Certificates held by the Company were $1.6 billion and $1.6 billion, respectively, as of September 30, 2013 and $1.2 billion and $1.3 billion, respectively, as of December 31, 2012. The SSLP Certificates pay a weighted average contractual coupon of three month LIBOR plus approximately 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the underlying loan portfolio, which may result in a return to the holders of the SSLP Certificates that is greater than both the contractual coupon on the SSLP Certificates as well as the weighted average yield on the SSLP’s portfolio of  7.5% and  8.0% as of September 30, 2013 and December 31, 2012, respectively. The Company’s yield on its investment in the SSLP at fair value was 15.3% and 15.4% as of September 30, 2013 and December 31, 2012, respectively. For the three and nine months ended September 30, 2013, the Company earned interest income of $59.2 million and $161.2 million, respectively, from its investment in the SSLP Certificates. For the three and nine months ended September 30, 2012, the Company earned interest income of $47.5 million and $135.2 million, respectively, from its investment in the SSLP Certificates.

 

The Company is also entitled to certain fees in connection with the SSLP. For the three and nine months ended September 30, 2013, in connection with the SSLP, the Company earned capital structuring service, sourcing and other fees totaling $19.9 million and $42.8 million, respectively. For the three and nine months ended September 30, 2012, in connection with the SSLP, the Company earned capital structuring service, sourcing and other fees totaling $13.3 million and $39.0 million, respectively.

 

Effective March 30, 2012, Ares Capital Management assumed from the Company the role of co-manager of the SSLP. However, this change did not impact the Company’s economics in respect of its participation in the SSLP and Ares Capital Management does not receive any remuneration in respect of its co-manager role.

 

Selected financial information for the SSLP as of and for the year ended December 31, 2012 is as follows:

 

 

 

As of and for the Year
Ended

 

(in millions)

 

December 31, 2012

 

Selected Balance Sheet Information:

 

 

 

Investments in loans receivable, net of discount for loan origination fees

 

$

5,952.3

 

Cash and other assets

 

$

369.2

 

Total assets

 

$

6,321.5

 

 

 

 

 

Senior notes

 

$

4,840.4

 

Other liabilities

 

$

46.9

 

Total liabilities

 

$

4,887.3

 

Subordinated certificates and members’ capital

 

$

1,434.2

 

Total liabilities and members’ capital

 

$

6,321.5

 

 

 

 

 

Selected Statement of Operations Information:

 

 

 

Total revenues

 

$

479.4

 

Total expenses

 

$

258.7

 

Net income

 

$

220.7

 

 

RESULTS OF OPERATIONS

 

For the three and nine months ended September 30, 2013 and 2012

 

Operating results for the three and nine months ended September 30, 2013 and 2012 were as follows:

 

 

 

For the three months ended

 

For the nine months ended

 

(in millions)

 

September 30, 2013

 

September 30, 2012

 

September 30, 2013

 

September 30, 2012

 

Total investment income

 

$

246.8

 

$

190.6

 

$

648.0

 

$

535.8

 

Total expenses

 

116.6

 

99.1

 

317.4

 

273.8

 

Net investment income before income taxes

 

130.2

 

91.5

 

330.6

 

262.0

 

Income tax expense, including excise tax

 

4.0

 

2.0

 

11.7

 

7.6

 

Net investment income

 

126.2

 

89.5

 

318.9

 

254.4

 

Net realized gains (losses) on investments

 

9.0

 

27.7

 

29.3

 

(18.9

)

Net unrealized gains on investments

 

5.6

 

19.4

 

6.4

 

100.2

 

Realized loss on extinguishment of debt

 

 

 

 

(2.7

)

Net increase in stockholders’ equity resulting from operations

 

$

140.8

 

$

136.6

 

$

354.6

 

$

333.0

 

 

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Table of Contents

 

Net income can vary substantially from period to period due to various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net income may not be meaningful.

 

Investment Income

 

 

 

For the three months ended

 

For the nine months ended

 

(in millions)

 

September 30, 2013

 

September 30, 2012

 

September 30, 2013

 

September 30, 2012

 

Interest income from investments

 

$

169.6

 

$

144.6

 

$

471.8

 

$

415.5

 

Capital structuring service fees

 

31.6

 

29.6

 

61.7

 

68.5

 

Dividend income

 

34.8

 

9.4

 

82.7

 

27.6

 

Management and other fees

 

5.4

 

4.7

 

14.9

 

14.1

 

Other income

 

5.4

 

2.3

 

16.9

 

10.1

 

Total investment income

 

$

246.8

 

$

190.6

 

$

648.0

 

$

535.8

 

 

The increase in interest income from investments for the three months ended September 30, 2013 from the comparable period in 2012 was primarily due to the increase in the size of the portfolio, which increased from an average of $5.6 billion at amortized cost for the three months ended September 30, 2012 to an average of $7.0 billion at amortized cost for the comparable period in 2013. The increase in capital structuring fees for the three months ended September 30, 2013 as compared to the comparable period in 2012 was primarily due to the increase in new investment commitments, which increased from $1.0 billion for the three months ended September 30, 2012 to $1.1 billion for the comparable period in 2013, offset by the decrease in the average capital structuring fees received as a percentage of total new commitments, which decreased from 2.9% for the three months ended September 30, 2012 to 2.8% for the three months ended September 30, 2013.  For the three months ended September 30, 2013, dividend income included $25.0 million in dividend payments from Ivy Hill Asset Management, L.P. (“IHAM”) as compared to $5.1 million for the comparable period in 2012. The dividend income from IHAM for the three months ended September 30, 2013 included an additional dividend of $15.0 million that was paid in addition to the quarterly dividend generally paid by IHAM. IHAM paid the additional dividend out of accumulated earnings that had previously been retained by IHAM.  Also during the three months ended September 30, 2013, we received $5.2 million in other non-recurring dividends compared to none received for the comparable period in 2012.  The increase in other income for the three months ended September 30, 2013 from the comparable period in 2012 was primarily attributable to higher amendment fees.

 

The increase in interest income from investments for the nine months ended September 30, 2013 from the comparable period in 2012, was primarily due to the increase in the size of the portfolio, which increased from an average of $5.4 billion at amortized cost for the nine months ended September 30, 2012 to an average of $6.4 billion at amortized cost for the comparable period in 2013. Even though new investment commitments increased from $2.1 billion for the nine months ended September 30, 2012 to $2.7 billion for the comparable period in 2013, capital structuring service fees decreased for the nine months ended September 30, 2013 as compared to 2012 primarily due to the decrease in the average capital structuring service fees received as a percentage of total new investment commitments, which decreased from 3.2% in 2012 to 2.3% in 2013.  For the nine months ended September 30, 2013, dividend income included $62.4 million in dividend payments from IHAM as compared to $14.6 million for the comparable period in 2012. The dividend income from IHAM for the nine months ended September 30, 2013 included additional dividends of $32.4 million in addition to the quarterly dividends generally paid by IHAM. IHAM paid the additional dividends out of accumulated earnings that had previously been retained by IHAM. Also during the nine months ended September 30, 2013, we received $6.6 million in other non-recurring dividends compared to $0.3 million received for the comparable period in 2012.  The increase in other income for the nine months ended September 30, 2013 was primarily attributable to higher amendment fees.

