NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2019
|
1.
|
Organization and Purpose
|
Alcentra Capital Corporation (the “Company” or “Alcentra”)
was formed as a Maryland corporation on June 6, 2013 as an externally managed, non-diversified closed-end management investment
company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended
(the “1940 Act”), and is applying the guidance of Accounting Standards Codification (“ASC”) Topic 946,
Financial
Services Investment Companies
. Alcentra is managed by Alcentra NY, LLC (the “Adviser” or “Alcentra NY”),
a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). In addition,
for U.S. federal income tax purposes, Alcentra has elected to be treated as a regulated investment company (“RIC”)
under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Alcentra NY, together with certain of its affiliated companies (the “Alcentra Group”),
is an indirect, majority owned subsidiary of The Bank of New York Mellon Corporation.
The Company was formed for the purpose of acquiring certain
assets held by BNY Mellon-Alcentra Mezzanine III, L.P. (the “Partnership”). The Partnership is a Delaware limited partnership,
which commenced operations on May 14, 2010 (the “Commencement Date”). BNY Mellon-Alcentra Mezzanine III (GP), L.P.
(the “General Partner”), a Delaware limited liability company, is the General Partner of the Partnership. BNY Mellon-Alcentra
Mezzanine Partners (the “Manager”), a division of Alcentra NY and an affiliate of the General Partner, manages the
investment activities of the Partnership.
On May 8, 2014 (commencement of operations), the Company acquired
all of the assets of the Partnership other than its investment in the shares of common stock and warrants to purchase common stock
of GTT Communications (the “Fund III Acquired Assets”) for $64.4 million in cash and $91.5 million in shares of Alcentra’s
common stock. Concurrent with Alcentra’s acquisition of the Fund III Acquired Assets from the Partnership, Alcentra also
purchased for $29 million in cash certain debt investments (the “Warehouse Portfolio”) from Alcentra Group. The Warehouse
Portfolio debt investments were originated by the investment professionals of the Adviser and purchased by Alcentra Group using
funds under a warehouse credit facility provided by The Bank of New York Mellon Corporation in anticipation of the initial public
offering of Alcentra’s shares of common stock. Except for the $1,500 seed capital provided by Alcentra NY in exchange for
100 shares of Alcentra's common stock, the Company had no assets or operations prior to the acquisition of the investment portfolios
of the Partnership and as a result, the Partnership is considered a predecessor entity of the Company.
On May 14, 2014, Alcentra completed its initial public offering
(the “IPO”), at a price of $15.00 per share. Through the IPO the Company sold 6,666,666 shares for gross proceeds of
approximately $100 million. Alcentra used $94.2 million of the proceeds from the IPO to fund the purchase of the warehouse portfolio,
and the cash portion of the consideration paid to Fund III. On June 6, 2014, Alcentra sold 750,000 shares through the underwriters’
exercise of the overallotment option for gross proceeds of $11,250,000.
On April 8, 2014, the Company formed Alcentra BDC Equity Holdings,
LLC, a wholly-owned subsidiary for tax purposes (the “Taxable Subsidiary”). The Taxable Subsidiary allows us to hold
equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a
RIC under the Code. The financial statements of this entity are consolidated into the financial statements of Alcentra. All intercompany
balances and transactions have been eliminated.
On May 22, 2017, Alcentra Capital Corporation completed an underwritten
primary offering of 808,161 shares of its common stock at a public offering price of $13.68 per share for proceeds of
approximately $10,853,602, after paying the sales load and offering expenses.
The Company’s investment objective is to generate both
current income and, to a lesser extent, capital appreciation primarily by making direct investments in middle-market companies,
which the Company defines as companies having annual earnings, before interest, taxes, depreciation and amortization, or EBITDA
of between $15 million and $75 million, although the Company may make investments in larger or smaller companies and other types
of investments. These investments are in the form of first lien, second lien, unitranche and, to a lesser extent given the current
credit environment, mezzanine debt. The Company expects to source investments primarily through the network of relationships that
the principals of our investment adviser have developed with financial sponsor firms, financial institutions, middle-market companies,
management teams and other professional intermediaries.
Upon commencement of operations, the Company also entered into
an administration and custodian agreement (the “Administration Agreement”) with State Street Bank and Trust Company
(the “Administrator”) to provide the Company with financial reporting, post-trade compliance and treasury services.
|
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation
– The accompanying financial
statements of the Company have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting
principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly,
certain financial information that is normally included in annual financial statements, including certain financial statement notes,
prepared in accordance with GAAP, is not required for interim reporting purposes and have been omitted. In the opinion of management,
the unaudited financial results included herein contain all adjustments considered necessary for the fair presentation of financial
statements for the interim periods included herein. 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, 2019.
The accounting records of the Company are maintained in United
States dollars.
Use of Estimates
– The preparation of financial
statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the
reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates and such
differences could be material. The most significant estimates relate to the valuation of the Company’s portfolio investments.
Consolidation
– In accordance with ASC Topic 810
- Consolidation, the Company generally will not consolidate its interest in any operating company other than in investment company
subsidiaries, certain financing subsidiaries, and controlled operating companies substantially all of whose business consists of
providing services to the Company.
Portfolio Investment Classification
– The Company
classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments”
are defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than
50% of the board representation. Under the 1940 Act, “Affiliate Investments” are defined as investments in which the
Company owns between 5% and 25% of the voting securities and does not have rights to maintain greater than 50% of the board representation.
“Non-controlled, non-affiliate investments” are defined as investments that are neither Control Investments or Affiliate
Investments.
Cash
– At March 31, 2019, cash balances totaling
$4.4 million exceeded FDIC insurance protection levels, subjecting the Company to risk related to the uninsured balance. All of
the Company’s cash deposits are held by the Administrator and management believes that the risk of loss associated with any
uninsured balance is remote.
Deferred Financing Costs
– Deferred financing costs
consist of fees and expenses paid in connection with the Credit Facility (as defined in Note 10) and are capitalized at the time
of payment. These costs are amortized using the straight line method, which approximate the effective interest method over the
term of the Credit Facility.
Deferred Note Offering Costs
– Deferred note offering
costs consist of fees and expenses paid in connection with the Notes (as defined in Note 9) and are capitalized at the time these
fees and expenses are incurred before the issuance commenced. These costs are amortized using the straight line method, which approximate
the effective interest method over the term of the Notes.
Valuation of Portfolio Investments
– Portfolio
investments are carried at fair value as determined by the
Board of Directors (the “Board”)
of Alcentra.
The methodologies used in determining these valuations include:
(1) Preferred shares/membership units and common shares/membership
units
In determining estimated fair value for common shares/membership
units and preferred shares, the Company makes assessments of the methodologies and value measurements which market participants
would use in pricing comparable investments, based on market data obtained from independent sources as well as from the Company’s
own assumptions and taking into account all material events and circumstances which would affect the estimated fair value of such
investments. Several types of factors, circumstances and events could affect the estimated fair value of the investments. These
include but are not limited to the following:
(i) Any material changes in the (a) competitive position
of the portfolio investment, (b) legal and regulatory environment within which the portfolio investment operates, (c) management
or key managers of the portfolio investment, (d) terms and/or cost of financing available to the portfolio investment, and (e)
financial position or operating results of the investment;
(ii) pending disposition by
the Company of the major portfolio investment; and
(iii) sales prices of recent
public or private transactions in identical or comparable investments.
One or a combination of the
following valuation techniques are used to fair value these investments: Market Approach and Income Approach. The Market Approach
uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
The Income Approach uses valuation techniques to convert future amounts to a present amount (i.e., discounting estimated future
cash flows to a net present value amount).
(2) Debt
The fair value of performing debt investments is typically
derived utilizing a market yield analysis. In a market yield analysis, a price is ascribed to each debt investment based upon an
assessment of current and expected market yields for similar debt investments and risk profiles. Additional consideration is given
to current contractual interest rates, relative maturities and other key terms and risks associated with a debt investment.
