What changed in this filing

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Item 1. Business

2021-03-16 compared with 2020-03-17 · 78 added, 89 removed, 584 unchanged (22% of the section changed)

1 unchanged sentence

When used in this Annual Report on Form 10-K, the terms “we,” “us,” “our” or similar terms refer to the Company and its consolidated subsidiaries.

In addition, the term “portfolio companies” refers to companies in which we have invested, either directly or indirectly through our total return swap, or TRS (described in further detail under “Item 1.

Business – Financing Arrangements – Total Return Swap” below).

We are an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act.

We elected to be treated for federal income tax purposes as a regulated investment company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code.

We are managed by CIM, our affiliate and a registered investment adviser under the Advisers Act.

In addition, the term “portfolio companies” refers to companies in which we have invested, either directly or indirectly through our consolidated subsidiaries.

We are an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act.

We elected to be treated for federal income tax purposes as a RIC, as defined under Subchapter M of the Code.

We are managed by CIM, our affiliate and a registered investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act.

Pursuant to an investment advisory agreement with us, CIM oversees the management of our activities and is responsible for making investment decisions for our portfolio.

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and (d) monthly valuation reports and support for all broker-quoted investments.

All of our investment decisions are the sole responsibility of, and are made at the sole discretion of, CIM’s investment committee, which consists entirely of CIG senior personnel.

All of our investment decisions are the sole responsibility of, and are made at the sole discretion of, CIM’s investment committee, which consists entirely of CIG personnel.

Our investment objective is to generate current income and, to a lesser extent, capital appreciation for investors.

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To enhance our opportunity for gain, we employ leverage as market conditions permit and at the discretion of CIM.

On March 23, 2018, an amendment to Section 61(a) of the 1940 Act was signed into law to permit BDCs to reduce the minimum “asset coverage” ratio to 150% from 200% and, as a result, to potentially increase the ratio of a BDC's debt to equity to a maximum of 2-to-1 from a maximum of 1-to-1, so long as certain approval and disclosure requirements are satisfied.

We currently have not determined whether to seek to utilize such additional leverage.

For purposes of the asset coverage ratio test applicable to us as a BDC, we treated the outstanding notional amount of the TRS, less the total amount of cash collateral posted by Flatiron Funding, LLC, or Flatiron, under the TRS, as a senior security for the life of that instrument.

On March 23, 2018, an amendment to Section 61(a) of the 1940 Act was signed into law to permit BDCs to reduce the minimum “asset coverage” ratio from 200% to 150% and, as a result, to potentially increase the ratio of a BDC's debt to equity from a maximum of 1-to-1 to a maximum of 2-to-1, so long as certain approval and disclosure requirements are satisfied.

In 2021, we intend to seek the approval of our shareholders to reduce our minimum "asset coverage" ratio from 200% to 150% in accordance with the 1940 Act.

For purposes of the asset coverage ratio test applicable to us as a BDC, we treated the outstanding notional amount of the total return swap, or TRS, with Citibank, N.A., or Citibank, less the total amount of cash collateral posted by Flatiron Funding, LLC, or Flatiron, under the TRS, as a senior security for the life of that instrument.

On April 18, 2017, the TRS expired in accordance with its terms subsequent to the consummation of the Citibank Credit Facility (as described in Note 8 to our consolidated financial statements contained in this report).

As a BDC, we are subject to certain regulatory restrictions in negotiating or investing in certain investments with entities with which we may be prohibited from doing so under the 1940 Act, such as CIM and its affiliates, unless we obtain an exemptive order from the SEC.

Furthermore, we are subject to certain regulatory restrictions on investing with AIM and its affiliates in transactions where AIM or its affiliates negotiate terms other than price on our behalf.

We are limited in our ability to engage in co-investment transactions with AIM and its affiliates and CIM and its affiliates without exemptive relief from the SEC.

Even if we receive exemptive relief, CIM’s investment committee may determine that we should not participate in a co-investment transaction.

Portfolio and Investment Activity

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December 31, 2020

Investments Cost(1)

Investments Fair

Percentage of

Investments Cost(1) Investments Fair

Value Percentage of

Senior secured first lien debt $ 1,266,564 $ 1,223,268 81.8 %

Senior secured second lien debt 171,480 151,506 10.1 %

Collateralized securities and structured products - debt

Collateralized securities and structured products - equity 15,305 12,131 0.8 %

Unsecured debt 5,668 5,464 0.4 %

Equity 118,638 103,405 6.9 %

Subtotal/total percentage 1,577,655 1,495,774 100.0 %

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(3) The gross annual portfolio yield does not represent and may be higher than an actual investment return to shareholders because it excludes our expenses and all sales commissions and dealer manager fees and does not consider the cost of leverage.