 

Operating Expenses

 

 

 

For the three months ended

 

For the nine months ended

 

(in millions)

 

September 30, 2013

 

September 30, 2012

 

September 30, 2013

 

September 30, 2012

 

Interest and credit facility fees

 

$

44.4

 

$

35.7

 

$

124.0

 

$

103.5

 

Base management fees

 

27.5

 

22.3

 

75.6

 

63.1

 

Incentive fees related to pre-incentive fee net investment income

 

32.3

 

24.7

 

81.5

 

67.5

 

Incentive fees related to capital gains per GAAP

 

2.9

 

9.4

 

7.2

 

15.7

 

Professional fees

 

3.1

 

1.9

 

10.0

 

9.2

 

Administrative fees

 

3.3

 

2.3

 

8.6

 

6.8

 

Other general and administrative

 

3.1

 

2.8

 

10.5

 

8.0

 

Total expenses

 

$

116.6

 

$

99.1

 

$

317.4

 

$

273.8

 

 

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Table of Contents

 

Interest and credit facility fees for the three and nine months ended September 30, 2013 and 2012, were comprised of the

following:

 

 

 

For the three months ended

 

For the nine months ended

 

(in millions)

 

September 30, 2013

 

September 30, 2012

 

September 30, 2013

 

September 30, 2012

 

Stated interest expense

 

$

36.0

 

$

28.6

 

$

97.7

 

$

81.9

 

Facility fees

 

1.4

 

1.2

 

5.8

 

3.7

 

Amortization of debt issuance cost

 

3.5

 

3.1

 

10.4

 

9.7

 

Accretion of discount on notes payable

 

3.5

 

2.8

 

10.1

 

8.2

 

Total interest and credit facility fees

 

$

44.4

 

$

35.7

 

$

124.0

 

$

103.5

 

 

Stated interest expense for the three months ended September 30, 2013 increased from the comparable period in 2012 primarily due to the increase in the average principal amount of debt outstanding. For the three months ended September 30, 2013, we had $2.9 billion in average principal debt outstanding as compared to $2.3 billion for the comparable period in 2012, and the weighted average stated interest rate on our outstanding debt was 5.0% for each of the three months ended September 30, 2013 and 2012.

 

Stated interest expense for the nine months ended September 30, 2013 increased from the comparable period in 2012 due to the increase in the average principal amount of debt outstanding and an increase in the weighted average stated interest rate.  For the nine months ended September 30, 2013, we had $2.5 billion in average principal debt outstanding as compared to $2.2 billion for the comparable period in 2012, and the weighted average stated interest rate on our outstanding debt was 5.3% for the nine months ended September 30, 2013 as compared to 5.0% for the comparable period in 2012. The higher weighted average stated interest rate for the nine months ended September 30, 2013 relates to having borrowed, on a relative basis, less from our lower-cost floating rate revolving debt facilities and having more fixed rate term debt outstanding.

 

The increase in base management fees and incentive fees related to pre-incentive fee net investment income for the three and nine months ended September 30, 2013 from the comparable periods in 2012 were primarily due to the increase in the size of the portfolio and in the case of incentive fees, the related increase in pre-incentive fee net investment income.

 

For the three and nine months ended September 30, 2013, the capital gains incentive fee expense accrual calculated in accordance with GAAP was $2.9 million and $7.2 million, respectively. For the three and nine months ended September 30, 2012, the capital gains incentive fee expense accrued under GAAP was $9.4 million and $15.7 million, respectively. The capital gains incentive fee accrued under GAAP includes an accrual related to unrealized capital appreciation, whereas the capital gains incentive fee actually payable under our investment advisory and management agreement does not. There can be no assurance that such unrealized capital appreciation will be realized in the future. The accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. As of September 30, 2013, the total capital gains incentive fee accrual calculated in accordance with GAAP was $76.4 million (included in management and incentive fees payable in the consolidated balance sheet).  However, as of September 30, 2013, there was no capital gains fee actually payable under our investment advisory and management agreement. See Note 3 to the Company’s consolidated financial statements for the three and nine months ended September 30, 2013 for more information on the base management and incentive fees.

 

Professional fees include legal, accounting, valuation and other professional fees incurred related to the management of the Company. Administrative fees represent fees paid to Ares Operations for our allocable portion of overhead and other expenses incurred by Ares Operations in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers and their respective staffs.  Other general and administrative expenses include rent, insurance, depreciation, director’s fees and other costs.

 

Income Tax Expense, Including Excise Tax

 

The Company has elected to be treated as a RIC under the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, timely distribute to its stockholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. In order to maintain its RIC status, the Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders which will generally relieve the Company from U.S. federal corporate-level income taxes.

 

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Table of Contents

 

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, the Company accrues excise tax on estimated excess taxable income as such taxable income is earned. For the three and nine months ended September 30, 2013, a net expense of $2.8 million and $8.8 million was recorded for U.S. federal excise tax, respectively. For the three and nine months ended September 30, 2012, a net expense of $1.7 million and $5.7 million was recorded for U.S. federal excise tax, respectively.

 

Certain of our consolidated subsidiaries are subject to U.S. federal and state income taxes. For the three and nine months ended September 30, 2013, we recorded a tax expense of approximately $1.2 million and $2.9 million, respectively, for these subsidiaries. For the three and nine months ended September 30, 2012, we recorded a tax expense of approximately $0.3 million and $1.9 million, respectively, for these subsidiaries.

 

Net Realized Gains/Losses

 

During the three months ended September 30, 2013, the Company had $381.7 million of sales, repayments or exits of investments resulting in $8.9 million of net realized gains. These sales, repayments or exits included $104.8 million of investments sold to Ivy Hill Asset Management, L.P. (“IHAM”), a wholly owned portfolio company of the Company, and certain vehicles managed by IHAM.  A net realized loss of $0.2 million was recorded on these transactions. See Note 12 to the Company’s consolidated financial statements for the three and nine months ended September 30, 2013 for more detail on IHAM and its managed vehicles. Net realized gains of $8.9 million on investments were comprised of $50.8 million of gross realized gains and $41.9 million of gross realized losses.

 

The realized gains and losses on investments during the three months ended September 30, 2013 consisted of the following:

 

(in millions)

 

Net Realized

 

Portfolio Company

 

Gains (Losses)

 

Component Hardware Group, Inc.

 

$

17.7

 

Financial Pacific Company

 

17.6

 

Tradesmen International, Inc.

 

10.0

 

Senior Secured Loan Fund LLC

 

1.8

 

Matrixx Initiatives, Inc.

 

1.6

 

eInstruction Corporation

 

(40.3

)

Other, net

 

0.5

 

Total

 

$

8.9

 

 

During the three months ended September 30, 2012, the Company had $629.4 million of sales, repayments or exits of investments resulting in $27.7 million of net realized gains. These sales, repayments or exits included $146.0 million of investments sold to IHAM and certain vehicles managed by IHAM.  A net realized gain of $2.9 million was recorded on these transactions. Net realized gains of $27.7 million on investments were comprised of $39.6 million of gross realized gains and $11.9 million of gross realized losses.