The Company considers many factors in evaluating the
most suitable point within the range of fair values, including, but not limited to, the following:
|
·
|
the portfolio company’s underlying operating performance and any related trends;
|
|
·
|
the improvement or decline in the underlying credit quality measured on the basis of a loan-to-enterprise value ratio and total outstanding debt to EBITDA ratio; and
|
|
·
|
changes or issues related to the portfolio company’s customer/supplier concentration, regulatory developments and other portfolio company specific considerations.
|
(3) Warrants
Where warrants are considered to be in the money,
their incremental value is included within the valuation of the investments.
Valuation techniques are applied consistently from
period to period, except when circumstances warrant a change to a different valuation technique that will provide a better estimate
of fair value.
With respect to the Company’s valuation process,
the Board undertakes a similar multi-step valuation process each quarter in connection with determining the fair value of the Company's
investments for which no market quotation is readily available, as described below:
|
·
|
Alcentra’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Adviser responsible for the portfolio investment;
|
|
·
|
preliminary valuation conclusions will then be documented and discussed with the investment committee of the Adviser;
|
|
·
|
Independent valuation
firms engaged by the valuation committee of the Board prepare preliminary valuations on a select portion of the Company's
investment portfolio on a quarterly basis and submit the reports to the Board; and
|
|
·
|
the valuation
committee of the Board then reviews these preliminary valuations and makes a recommendation to the Board with respect
thereto; and
|
|
·
|
the Board then
discusses valuations and approves the fair value of each such investment in good faith, based on the input of the Adviser,
the independent valuation firms and the valuation committee.
|
The valuation committee of the Board
has authorized the engagement of independent valuation firms to provide Alcentra with valuation assistance. Alcentra
intends to have independent valuation firms provide it with valuation assistance on a portion of its portfolio on a quarterly
basis and its entire portfolio will be reviewed at least annually by independent valuation firms; however, the Board does not
have
de minimis
investments of less than 1% of the Company’s gross assets (up to an aggregate of 10% of the
Company’s gross assets) independently reviewed. The Board is ultimately responsible for the valuation of portfolio
investments at fair value as approved in good faith pursuant to Alcentra’s valuation policy and a consistently applied
valuation process.
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, as determined
by the Board, may differ significantly from the values that would have been used had a readily available market value existed for
such investments, and the differences could be material. 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 valuations previously assigned.
Organizational and Offering Costs
– Organization
expenses, including reimbursement payments to the Adviser, are expensed on the Company’s Consolidated Statements of Operations.
These expenses consist principally of legal and accounting fees incurred in connection with the organization of the Company and
have been expensed as incurred. Offering expenses consist principally of underwriter’s fee, legal, accounting, printing fees
and other related expenses associated with the filing of a registration statement.
Paid-In-Capital
– The Company records the proceeds
from the sale of its common stock on a net basis to (i) capital stock and (ii) paid in capital in excess of par value, excluding
all commissions.
Earnings and Net Asset Value Per Share
– Earnings
per share is calculated based upon the weighted average number of shares of common stock outstanding during the reported period.
Net Asset Value per share is calculated using the number of shares outstanding as of the end of the period.
Investments
– Investment security transactions
are accounted for on a trade date basis. Cost of portfolio investments represents the actual purchase price of the securities acquired
including capitalized legal, brokerage and other fees as well as the value of interest and dividends received in-kind and the accretion
of original issue discounts. Fees may be charged to the issuer by the Company in connection with the origination of a debt security
financing. Such fees are reflected as a discount to the cost of the portfolio security and the discount is accreted into income
over the life of the related debt security.
Original Issue Discount
– When the Company receives
warrants with a nominal or discounted exercise price upon origination of a debt or preferred stock investment, a portion of the
cost basis is allocated to the warrants. When the investment is made concurrently with the sale of a substantial amount of equity,
the value of the warrants is based on the sales price. The value of the warrants is recorded as original issue discount (“OID”)
to the value of the debt or preferred stock investment and the OID is amortized over the life of the investment.
Interest and Dividend Income
– Interest is recorded
on the accrual basis to the extent that the Company expects to collect such amounts. The Company accrues paid in-kind interest
(“PIK”) by recording income and an increase to the cost basis of the related investments. Dividend income is recorded
on ex-dividend date. Dividends in-kind are recorded as an increase in cost basis of investments and as income.
Investments that are expected to pay regularly scheduled interest
in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 days or more and/or
when it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored
to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue
timely payment of their remaining principal and interest obligations. Cash interest payments received on non-accrual designated
investments may be recognized as income or applied to principal depending on management’s judgment. There was one non-accrual
investment as of March 31, 2019 and December 31, 2018.
Other Income
– The Company may also receive structuring
or closing fees in connection with its investments. Such upfront fees are accreted into income over the life of the investment.
These fees are non-recurring in nature.
Prepayment penalties received by the Company for debt instruments
paid back to the Company prior to the maturity date are recorded as income upon receipt.
Income Taxes
– The Company has elected to be treated
for U.S. federal income tax purposes as a RIC under Subchapter M of the Code, and to operate in a manner to qualify for the
tax treatment applicable to RIC’s. To obtain and maintain our qualification for taxation as a RIC, the Company must, among
other things, meet certain source-of-income and asset diversification requirements. In addition, the Company must distribute to
its stockholders, for each taxable year, at least 90% of “investment company taxable income,” which is
generally net ordinary taxable income plus the excess of realized net short-term capital gains over realized net long-term capital
losses, or the Annual Distribution Requirement. As a RIC, the Company generally will not pay corporate-level U.S. federal income
taxes on any ordinary income or capital gains that are timely distributed to stockholders as dividends.
The Taxable Subsidiary permits the Company to hold equity investments
in portfolio companies which are “pass through” entities for tax purposes and continue to comply with the “source
income” requirements contained in RIC tax provisions of the Code. The Taxable Subsidiary is not consolidated with the Company
for income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result
of its ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities
are reflected in the Company’s consolidated financial statements. The Taxable Subsidiary uses the asset and liability method
of accounting for income taxes. This method requires the recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between financial accounting bases and tax bases of assets and liabilities. The tax
benefits of tax loss carryforwards and other deferred taxes are recorded as an asset to the extent that management assesses the
utilization of such assets to be more likely than not. Management routinely assesses the realizability of the deferred income
tax assets, and a valuation allowance is recognized if it is determined that deferred income tax assets may not be fully utilized
in future periods. Management considers future taxable earnings in making such assessments. Numerous judgments and assumptions
are inherent in the determination of future taxable earnings, including such factors as future operating conditions. When the
future utilization of some portion of the deferred tax asset is determined not to be more likely than not, a valuation allowance
is provided to reduce the recorded deferred tax asset. When management can project that a portion of the deferred tax asset can
be realized through application of a portion of tax loss carryforward, management will record that utilization as a deferred tax
benefit and recognize a deferred tax asset in the same amount. There can be no assurance that facts and circumstances will not
materially change and require the recording of any deferred tax asset valuation allowance in future periods. For the three months
ended March 31, 2019 and March 31, 2018, the Company recognized a (provision) benefit for income tax on unrealized gain (loss)
on investments of $(0.3) million and $0 million, respectively, for the Taxable Subsidiary. As of March 31, 2019 and December 31,
2018, the Company had a deferred tax asset in the amount of $5.1 million and $5.4 million, respectively, primarily relating to
tax loss carryforwards.
Indemnification
– In the normal course of business,
the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities
arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant
to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve
future claims that may be made against the Company that have not yet occurred. However, based on management’s experience,
the Company expects the risk of loss to be remote.
Recently Issued Accounting Standards
-In March 2017,
the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which will amend FASB ASC 310-20. The
amendments in this Update shorten the amortization period for certain callable debt securities held at a premium, generally requiring
the premium to be amortized to the earliest call date. For public business entities, the amendments are effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption
in an interim period. The Company is evaluating the impact of ASU 2017-08 on its consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement
(Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in
this Update modify the disclosure requirements on fair value measurement in Topic 820, Fair Value Measurement, based on the concepts
in the Concepts Statement, including the consideration of costs and benefits. ASU 2018-13 is effective for all entities for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company
has adopted ASU 2018-13 in its consolidated financial statements and disclosures with no material impact.
