Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2015

 

OR

 

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

 

For the transition period from          to         

 

Commission file number 814-01132

 


 

Crescent Capital BDC, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 


 

Delaware

 

47-3162282

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

11100 Santa Monica Blvd., Suite 2000, Los Angeles, CA

 

90025

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (310) 235-5900

 

Not applicable

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  o  No  x

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  o

 

Accelerated filer  o

 

 

 

Non-Accelerated filer  x

 

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 Securities Exchange Act of 1934).  Yes  o  No  x

 

The number of shares of the Registrant’s common stock, $.001 par value per share, outstanding at November 16, 2015 was 3,450,840.

 

 

 



Table of Contents

 

CRESENT CAPITAL BDC, INC.

 

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2015

 

Table of Contents

 

 

INDEX

 

PAGE
NO.

PART I.

FINANCIAL INFORMATION

 

2

Item 1.

Financial Statements

 

2

 

Consolidated Statement of Assets and Liabilities as of September 30, 2015 (Unaudited)

 

2

 

Consolidated Statements of Operations for the three months ended September 30, 2015 (Unaudited) and for the period from February 5, 2015 (Inception) to September 30, 2015 (Unaudited)

 

3

 

Consolidated Statement of Changes in Net Assets for the period from February 5, 2015 (Inception) to September 30, 2015 (Unaudited)

 

4

 

Consolidated Statement of Cash Flows for the period from February 5, 2015 (Inception) to September 30, 2015 (Unaudited)

 

5

 

Consolidated Schedule of Investments as of September 30, 2015 (Unaudited)

 

6

 

Notes to Consolidated Financial Statements (Unaudited)

 

12

Item 2.

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

 

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

39

Item 4.

Controls and Procedures

 

40

PART II.

OTHER INFORMATION

 

41

Item 1.

Legal Proceedings

 

41

Item 1A.

Risk Factors

 

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

Item 3.

Defaults Upon Senior Securities

 

42

Item 4.

[Reserved]

 

42

Item 5.

Other Information

 

42

Item 6.

Exhibits

 

43

 



Table of Contents

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current or prospective portfolio investments, our industry, our beliefs, and our assumptions. We believe that it is important to communicate our future expectations to our investors. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

 

The factors listed under “Risk Factors” in Amendment No. 2 to our Form 10 registration statement filed with the Securities and Exchange Commission (the “SEC”) on June 5, 2015, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The occurrence of the events described in these risk factors and elsewhere in this report could have a material adverse effect on our business, results of operation and financial position. The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

 

·                  Potential fluctuation in quarterly operating results

·                  Potential impact of economic recessions or downturns

·                  Adverse developments in the credit markets

·                  Operation in a highly competitive market for investment opportunities

·                  Regulations governing our operation as a business development company

·                  Financing investments with borrowed money

·                  Lack of liquidity in investments

·                  Defaults by portfolio companies

·                  Uncertainty as to the value of certain portfolio investments

·                  Potential resignation of the Advisor and or the Administrator

·                  Changes in interest rates may affect our cost of capital and net investment income

·                  Potential adverse effects of price declines and illiquidity in the corporate debt markets

·                  Risks associated with original issue discount (“OID”) and payment-in-kind (“PIK”) interest income

·                  Risks regarding distributions

·                  Potential adverse effects of new or modified laws and regulations

 

Although we believe that the assumptions on which these forward-looking statements are based upon are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The safe harbor provisions of Section 21E of the 1934 Act, which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this report because we are an investment company.

 

See accompanying notes.

 

1



Table of Contents

 

Crescent Capital BDC, Inc.

 

Consolidated Statement of Assets and Liabilities

 

 

 

As of
September 30,
2015
(Unaudited)

 

Assets

 

 

 

Investments, non-controlled and non-affiliated, at fair value (cost of $119,411,760)

 

$

118,809,728

 

Cash and cash equivalents

 

1,094,515

 

Receivable for investments sold

 

59,980

 

Receivable for common stock issued

 

4,269,067

 

Interest receivable

 

290,543

 

Deferred financing costs

 

311,892

 

Due from Advisor - affiliate

 

6,076

 

Prepaid expenses and other assets

 

84,154

 

Total assets

 

$

124,925,955

 

 

 

 

 

Liabilities

 

 

 

Revolving credit facility

 

$

52,000,000

 

Payable for investments purchased

 

3,750,275

 

Distributions payable

 

151,009

 

Management fees payable - affiliate

 

261,406

 

Due to Administrator - affiliate

 

108,169

 

Professional fees payable

 

114,500

 

Directors’ fees payable

 

42,953

 

Interest and credit facility fees and expenses payable

 

96,042

 

Accrued expenses and other liabilities

 

271,260

 

Total liabilities

 

$

56,795,614

 

 

 

 

 

Commitments and Contingencies (Note 7)

 

 

 

 

 

 

 

Net Assets

 

 

 

Common stock, par value $0.001 per share (13,000,000 shares authorized, 3,450,840 shares issued and outstanding as of September 30, 2015)

 

$

3,451

 

Paid-in capital in excess of par value

 

68,839,929

 

Accumulated net realized gain (loss)

 

106

 

Distributions in excess of net investment income

 

(111,113

)

Net unrealized appreciation (depreciation) on investments

 

(602,032

)

Total Net Assets

 

$

68,130,341

 

Total Liabilities and Net Assets

 

$

124,925,955

 

Net asset value per share

 

$

19.74

 

 

See accompanying notes.

 

2



Table of Contents

 

Crescent Capital BDC, Inc.