Furthermore, we are subject to certain regulatory restrictions on investing with AIM and its affiliates in transactions where AIM or its affiliates negotiate terms other than price on our behalf.

We are limited in our ability to engage in co-investment transactions with AIM and its affiliates and CIM and its affiliates without exemptive relief from the SEC.

Even if we receive exemptive relief, CIM’s investment committee may determine that we should not participate in a co-investment transaction.

Status of Our Continuous Public Offerings

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Effective September 28, 2017, our board of directors delegated to management the authority to determine the amount, record dates, payment dates and other terms of distributions to shareholders, which will be ratified by our board of directors, each on a quarterly basis.

Subject to our board of directors’ discretion and applicable legal restrictions, our management intends to continue to authorize and declare, and our board of directors intends to continue to ratify, each on a quarterly basis, a weekly distribution amount per share of our common stock.

Beginning on March 19, 2020, we changed the timing of declaring distributions from quarterly to monthly and temporarily suspended the payment of distributions to shareholders commencing with the month ended April 30, 2020, whether in cash or pursuant to our distribution reinvestment plan, as amended and restated.

On July 15, 2020, our board of directors determined to recommence the payment of distributions to shareholders in August 2020.

Distributions in respect of future months will be evaluated by management and the board of directors based on circumstances and expectations existing at the time of consideration.

Declared distributions are paid monthly.

Our board of directors declared or ratified distributions for 53, 52 and 52 record dates during each of the years ended December 31, 2019, 2018 and 2017, respectively.

Our board of directors declared or ratified distributions for 19, 53 and 52 record dates during the years ended December 31, 2020, 2019 and 2018, respectively.

The following table presents cash distributions per share that were declared during the years ended December 31, 2020, 2019 and 2018:

Distributions

Three Months Ended

Three Months Ended Per Share Amount

March 31, 2018 (thirteen record dates) $ 0.1829 $ 21,002

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September 30, 2019 (thirteen record dates) 0.1829 20,798

December 31, 2018 (thirteen record dates)

December 31, 2019 (fourteen record dates) 0.1969 22,401

Total distributions for the year ended December 31, 2019 $ 0.7456 $ 84,772

March 31, 2020 (thirteen record dates) $ 0.1829 $ 20,793

June 30, 2019 (thirteen record dates)

September 30, 2019 (thirteen record dates)

December 31, 2019 (fourteen record dates)

June 30, 2020 (no record dates) — —

September 30, 2020 (two record dates) 0.0883 10,011

December 31, 2020 (four record dates) 0.2842 32,479

Total distributions for the year ended December 31, 2020 $ 0.5554 $ 63,283

On December 18, 2019, our co-chief executive officers (i) revised the record date for the weekly cash distributions covering the final week of December 2019;

(ii) revised the payment date for the weekly cash distributions covering the entire month of December 2019;

and (iii) declared regular weekly cash distributions of $0.014067 per share for January 2020 through March 2020.

Each distribution was paid or will be paid monthly to shareholders of record as of the weekly record dates set forth below.

Distribution Amount Per Share

December 3, 2019

December 27, 2019

December 10, 2019

December 27, 2019

December 17, 2019

December 27, 2019

December 24, 2019

December 27, 2019

December 26, 2019

December 27, 2019

January 7, 2020

January 29, 2020

January 14, 2020

January 29, 2020

January 21, 2020

January 29, 2020

January 28, 2020

January 29, 2020

February 4, 2020

February 26, 2020

February 11, 2020

February 26, 2020

February 18, 2020

February 26, 2020

February 25, 2020

February 26, 2020

March 3, 2020

March 27, 2020

March 10, 2020

March 27, 2020

March 17, 2020

March 27, 2020

March 24, 2020

March 27, 2020

March 26, 2020

March 27, 2020

On December 17, 2020, our co-chief executive officers declared special cash distributions of $0.15180 per share for the year ended December 31, 2020.

The one-time special distributions were in addition to our regular monthly cash distributions that were paid on December 29, 2020.

The special distributions were paid on December 22, 2020 to shareholders of record as of December 21, 2020.