 

The realized gains and losses on investments during the three months ended September 30, 2012 consisted of the following:

 

(in millions)

 

Net Realized

 

Portfolio Company

 

Gains (Losses)

 

Savers, Inc. and SAI Acquisition Corporation

 

$

15.2

 

Sunquest Information Systems, Inc.

 

9.1

 

Norwesco Acquisition Company

 

5.7

 

Ivy Hill Middle Market Credit Fund, Ltd.

 

2.4

 

U.S. Renal Care, Inc.

 

2.1

 

Aquila Binks Forest Development, LLC

 

(9.5

)

Other, net

 

2.7

 

Total

 

$

27.7

 

 

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Table of Contents

 

During the nine months ended September 30, 2013, the Company had $1,017.8 million of sales, repayments or exits of investments resulting in $29.3 million of net realized gains. These sales, repayments or exits included $139.8 million of investments sold to IHAM or certain funds managed by IHAM. A net realized loss of $0.1 million was recorded on these transactions. Net realized gains on investments were comprised of $72.1 million of gross realized gains and $42.8 million of gross realized losses.

 

The realized gains and losses on investments during the nine months ended September 30, 2013 consisted of the following:

 

(in millions)

 

Net Realized

 

Portfolio Company

 

Gains (Losses)

 

Component Hardware Group, Inc.

 

$

17.7

 

Financial Pacific Company

 

17.6

 

Tradesmen International, Inc.

 

10.0

 

Performant Financial Corporation

 

8.6

 

Senior Secured Loan Fund LLC

 

5.4

 

Performance Food Group, Inc.

 

4.1

 

BenefitMall Holdings Inc.

 

2.0

 

Matrixx Initiatives, Inc.

 

1.7

 

Promo Works, LLC

 

(1.0

)

eInstruction Corporation

 

(40.3

)

Other, net

 

3.5

 

Total

 

$

29.3

 

 

During the nine months ended September 30, 2012, the Company had $1,357.3 million of sales, repayments or exits of investments resulting in $18.9 million of net realized losses. These sales, repayments or exits included $182.2 million of investments sold to IHAM and certain vehicles managed by IHAM.  A net realized gain of $2.1 million was recorded on these transactions. Net realized losses on investments were comprised of $65.5 million of gross realized gains and $84.4 million of gross realized losses.

 

The realized gains and losses on investments during the nine months ended September 30, 2012 consisted of the following:

 

(in millions)

 

Net Realized

 

Portfolio Company

 

Gains (Losses)

 

Savers, Inc. and SAI Acquisition Corporation

 

$

15.2

 

BenefitMall Holdings Inc.

 

12.9

 

Things Remembered Inc.

 

9.6

 

Sunquest Information Systems, Inc.

 

9.1

 

Norwesco Acquisition Company

 

5.7

 

U.S. Renal Care, Inc.

 

2.1

 

Crescent Hotels & Resorts, LLC and affiliates

 

(5.5

)

LVCG Holdings LLC

 

(6.6

)

Aquila Binks Forest Development, LLC

 

(9.5

)

Making Memories Wholesale, Inc.

 

(12.3

)

Prommis Solutions, LLC

 

(46.8

)

Other, net

 

7.2

 

Total

 

$

(18.9

)

 

During the nine months ended September 30, 2012, in connection with the repayment in full of the $60 million aggregate principal amount of the Company’s asset-backed notes issued under its 2006 debt securitization ahead of their scheduled maturities, $2.7 million of unamortized debt issuance costs were expensed and recorded as a realized loss on the extinguishment of debt.

 

Net Unrealized Gains/Losses

 

We value our portfolio investments quarterly and the changes in value are recorded as unrealized gains or losses. For the three and nine months ended September 30, 2013 and 2012, net unrealized gains and losses for the Company’s portfolio were comprised of the following:

 

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For the three months ended

 

For the nine months ended

 

(in millions)

 

September 30, 2013

 

September 30, 2012

 

September 30, 2013

 

September 30, 2012

 

Unrealized appreciation

 

$

35.4

 

$

76.8

 

$

82.5

 

$

154.3

 

Unrealized depreciation

 

(24.3

)

(50.8

)

(76.0

)

(114.4

)

Net unrealized (appreciation) depreciation reversal related to net realized gains or losses(1)

 

(5.5

)

(6.6

)

 

60.3

 

Total net unrealized gains

 

$

5.6

 

$

19.4

 

$

6.5

 

$

100.2

 

 


(1)         The net unrealized (appreciation) depreciation reversal related to net realized gains or losses represents the unrealized appreciation or depreciation recorded on the related asset at the end of the prior period.

 

 

The changes in unrealized appreciation and depreciation during the three months ended September 30, 2013 consisted of the following:

 

 

 

Net Unrealized

 

(in millions)

 

Appreciation

 

Portfolio Company

 

(Depreciation)

 

CitiPostal Inc.

 

$

4.0

 

Orion Foods, LLC

 

3.4

 

Community Education Centers, Inc.

 

3.3

 

Senior Secured Loan Fund LLC

 

2.7

 

HCPro, Inc.

 

(2.1

)

UL Holding Co., LLC

 

(3.1

)

Insight Pharmaceuticals Corporation

 

(3.1

)

ELC Acquisition Corp.

 

(3.5

)

Competitor Group, Inc.

 

(3.5

)

Other, net

 

13.0

 

Total

 

$

11.1

 

 

The changes in unrealized appreciation and depreciation during the three months ended September 30, 2012 consisted of the following:

 

 

 

 

Net Unrealized

 

(in millions)

 

Appreciation

 

Portfolio Company

 

(Depreciation)

 

Reed Group, Ltd.

 

$

9.8

 

Senior Secured Loan Fund LLC

 

8.7

 

Firstlight Financial Corporation

 

8.4

 

Ivy Hill Asset Management, L.P.

 

6.6

 

Diversified Collections Services, Inc.

 

6.1

 

Stag-Parkway, Inc.

 

5.7

 

ELC Acquisition Corp.

 

3.5

 

AWTP, LLC

 

3.4

 

ADF Capital, Inc.

 

3.0

 

R3 Education, Inc.

 

2.9

 

NPH, Inc

 

(2.1

)

Imperial Capital Group LLC

 

(2.4

)

Orion Foods, LLC

 

(3.7

)

UL Holding Co., LLC

 

(5.6

)

MVL Group, Inc.

 

(18.6

)

Other, net

 

0.3

 

Total

 

$

26.0

 

 

The changes in unrealized appreciation and depreciation during the nine months ended September 30, 2013 consisted of the following:

 

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Net Unrealized

 

(in millions)

 

Appreciation

 

Portfolio Company

 

(Depreciation)

 

Orion Foods, LLC

 

$

7.0

 

10th Street, LLC

 

6.8

 

Senior Secured Loan Fund LLC

 

6.1

 

Imperial Capital Private Opportunities, LP

 

4.7

 

Community Education Centers, Inc.