 

Consolidated Statements of Operations

 

 

 

For the three months ended
September 30, 2015
(Unaudited)

 

For the period from
February 5, 2015 (inception) to
September 30, 2015 (1)
(Unaudited)

 

Investment Income:

 

 

 

 

 

Interest income from non-controlled and non-affiliated investments

 

$

1,155,317

 

$

1,155,317

 

Total investment income

 

1,155,317

 

1,155,317

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

Interest and credit facility fees and expenses

 

$

252,476

 

$

255,515

 

Management fees (net of $52,404 and $53,146 waived for the three months ended September 30, 2015 and for the period from February 5, 2015 (inception) to September 30, 2015, respectively)

 

261,407

 

269,316

 

Directors’ fees

 

62,745

 

67,544

 

Professional fees

 

114,500

 

114,500

 

Organization expenses

 

68,148

 

111,957

 

Other general and administrative expenses

 

288,054

 

295,789

 

Total expenses

 

1,047,330

 

1,114,621

 

Net investment income before taxes

 

107,987

 

40,696

 

Income taxes

 

800

 

800

 

Net investment income after taxes

 

107,187

 

39,896

 

 

 

 

 

 

 

Net realized and unrealized gains (losses) on investments:

 

 

 

 

 

Net realized gain on investments

 

106

 

106

 

Net change in unrealized appreciation (depreciation) on investments

 

(591,005

)

(602,032

)

Net realized and unrealized gains (losses)

 

(590,899

)

(601,926

)

Net decrease in net assets resulting from operations

 

$

(483,712

)

$

(562,030

)

 

 

 

 

 

 

Per Common Share Data:

 

 

 

 

 

Earnings per share (basic and diluted):

 

$

(0.21

)

$

(0.64

)

Net investment income per share (basic and diluted):

 

$

0.05

 

$

0.05

 

Weighted average shares outstanding (basic and diluted):

 

2,263,409

 

881,213

 

Distributions declared per share:

 

$

0.04

 

$

0.04

 

 


(1)           The Company was formed on February 5, 2015 and commenced operations on June 26, 2015.

 

See accompanying notes.

 

3



Table of Contents

 

Crescent Capital BDC, Inc.

 

Consolidated Statement of Changes in Net Assets

 

 

 

For the period
from February 5,
2015 (inception)
to
September 30,
2015(1)
(Unaudited)

 

Increase (decrease) in net assets resulting from operations:

 

 

 

Net investment income

 

$

39,896

 

Net realized gain on investments

 

106

 

Net change in unrealized appreciation (depreciation) on investments

 

(602,032

)

Net decrease in net assets resulting from operations

 

(562,030

)

 

 

 

 

Distributions to shareholders from:

 

 

 

Net investment income

 

(151,009

)

Total distributions to shareholders

 

(151,009

)

 

 

 

 

Capital transactions:

 

 

 

Issuance of common stock

 

69,500,000

 

Equity offering costs

 

(156,620

)

Redemption of common stock

 

(500,000

)

Net increase in net assets resulting from capital transactions

 

68,843,380

 

Total increase in net assets

 

68,130,341

 

Net assets at beginning of period

 

 

Net assets at end of period

 

$

68,130,341

 

Distributions in excess of net investment income

 

$

(111,113

)

 

 

 

 

Changes in Shares

 

 

 

Common stock, at beginning of period

 

 

Issuance of common stock

 

3,451,840

 

Redemption of common stock

 

(1,000

)

Common stock, at end of period

 

3,450,840

 

 


(1)           The Company was formed on February 5, 2015 and commenced operations on June 26, 2015.

 

See accompanying notes.

 

4



Table of Contents

 

Crescent Capital BDC, Inc.

 

Consolidated Statement of Cash Flows

 

 

 

For the period
from February 5,
2015 (inception)
to
September 30,
2015(1)
(Unaudited)

 

Cash flows from operating activities:

 

 

 

Net increase (decrease) in net assets resulting from operations

 

$

(562,030

)

 

 

 

 

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities:

 

 

 

Purchases of investments

 

(120,352,005

)

Proceeds from sales of investments and principal repayments

 

954,008

 

Net realized (gain) loss on investments

 

(106

)

Net change in unrealized (appreciation) depreciation on investments

 

602,032

 

Amortization of premium and accretion of discount, net

 

(13,657

)

Amortization of deferred financing costs

 

107,786

 

 

 

 

 

Increase (decrease) in operating assets and liabilities:

 

 

 

(Increase) decrease in receivable for investments sold

 

(59,980

)

(Increase) decrease in interest receivable

 

(290,543

)

(Increase) decrease in due from Advisor

 

(6,076

)

(Increase) decrease in prepaid expenses and other assets

 

(84,154

)

Increase (decrease) in payable for investments purchased

 

3,750,275

 

Increase (decrease) in management fees payable

 

261,406

 

Increase (decrease) in due to administrator

 

108,169

 

Increase (decrease) in professional fees payable

 

114,500

 

Increase (decrease) in directors’ fees payable

 

42,953

 

Increase (decrease) in interest and credit facility expense payable

 

96,042

 

Increase (decrease) in accrued expenses and other liabilities

 

271,260

 

Net cash provided by (used for) operating activities

 

(115,060,120

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Issuance of common stock

 

65,230,933

 

Redemption of common stock

 

(500,000

)

Financing costs paid related to revolving credit facility

 

(419,678

)

Offering costs paid

 

(156,620

)

Borrowings on revolving credit facility

 

75,000,000

 

Repayments on revolving credit facility

 

(23,000,000

)

Net cash provided by (used for) financing activities

 

116,154,635

 

Net increase (decrease) in cash

 

1,094,515

 

Cash, beginning of period

 

 

Cash and cash equivalents, end of period

 

$

1,094,515

 

 

 

 

 

Supplemental and non-cash financing activities:

 

 

 

Cash paid during the period for interest

 

$

50,853

 

Receivable for common stock issued

 

$

4,269,067

 

 


(1)           The Company was formed on February 5, 2015 and commenced operations on June 26, 2015.