In August 2018, the U.S. Securities and Exchange Commission
adopted final rules to eliminate redundant, duplicative, overlapping, outdated or superseded disclosure requirements in light of
other disclosure requirements, GAAP or changes in the information environment. These rules amend certain provisions of Regulation
S-X and Regulation S-K, certain rules promulgated under the Securities Act of 1933 and the Securities Exchange Act of 1934 and
certain related forms. The Company
has adopted these changes in its consolidated financial statements and disclosures with no material impact.
In May 2014, the FASB issued ASC 606, Revenue From Contracts
With Customers, originally effective for public business entities with annual reporting periods beginning after December 15, 2016.
On August 12, 2015, the FASB issued an ASU, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date,
which deferred the effective date of ASC 606 for one year. ASC 606 provides accounting guidance related to revenue from contracts
with customers. For public business entities, ASC 606 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2017. The Company has evaluated the impact of ASC 606 and determined that it will not have a material
impact on its consolidated financial statements and disclosures.
|
3.
|
Fair Value of Portfolio Investments
|
The Company accounts for its investments in accordance with
FASB Accounting Standards Codification Topic 820 (“ASC Topic 820”),
Fair Value Measurements and Disclosures,
which defines fair value, establishes a framework for measuring fair value. ASC Topic 820 established a fair value hierarchy which
prioritizes and ranks the level of market price observability used in measuring investments at fair value.
Market price observability is impacted by a number of factors,
including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the
existence and transparency of transactions between market participants). Investments with readily-available actively quoted prices
or for which fair value can be measured from actively-quoted prices in an orderly market will generally have a higher degree of
market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified
and disclosed in one of the following categories (from highest to lowest) based on inputs:
Level 1
– Quoted prices (unadjusted)
are available in active markets for identical investments that the Company has the ability to access as of the reporting date.
The type of investments which would generally be included in Level 1 includes listed equity securities and listed derivatives.
As required by ASC Topic 820, the Company, to the extent that it holds such investments, does not adjust the quoted price for these
investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.
Level 2
– Pricing inputs are observable
for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level 1. Fair
Value is based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly
or indirectly.
Level 3
– Pricing inputs are unobservable
for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the
determination of fair value require significant judgment or estimation by the Company. The types of investments which would generally
be included in this category include debt and equity securities issued by private entities.
In certain cases, the inputs used to measure fair value may
fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value
hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement.
The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment,
and considers factors specific to the investment.
The fair values of our investments disaggregated into the three
levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of March 31, 2019
are as follows:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Senior Secured - First Lien
|
|
$
|
—
|
|
|
$
|
7,292,162
|
|
|
$
|
142,836,976
|
|
|
$
|
150,129,138
|
|
Senior Secured - Second Lien
|
|
|
—
|
|
|
|
—
|
|
|
|
43,079,387
|
|
|
|
43,079,387
|
|
Subordinated Debt
|
|
|
—
|
|
|
|
—
|
|
|
|
1,218,847
|
|
|
|
1,218,847
|
|
CLO/Structured Credit
|
|
|
—
|
|
|
|
1,773,096
|
|
|
|
—
|
|
|
|
1,773,096
|
|
Equity/Other
|
|
|
—
|
|
|
|
—
|
|
|
|
17,548,833
|
|
|
|
17,548,833
|
|
Total Investments
|
|
$
|
—
|
|
|
$
|
9,065,258
|
|
|
$
|
204,684,043
|
|
|
$
|
213,749,301
|
|
The fair values of our investments disaggregated into the three
levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2018
are as follows:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Senior Secured – First Lien
|
|
$
|
-
|
|
|
$
|
3,800,000
|
|
|
$
|
164,354,929
|
|
|
$
|
168,154,929
|
|
Senior Secured – Second Lien
|
|
|
-
|
|
|
|
-
|
|
|
|
42,549,396
|
|
|
|
42,549,396
|
|
Subordinated Debt
|
|
|
-
|
|
|
|
-
|
|
|
|
1,212,774
|
|
|
|
1,212,774
|
|
CLO/Structured Credit
|
|
|
-
|
|
|
|
1,739,600
|
|
|
|
-
|
|
|
|
1,739,600
|
|
Equity/Other
|
|
|
-
|
|
|
|
-
|
|
|
|
21,141,117
|
|
|
|
21,141,117
|
|
Total investments
|
|
$
|
-
|
|
|
$
|
5,539,600
|
|
|
$
|
229,258,216
|
|
|
$
|
234,797,816
|
|
The changes in investments classified as Level 3 are as follows
for the three months ended March 31, 2019 and March 31, 2018.
As of March 31, 2019:
|
|
Senior
|
|
|
Senior
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured -
|
|
|
Secured -
|
|
|
Senior
|
|
|
Equity/
|
|
|
|
|
|
|
First Lien
|
|
|
Second Lien
|
|
|
Subordinated
|
|
|
Other
|
|
|
Total
|
|
Balance as of January 1, 2019
|
|
$
|
164,354,929
|
|
|
$
|
42,549,396
|
|
|
$
|
1,212,774
|
|
|
$
|
21,141,117
|
|
|
$
|
229,258,216
|
|
Amortized discounts/premiums
|
|
|
198,020
|
|
|
|
196,059
|
|
|
|
-
|
|
|
|
-
|
|
|
|
394,079
|
|
Paid in-kind interest
|
|
|
84,504
|
|
|
|
-
|
|
|
|
6,074
|
|
|
|
90,339
|
|
|
|
180,917
|
|
Net realized gain (loss)
|
|
|
11,650
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(515,407
|
)
|
|
|
(503,757
|
)
|
Net change in unrealized appreciation (depreciation)
|
|
|
(1,941,703
|
)
|
|
|
(186,068
|
)
|
|
|
(1
|
)
|
|
|
1,778,221
|
|
|
|
(349,551
|
)
|
Purchases
|
|
|
12,415,146
|
|
|
|
6,640,000
|
|
|
|
-
|
|
|
|
400,000
|
|
|
|
19,455,146
|
|
Sales/Return of capital
|
|
|
(36,085,570
|
)
|
|
|
(6,120,000
|
)
|
|
|
-
|
|
|
|
(5,345,437
|
)
|
|
|
(47,551,007
|
)
|
Transfers in
|
|
|
3,800,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,800,000
|
|
Transfers out
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance as of March 31, 2019
|
|
$
|
142,836,976
|
|
|
$
|
43,079,387
|
|
|
$
|
1,218,847
|
|
|
$
|
17,548,833
|
|
|
$
|
204,684,043
|
|
Net change in unrealized appreciation (depreciation) from investments still held as of March 31, 2019
|
|
$
|
(1,852,191
|
)
|
|
$
|
(9,501
|
)
|
|
$
|
(1
|
)
|
|
$
|
1,435,417
|
|
|
$
|
(426,276
|
)
|
As of March 31, 2018:
|
|
Senior
|
|
|
Senior
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured -
|
|
|
Secured -
|
|
|
Senior
|
|
|
Equity/
|
|
|
|
|
|
|
First Lien
|
|
|
Second Lien
|
|
|
Subordinated
|
|
|
Other
|
|
|
Total
|
|
Balance as of January 1, 2018
|
|
$
|
177,340,027
|
|
|
$
|
14,203,691
|
|
|
$
|
66,884,849
|
|
|
$
|
29,125,978
|
|
|
$
|
287,554,545
|
|
Amortized discounts/premiums
|
|
|
65,851
|
|
|
|
(6,335
|
)
|
|
|
116,605
|
|
|
|
-
|
|
|
|
176,121
|
|
Paid in-kind interest
|
|
|
69,813
|
|
|
|
-
|
|
|
|
169,640
|
|
|
|
83,323
|
|
|
|
322,776
|
|
Net realized gain (loss)
|
|
|
8,185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,000
|
)
|
|
|
(14,815
|
)
|
Net change in unrealized appreciation (depreciation)
|
|
|
(116,675
|
)
|
|
|
76,334
|
|
|
|
(283,272
|
)
|
|
|
86,459
|
|
|
|
(237,154
|
)
|
Purchases
|
|
|
4,781,840
|
|
|
|
6,930,000
|
|
|
|
(854
|
)
|
|
|
-
|
|
|
|
11,710,986
|
|
Sales/Return of capital
|
|
|
(22,122,708
|
)
|
|
|
-
|
|
|
|
(25,528,488
|
)
|
|
|
23,000
|
|
|
|
(47,628,196
|
)
|
Transfers in
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Transfers out
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance as of March 31, 2018
|
|
$
|
160,026,333
|
|
|
$
|
21,203,690
|
|
|
$
|
41,358,480
|
|
|
$
|
29,295,760
|
|
|
$
|
251,884,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation (depreciation) from investments still held as of March 31, 2018
|
|
$
|
(31,130
|
)
|
|
$
|
76,334
|
|
|
$
|
(14,848
|
)
|
|
$
|
86,459
|
|
|
$
|
116,815
|
|
The following is a summary of the quantitative inputs and assumptions
used for items categorized in Level 3 of the fair value hierarchy as of March 31, 2019 and December 31, 2018, respectively.