 

4.0

 

American Broadband Communications, LLC

 

3.7

 

AWTP, LLC

 

3.3

 

The Dwyer Group

 

3.1

 

Apple & Eve, LLC

 

2.8

 

Waste Pro USA, Inc

 

2.8

 

CT Technologies Intermediate Holdings, Inc.

 

2.7

 

Matrixx Initiatives, Inc.

 

2.3

 

Hojeij Branded Foods, Inc.

 

2.1

 

Woodstream Corporation

 

(2.1

)

Insight Pharmaceuticals Corporation

 

(2.4

)

The Step2 Company, LLC

 

(2.6

)

HCPro, Inc.

 

(3.3

)

ADF Capital, Inc.

 

(3.4

)

Campus Management Corp.

 

(4.6

)

Ciena Capital LLC

 

(5.7

)

Competitor Group, Inc.

 

(7.7

)

UL Holding Co., LLC

 

(15.3

)

Ivy Hill Asset Management, L.P.

 

(18.8

)

Other

 

21.0

 

Total

 

$

6.5

 

 

The changes in unrealized appreciation and depreciation during the nine months ended September 30, 2012 consisted of the following:

 

 

 

Net Unrealized

 

(in millions)

 

Appreciation

 

Portfolio Company

 

(Depreciation)

 

Ivy Hill Asset Management, L.P.

 

$

17.0

 

Firstlight Financial Corporation

 

15.9

 

Stag-Parkway, Inc.

 

13.7

 

ADF Capital, Inc.

 

11.8

 

Senior Secured Loan Fund LLC

 

10.5

 

Reed Group, Ltd

 

10.0

 

Diversified Collections Services, Inc.

 

7.1

 

AWTP, LLC

 

5.4

 

R3 Education, Inc.

 

4.9

 

The Dwyer Group

 

4.2

 

Financial Pacific Company

 

3.5

 

ELC Acquisition Corp.

 

3.3

 

Waste Pro USA, Inc

 

2.8

 

Tripwire, Inc.

 

2.6

 

Tradesmen International, Inc.

 

2.6

 

ICSH, Inc.

 

2.2

 

AllBridge Financial, LLC

 

2.0

 

UL Holding Co., LLC

 

(2.0

)

Apple & Eve, LLC

 

(2.2

)

Insight Pharmaceuticals Corporation

 

(2.3

)

OnCURE Medical Corp.

 

(3.1

)

HCP Acquisition Holdings, LLC

 

(3.2

)

Matrixx Initiatives, Inc.

 

(4.0

)

Things Remembered Inc.

 

(4.4

)

Community Education Centers, Inc.

 

(4.5

)

RE Community Holdings II, Inc.

 

(5.6

)

CT Technologies Intermediate Holdings, Inc.

 

(5.8

)

American Broadband Communications, LLC.

 

(11.3

)

Orion Foods, LLC

 

(13.0

)

eInstruction Corporation

 

(16.7

)

MVL Group, Inc.

 

(23.1

)

Other, net

 

21.6

 

Total

 

$

39.9

 

 

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s liquidity and capital resources are generated primarily from the net proceeds of public offerings of equity and debt securities, advances from the Revolving Credit Facility, the Revolving Funding Facility and the SMBC Funding Facility (each as defined below and together, the “Facilities”), net proceeds from the issuance of other securities, including convertible unsecured notes, as well as cash flows from operations.

 

As of September 30, 2013, the Company had $135.5 million in cash and cash equivalents and $3.1 billion in total debt outstanding at carrying value ($3.2 billion at principal amount). Subject to leverage and borrowing base restrictions, the Company had approximately $1.1 billion available for additional borrowings under the Facilities as of September 30, 2013.

 

We may from time to time seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. The amounts involved may be material. In addition, we may from time to time enter into additional debt facilities, increase the size of existing facilities or issue additional debt securities, including unsecured debt and/or debt securities convertible into common stock. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the Investment Company Act, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, calculated pursuant to the Investment Company Act, is at least 200% after such borrowing.

 

Equity Issuances

 

The following table summarizes the total shares issued and proceeds we received in underwritten public offerings of our common stock net of underwriting and offering costs for the nine months ended September 30, 2013:

 

 

 

 

 

 

 

Proceeds net of

 

 

 

 

 

Offering price

 

underwriting and

 

(in millions, except per share data)

 

Shares issued

 

per share

 

offering costs

 

April 2013 public offering

 

19.1

 

$

17.43

(1)

$

333.2

 

Total for the nine months ended September 30, 2013

 

19.1

 

 

 

$

333.2

 

 


(1)         The shares were sold to the underwriters for a price of $17.43 per share, which the underwriters were then permitted to sell at variable prices.

 

 

As of September 30, 2013, total equity market capitalization for the Company was $4.6 billion compared to $4.4 billion as of December 31, 2012.

 

See “Recent Developments” as well as Note 15 to our consolidated financial statements for the three and nine months ended September 30, 2013 for more information on an equity offering completed subsequent to September 30, 2013.

 

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Debt Capital Activities

 

Our debt obligations consisted of the following as of September 30, 2013 and December 31, 2012:

 

 

 

As of

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

Total

 

 

 

 

 

Total

 

 

 

 

 

 

 

Aggregate

 

 

 

 

 

Aggregate

 

 

 

 

 

 

 

Principal

 

 

 

 

 

Principal

 

 

 

 

 

 

 

Amount

 

 

 

 

 

Amount

 

 

 

 

 

 

 

Available/

 

Principal

 

Carrying

 

Available/

 

Principal

 

Carrying

 

(in millions)

 

Outstanding(1)

 

Amount

 

Value

 

Outstanding(1)

 

Amount

 

Value

 

Revolving Credit Facility

 

$

1,035.0

(2)

$

535.0

 

$

535.0

 

$

900.0

 

$

 

$

 

Revolving Funding Facility

 

620.0

(3)

402.0

 

402.0

 

620.0

 

300.0

 

300.0

 

SMBC Funding Facility

 

400.0

 

 

 

400.0

 

 

 

February 2016 Convertible Notes

 

575.0

 

575.0

 

554.4

(4)

575.0

 

575.0

 

548.5

(4)

June 2016 Convertible Notes

 

230.0

 

230.0

 

221.0

(4)

230.0

 

230.0

 

218.8

(4)

2017 Convertible Notes

 

162.5

 

162.5

 

159.0

(4)

162.5

 

162.5

 

158.3

(4)

2018 Convertible Notes

 

270.0

 

270.0

 

263.8

(4)

270.0

 

270.0

 

262.8

(4)

2019 Convertible Notes

 

300.0

 

300.0

 

295.1

(4)

 

 

 

February 2022 Notes

 

143.8

 

143.8

 

143.8

 

143.8

 

143.8

 

143.8

 

October 2022 Notes

 

182.5

 

182.5

 

182.5

 

182.5

 

182.5

 

182.5

 

2040 Notes

 

200.0

 

200.0

 

200.0

 

200.0

 

200.0

 

200.0

 

2047 Notes

 

230.0

 

230.0

 

181.3

(5)

230.0

 

230.0

 

181.2

(5)

 

 

$

4,348.8

 

$

3,230.8

 

$

3,137.9

 

$

3,913.8

 

$

2,293.8

 

$

2,195.9

 

 


(1)                                 Subject to borrowing base and leverage restrictions. Represents the total aggregate amount committed or outstanding, as applicable, under such instrument.