 

See accompanying notes.

 

5



Table of Contents

 

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

 

 

 

Investment Type

 

Spread
Above
Index *

 

Interest
Rate

 

Maturity
Date

 

Principal/ Par
Amount

 

Cost

 

Percentage
of Net
Assets **

 

Fair
Value

 

Investments(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Goods

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alion Science and Technology Corporation

 

Unsecured Debt

 

 

 

11.00

%

08/2022

 

$

5,000,000

 

$

4,851,689

 

7.3

%

$

5,000,000

 

Brand Energy & Infrastructure Services, Inc.

 

Senior Secured First Lien

 

L + 375(2)

 

4.75

%

11/2020

 

846,580

 

828,439

 

1.1

 

768,271

 

Builders FirstSource, Inc.(3)

 

Senior Secured First Lien

 

L + 500(2)

 

6.00

%

07/2022

 

175,000

 

173,277

 

0.3

 

173,879

 

Doosan Infracore International, Inc.(3)

 

Senior Secured First Lien

 

L + 350(4)

 

4.50

%

05/2021

 

747,947

 

752,582

 

1.1

 

750,131

 

GYP Holdings III Corp.

 

Senior Secured First Lien

 

L + 375(2)

 

4.75

%

04/2021

 

862,929

 

841,142

 

1.2

 

845,670

 

McJunkin Red Man Corporation(3)

 

Senior Secured First Lien

 

L + 375(4)

 

4.75

%

11/2019

 

994,395

 

990,788

 

1.4

 

973,682

 

Pro Mach Group, Inc.

 

Senior Secured First Lien

 

L + 375(2)

 

4.75

%

10/2021

 

748,116

 

753,661

 

1.1

 

750,173

 

Silver II US Holdings, LLC(3) (5)

 

Senior Secured First Lien

 

L + 300(2)

 

4.00

%

12/2019

 

850,000

 

825,657

 

1.2

 

778,460

 

Univar Inc.(3)

 

Senior Secured First Lien

 

L + 325(6)

 

4.25

%

07/2022

 

750,000

 

753,697

 

1.1

 

737,284

 

 

 

 

 

 

 

 

 

 

 

10,974,966

 

10,770,932

 

15.8

 

10,777,550

 

Commercial & Professional Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADMI Corp.

 

Senior Secured First Lien

 

L + 450(2)

 

5.50

%

04/2022

 

997,500

 

1,009,149

 

1.5

 

1,003,111

 

Advantage Sales & Marketing, Inc.

 

Senior Secured Second Lien

 

L + 650(2)

 

7.50

%

07/2022

 

500,000

 

503,368

 

0.7

 

480,000

 

Advantage Sales & Marketing, Inc.

 

Senior Secured First Lien

 

L + 325(2)

 

4.25

%

07/2021

 

847,859

 

848,287

 

1.2

 

834,344

 

Asurion LLC

 

Senior Secured Second Lien

 

L + 750(2)

 

8.50

%

03/2021

 

275,000

 

280,454

 

0.4

 

249,219

 

Asurion LLC

 

Senior Secured First Lien

 

L + 375(4)

 

5.00

%

05/2019

 

371,020

 

373,306

 

0.5

 

354,880

 

Asurion LLC

 

Senior Secured First Lien

 

L+ 400(2)

 

5.00

%

08/2022

 

498,750

 

498,020

 

0.7

 

472,800

 

Brickman Group Ltd. LLC

 

Senior Secured Second Lien

 

L + 650(4)

 

7.50

%

12/2021

 

500,000

 

502,453

 

0.7

 

488,750

 

Emerald Expositions Holding, Inc.

 

Senior Secured First Lien

 

L + 375(2)

 

4.75

%

06/2020

 

747,865

 

751,591

 

1.1

 

747,398

 

IMC OP, LP

 

Senior Secured First Lien

 

L + 350(2)

 

4.50

%

08/2020

 

822,108

 

822,109

 

1.2

 

819,540

 

PowerTeam Services, LLC

 

Senior Secured First Lien

 

L + 325(2)

 

4.25

%

05/2020

 

997,579

 

995,178

 

1.4

 

988,850

 

USAGM HoldCo LLC(7) (8)

 

Senior Secured Second Lien

 

L + 850

 

9.50

%

07/2023

 

612,245

 

(6,013

)

 

(4,592

)

USAGM HoldCo LLC

 

Senior Secured Second Lien

 

L + 850(2)

 

9.50

%

07/2023

 

9,387,755

 

8,999,472

 

13.7

 

9,317,347

 

William Morris Endeavor Entertainment, LLC

 

Senior Secured Second Lien

 

L + 725(2)

 

8.25

%

05/2022

 

250,000

 

243,896

 

0.3

 

239,375

 

William Morris Endeavor Entertainment, LLC

 

Senior Secured First Lien

 

L + 425(2)

 

5.25

%

05/2021

 

997,475

 

1,001,179

 

1.5

 

994,567

 

 

 

 

 

 

 

 

 

 

 

17,805,156

 

16,822,449

 

24.9

 

16,985,589

 

Consumer Durables & Apparel

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Varsity Brands, Inc.

 

Senior Secured First Lien

 

L + 400(2)

 

5.00

%

12/2021

 

997,487

 

1,007,925

 

1.5

 

1,002,225

 

Consumer Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Catapult Learning, LLC

 

Senior Secured First Lien

 

L + 810(2)

 

9.10

%

07/2020

 

5,000,000

 

4,951,160

 

7.3

 

4,951,159

 

Centerplate, Inc.