As of March 31, 2019:
|
|
Fair Value at
|
|
|
|
|
|
|
Range
|
|
|
|
|
Assets at Fair Value
|
|
March 31,
2019
|
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
of
Inputs
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured - First Lien
|
|
$
|
142,836,976
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
|
7.0% - 16.1
|
%
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured - Second Lien
|
|
|
43,079,387
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
|
10.5% - 14.2
|
%
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Subordinated
|
|
|
1,218,847
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
|
14.0% - 14.2
|
%
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Ownership
|
|
|
14,823,786
|
|
|
Market Approach
|
|
Enterprise Value/ LTM EBITDA Multiple/ Transaction price
|
|
|
5.5x - 12.0x
|
|
|
|
7.1
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Ownership/ common Warrants
|
|
|
2,725,047
|
|
|
Market Approach
|
|
Enterprise Value/ LTM EBITDA Multiple/ Transaction price
|
|
|
4.5x - 12.0x
|
|
|
|
7.3
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
204,684,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018:
|
|
Fair Value at
|
|
|
|
|
|
|
Range
|
|
|
|
|
Assets at Fair Value
|
|
December 31,
2018
|
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
of
Inputs
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured - First Lien
|
|
$
|
164,354,929
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
|
7.0% - 14.0
|
%
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured - Second Lien
|
|
|
42,549,396
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
|
10.3% - 13.0
|
%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Subordinated
|
|
|
1,212,774
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
|
14.0
|
%
|
|
|
14.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Ownership
|
|
|
16,914,223
|
|
|
Market Approach
|
|
Enterprise Value/ LTM EBITDA Multiple/ Transaction price
|
|
|
5.5x - 12.0x
|
|
|
|
7.4
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Ownership/ common Warrants
|
|
|
4,226,894
|
|
|
Market Approach
|
|
Enterprise Value/ LTM EBITDA Multiple/ Transaction price
|
|
|
4.5x - 12.0x
|
|
|
|
8.1
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
229,258,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Share Transactions
On November 2, 2017, the Board approved a $2.5
million open market stock repurchase program. Pursuant to the program, the Company was authorized to repurchase up to $2.5 million
in aggregate of our common stock in the open market. The timing, manner, price and amount of any share repurchases were determined
by our management, in its discretion, based upon the evaluation of economic conditions, stock price, applicable legal and regulatory
requirements and other factors. Repurchases under the program were authorized through November 2, 2018.
On November 16, 2017, the Board approved expansion
of the open market stock repurchase program to $5.0 million and extension of the length of the program to January 31, 2019.
As of August 8, 2018, the Company repurchased an aggregate of
$5.0 million shares of our common stock under the discretionary open-market share repurchase program and, as a result, the program
terminated on such date in accordance with its terms. Subsequently, pursuant to the Board authorization on November 5, 2018, the
Company adopted a trading plan on December 10, 2018, for the purpose of repurchasing shares of its common stock in the open market
(the "Plan"). Under the Plan, the Company may repurchase up to the lesser of (1) 5.0% of the amount of shares of the
Company's common stock outstanding as of the date of the Plan, December 10, 2018 and (2) $10.0 million in aggregate amount of the
Company's common stock.
The following tables set forth the number of shares of common
stock repurchased by the Company under its share repurchase programs for the three months ended March 31, 2019 and 2018:
Three months ended March 31, 2019:
Month Ended
|
|
Shares Repurchased
|
|
|
Repurchase
Price Per Share
|
|
Aggregate
Consideration for
Repurchased
Shares
|
|
January 2019
|
|
|
207,220
|
|
|
$6.50 - $6.99
|
|
$
|
1,318,920
|
|
February 2019
|
|
|
22,509
|
|
|
$6.95 - $7.00
|
|
|
157,495
|
|
Total
|
|
|
229,729
|
|
|
|
|
$
|
1,476,415
|
|
Three months ended March 31, 2018:
Month Ended
|
|
Shares Repurchased
|
|
|
Repurchase
Price Per Share
|
|
Aggregate
Consideration for
Repurchased
Shares
|
|
January 2018
|
|
|
16,786
|
|
|
$8.01 - $8.22
|
|
$
|
136,949
|
|
March 2018
|
|
|
195,785
|
|
|
$6.05 - $7.24
|
|
|
1,373,656
|
|
Total
|
|
|
212,571
|
|
|
|
|
$
|
1,510,605
|
|
5. Distributions
The Company intends to make quarterly distributions
of available net investment income determined on a tax basis to its stockholders. Distributions to stockholders are recorded
on the record date. The amount, if any, to be distributed to stockholders is determined by the Board each quarter and
is generally based upon the earnings estimated by management. Net realized capital gains, if any, will be distributed at
least annually. If the Company does not distribute (or are not deemed to have distributed) at least 98% of the Company's
annual ordinary income in the calendar year earned (the “required distribution”), the Company will generally be
required to pay an excise tax equal to 4% of the amount by which the required distribution exceeds the distributions from
such taxable income for the year. 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 taxable income, the Company accrues
excise taxes, if any, on estimated excess taxable income. As of March 31, 2019 and December 31, 2018, the Company accrued
$470,026 and $435,797, respectively, for any unpaid potential excise tax liability and have included these amounts within
income tax asset or liability on the accompanying Consolidated Statements of Assets and Liabilities.
The following table reflects the dividends
on the Company’s common stock declared by the Board and paid for the three months ended March 31, 2019:
Date Declared
|
|
Record Date
|
|
Payment Date
|
|
Amount Per Share
|
|
March 11, 2019
|
|
March 29, 2019
|
|
April 4, 2019
|
|
$
|
0.180
|
|
The following table reflects the dividends
on the Company’s common stock declared
by the Board and paid for the three months ended March 31, 2018:
Date Declared
|
|
Record Date
|
|
Payment Date
|
|
Amount Per Share
|
|
March 8, 2018
|
|
March 30, 2018
|
|
April 4, 2018
|
|
$
|
0.180
|
|
The Company has adopted a dividend reinvestment plan (“DRIP”)
that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends
in cash. As a result, if the Company declares a cash dividend, the stockholders who have not “opted out” of the DRIP
no later than the record date will have their cash dividend automatically reinvested into additional shares of the Company’s
common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common
stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon
the final closing price of the common stock on the NASDAQ Global Select Market on the dividend payment date. Shares purchased in
the open market to satisfy the DRIP requirements will be valued upon the average price of the applicable shares purchased by the
plan administrator, before any associated brokerage or other costs.
6. Related Party Transactions
Management Fee
Under the Investment Advisory Agreement, the Company has agreed
to pay Alcentra NY an annual base management fee is calculated at an annual rate as follows: 1.50% of its gross assets (i.e., total
assets held before deduction of any liabilities), including assets purchased with borrowed funds or other forms of leverage and
excluding cash and cash equivalents (such as investments in U.S. Treasury Bills), if its gross assets are less than or equal to
$625,000,000; 1.40% if its gross assets are greater than or equal to $625,000,001 but less than or equal to $750,000,000; and 1.25%
if its gross assets are greater than or equal to $750,000,001. The various management fee percentages (i.e. 1.50%, 1.40% and 1.25%)
would apply to the Company’s entire gross assets in the event its gross assets exceed the various gross asset thresholds.
The base management fee is payable quarterly in arrears and is calculated based on the average value of the Company’s gross
assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters.