Shareholders who previously elected to receive distributions in additional shares our common stock pursuant to our distribution reinvestment plan were issued additional shares for the special distributions on December 22, 2020.

On December 17, 2020, our co-chief executive officers also declared regular monthly cash distributions of $0.04413 per share for January 2021.

The distributions were paid on January 27, 2021 to shareholders of record as of January 26, 2021.

Shareholders who previously elected to receive distributions in additional shares of our common stock pursuant to our distribution reinvestment plan were issued additional shares for the January 2021 distributions on January 27, 2021.

On January 15, 2021, our co-chief executive officers declared regular monthly cash distributions of $0.04413 per share for February 2021.

The distributions were paid on February 24, 2021 to shareholders of record as of February 23, 2021.

On February 16, 2021, our co-chief executive officers declared regular monthly cash distributions of $0.04413 per share for March 2021.

The distributions will be paid on March 24, 2021 to shareholders of record as of March 23, 2021.

Shareholders who previously elected to receive distributions in additional shares of our common stock pursuant to our distribution reinvestment plan will be issued additional shares for the March 2021 distributions on March 24, 2021.

CIM is a registered investment adviser and our affiliate.

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CIM’s management team has witnessed significant demand for debt capital among middle-market companies that have the characteristics we target.

We believe that this demand, coupled with the fragmented availability of funding within our target market, will enable us to achieve favorable transaction pricing.

We believe that this demand, coupled with the fragmented availability of funding within our target market, will continue to enable us to achieve favorable transaction pricing.

We believe that the following characteristics and market trends support our belief:

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• Ability to utilize a wide range of transaction structures .

We believe that each of CIM’s and Apollo’s broad expertise and experience in transaction structuring at all levels of a company’s capital structure affords us numerous tools to manage risk while preserving the opportunity for returns on investments.

We believe that CIM’s broad expertise and experience in transaction structuring at all levels of a company’s capital structure affords us numerous tools to manage risk while preserving the opportunity for returns on investments.

We attempt to capitalize on this expertise in an effort to produce an investment portfolio that will perform in a broad range of economic conditions.

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Generally, our first lien secured loans are expected to have maturities of three to seven years, offer some form of amortization, and have first priority security interests in the assets of the borrower.

We expect that our first lien secured loans typically will have variable interest rates ranging between 4.0% and 9.0% over a standard benchmark, such as the prime rate or the London InterBank Offered Rate, or LIBOR.

We expect that our first lien secured loans typically will have variable interest rates ranging between 4.0% and 9.0% over a standard benchmark, such as the prime rate or LIBOR.

In some cases, a portion of the total interest may accrue or be paid in kind.

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Unitranche loans generally require payments of both principal and interest throughout the life of the loan.

Unitranche loans generally have contractual maturities of five to six years and interest is generally paid quarterly.

Unitranche loans generally have contractual maturities of five to seven years and interest is generally paid quarterly.

Generally, we expect these securities to carry a blended yield that is between first lien secured and subordinated debt interest rates.

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and (d) monthly valuation reports and support for all broker-quoted investments.

All of our investment decisions are the sole responsibility of, and are made at the sole discretion of, CIM's investment committee, which consists entirely of CIG personnel.

Pursuant to an administration agreement, CIM provides us with general ledger accounting, fund accounting, investor relations, employee compensation and benefit-related services, and other administrative services.

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The following is a description of the conditions associated with each investment rating used in this ratings system:

Investment Rating

Investment Rating Description

1 Indicates the least amount of risk to our initial cost basis.

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The following table summarizes the composition of our investment portfolio based on the 1 to 5 investment rating scale at fair value as of December 31, 2020 and 2019, excluding short term investments of $73,597 and $29,527, respectively:

December 31, 2019

December 31, 2018

Investment Rating

Percentage of

Investment Portfolio

Percentage of

December 31, 2020 December 31, 2019

Investment Rating Investments

Fair Value Percentage of

Investment Portfolio Investments

Fair Value Percentage of

Investment Portfolio

1 $ 2,997 0.2 % $ 154,264 8.9 %

2 1,173,191 78.5 % 1,278,576 73.7 %

3 309,930 20.7 % 282,140 16.3 %

4 9,210 0.6 % 16,463 0.9 %

5 446 — 4,102 0.2 %

$ 1,495,774 100.0 % $ 1,735,545 100.0 %

The amount of the investment portfolio in each rating category may vary substantially from period to period resulting primarily from changes in the composition of such portfolio as a result of new investment, repayment and exit activities.