 

Senior Secured First Lien

 

L + 375(2)

 

4.75

%

11/2019

 

716,735

 

716,735

 

1.0

 

711,360

 

Scientific Games International, Inc.(3) (5)

 

Senior Secured First Lien

 

L + 500(4)

 

6.00

%

10/2021

 

997,494

 

1,001,244

 

1.5

 

986,427

 

 

See accompanying notes.

 

6



Table of Contents

 

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

 

 

 

Investment Type

 

Spread
Above
Index *

 

Interest
Rate

 

Maturity
Date

 

Principal/ Par
Amount

 

Cost

 

Percentage
of Net
Assets **

 

Fair
Value

 

SkillSoft Corporation

 

Senior Secured First Lien

 

L + 475(6)

 

5.75

%

04/2021

 

$

997,481

 

$

977,887

 

1.3

%

$

901,892

 

 

 

 

 

 

 

 

 

 

 

7,711,710

 

7,647,026

 

11.1

 

7,550,838

 

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fairmount Minerals LTD(3)

 

Senior Secured First Lien

 

L + 350(2)

 

4.50

%

09/2019

 

846,571

 

805,070

 

1.0

 

666,675

 

Murray Energy Corporation

 

Senior Secured First Lien

 

L + 650(2)

 

7.50

%

04/2020

 

498,750

 

466,696

 

0.6

 

389,718

 

 

 

 

 

 

 

 

 

 

 

1,345,321

 

1,271,766

 

1.6

 

1,056,393

 

Food & Staples Retailing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Albertsons, LLC

 

Senior Secured First Lien

 

L + 450(4)

 

5.50

%

08/2021

 

995,165

 

1,001,829

 

1.5

 

996,643

 

BJ’s Wholesale Club, Inc.

 

Senior Secured First Lien

 

L + 350(2)

 

4.50

%

09/2019

 

847,843

 

851,534

 

1.2

 

841,060

 

BJ’s Wholesale Club, Inc.

 

Senior Secured Second Lien

 

L + 750(2)

 

8.50

%

03/2020

 

250,000

 

252,447

 

0.4

 

248,230

 

 

 

 

 

 

 

 

 

 

 

2,093,008

 

2,105,810

 

3.1

 

2,085,933

 

Food, Beverage & Tobacco

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Seafoods Group LLC

 

Senior Secured Second Lien

 

L + 900(4)

 

10.00

%

02/2022

 

5,000,000

 

4,864,209

 

7.3

 

5,000,000

 

Health Care Equipment & Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alere, Inc.(3) (5)

 

Senior Secured First Lien

 

L + 325(4)

 

4.25

%

06/2022

 

850,000

 

856,375

 

1.2

 

851,194

 

CDRH Parent, Inc.(5)

 

Senior Secured First Lien

 

L + 425(2)

 

5.25

%

07/2021

 

1,000,000

 

1,006,875

 

1.5

 

997,915

 

Concentra Inc.

 

Senior Secured First Lien

 

L + 300(2)

 

4.00

%

06/2022

 

748,125

 

748,125

 

1.1

 

747,650

 

Connolly Corporation

 

Senior Secured First Lien

 

L + 350(2)

 

4.50

%

05/2021

 

847,854

 

853,631

 

1.2

 

846,442

 

Heartland Dental, LLC

 

Senior Secured First Lien

 

L + 450(2)

 

5.50

%

12/2018

 

997,487

 

1,004,029

 

1.5

 

996,655

 

Onex Carestream Finance LP(3)

 

Senior Secured First Lien

 

L + 400(2)

 

5.00

%

06/2019

 

739,583

 

740,191

 

1.0

 

710,924

 

Onex Carestream Finance LP(3)

 

Senior Secured Second Lien

 

L + 850(2)

 

9.50

%

12/2019

 

250,000

 

250,000

 

0.4

 

242,187

 

 

 

 

 

 

 

 

 

 

 

5,433,049

 

5,459,226

 

7.9

 

5,392,967

 

Insurance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AssuredPartners Capital, Inc.

 

Senior Secured First Lien

 

L + 400(2)

 

5.00

%

03/2021

 

748,112

 

749,941

 

1.1

 

748,580

 

Confie Seguros Holding II Co.

 

Senior Secured First Lien

 

L + 450(4)

 

5.75

%

11/2018

 

748,072

 

752,297

 

1.1

 

749,942

 

 

 

 

 

 

 

 

 

 

 

1,496,184

 

1,502,238

 

2.2

 

1,498,522

 

Materials

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anchor Glass Container Corporation

 

Senior Secured First Lien

 

L + 350(2)

 

4.50

%

07/2022

 

973,075

 

977,003

 

1.4

 

975,299

 

AZ Chem US Inc.(3)

 

Senior Secured First Lien

 

L + 350(4)

 

4.50

%

06/2021

 

821,624

 

825,548

 

1.2

 

821,850

 

Berlin Packaging LLC

 

Senior Secured First Lien

 

L + 350(2)

 

4.50

%

10/2021

 

991,910

 

996,657

 

1.5

 

989,431

 

ECO Services Operations LLC

 

Senior Secured First Lien

 

L + 375(9)

 

4.75

%

12/2021

 

1,007,487

 

1,009,961

 

1.5

 

1,004,969

 

Emerald Performance Materials, LLC

 

Senior Secured First Lien

 

L + 350(4)

 

4.50

%

08/2021

 

996,288

 

1,000,577

 

1.5

 

992,865

 

Hilex Poly Co. LLC

 

Senior Secured First Lien

 

L + 500(2)

 

6.00

%

12/2021

 

1,000,000

 

1,011,167

 

1.5

 

999,170

 

Ineos US Finance LLC(3)

 

Senior Secured First Lien

 

L + 325(4)

 

4.25

%

03/2022

 

498,746

 

499,962

 

0.7

 

485,499

 

MacDermid, Inc.(3)

 

Senior Secured First Lien

 

L + 375(4)

 

4.75

%

06/2020

 

743,753

 

749,163

 

1.1

 

725,624

 

Onex Wizard US Acquisition Inc.(3)

 

Senior Secured First Lien

 

L + 325(4)

 

4.25

%

03/2022

 

846,623

 

848,766

 

1.2

 

846,534

 

 

See accompanying notes.