On May 4, 2018, the Adviser agreed to a temporary 25 basis point
reduction, from May 1, 2018 to April 30, 2019, across all of these base management fee breakpoints.
The incentive fee consists of two parts. The first part, which
is calculated and payable quarterly in arrears, equals 20% of the Company's ‘‘pre-incentive fee net investment income’’
for the immediately preceding quarter, subject to a hurdle rate of 2% per quarter, and is subject to a ‘‘catch-up’’
feature. The “catch-up” feature is intended to provide the Adviser with an incentive fee of 50% of the Company’s
“pre-incentive fee net investment income” as if a preferred return did not apply when our net investment income exceeds
2.5% in any quarter.
The foregoing incentive fee is subject to a total return requirement,
which provides that no incentive fee in respect of our pre-incentive fee net investment income is payable except to the extent
20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding quarters exceeds
the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. In other words, any ordinary income incentive
fee that is payable in a calendar quarter is limited to the lesser of (i) 20.0% of the amount by which our pre-incentive fee net
investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii)
(x) 20.0% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding calendar
quarters
minus
(y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing
purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum
of pre-incentive fee net investment income, realized gains and losses and unrealized appreciation and depreciation for our then
current and 11 preceding calendar quarters. In addition, the portion of such incentive fee that is attributable to deferred interest
(such as PIK interest or OID) is paid to the Adviser, together with interest thereon from the date of deferral to the date of payment,
only if and to the extent that the Company actually receives such interest in cash, and any accrual thereof will be reversed if
and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving rise
to any deferred interest accrual. Any reversal of such accounts would reduce net income for the quarter by the net amount of the
reversal (after taking into account the reversal of incentive fees payable) and would result in a reduction and possible elimination
of the incentive fees for such quarter. There is no accumulation of amounts on the hurdle rate from quarter to quarter, and accordingly
there is no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle, and there is no delay of
payment if prior quarters are below the quarterly hurdle. The Adviser has agreed to permanently waive any interest accrued on the
portion of the incentive fee attributable to deferred interest (such as PIK interest or OID).
The second part is calculated and payable in arrears as of the
end of each calendar year (or, upon termination of the Investment Advisory Agreement, as of the termination date) and equals 20%
of our aggregate cumulative realized capital gains from inception through the end of each calendar year, computed net of aggregate
cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less
the aggregate amount of any previously paid capital gain incentive fees. 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,
managerial assistance and consulting fees or other fees that the Company receives from portfolio companies) accrued during the
calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable for administrative
services under the Investment Advisory Agreement, and any interest expense and any distributions paid on any issued and outstanding
preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding
certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral
of non-cash interest). Pre-incentive fee net investment income excludes, in the case of investments with a deferred interest feature
(such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income until the Company
has received such income in cash.
For the three months ended March 31, 2019, the Company recorded
expenses for base management fees of $865,618, of which $144,270 was waived by the Adviser and $721,348 was payable at March 31, 2019.
For the three months ended March 31, 2018, the Company recorded expenses for base management fees of $1,234,863, of which $0 was
waived by the Adviser and $1,234,863 was payable at March 31, 2018.
For the three months ended March 31, 2019 the
Company reversed $487,124 in previously accrued income-based incentive fees, and for the three months ended March 31, 2018,
the Company incurred incentive fees of $0. As of March 31, 2019 and March 31, 2018, $403,672 and $1,294,985 in
income-based incentive fees, respectively, was payable by the Company. For each of the three months ended March 31, 2019 and
March 31, 2018, the Company incurred capital gains incentive fees of $0.
The Company’s officers are employees of the Adviser and
the Company will pay the allocable portion of the compensation of the Company’s Chief Financial Officer and Chief Compliance
Officer and their staffs pursuant to the Investment Advisory Agreement.
7. Directors' Fees
The Company’s independent directors each receive an
annual fee of $40,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in
connection with attending in-person each Board meeting and $1,000 for each Board meeting they participate in telephonically.
In addition, each independent director receives $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in
connection with each audit committee, compensation committee, nominating and corporate governance committee, and valuation
committee meeting attended in person or telephonically. The chair of the audit committee receives an annual fee of $10,000,
and the respective chairs of the compensation committee, the nominating and corporate governance committee and the valuation
committee each receives an annual fee of $5,000. The lead independent director also receives an annual fee of $15,000. The
Board may establish ad hoc committees or working groups from time to time to assist the Board in fulfilling its oversight
responsibilities, and the independent directors may receive fees and be reimbursed for reasonable out-of-pocket expenses
incurred in connection therewith.
In connection with the Board’s review of strategic
alternatives, the Board established a Committee of Independent Directors during 2018, which is comprised of each of the
Board’s independent directors and met throughout 2018 on a periodic basis. Effective April 2018, each member of the
Committee of Independent Directors received a monthly fee of $1,000, and the chair of the Committee of Independent Directors
received an additional monthly retainer of $5,000 for his services as chair and the increased responsibilities associated
therewith. Effective November 2018, each member of the Committee of Independent Directors receives $1,000 plus reimbursement
of reasonable out-of-pocket expenses incurred in connection with each meeting of the committee attended in person or
telephonically. In addition, the chair of the Committee of Independent Directors receives a monthly retainer of $4,000 for
his services as chair and the increased responsibilities associated therewith.
The Company has obtained directors’ and officers’
liability insurance on behalf of its directors and officers.
For the three months ended March 31, 2019 and March 31, 2018,
the Company recorded directors' fee expenses of $159,676 and $96,202, respectively, of which $130,000 and $72,250 was payable at
March 31, 2019 and March 31, 2018, respectively.
8. Purchases and Sales (Investment Transactions)
Investment purchases, sales and principal payments/paydowns
are summarized below for the three months ended March 31, 2019 and March 31, 2018.
|
|
For the three months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Investment purchases, at cost (including PIK interest and dividends)
|
|
$
|
26,946,547
|
|
|
$
|
30,318,967
|
|
Investment sales, proceeds (including principal payments/paydown proceeds)
|
|
|
47,569,751
|
|
|
|
47,628,196
|
|
9. Alcentra Capital InterNotes®
On January 30, 2015, the Company entered into a Selling Agent
Agreement with Incapital LLC, as purchasing agent for the Company's issuance of $40.0 million of Alcentra Capital InterNotes®.
On January 25, 2016, the Company entered into an additional Selling Agent Agreement with Incapital LLC, as purchasing agent for
the Company’s issuance of up to $15 million of Alcentra Capital InterNotes®.
These notes (the “Notes”) are direct unsecured
obligations and each series of notes has been issued by a separate trust (administered by U.S. Bank). The notes bear interest
at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.
During each of the three months ended March 31, 2019 and
2018, the Company did not issue any Alcentra Capital InterNotes®. For the three months ended March 31, 2019 and 2018, the
Company had average Notes outstanding of $55.0 million and $55.0 million (principal amount), respectively, with a weighted
average interest rate of 6.47% and 6.47%, respectively.
The following table summarizes the Alcentra Capital InterNotes®
issued and outstanding as of March 31, 2019.
Tenor at
|
|
Principal
|
|
|
Interest
|
|
|
Weighted
|
|
|
|
Origination
|
|
Amount
|
|
|
Rate
|
|
|
Average
|
|
|
|
(in years)
|
|
(000’s omitted)
|
|
|
Range
|
|
|
Interest Rate
|
|
|
Maturity Date Range
|
5
|
|
$
|
53,582
|
|
|
|
6.25% - 6.50%
|
|
|
|
6.38
|
%
|
|
February 15, 2020 - June 15, 2021
|
7
|
|
|
1,418
|
|
|
|
6.50% - 6.75%
|
|
|
|
6.63
|
%
|
|
January 15, 2022 - April 15, 2022
|
|
|
$
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the issuance of the Alcentra Capital
InterNotes®, the Company incurred $1.196 million of fees which are being amortized over the term of the notes and are
included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of March 31, 2019.
During the three months ended March 31, 2019 and March 31, 2018, the Company recorded $0.133 million and $0.127 million of
amortization of deferred note offering costs on the Alcentra Capital InterNotes®.