 

(2)                                 Provides for a feature that allows the Company, under certain circumstances, to increase the size of the Revolving Credit Facility to a maximum of $1,400.0 million.

 

(3)                                 Provides for a feature that allows the Company and the Company’s consolidated subsidiary, Ares Capital CP Funding, LLC (“Ares Capital CP”), under certain circumstances, to increase the size of the Revolving Funding Facility to a maximum of $865.0 million.

 

(4)                                 Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes less the unaccreted discount initially recorded upon issuance of the Convertible Unsecured Notes. The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible and the 2019 Convertible Notes was $20.6 million, $9.0 million, $3.5 million, $6.2 million and $4.9 million, respectively, as of September 30, 2013. The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes was $26.5 million, $11.2 million, $4.2 million and $7.2 million, respectively, as of December 31, 2012.

 

(5)                                 Represents the aggregate principal amount outstanding less the unaccreted purchased discount.  The total unaccreted purchased discount on the 2047 Notes was $48.7 million and $48.8 million as of September 30, 2013 and December 31, 2012.

 

The weighted average stated interest rate and weighted average maturity, both on aggregate principal amount, of all our debt outstanding as of September 30, 2013 were 4.7% and 7.8 years, respectively and as of December 31, 2012 were 5.5% and 9.8 years, respectively. The ratio of total carrying value of debt outstanding to stockholders’ equity as of September 30, 2013 was 0.71:1.00 compared to 0.55:1.00 as of December 31, 2012.

 

In accordance with the Investment Company Act, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, calculated pursuant to the Investment Company Act, is at least 200% after such borrowing. As of September 30, 2013, our asset coverage was 240%.

 

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Table of Contents

 

Revolving Credit Facility

 

In December 2005, we entered into a senior secured revolving credit facility (as amended and restated, the “Revolving Credit Facility”), which as of September 30, 2013 allows us to borrow up to $1,035 million at any one time outstanding. The end of the revolving period and the stated maturity date for the Revolving Credit Facility are May 4, 2017 and May 4, 2018, respectively. The Revolving Credit Facility also provides for a feature that allows us, under certain circumstances, to increase the size of the facility to a maximum of $1.4 billion. The interest rate charged on the Revolving Credit Facility is based on LIBOR plus an applicable spread of 2.00% or a “base rate” (as defined in the agreements governing the Revolving Credit Facility) plus an applicable spread of 1.00%. Additionally, we are required to pay a commitment fee of 0.375% per annum on any unused portion of the Revolving Credit Facility. As of September 30, 2013 the principal amount outstanding under the Revolving Credit Facility was $535.0 million and we were in compliance in all material respects with the terms of the Revolving Credit Facility. See “Recent Developments”, as well as Note 15 to our consolidated financial statements for the three and nine months ended September 30, 2013 for more information on the Revolving Credit Facility.

 

Revolving Funding Facility

 

In October 2004, we established through Ares Capital CP, a revolving funding facility (as amended, the “Revolving Funding Facility”), which allows Ares Capital CP to borrow up to $620 million at any one time outstanding. The Revolving Funding Facility is secured by all of the assets held by, and its membership interest in, Ares Capital CP. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility are April 18, 2015 and April 18, 2017, respectively. The Revolving Funding Facility also provides for a feature that allows, under certain circumstances, for an increase in the size of the facility to a maximum of $865 million. The interest rate charged on the Revolving Funding Facility is one month LIBOR plus an applicable spread ranging from 2.25% to 2.50% over LIBOR and ranging from 1.25% to 1.50% over “base rate,” (as defined in the agreements governing the Revolving Funding Facility) in each case, determined monthly based on the composition of the borrowing base relative to outstanding borrowings under the facility. Additionally, we are required to pay a commitment fee of between 0.50% and 1.75% depending on the size of the unused portion of the Revolving Funding Facility. As of September 30, 2013, the principal amount outstanding under the Revolving Funding Facility was $402.0 million and we and Ares Capital CP were in compliance in all material respects with the terms of the Revolving Funding Facility.

 

SMBC Funding Facility

 

In January 2012, we established through our consolidated subsidiary, Ares Capital JB Funding LLC, (“ACJB”), a revolving funding facility (as amended, the “SMBC Funding Facility”), which allows ACJB to borrow up to $400 million at any one time outstanding. The SMBC Funding Facility is secured by all of the assets held by ACJB. The end of the reinvestment period and the stated maturity date for the SMBC Funding Facility are September 14, 2015 and September 14, 2020, respectively. The reinvestment period and the stated maturity date are both subject to two one-year extensions by mutual agreement.  The interest rate charged on the SMBC Funding Facility is based on one month LIBOR plus an applicable spread of 2.125% or a “base rate” (as defined in the agreements governing the SMBC Funding Facility) plus an applicable spread of 1.125%. ACJB was not required to pay a commitment fee until September 15, 2013, after which time ACJB is required to pay a commitment fee of 0.50% depending on the size of the unused portion of the SMBC Funding Facility. As of September 30, 2013, there were no amounts outstanding under the SMBC Funding Facility and we and ACJB were in compliance in all material respects with the terms of the SMBC Funding Facility.

 

Convertible Unsecured Notes

 

In January 2011, we issued $575 million aggregate principal amount of unsecured convertible senior notes that mature on February 1, 2016 (the “February 2016 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In March 2011, we issued $230 million aggregate principal amount of unsecured convertible senior notes that mature on June 1, 2016 (the “June 2016 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In March 2012, we issued $162.5 million aggregate principal amount of unsecured convertible senior notes that mature on March 15, 2017 (the “2017 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In the fourth quarter of 2012, we issued $270.0 million aggregate principal amount of unsecured convertible senior notes that mature on January 15, 2018 (the “2018 Convertible Notes”), unless previously converted or repurchased in accordance with their terms.  In July 2013, we issued $300.0 million aggregate principal amount of unsecured convertible senior notes that mature on January 15, 2019 (the “2019 Convertible Notes” and together with the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes, the “Convertible Unsecured Notes”), unless previously converted or repurchased in accordance with their terms. We do not have the right to redeem the Convertible Unsecured Notes prior to maturity. The February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes bear interest at a rate of 5.750%, 5.125%, 4.875% , 4.750% and 4.375%, respectively, per year, payable semi-annually.