 

7



Table of Contents

 

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

 

 

 

Investment Type

 

Spread
Above
Index *

 

Interest
Rate

 

Maturity
Date

 

Principal/ Par
Amount

 

Cost

 

Percentage
of Net
Assets **

 

Fair
Value

 

Reynolds Group Holdings Inc.(3)

 

Senior Secured First Lien

 

L + 350(4)

 

4.50

%

12/2018

 

500,000

 

502,390

 

0.7

 

500,852

 

Royal Holdings, Inc.

 

Senior Secured First Lien

 

L + 350(2)

 

4.50

%

06/2022

 

$

847,875

 

$

850,692

 

1.2

%

$

845,861

 

Tank Holding Corp.

 

Senior Secured First Lien

 

L + 425(4)

 

5.25

%

03/2022

 

977,528

 

987,067

 

1.4

 

976,003

 

 

 

 

 

 

 

 

 

 

 

10,204,909

 

10,258,953

 

14.9

 

10,163,957

 

Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acosta Holdco, Inc.(5)

 

Senior Secured First Lien

 

L + 325(2)

 

4.25

%

09/2021

 

997,875

 

998,908

 

1.5

 

984,468

 

Charter Communications Operating, LLC(3)

 

Senior Secured First Lien

 

L + 275(4)

 

3.50

%

01/2023

 

325,000

 

324,197

 

0.5

 

323,715

 

iHeartCommunications, Inc.(3)

 

Senior Secured First Lien

 

L + 675(4)

 

6.94

%

01/2019

 

1,000,000

 

936,173

 

1.2

 

832,030

 

Interactive Data Corporation

 

Senior Secured First Lien

 

L + 375(2)

 

4.75

%

05/2021

 

847,854

 

853,074

 

1.2

 

846,264

 

Regal Cinemas Corporation(3)

 

Senior Secured First Lien

 

L + 300(2)

 

3.75

%

04/2022

 

847,875

 

852,466

 

1.3

 

850,190

 

Rentpath, Inc.(3)

 

Senior Secured First Lien

 

L + 525(4)

 

6.25

%

12/2021

 

997,487

 

1,007,290

 

1.5

 

990,635

 

Tribune Media Company(3)

 

Senior Secured First Lien

 

L + 300(6)

 

3.75

%

12/2020

 

498,750

 

501,225

 

0.7

 

495,219

 

WideOpenWest Finance LLC

 

Senior Secured First Lien

 

L + 350(2)

 

4.50

%

04/2019

 

847,870

 

850,669

 

1.2

 

841,048

 

 

 

 

 

 

 

 

 

 

 

6,362,711

 

6,324,002

 

9.1

 

6,163,569

 

Pharmaceuticals, Biotechnology & Life Sciences

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Catalent Pharma Solutions Inc.(3)

 

Senior Secured First Lien

 

L + 325(4)

 

4.25

%

05/2021

 

847,854

 

854,084

 

1.3

 

849,177

 

Jaguar Holding Company II

 

Senior Secured First Lien

 

L + 325(2)

 

4.25

%

08/2022

 

748,125

 

745,336

 

1.1

 

740,995

 

Medpace Holdings, Inc.

 

Senior Secured First Lien

 

L + 375(4)

 

4.75

%

04/2021

 

850,000

 

853,701

 

1.2

 

847,344

 

Ortho-Clinical Diagnostics, Inc.

 

Senior Secured First Lien

 

L + 375(2)

 

4.75

%

06/2021

 

847,778

 

837,344

 

1.2

 

834,709

 

Synarc - Biocare Holdings LLC

 

Senior Secured First Lien

 

 

 

7.75

%

03/2021

 

15,500,000

 

15,114,545

 

22.2

 

15,114,545

 

 

 

 

 

 

 

 

 

 

 

18,793,757

 

18,405,010

 

27.0

 

18,386,770

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Automotive L.P.(3)

 

Senior Secured Second Lien

 

L + 500(4)

 

6.00

%

04/2020

 

500,000

 

509,637

 

0.7

 

504,585

 

Retailing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Academy, Ltd.

 

Senior Secured First Lien

 

L+ 400(2)

 

5.00

%

07/2022

 

942,705

 

948,150

 

1.4

 

939,114

 

Dollar Tree, Inc.(3)

 

Senior Secured First Lien

 

L + 275(4)

 

3.50

%

07/2022

 

1,000,000

 

1,003,722

 

1.5

 

1,002,085

 

J.C. Penney Corporation, Inc.(3)

 

Senior Secured First Lien

 

L + 500(2)

 

6.00

%

05/2018

 

995,799

 

996,220

 

1.4

 

991,911

 

Midas Intermediate Holdco II, LLC

 

Senior Secured First Lien

 

L + 350(2)

 

4.50

%

08/2021

 

997,481

 

1,005,796

 

1.5

 

997,900

 

PetSmart, Inc.