10. Credit Facility/Line of Credit
On May 8, 2014, the Company entered into a senior secured revolving
credit agreement (as amended and restated from time to time, the “Credit Facility”) with ING Capital LLC (“ING”),
as administrative agent, collateral agent and lender, and the lenders from time to time party thereto, to provide liquidity in
support of its investment and operational activities. The Credit Facility had an initial commitment of $80 million with an accordion
feature that allowed for an increase in the total commitments up to $160 million, subject to certain conditions and the satisfaction
of specified financial covenants. The Credit Facility was amended on August 11, 2015 to increase the commitments and the accordion
feature. The total commitments and accordion feature were $135 million and up to $250 million, respectively, subject to satisfaction
of certain conditions at the time of any such future increase. As amended, the Credit Facility had a maturity date of August 11,
2020 and bore interest, at our election, at a rate per annum equal to (i) 2.25% plus the highest of a prime rate, the Federal Funds
rate plus 0.5%, three month LIBOR plus 1%, and zero or (ii) 3.25% plus the one, three or six month LIBOR rate, as applicable.
On September 21, 2018, the Company amended certain
provisions of the Credit Facility. Under the Amended Credit Agreement, (i) revolving commitments by lenders were reduced from
$135 million to $115 million, with an accordion feature that allows for an increase in total commitments up to $180 million,
subject to satisfaction of certain conditions at the time of any such future increase, (ii) the maturity date of the Credit Facility was extended to September 21, 2022 and the revolving period was extended to September 21, 2021, and (iii) borrowings
under the Credit Facility bear interest, at the Company’s election, at a rate per annum equal to (a) 2.50% if the
contribution to the borrowing base of eligible portfolio investments that are long-term U.S. government securities and first
lien bank loans is greater than or equal to 70% (or 2.75% if such contribution is less than 70%) plus the one, three or six
month LIBOR rate, as applicable, or (b) 1.50% if the contribution to the borrowing base of eligible portfolio investments
that are long-term U.S. government securities and first lien bank loans is greater than or equal to 70% (or 1.75% if such
contribution is less than 70%) plus the highest of (A) a prime rate, (B) the Federal Funds rate plus 0.5%, (C) three month
LIBOR plus 1.0%, and (D) zero.
The Amended Credit Agreement also modifies certain covenants
in the Credit Facility, including to provide for a minimum asset coverage ratio of 2.00 to 1, a minimum interest coverage ratio
of 2.00 to 1 as of the last day of any fiscal quarter, and a requirement to maintain stockholder’s equity as of the last
day of any fiscal quarter to be no less than the greater of (i) 45% of the total assets of the Company and its subsidiaries as
at the last day of such fiscal quarter and (ii) the sum of (x) $120,000,000 plus (y) 65% of the aggregate net proceeds of all sales
of equity interests by the Company and its subsidiaries after the closing date of the Amended Credit Agreement. In addition, the
Amended Credit Agreement requires payment of a commitment fee ranging from 0.5% to 1.0% per annum based on the size of the unused
portion of the Credit Facility. This fee is included in interest expense on the Company’s Consolidated Statements of Operations.
The Credit Facility is secured by a first priority security interest in all of our portfolio investments, the equity interests
in certain of our direct and indirect subsidiaries, and substantially all of our other assets.
The Credit Facility agreement also contains customary terms
and conditions, including, without limitation, affirmative and negative covenants, including, without limitation, information reporting
requirements, a minimum liquidity test, and maintenance of RIC and BDC status. The Credit Facility agreement also contains customary
events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material
respect, breach of covenant, cross-default to other indebtedness, bankruptcy, and certain change in control events. As of March
31, 2019, the Company was in compliance in all material respects with the terms of the Credit Facility.
As of March 31, 2019 and December 31, 2018, the Company had
United States dollar borrowings of $28.6 million and $28.5 million outstanding under the Credit Facility, respectively. For the
three months ended March 31, 2019 and March 31, 2018, the Company borrowed an average of $30.4 million and $56.4 million, respectively,
with a weighted average interest rate of 4.77% and 4.91%, respectively.
In accordance with the 1940 Act, during the three
months ended March 31, 2019, the Company was allowed to borrow amounts such that its asset coverage, calculated pursuant to
the 1940 Act, was at least 200% after such borrowing. On May 4, 2018, the Board, including a
“required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940
Act, as amended by the Small Business Credit Availability Act. As a result, effective on May 4, 2019, the Company’s
asset coverage requirement applicable to senior securities, under the 1940 Act, was reduced to 150%; however, the Company
remains subject to a 200% minimum asset coverage ratio covenant under the Credit Facility and thus will not be able to take
advantage of the reduced asset coverage requirement under the 1940 Act unless and until it negotiates revised terms and
conditions with the lenders under the Credit Facility. As of March 31, 2019, the aggregate amount outstanding of the senior
securities issued by the Company was $55.0 million and the Company’s asset coverage ratio was 272%.
11. Market and Other Risk Factors
At March 31, 2019, a significant portion of the
Company’s portfolio investments are comprised of non-publicly-traded securities. The non-publicly-traded securities
trade in an illiquid marketplace. The portfolio is comprised of investments in the 18 industries listed in Note 13. Risks
affecting these industries include, but are not limited to, increasing competition, rapid changes in technology, government
actions and changes in economic conditions. These risk factors could have a material effect on the ultimate realizable value
of the Company’s investments.
The Company estimates the fair value of investments for which
observable market prices in active markets do not exist based on the best information available, which may differ significantly
from values that would have otherwise been used had a ready market for the investments existed and the differences could be material.
Market conditions may deteriorate, which may negatively impact
the estimated fair value of the Company’s investments or the amounts which are ultimately realized for such investments.
The above events are beyond the control of the Company and cannot
be predicted. Furthermore, the ability to liquidate investments and realize value is subject to significant limitations and uncertainties.
There may also be risk associated with the concentration of investments in one geographic region or in certain industries.
12. Commitments and Contingencies
In the normal course of business, the Company enters into contracts
that contain a variety of representations and warranties and which provide general indemnifications. In addition, the Company has
agreed to indemnify its officers, directors, employees, agents or any person who serves on behalf of the Company from any loss,
claim, damage, or liability which such person incurs by reason of his performance of activities of the Company, provided they acted
in good faith. The Company expects the risk of loss related to its indemnifications to be remote.
The Company’s investment portfolio may contain debt
investments that are in the form of lines of credit and unfunded delayed draw commitments, which require the Company to
provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of
March 31, 2019 and December 31, 2018, the Company had $16.4 million and $15.0 million in unfunded commitments under loan and
financing agreements, respectively. The Company’s unfunded commitment under loan and financing agreements as of March
31, 2019 and December 31, 2018 are presented below.
|
|
As of
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Pharmalogic Holdings Corp.
|
|
$
|
4,760,000
|
|
|
$
|
4,760,000
|
|
Epic Healthcare Staffing Intermediate Holdco, LLC
|
|
|
3,927,273
|
|
|
|
363,637
|
|
Clanwilliam Group Ltd.
|
|
|
3,632,980
|
|
|
|
3,753,476
|
|
Superior Controls, Inc.