 

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In certain circumstances, the Convertible Unsecured Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, at their respective conversion rates (listed below as of September 30, 2013) subject to customary anti-dilution adjustments and the requirements of their respective indenture (the “Convertible Unsecured Notes Indentures”). Prior to the close of business on the business day immediately preceding their respective conversion date (listed below), holders may convert their Convertible Unsecured Notes only under certain circumstances set forth in the respective Convertible Unsecured Notes Indenture. On or after their respective conversion dates until the close of business on the scheduled trading day immediately preceding their respective maturity date, holders may convert their Convertible Unsecured Notes at any time. In addition, if we engage in certain corporate events as described in their respective Convertible Unsecured Notes Indenture, holders of the Convertible Unsecured Notes may require us to repurchase for cash all or part of the Convertible Unsecured Notes at a repurchase price equal to 100% of the principal amount of the Convertible Unsecured Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

 

Certain key terms related to the convertible features for each of the Convertible Unsecured Notes are listed below.

 

 

 

February 2016

 

June 2016

 

2017

 

2018

 

2019

 

 

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Conversion premium

 

17.5

%

17.5

%

17.5

%

17.5

%

15.0

%

Closing stock price at issuance

 

$

16.28

 

$

16.20

 

$

16.46

 

$

16.91

 

$

17.53

 

Closing stock price date

 

January 19, 2011

 

March 22, 2011

 

March 8, 2012

 

October 3, 2012

 

July 15, 2013

 

Conversion price as of September 30, 2013(1)

 

$

18.80

 

$

18.70

 

$

19.18

 

$

19.81

 

$

20.16

 

Conversion rate as of September 30, 2013
(shares per one thousand dollar principal amount)(1)

 

53.2047

 

53.4674

 

52.1509

 

50.4731

 

49.6044

 

Conversion dates

 

August 15, 2015

 

December 15, 2015

 

September 15, 2016

 

July 15, 2017

 

July 15, 2018

 

 


(1) Represents conversion price and conversion rate, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.

 

Unsecured Notes

 

February 2022 Notes

 

In February 2012, we issued $143.8 million in aggregate principal amount of senior unsecured notes, which bear interest at a rate of 7.00% per year and mature on February 15, 2022 (the “February 2022 Notes”). The February 2022 Notes require payment of interest quarterly, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option on or after February 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

October 2022 Notes

 

In September 2012 and October 2012, we issued $182.5 million in aggregate principal amount of senior unsecured notes, which bear interest at a rate of 5.875% per year and mature on October 1, 2022 (the “October 2022 Notes”). The October 2022 Notes require payment of interest quarterly and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option on or after October 1, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

2040 Notes

 

In October 2010, we issued $200.0 million in aggregate principal amount of senior unsecured notes which bear interest at a rate of 7.75% and mature on October 15, 2040 (the “2040 Notes”). The 2040 Notes require payment of interest quarterly, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option on or after October 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

2047 Notes

 

As part of the Allied Acquisition, we assumed $230.0 million aggregate principal amount of senior unsecured notes which bear interest at a rate of 6.875% and mature on April 15, 2047 (the “2047 Notes” and together with the February 2022 Notes, the October 2022 Notes and the 2040 Notes, the “Unsecured Notes”). The 2047 Notes require payment of interest quarterly, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

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As of September 30, 2013 we were in compliance in all material respects with the terms of the Convertible Unsecured Notes Indentures and the indentures governing the Unsecured Notes.

 

The Convertible Unsecured Notes and the Unsecured Notes are our senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Unsecured Notes and the Unsecured Notes; equal in right of payment to our existing and future unsecured indebtedness that is not expressly subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.

 

See Note 5 to our consolidated financial statements for the three and nine months ended September 30, 2013 for more detail on the Company’s debt obligations.

 

OFF BALANCE SHEET ARRANGEMENTS

 

The Company has various commitments to fund investments in its portfolio, as described below.

 

As of September 30, 2013 and December 31, 2012, the Company had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to fund which are at (or substantially at) the Company’s discretion:

 

 

 

As of

 

(in millions)

 

September 30, 2013

 

December 31, 2012

 

Total revolving and delayed draw commitments

 

$

710.2

 

$

441.6

 

Less: funded commitments

 

(92.5

)

(82.1

)

Total unfunded commitments

 

617.7

 

359.5

 

Less: commitments substantially at discretion of the Company

 

(16.0

)

(6.0

)

Less: unavailable commitments due to borrowing base or other covenant restrictions

 

(2.3

)

(0.6

)

Total net adjusted unfunded revolving and delayed draw commitments

 

$

599.4

 

$

352.9

 

 

Included within the total revolving and delayed draw commitments as of September 30, 2013 were commitments to issue up to $36.9 million in standby letters of credit through a financial intermediary on behalf of certain portfolio companies. As of September 30, 2013, the Company had $14.5 million in standby letters of credit issued and outstanding under these commitments on behalf of the portfolio companies. In addition to these letters of credit included as a part of the total revolving and delayed draw commitments to portfolio companies, as of September 30, 2013 the Company also had $27.0 of standby letters of credit issued and outstanding on behalf of other portfolio companies.  For all these standby letters of credit issued and outstanding, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. None of these letters of credit issued and outstanding are recorded as a liability on the Company’s balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company. Of these letters of credit, $2.1 million expire in 2013 and $39.4 million expire in 2014.

 

As of September 30, 2013 and December 31, 2012, the Company was party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

 

 

 

As of

 

(in millions)

 

September 30, 2013

 

December 31, 2012

 

Total private equity commitments

 

$

60.5

 

$

131.0

 

Less: funded private equity commitments

 

(12.0

)

(66.5

)

Total unfunded private equity commitments

 

48.5

 

64.5

 

Less: private equity commitments substantially at discretion of the Company

 

(43.2

)

(53.1

)

Total net adjusted unfunded private equity commitments

 

$

5.3

 

$

11.4

 

 

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In the ordinary course of business, we may sell certain of our investments to third party purchasers. In particular, in connection with the sale of certain controlled portfolio company equity investments (as well as certain other sales) we have, and may continue to do so in the future, agreed to indemnify such purchasers for future liabilities arising from the investments and the related sale transaction. Such indemnification provisions may give rise to future liabilities.

 

As of September 30, 2013, one of the Company’s portfolio companies, Ciena Capital LLC (“Ciena”), had one non-recourse securitization Small Business Administration (“SBA”) loan warehouse facility, which has reached its maturity date but remains outstanding. Ciena is working with the providers of the SBA loan warehouse facility with regard to the repayment of that facility. Allied Capital Corporation (“Allied Capital”) had previously issued a performance guaranty (which Ares Capital succeeded to as a result of the Allied Acquisition) whereby Ares Capital must indemnify the warehouse providers for any damages, losses, liabilities and related costs and expenses that they may incur as a result of Ciena’s failure to perform any of its obligations as loan originator, loan seller or loan servicer under the warehouse facility. As of September 30, 2013, there were no known issues or claims with respect to this performance guaranty.

 

RECENT DEVELOPMENTS

 

In October 2013, we completed a public equity offering (the “October 2013 Offering”) pursuant to which we sold 12,650,000 shares of common stock at a price of $16.98 per share to the participating underwriters. Total proceeds from the October 2013 Offering, net of estimated offering expenses payable by us, were approximately $214.2 million. We used the net proceeds of the October 2013 Offering to repay certain outstanding indebtedness under our debt facilities and for general corporate purposes, which included investing in portfolio companies in accordance with our investment objective.