 

Senior Secured First Lien

 

L + 325(2)

 

4.25

%

03/2022

 

847,875

 

850,439

 

1.2

 

847,383

 

 

 

 

 

 

 

 

 

 

 

4,783,861

 

4,804,327

 

7.0

 

4,778,393

 

Software & Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compuware Corporation

 

Senior Secured First Lien

 

L + 525(2)

 

6.25

%

12/2021

 

996,237

 

978,572

 

1.4

 

962,614

 

Epicor Software Corporation

 

Senior Secured First Lien

 

L + 375(2)

 

4.75

%

06/2022

 

997,500

 

999,339

 

1.5

 

992,513

 

First Data Corporation

 

Senior Secured First Lien

 

L + 400(4)

 

4.20

%

03/2021

 

1,000,000

 

1,004,862

 

1.5

 

999,995

 

Informatica- Italics Merger Sub LLC(3)

 

Senior Secured First Lien

 

L + 350(2)

 

4.50

%

08/2022

 

850,000

 

851,236

 

1.2

 

846,218

 

 

See accompanying notes.

 

8



Table of Contents

 

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

 

 

 

Investment Type

 

Spread
Above
Index *

 

Interest
Rate

 

Maturity
Date

 

Principal/ Par
Amount

 

Cost

 

Percentage
of Net
Assets **

 

Fair
Value

 

Magic Newco LLC(3)

 

Senior Secured First Lien

 

L + 400(2)

 

5.00

%

12/2018

 

997,432

 

1,000,987

 

1.5

 

999,801

 

Mediaocean LLC

 

Senior Secured First Lien

 

L + 475(4)

 

5.75

%

08/2022

 

5,500,000

 

5,445,644

 

8.0

 

5,479,375

 

Merrill Communications, LLC

 

Senior Secured First Lien

 

L + 525(2)

 

6.25

%

06/2022

 

$

994,020

 

$

997,669

 

1.5

%

$

991,535

 

Sophia, L.P.(5)

 

Senior Secured First Lien

 

L + 375(2)

 

4.75

%

09/2022

 

750,000

 

749,400

 

1.1

 

749,415

 

SS&C Technologies Inc.(3)

 

Senior Secured First Lien

 

L + 325(4)

 

4.00

%

07/2022

 

284,978

 

284,404

 

0.4

 

285,928

 

The Active Network, Inc.

 

Senior Secured First Lien

 

L + 450(2)

 

5.50

%

11/2020

 

1,005,450

 

999,285

 

1.5

 

998,331

 

Tibco Software Inc.

 

Senior Secured First Lien

 

L + 550(4)

 

6.50

%

12/2020

 

498,747

 

499,988

 

0.7

 

495,006

 

Wall Street Systems Delaware, Inc.(3)

 

Senior Secured First Lien

 

L + 350(2)

 

4.50

%

04/2021

 

500,000

 

503,695

 

0.7

 

499,370

 

WP Mustang Holdings LLC

 

Senior Secured First Lien

 

L + 450(2)

 

5.50

%

05/2021

 

997,475

 

1,001,151

 

1.4

 

980,852

 

 

 

 

 

 

 

 

 

 

 

15,371,839

 

15,316,232

 

22.4

 

15,280,953

 

Technology Hardware & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dell International LLC

 

Senior Secured First Lien

 

L + 325(2)

 

4.00

%

04/2020

 

748,750

 

749,054

 

1.1

 

745,867

 

Riverbed Technology, Inc.

 

Senior Secured First Lien

 

L + 500(2)

 

6.00

%

04/2022

 

997,494

 

1,012,751

 

1.4

 

1,000,402

 

Zebra Technologies Corporation(3)

 

Senior Secured First Lien

 

L + 400(2)

 

4.75

%

10/2021

 

1,000,000

 

1,016,053

 

1.5

 

1,007,610

 

 

 

 

 

 

 

 

 

 

 

2,746,244

 

2,777,858

 

4.0

 

2,753,879

 

Telecommunication Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Birch Communications, Inc.

 

Senior Secured First Lien

 

L + 675(2)

 

7.75

%

07/2020

 

1,000,000

 

1,004,864

 

1.5

 

1,001,250

 

Level 3 Financing Inc.(3)

 

Senior Secured First Lien

 

L + 300(2)

 

4.00

%

01/2020

 

500,000

 

501,814

 

0.7

 

499,187

 

U.S. Telepacific Corporation

 

Senior Secured First Lien

 

L + 500(2)

 

6.00

%

11/2020

 

997,487

 

999,931

 

1.5

 

996,555

 

 

 

 

 

 

 

 

 

 

 

2,497,487

 

2,506,609

 

3.7

 

2,496,992

 

Transportation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Airlines, Inc.(3)

 

Senior Secured First Lien

 

L + 275(2)

 

3.50

%

10/2021

 

500,000

 

501,823

 

0.7

 

499,063

 

Kenan Advantage Group, Inc.(7) (8)

 

Senior Secured First Lien

 

 

 

 

 

01/2017

 

71,809

 

268

 

 

(45

)

Kenan Advantage Group, Inc.

 

Senior Secured First Lien

 

L + 300(4)

 

4.00

%

07/2022

 

678,191

 

680,664

 

1.0

 

677,771

 

 

 

 

 

 

 

 

 

 

 

1,250,000

 

1,182,755

 

1.7

 

1,176,789

 

Utilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Panda Sherman Power, LLC

 

Senior Secured First Lien

 

L + 750(2)

 

9.00

%

09/2018

 

996,229

 

989,039

 

1.3

 

911,550

 

 

See accompanying notes.