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
Healthcare Associates of Texas, LLC
|
|
|
1,454,003
|
|
|
|
1,572,225
|
|
Manna Pro Products, LLC
|
|
|
92,764
|
|
|
|
92,764
|
|
CGGR Operations Holding Corporation
|
|
|
-
|
|
|
|
2,000,000
|
|
Total
|
|
$
|
16,367,020
|
|
|
$
|
15,042,102
|
|
13. Classification of Portfolio Investments
As of March 31, 2019, the Company’s portfolio investments
were categorized as follows:
Investment Type
|
|
Cost
|
|
|
Fair Value
|
|
|
% of
Net
Assets*
|
|
Senior Secured - First Lien
|
|
$
|
151,644,699
|
|
|
$
|
150,129,138
|
|
|
|
104.39
|
%
|
Senior Secured - Second Lien
|
|
|
42,926,372
|
|
|
|
43,079,387
|
|
|
|
29.96
|
%
|
Equity/Other
|
|
|
31,862,423
|
|
|
|
17,548,833
|
|
|
|
12.20
|
%
|
CLO/Structured Credit
|
|
|
1,948,952
|
|
|
|
1,773,096
|
|
|
|
1.23
|
%
|
Senior Subordinated
|
|
|
4,747,835
|
|
|
|
1,218,847
|
|
|
|
0.85
|
%
|
Total
|
|
$
|
233,130,281
|
|
|
$
|
213,749,301
|
|
|
|
148.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Region
|
|
|
|
|
|
|
|
|
|
|
|
|
South
|
|
$
|
48,732,847
|
|
|
$
|
47,582,290
|
|
|
|
33.09
|
%
|
West
|
|
|
38,729,299
|
|
|
|
39,382,613
|
|
|
|
27.38
|
%
|
Southeast
|
|
|
41,903,027
|
|
|
|
30,852,327
|
|
|
|
21.45
|
%
|
Northeast
|
|
|
33,455,364
|
|
|
|
30,241,442
|
|
|
|
21.03
|
%
|
Mid-Atlantic
|
|
|
29,228,789
|
|
|
|
26,468,437
|
|
|
|
18.41
|
%
|
Midwest
|
|
|
17,972,705
|
|
|
|
16,276,361
|
|
|
|
11.32
|
%
|
Canada
|
|
|
14,746,555
|
|
|
|
14,845,053
|
|
|
|
10.32
|
%
|
Ireland
|
|
|
6,412,743
|
|
|
|
6,327,682
|
|
|
|
4.40
|
%
|
US
|
|
|
1,948,952
|
|
|
|
1,773,096
|
|
|
|
1.23
|
%
|
Total
|
|
$
|
233,130,281
|
|
|
$
|
213,749,301
|
|
|
|
148.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Services
|
|
$
|
39,245,249
|
|
|
$
|
39,380,726
|
|
|
|
27.38
|
%
|
Healthcare Services
|
|
|
38,782,915
|
|
|
|
38,911,183
|
|
|
|
27.06
|
%
|
Consumer Services
|
|
|
32,416,441
|
|
|
|
32,409,288
|
|
|
|
22.54
|
%
|
Industrial Services
|
|
|
20,849,327
|
|
|
|
16,879,789
|
|
|
|
11.74
|
%
|
Technology & Telecom
|
|
|
14,912,086
|
|
|
|
14,827,024
|
|
|
|
10.31
|
%
|
Retail
|
|
|
12,126,824
|
|
|
|
12,332,933
|
|
|
|
8.58
|
%
|
Oil & Gas Services
|
|
|
11,239,976
|
|
|
|
11,239,976
|
|
|
|
7.82
|
%
|
High Tech Industries
|
|
|
8,705,903
|
|
|
|
8,729,396
|
|
|
|
6.07
|
%
|
Financial Services
|
|
|
8,528,999
|
|
|
|
8,528,999
|
|
|
|
5.93
|
%
|
Wholesale/Distribution
|
|
|
7,492,961
|
|
|
|
8,482,000
|
|
|
|
5.90
|
%
|
Media: Advertising, Printing & Publishing
|
|
|
12,677,834
|
|
|
|
8,239,996
|
|
|
|
5.73
|
%
|
Environmental/Recycling Services
|
|
|
6,854,203
|
|
|
|
5,149,849
|
|
|
|
3.58
|
%
|
Telecommunications
|
|
|
4,413,222
|
|
|
|
4,415,000
|
|
|
|
3.07
|
%
|
USD CLO
|
|
|
1,948,952
|
|
|
|
1,773,096
|
|
|
|
1.23
|
%
|
Security
|
|
|
5,485,401
|
|
|
|
1,023,999
|
|
|
|
0.71
|
%
|
Transportation Logistics
|
|
|
1,254,000
|
|
|
|
760,000
|
|
|
|
0.53
|
%
|
Industrial Manufacturing
|
|
|
500,000
|
|
|
|
666,047
|
|
|
|
0.46
|
%
|
Education
|
|
|
5,695,988
|
|
|
|
—
|
|
|
|
0.0
|
%
|
Total
|
|
$
|
233,130,281
|
|
|
$
|
213,749,301
|
|
|
|
148.63
|
%
|
*Fair value as a percentage of Net Assets
|
As of December 31, 2018, the Company’s portfolio investments
were categorized as follows:
Investment Type
|
|
Cost
|
|
|
Fair Value
|
|
|
% of
Net
Assets*
|
|
Senior Secured - First Lien
|
|
$
|
167,745,286
|
|
|
$
|
168,154,929
|
|
|
|
115.33
|
%
|
Senior Secured - Second Lien
|
|
|
42,210,313
|
|
|
|
42,549,396
|
|
|
|
29.18
|
%
|
Equity/Other
|
|
|
37,232,929
|
|
|
|
21,141,117
|
|
|
|
14.50
|
%
|
CLO/Structured Credit
|
|
|
1,948,058
|
|
|
|
1,739,600
|
|
|
|
1.20
|
%
|
Senior Subordinated
|
|
|
4,741,760
|
|
|
|
1,212,774
|
|
|
|
0.83
|
%
|
Total
|
|
$
|
253,878,346
|
|
|
$
|
234,797,816
|
|
|
|
161.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Region
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$
|
52,427,327
|
|
|
$
|
54,266,593
|
|
|
|
37.22
|
%
|
Southeast
|
|
|
56,535,014
|
|
|
|
44,026,689
|
|
|
|
30.20
|
%
|
South
|
|
|
45,437,808
|
|
|
|
43,758,859
|
|
|
|
30.01
|
%
|
Northeast
|
|
|
43,622,806
|
|
|
|
38,144,071
|
|
|
|
26.16
|
%
|
Midwest
|
|
|
24,841,625
|
|
|
|
23,614,916
|
|
|
|
16.20
|
%
|
Canada
|
|
|
22,721,398
|
|
|
|
22,900,000
|
|
|
|
15.71
|
%
|
Ireland
|
|
|
6,344,310
|
|
|
|
6,347,088
|
|
|
|
4.35
|
%
|
US
|
|
|
1,948,058
|
|
|
|
1,739,600
|
|
|
|
1.19
|
%
|
Total
|
|
$
|
253,878,346
|
|
|
$
|
234,797,816
|
|
|
|
161.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Services
|
|
$
|
45,913,805
|
|
|
$
|
46,130,114
|
|
|
|
31.64
|
%
|
Healthcare Services
|
|
|
44,727,905
|
|
|
|
45,038,816
|
|
|
|
30.89
|
%
|
Technology & Telecom
|
|
|
32,324,555
|
|
|
|
33,345,749
|
|
|
|
22.87
|
%
|
Consumer Services
|
|
|
26,231,367
|
|
|
|
26,237,699
|
|
|
|
17.99
|
%
|
Industrial Services
|
|
|
21,095,416
|
|
|
|
19,559,789
|
|
|
|
13.42
|
%
|
Retail
|
|
|
12,051,199
|
|
|
|
12,119,708
|
|
|
|
8.31
|
%
|
Oil & Gas Services
|
|
|
11,385,108
|
|
|
|
11,382,254
|
|
|
|
7.81
|
%
|
Wholesale/Distribution
|
|
|
10,189,394
|
|
|
|
10,614,192
|
|
|
|
7.28
|
%
|
High Tech Industries
|
|
|
8,701,223
|
|
|
|
8,729,396
|
|
|
|
5.99
|
%
|
Media: Advertising, Printing & Publishing
|
|
|
12,677,834
|
|
|
|
6,554,225
|
|
|
|
4.50
|
%
|
Environmental/Recycling Services
|
|
|
6,757,790
|
|
|
|
5,699,791
|
|
|
|
3.91
|
%
|
Telecommunications
|
|
|
4,410,000
|
|
|
|
4,410,000
|
|
|
|
3.02
|
%
|
USD CLO
|
|
|
1,948,058
|
|
|
|
1,739,600
|
|
|
|
1.19
|
%
|
Security
|
|
|
5,485,401
|
|
|
|
1,023,999
|
|
|
|
0.70
|
%
|
Waste Services
|
|
|
2,529,303
|
|
|
|
820,437
|
|
|
|
0.56
|
%
|
Transportation Logistics
|
|
|
1,254,000
|
|
|
|
726,000
|
|
|
|
0.50
|
%
|
Industrial Manufacturing
|
|
|
500,000
|
|
|
|
666,047
|
|
|
|
0.46
|
%
|
Education
|
|
|
5,695,988
|
|
|
|
-
|
|
|
|
0.00
|
%
|
Total
|
|
$
|
253,878,346
|
|
|
$
|
234,797,816
|
|
|
|
161.04
|
%
|
*Fair value as a percentage of Net Assets
14. Financial Highlights
The following per share data and financial ratios have been
derived from information provided in the consolidated financial statements of the Company. The following is a schedule of financial
highlights for one share of common stock for the three months ended March 31, 2019 and March 31, 2018.