 

In October 2013, we increased total commitments of the Revolving Credit Facility from $1,035 million to $1,060 million.

 

In November 2013, the SSLP’s total available capital was increased from $9.0 billion to $11.0 billion.  In connection with this expansion, GE agreed to make available to the SSLP up to approximately $8.7 billion and we agreed to make available to the SSLP up to approximately $2.3 billion.  Investment of any unfunded amount must be approved by an investment committee of the SSLP consisting of representatives of Ares Capital and GE (with approval from a representative of each required).

 

In November 2013, we declared the following dividends: (i) a fourth quarter 2013 dividend of $0.38 per share payable on December 31, 2013 to stockholders of record as of December 16, 2013, (ii) an additional dividend of $0.05 per share payable on December 31, 2013 to stockholders of record as of December 16, 2013 and (iii) another additional dividend of $0.05 per share payable on March 28, 2014 to stockholders of record as of March 14, 2014. Payment of the additional March 2014 dividend is subject to the satisfaction of certain Maryland law requirements.

 

From October 1, 2013 through October 31, 2013, we made new investment commitments of $211 million, of which $200 million were funded. Of these new commitments, 47% were in senior subordinated debt, 36% were in first lien senior secured loans, 16% were investments in subordinated certificates of the SSLP to make co-investments with GE in first lien senior secured loans through the SSLP and 1% were in other equity securities. Of the $211 million of new investment commitments, 52% were floating rate, 47% were fixed rate and 1% were non-interest bearing. The weighted average yield of debt and other income producing securities funded during the period at amortized cost was 10.6%. We may seek to syndicate a portion of these new investment commitments, although there can be no assurance that we will be able to do so.

 

From October 1, 2013 through October 31, 2013, we exited $91 million of investment commitments. Of these investment commitments, 76% were first lien senior secured loans, 14% were investments in subordinated certificates of the SSLP, 5% were second lien senior secured loans, 3% were other equity securities, 1% were preferred equity securities and 1% were senior subordinated debt. Of the $91 million of exited investment commitments, 88% were floating rate, 5% were on non-accrual status, 4% were non-interest bearing and 3% were fixed rate. The weighted average yield of debt and other income producing securities exited or repaid during the period at amortized cost was 9.4%. On the $91 million of investment commitments exited from October 1, 2013 through October 31, 2013, we recognized total net realized gains of approximately $1 million.

 

In addition, as of October 31, 2013, we had an investment backlog and pipeline of approximately $390 million and $930 million, respectively. Investment backlog includes transactions approved by our investment adviser’s investment committee and/or for which a formal mandate, letter of intent or signed commitment has been issued, and therefore we believe are likely to close. Investment pipeline includes transactions where due diligence and analysis are in process, but no formal mandate, letter of intent or signed commitment has been issued. The consummation of any of the investments in this backlog and pipeline depends upon, among other things, one or more of the following: satisfactory completion of our due diligence investigation of the prospective portfolio company, our acceptance of the terms and structure of such investment and the execution and delivery of satisfactory transaction documentation. In addition, we may syndicate a portion of these investments and certain of these investments may result in the repayment of existing investments. We cannot assure you that we will make any of these investments or that we will syndicate any portion of these investments.

 

CRITICAL ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with GAAP, and include the accounts of the Company and its consolidated subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition as of and for the periods presented. All significant intercompany balances and transactions have been eliminated.

 

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Interim financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2013.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include funds from time to time deposited with financial institutions and short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value.

 

Concentration of Credit Risk

 

The Company places its cash and cash equivalents with financial institutions and, at times, cash held in money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

 

Investments

 

Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, we look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available (i.e., substantially all of our investments) are valued at fair value as determined in good faith by our board of directors, based on, among other things, the input of our investment adviser, audit committee and independent third-party valuation firms that have been engaged at the direction of our board of directors to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing 12 month period, (with certain de minimis exceptions) and under a valuation policy and a consistently applied valuation process. The valuation process is conducted at the end of each fiscal quarter, and a minimum of 50% of our portfolio at fair value is subject to review by an independent valuation firm each quarter. In addition, our independent registered public accounting firm obtains an understanding of, and performs select procedures relating to, our investment valuation process within the context of performing the integrated audit.

 

As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the fair value of our investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), 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, a comparison of the portfolio company’s securities to any similar publicly traded securities, changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments would trade in their principal markets and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate our valuation.

 

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

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

 

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Our board of directors undertakes a multi-step valuation process each quarter, as described below:

 

·                  Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with our portfolio management team.

 

·                  Preliminary valuations are reviewed and discussed with our investment adviser’s management and investment professionals, and then valuation recommendations are presented to our board of directors.

 

·                  The audit committee of our board of directors reviews these valuations, as well as the input of third parties, including independent third-party valuation firms, with respect to the valuations of a minimum of 50% of our portfolio at fair value.

 

·                  Our board of directors discusses valuations and ultimately determines the fair value of each investment in our portfolio without a readily available market quotation in good faith based on, among other things, the input of our investment adviser, audit committee and, where applicable, independent third- party valuation firms.

 

Interest and Dividend Income Recognition

 

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this if the loan has sufficient collateral value and is in the process of collection.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

 

Payment-in-Kind Interest

 

The Company has loans in its portfolio that contain PIK provisions. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends even though the Company has not yet collected the cash.

 

Capital Structuring Service Fees and Other Income

 

The Company’s investment adviser seeks to provide assistance to our portfolio companies in connection with the Company’s investments and in return the Company may receive fees for capital structuring services. These fees are generally only available to the Company as a result of the Company’s underlying investments, are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. The services that the Company’s investment adviser provides vary by investment, but generally include reviewing existing credit facilities, arranging bank financing, arranging equity financing, structuring financing from multiple lenders, structuring financing from multiple equity investors, restructuring existing loans, raising equity and debt capital, and providing general financial advice, which concludes upon closing of the investment. Any services of the above nature subsequent to the closing would generally generate a separate fee payable to the Company. In certain instances where the Company is invited to participate as a co-lender in a transaction and does not provide significant services in connection with the investment, a portion of loan fees paid to the Company in such situations will be deferred and amortized over the estimated life of the loan. The Company’s investment adviser may also take a seat on the board of directors of a portfolio company, or observe the meetings of the board of directors without taking a formal seat.

 

Other income includes fees for asset management, management and consulting services, loan guarantees, commitments, amendments and other services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered.

 

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Foreign Currency Translation

 

The Company’s books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

 

(1)                                 Fair value of investment securities, other assets and liabilities—at the exchange rates prevailing at the end of the period.

 

(2)                                 Purchases and sales of investment securities, income and expenses—at the exchange rates prevailing on the respective dates of such transactions, income or expenses.