 

9



Table of Contents

 

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

 

 

 

Investment Type

 

Spread
Above
Index *

 

Interest
Rate

 

Maturity
Date

 

Principal/ Par
Amount

 

Cost

 

Percentage
of Net
Assets **

 

Fair
Value

 

TPF II Power, LLC

 

Senior Secured First Lien

 

L + 450(2)

 

5.50

%

10/2021

 

$

993,047

 

$

999,790

 

1.5

%

$

994,189

 

 

 

 

 

 

 

 

 

 

 

1,989,276

 

1,988,829

 

2.8

 

1,905,739

 

Total Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

$

117,356,966

 

$

115,525,793

 

168.7

%

$

114,961,643

 

Equity Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Goods

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alion Science and Technology Corporation(10)

 

Common Stock

 

 

 

 

 

 

 

535,714

 

535,714

 

0.8

 

535,714

 

Commercial Services & Supplies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Universal Services Equity Investments(10)

 

Common Stock

 

 

 

 

 

 

 

1,000,000

 

1,000,000

 

1.5

 

1,000,000

 

Total Equity Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

$

1,535,714

 

$

1,535,714

 

2.3

%

$

1,535,714

 

Total United States

 

 

 

 

 

 

 

 

 

 

 

$

117,061,507

 

171.0

%

$

116,497,357

 

Cayman Islands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Materials

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IBC Capital Limited(3)

 

Senior Secured First Lien

 

L + 375(2)

 

4.75

%

09/2021

 

$

847,870

 

834,622

 

1.2

 

813,955

 

Total Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cayman Islands

 

 

 

 

 

 

 

 

 

$

847,870

 

$

834,622

 

1.2

%

$

813,955

 

 

 

 

 

 

 

 

 

 

 

 

 

$

834,622

 

1.2

%

$

813,955

 

Total Cayman Islands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pharmaceuticals, Biotechnology & Life Sciences

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Concordia Healthcare Corp.(3)

 

Senior Secured First Lien

 

L + 375(4)

 

4.75

%

04/2022

 

498,750

 

503,622

 

0.7

 

498,959

 

Total Debt Investments

 

 

 

 

 

 

 

 

 

$

498,750

 

$

503,622

 

0.7

%

$

498,959

 

Canada

 

 

 

 

 

 

 

 

 

 

 

$

503,622

 

0.7

%

$

498,959

 

Total Canada

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Luxembourg

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Altice Financing SA(3)

 

Senior Secured First Lien

 

L + 450(2)

 

5.50

%

07/2019

 

997,462

 

1,012,009

 

1.5

 

999,457

 

Total Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Luxembourg

 

 

 

 

 

 

 

 

 

$

997,462

 

$

1,012,009

 

1.5

%

$

999,457

 

Total Luxembourg

 

 

 

 

 

 

 

 

 

 

 

$

1,012,009

 

1.5

%

$

999,457

 

Total Investments

 

 

 

 

 

 

 

 

 

 

 

$

119,411,760

 

174.4

%

$

118,809,728

 

 


*

The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and which reset daily, quarterly or semiannually. For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect at September 30, 2015. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate loans, a spread above a reference rate is not applicable.

**

Percentage is based on net assets of $68,130,341 as of September 30, 2015.

(1)

All positions held are non-controlled/non-affiliated investments as defined by the Investment Company Act of 1940, as amended (“1940 Act”). Non-controlled/non-affiliated investments are investments that are neither controlled investments nor affiliated investments.

(2)

The interest rate on these loans is subject to a base rate plus 3 month LIBOR, which as of September 30, 2015 was 0.33%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3 month LIBOR rate at September 30, 2015, the prevailing rate in effect as of September 30, 2015 was the base rate plus the LIBOR floor.

 

See accompanying notes.

 

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Table of Contents

 

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

 

(3)

Investment is not a qualifying investment as defined under section 55 (a) of the Investment Company Act of 1940. Qualifying assets must represent at least 70% of total assets at the time of acquisition.

(4)

The interest rate on these loans is subject to a base rate plus 1 month LIBOR, which as of September 30, 2015 was 0.19%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month LIBOR rate at September 30, 2015, the prevailing rate in effect as of September 30, 2015 was the base rate plus the LIBOR floor.

(5)

Position or portion thereof unsettled as of September 30, 2015.

(6)

The interest rate on these loans is subject to a base rate plus 6 month LIBOR, which as of September 30, 2015 was 0.53%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6 month LIBOR rate at September 30, 2015, the prevailing rate in effect as of September 30, 2015 was the base rate plus the LIBOR floor.

(7)

The negative cost is the result of the capitalized discount or unfunded commitment being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount or unfunded commitment on the loan.

(8)

Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. See Note 7 “Commitments and Contingencies”.

(9)

The interest rate on these loans is subject to a base rate plus 2 month LIBOR, which as of September 30, 2015 was 0.26%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 2 month LIBOR rate at September 30, 2015, the prevailing rate in effect as of September 30, 2015 was the base rate plus the LIBOR floor.

(10)

Non-income producing security.

 

See accompanying notes.

 

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CRESCENT CAPITAL BDC, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015 (Unaudited)

 

Note 1. Organization and Basis of Presentation

 

Crescent Capital BDC, Inc. (the “Company”) was formed on February 5, 2015 (“Inception”) as a Delaware corporation structured as an externally managed, closed-end, non-diversified management investment company. The Company commenced investment operations on June 26, 2015 (“Commencement”). The Company has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, the Company has elected to be treated for U.S. federal income tax purposes as a regulated investment company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a RIC, the Company will not be taxed on its income to the extent that it distributes such income each year and satisfies other applicable income tax requirements.