|
|
For the three months
ended
|
|
|
For the three months
ended
|
|
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Per share data
(1)
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
11.13
|
|
|
$
|
11.09
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
0.22
|
|
|
|
0.27
|
|
Net realized and unrealized gains (losses)
(2)
|
|
|
0.02
|
|
|
|
0.04
|
|
Benefit (Provision) for income taxes on unrealized gain (loss) on investments
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
Net increase (decrease) in net assets resulting from operations
|
|
|
0.22
|
|
|
|
0.31
|
|
|
|
|
|
|
|
|
|
|
Distributions to shareholders:
(3)
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(0.18
|
)
|
|
|
(0.18
|
)
|
Total dividend distributions declared
|
|
|
(0.18
|
)
|
|
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
11.17
|
|
|
$
|
11.22
|
|
Market value per share, end of period
|
|
$
|
7.50
|
|
|
$
|
6.96
|
|
|
|
|
|
|
|
|
|
|
Total return based on net asset value
(4)(5)
|
|
|
2.0
|
%
|
|
|
2.8
|
%
|
Total return based on market value
(4)(5)
|
|
|
18.7
|
%
|
|
|
(14.9
|
)%
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
12,875,566
|
|
|
|
14,010,374
|
|
|
|
|
|
|
|
|
|
|
Ratio/Supplemental Data:
|
|
|
|
|
|
|
|
|
Net assets, at end of period
|
|
$
|
143,855,310
|
|
|
$
|
157,182,400
|
|
Ratio of total expenses before waiver to average net assets
(6)
|
|
|
10.10
|
%
|
|
|
10.76
|
%
|
Ratio of interest expenses to average net assets
(6)
|
|
|
4.55
|
%
|
|
|
4.63
|
%
|
Ratio of incentive fees to average net assets
(6)
|
|
|
(1.36
|
)%
|
|
|
—%
|
|
Ratio of waiver of management and incentive fees to average net assets
(6)
|
|
|
0.40
|
%
|
|
|
—%
|
|
Ratio of net expenses to average net assets
(6)
|
|
|
9.69
|
%
|
|
|
10.76
|
%
|
Ratio of net investment income (loss) before waiver to average net assets
(6)
|
|
|
7.90
|
%
|
|
|
10.32
|
%
|
Ratio of net investment income (loss) after waiver to average net assets
(6)
|
|
|
7.50
|
%
|
|
|
10.32
|
%
|
|
|
|
|
|
|
|
|
|
Total Credit Facility payable outstanding
|
|
$
|
28,568,305
|
|
|
$
|
55,403,273
|
|
Total Notes payable outstanding
|
|
$
|
55,000,000
|
|
|
$
|
55,000,000
|
|
|
|
|
|
|
|
|
|
|
Asset coverage ratio
(7)
|
|
|
2.7
|
|
|
|
2.4
|
|
Portfolio turnover rate
(5)
|
|
|
12
|
%
|
|
|
11
|
%
|
(1)
|
|
The per share data was derived by using the average shares outstanding during the period.
|
(2)
|
|
The amount shown at this caption is the balancing figure derived from the other figures in the schedule. The amount shown at this caption for a share outstanding throughout the year may not agree with the change in the aggregate gains and losses in portfolio securities for the year because of the timing of purchases or sales of the Company's shares in relation to fluctuating market values for the portfolio.
|
(3)
|
|
The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the entire period.
|
(4)
|
|
Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Company’s dividend reinvestment plan.
|
(5)
|
|
Not annualized.
|
(6)
|
|
Annualized, except for non-recurring expenses.
|
(7)
|
|
Asset coverage ratio is equal to (i) the sum of (A) net assets at the end of the period and (B) debt outstanding at the end of the period, divided by (ii) total debt outstanding at the end of the period.
|
15. Unconsolidated Significant Subsidiaries
In accordance with the SEC’s Regulation S-X and GAAP,
the Company has one subsidiary, Southern Technical College (“STI”), that is deemed to be a “significant subsidiary”
as of and for the three months ended March 31, 2019 and two subsidiaries, FST Technical Services, LLC (“FST”) and STI,
that are deemed to be “significant subsidiaries” as of and for the year ended December 31, 2018 for which summarized
financial information is presented below in aggregate as of and for the three months ended March 31, 2019 and as of and for the
year ended December 31, 2018.
Southern Technical College
|
|
As of
|
|
|
|
|
For the
three months
ended
|
|
Balance Sheet
|
|
March 31, 2019
|
|
|
Income Statement
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
6,267,710
|
|
|
Net Sales
|
|
$
|
2,552,182
|
|
Noncurrent Assets
|
|
|
43,896,887
|
|
|
Gross Profit
|
|
|
244,551
|
|
Current Liabilities
|
|
|
7,983,597
|
|
|
Net Income/EBITDA
|
|
|
260,721
|
|
Noncurrent Liabilities
|
|
|
18,743,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Technical College and FST Technical Services,
LLC
|
|
As of
|
|
|
|
|
For the year
ended
|
|
Balance Sheet
|
|
December 31, 2018
|
|
|
Income Statement
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
15,536,556
|
|
|
Net Sales
|
|
$
|
50,355,783
|
|
Noncurrent Assets
|
|
|
64,090,276
|
|
|
Gross Profit
|
|
|
12,732,260
|
|
Current Liabilities
|
|
|
10,838,139
|
|
|
Net Income/EBITDA
|
|
|
7,318,579
|
|
Noncurrent Liabilities
|
|
|
32,322,997
|
|
|
|
|
|
|
|
In addition to the risks associated with our investments in
general, there are unique risks associated with our investments in these entities. The business and growth of FST at December 31,
2018 depended in large part on the continued trend toward outsourcing of certain services in the semiconductor and biopharmaceutical
industries and there was no assurance that this trend in outsourcing would have continued, as companies may elect to perform such
services internally. A significant change in the direction of that trend generally, or a trend in the semiconductor and biopharmaceutical
industry not to use, or to reduce the use of, outsourced services such as those provided by FST, could have significantly decreased
its revenues and such decreased revenues could have had a material adverse effect on it or its results of operations or financial
condition.
The business and growth of STI have been impacted by regulatory
changes that have affected for-profit institutions. Although the regulatory climate has since improved, there is no assurance that
this will continue to improve enrollment or retention rates.
16. Subsequent Events
Subsequent to March 31, 2019, the following
activity occurred:
On April 1 and April 2, 2019,
the Company received total funds of $7.0 million for the Champion ONE debt and equity repayment, which occurred
on March 29, 2019 (consisting of $1.1 million in equity value and the principal amount of $5.9 million, respectively).
On April 3, 2019, Superior Controls, Inc.
repaid its debt and equity for $8.5 million (consisting of the principal amount of $7.1 million and $1.4 million in equity value).
On April 4, 2019, the Company paid a dividend
to shareholders of record as of March 29, 2019 of $0.18 per share.
On April 4, 2019, the Board announced that it had entered into
a formal review process to evaluate strategic alternatives for the Company, including a sale of the Company, a business combination
and other strategic transactions. The Board authorized its Committee of Independent Directors to lead the process.
On April 10, 2019, the Company sold $5.0 million of the
first lien loan for Impact Group at 99.5% of par value.
On May 3, 2019, the Board approved
the 2019 second quarter dividend of $0.18 per share and a special dividend of $0.15 per share for stockholders of record as
of June 28, 2019, payable July 3, 2019. The special dividend was declared by the Board as a result of overearning the
quarterly dividend in 2018.
On May 3, 2019, the Adviser agreed to
a continuation of the temporary 25 basis point reduction across all of the base management fee breakpoints under the Investment
Advisory Agreement, effective from May 1, 2019 to April 30, 2020.
Item 2.