 

Results of operations based on changes in foreign exchange rates are separately disclosed in the statement of operations. Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

 

Equity Offering Expenses

 

The Company’s offering costs, excluding underwriters’ fees, are charged against the proceeds from equity offerings when received.

 

Debt Issuance Costs

 

Debt issuance costs are amortized over the life of the related debt instrument using the straight line method, which closely approximates the effective yield method.

 

Income Taxes

 

The Company has elected to be treated as a RIC under the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, timely distribute to its stockholders at least 90% of its investment company taxable income, as defined by the Code, for each year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal income taxes.

 

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

 

Certain of our consolidated subsidiaries are subject to U.S. federal and state income taxes.

 

Dividends to Common Stockholders

 

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by our board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed, although we may decide to retain such capital gains for investment.

 

We have adopted a dividend reinvestment plan that provides for reinvestment of any distributions we declare in cash on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare, a cash dividend, then our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividend. We intend to use primarily newly issued shares to implement the dividend reinvestment plan (so long as we are trading at a premium to net asset value). If our shares are trading at a significant enough discount to net asset value and we are otherwise permitted under applicable law to purchase such shares, we intend to purchase shares in the open market in connection with our obligations under our dividend reinvestment plan. However, we reserve the right to issue new shares of our common stock in connection with our obligations under the dividend reinvestment plan even if our shares are trading below net asset value.

 

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Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of actual and contingent assets and liabilities at the date of the financial statements and the reported amounts of income or loss and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation of investments.

 

Recent Accounting Pronouncements

 

In June 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2013-08, Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements (“ASU 2013-08”).  ASU 2013-08 amends the criteria that define an investment company, clarifies the measurement guidance and requires certain additional disclosures. Public companies are required to apply ASU 2013-08 prospectively for interim and annual reporting periods beginning after December 15, 2013. We have evaluated the impact of the adoption of ASU 2013-08 on our financial statements and disclosures and determined the adoption of ASU 2013-08 will not have a material effect on our financial condition and results of operations.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio.

 

Interest Rate Risk

 

Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

 

As of September 30, 2013, approximately 82% of the investments at fair value in our portfolio bore interest at variable rates, approximately 9% bore interest at fixed rates, approximately 8% were non-interest earning and approximately 1% were on non-accrual status. Additionally, for the variable rate investments, approximately 73% of these investments contained interest rate floors (representing approximately 60% of total investments at fair value). The Facilities all bear interest at variable rates with no interest rate floors, while the Convertible Unsecured Notes and the Unsecured Notes bear interest at fixed rates.

 

We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.

 

While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio investments. In addition, there can be no assurance that we will be able to effectively hedge our interest rate risk.

 

Based on our September 30, 2013 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

(in millions)

 

Interest

 

Interest

 

Net

 

Basis Point Change

 

Income

 

Expense

 

Income (1)

 

Up 300 basis points

 

$

96.1

 

$

28.1

 

$

68.0

 

Up 200 basis points

 

$

37.9

 

$

18.7

 

$

19.2

 

Up 100 basis points

 

$

(13.9

)

$

9.4

 

$

(23.3

)

Down 100 basis points

 

$

6.1

 

$

(1.7

)

$

7.8

 

Down 200 basis points

 

$

6.0

 

$

(1.7

)

$

7.7

 

Down 300 basis points

 

$

6.0

 

$

(1.7

)

$

7.7

 

 


(1)  Excludes the impact of incentive fees based on pre-incentive fee net investment income. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2013 for more information on the incentive fee.

 

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Based on our December 31, 2012 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

(in millions)

 

Interest

 

Interest

 

Net

 

Basis Point Change

 

Income

 

Expense

 

Income (1)

 

Up 300 basis points

 

$

62.8

 

$

9.0

 

$

53.8

 

Up 200 basis points

 

$

22.1

 

$

6.0

 

$

16.1

 

Up 100 basis points

 

$

(14.8

)

$

3.0

 

$

(17.8

)

Down 100 basis points

 

$

5.8

 

$

(0.6

)

$

6.4

 

Down 200 basis points

 

$

5.8

 

$

(0.6

)

$

6.4

 

Down 300 basis points

 

$

5.6

 

$

(0.6

)

$

6.2

 

 


(1)  Excludes the impact of incentive fees based on pre-incentive fee net investment income.  See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2013 for more information on the incentive fee.

 

Item 4. Controls and Procedures.

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them of material information relating to the Company that is required to be disclosed by us in the reports it files or submits under the Securities Exchange Act of 1934.

 

There have been no changes in the Company’s internal control over financial reporting during the three and nine months ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are party to certain lawsuits in the normal course of business. In addition, Allied Capital was involved in various legal proceedings that we assumed in connection with the Allied Acquisition. Furthermore, third parties may try to seek to impose liability on us in connection with our activities or the activities of our portfolio companies. While the outcome of any such legal proceedings cannot at this time be predicted with certainty, we do not expect that these legal proceedings will materially affect our business, financial condition or results of operations.

 

We have been named as one of several defendants in an action filed by the bankruptcy trustee of DSI Renal Holdings LLC and two related companies. The complaint in the action alleges, among other things, that each of the named defendants participated in a purported “fraudulent transfer” involving the restructuring of a subsidiary of DSI Renal Holdings LLC. Among other things, the complaint seeks, jointly and severally from all defendants, (1) damages of approximately $425 million, of which the complaint states our individual share is approximately $117 million, and (2) punitive damages. Given the limited amount of time that has passed since the filing of the complaint in this action, we are currently unable to assess with any certainty whether we may have any exposure in this action. We believe the claims are without merit and intend to vigorously defend ourselves in this action.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

 

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

 

We did not sell any equity securities during the period covered in this report that were not registered under the Securities Act of 1933.

 

We did not repurchase any shares of our common stock during the period covered in this report.

 

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Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.  Other Information.

 

None.

 

Item 6.  Exhibits.

EXHIBIT INDEX

 

Number

 

Description

3.1

 

Articles of Amendment and Restatement, as amended(1)

3.2

 

Second Amended and Restated Bylaws, as amended(2)

4.1

 

Indenture, dated as of July 19, 2013, between Ares Capital Corporation and U.S. Bank National Association, as trustee(3)

4.2

 

Form of 4.375% Convertible Senior Notes due 2019(3)

31.1

 

Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2

 

Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1

 

Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 


*                                         Filed herewith

 

(1)                                 Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q (File No. 814-00663) for the quarter ended September 30, 2012, filed on November 5, 2012.

 

(2)                                 Incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q (File No. 814-00663) for the quarter ended June 30, 2010, filed on August 5, 2010.

 

(3)                                 Incorporated by reference to Exhibits 4.1 and 4.2, as applicable, to the Company’s Form 8-K (File No. 814-00663), filed on July 19, 2013.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ARES CAPITAL CORPORATION

 

 

 

 

Dated: November 5, 2013

By

/s/ Michael J. Arougheti

 

 

Michael J. Arougheti

 

 

Chief Executive Officer

 

 

 

 

 

 

Dated: November 5, 2013

By

/s/ Penni F. Roll

 

 

Penni F. Roll

 

 

Chief Financial Officer

 

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