 

The Company is managed by CBDC Advisors, LLC (the “Advisor”), an investment adviser that is registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended. CBDC Administration, LLC (the “Administrator”) provides the administrative services necessary for the Company to operate. Company management consists of investment and administrative professionals from the Advisor and Administrator along with the Company’s Board of Directors (the “Board”). The Advisor directs and executes the investment operations and capital raising activities of the Company subject to oversight from the Board, which sets the broad policies of the Company. The Board has delegated investment management of the Company’s investment assets to the Advisor.  The Board consists of five directors, three of whom are independent.

 

On July 23, 2015, the Company formed CBDC Universal Equity, Inc., a wholly-owned subsidiary. This subsidiary allows the Company 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 the Company. All intercompany balances and transactions have been eliminated.

 

The Company’s primary investment objective is to maximize the total return to the Company’s stockholders in the form of current income and capital appreciation through debt and related equity investments.  The Company will seek to achieve its investment objectives by originating and investing primarily in secured debt (including senior secured, unitranche and second lien debt) and unsecured debt (including senior unsecured and subordinated debt), as well as related equity securities of private U.S. middle-market companies.

 

Basis of Presentation

 

The Company’s functional currency is United States dollars and these consolidated financial statements have been prepared in that currency. The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to Regulation S-X.

 

Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited interim financial results included herein contain all adjustments and reclassifications that are necessary for the fair presentation of consolidated financial statements for the periods included herein. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the period from February 5, 2015 (Inception) to December 31, 2015.

 

The Company is an investment company and, therefore, applies the specialized accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services — Investment Companies.

 

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Table of Contents

 

Fiscal Year End

 

The Company’s fiscal year ends on December 31.

 

Note 2. Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that may affect the amounts reported in the consolidated financial statements and accompanying notes. These consolidated financial statements reflect adjustments that in the opinion of the Company are necessary for the fair statement of the results for the periods presented. Although management believes that the estimates and assumptions are reasonable, changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of demand deposits and highly liquid investments (e.g., money market funds, U.S. Treasury notes, and similar type instruments) with original maturities of three months or less. Cash and cash equivalents other than money market mutual funds, are carried at cost plus accrued interest, which approximates fair value. Money market mutual funds are carried at their net asset value, which approximates fair value. The Company deposits its cash and cash equivalents with highly-rated banking corporations and, at times, cash deposits may exceed the insured limits under applicable law.

 

Investment Transactions

 

Investments purchased on a secondary market are recorded on the trade date. Loan originations are recorded on the date of the binding commitment, which is generally the funding date. Realized gains or losses are recorded on the First In, First Out (“FIFO”) method as the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments written off during the period, net of recoveries. The net change in unrealized gains or losses primarily reflects the change in investment values as of the last business day of the reporting period and also includes the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.

 

Investment Valuation

 

Investments for which market quotations are readily available are typically valued at those market quotations. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by the Board, based on, among other things, the input of the Advisor, the Company’s Audit Committee and independent third-party valuation firms engaged at the direction of the Board.

 

The Board oversees and supervises a multi-step valuation process, which includes, among other procedures, the following:

 

·                  The valuation process begins with each investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the portfolio management team.

·                  The Advisor’s management reviews the preliminary valuations with the investment professionals. Agreed upon valuation recommendations are presented to the Audit Committee.

·                  The Audit Committee reviews the valuations presented and recommends values for each investment to the Board.

 

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Table of Contents

 

·                  The Board reviews the recommended valuations and determines the fair value of each investment; valuations that are not based on readily available market quotations are valued in good faith based on, among other things, the input of the Advisor, Audit Committee and, where applicable, other third parties.

 

The Company currently conducts this valuation process on a quarterly basis.

 

In connection with debt and equity securities that are valued at fair value in good faith by the Board, the Board will engage independent third-party valuation firms to perform certain limited procedures that the Board has identified.

 

The Company applies Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurement (ASC 820), as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC 820 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. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC 820, these levels are summarized 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 applies the valuation policy approved by its Board that is consistent with ASC 820. Consistent with the valuation policy, the Company evaluates the source of inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When a security is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), the Company subjects those prices to various criteria in making the determination as to whether a particular investment would qualify for classification as a Level 2 or Level 3 investment. For example, the Company reviews pricing methodologies provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs. Some additional factors considered include the number of prices obtained as well as an assessment as to their quality. Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. There were no transfers between levels during the period from June 26, 2015 (Commencement) through September 30, 2015.

 

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 such 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 may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such 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 unrealized gains or losses reflected herein. See Note 4. Investments and Note 5. Fair Value of Financial Instruments for additional information on the Company’s investment portfolio.

 

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Table of Contents

 

Equity Offering and Organization Expenses

 

The Company has agreed to repay the Advisor for initial organization costs and equity offering costs incurred prior to the commencement of its operations up to a maximum of $1.5 million on a pro rata basis over the first $350 million of invested capital not to exceed 3 years from the initial capital commitment. To the extent such costs relate to equity offerings, these costs are charged as a reduction of capital upon the issuance of common shares. To the extent such costs relate to organization costs, these costs are expensed in the consolidated statement of operations upon the issuance of common shares. The Advisor is responsible for organization and private equity offerings costs in excess of $1.5 million. See Note 7. Commitments and Contingencies for additional discussion of certain related party transactions with the Advisor.

 

Debt Issuance Costs

 

The Company records expenses related to issuance of debt obligations as deferred financing costs. These expenses are deferred and amortized using the effective yield method, or straight-line method for revolving credit facilities, over the stated maturity life of the obligation. As of September 30, 2015 there was $311,892 of deferred financing costs on the Company’s Consolidated Statement of Assets and Liabilities.

 

Interest and Dividend Income Recognition

 

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