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To seek to enhance our returns, we employ leverage as market conditions permit and at the discretion of CIM.

On March 23, 2018, an amendment to Section 61(a) of the 1940 Act was signed into law to permit BDCs to reduce the minimum “asset coverage” ratio to 150% from 200% and, as a result, to potentially increase the ratio of a BDC's debt to equity to a maximum 2-to-1 from a maximum of 1-to-1, so long as certain approval and disclosure requirements are satisfied.

We currently have not determined whether to seek to utilize such additional leverage.

On March 23, 2018, an amendment to Section 61(a) of the 1940 Act was signed into law to permit BDCs to reduce the minimum “asset coverage” ratio from 200% to 150% and, as a result, to potentially increase the ratio of a BDC's debt to equity from a maximum of 1-to-1 to a maximum 2-to-1, so long as certain approval and disclosure requirements are satisfied.

In 2021, we intend to seek the approval of our shareholders to reduce our minimum "asset coverage" ratio from 200% to 150% in accordance with the 1940 Act.

See Note 8 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our financing arrangements.

Total Return Swap

On December 17, 2012, Flatiron, our wholly-owned, consolidated financing subsidiary, entered into a TRS with Citibank, N.A., or Citibank.

Flatiron and Citibank amended the TRS on several occasions, most recently on February 18, 2017 to extend the termination or call date from February 18, 2017 to April 18, 2017.

Prior to the call date, the maximum aggregate market value of the portfolio of loans subject to the TRS (determined at the time each such loan became subject to the TRS) was $800,000 and the interest rate payable by Flatiron to Citibank with respect to each loan included in the TRS was a spread of 1.40% per year over the floating rate index specified for each such loan, which would not be less than zero.

The agreements between Flatiron and Citibank, which collectively established the TRS, are referred to herein as the TRS Agreement.

A TRS is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of and interest payments from the assets underlying the TRS in return for periodic payments based on a fixed or variable interest rate.

A TRS effectively adds leverage to a portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in such market.

Because of the unique structure of a TRS, a TRS typically offers lower financing costs than are offered through more traditional borrowing arrangements.

The TRS with Citibank enabled us, through our ownership of Flatiron, to obtain the economic benefit of owning the loans subject to the TRS, without actually owning them, in return for an interest-type payment to Citibank.

As such, the TRS was analogous to Flatiron borrowing funds to acquire loans and incurring interest expense to a lender.

On April 18, 2017, the TRS expired in accordance with its terms subsequent to the consummation of the Citibank Credit Facility (as defined and described in Note 9 to our consolidated financial statements contained in this report).

Determination of Net Asset Value

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In addition, we may generally issue new shares of our common stock at a price below net asset value in rights offerings to existing shareholders, in payment of distributions and in certain other limited circumstances.

In 2020 we obtained, and in 2021 we intend to seek, the approval of our shareholders to issue shares of our common stock at prices below the then current NAV per share of our common stock.

If we issue such shares and again receive such approval from shareholders in the future, we may issue shares of our common stock at a price below the then current NAV per share of common stock.

As a BDC, we are subject to certain regulatory restrictions in negotiating or investing in certain investments.

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Recent legislation has modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met.

In 2021, we intend to seek the approval of our shareholders to reduce our minimum "asset coverage" ratio from 200% to 150% in accordance with the 1940 Act.

In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our shareholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.

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In the future, CIM may retain additional investment personnel based upon its needs.

Recent Developments

The rapid spread of COVID-19, and associated impacts on the U.S.

and global economies and the financial and credit markets, initially had negatively impacted, and may again negatively impact, our business operations and the business operations of some of our portfolio companies.

We cannot at this time fully predict the impact of COVID-19 on our business or the business of our portfolio companies, its duration or magnitude or the extent to which it will negatively impact our portfolio companies’ operating results or our own results of operations or financial condition, including, without limitation, our ability to pay distributions to and repurchase shares from our shareholders.

We expect that certain of our portfolio companies will continue to experience economic distress for the foreseeable future and may significantly limit business operations if subjected to prolonged economic distress.

These developments could result in a decrease in the value of certain of our investments.

COVID-19 initially had adverse effects on our investment income and may again have adverse effects in the future.

These adverse effects may require us to restructure certain of our investments, which could result in further reductions to our investment income or in impairments on our investments.

In addition, disruptions in the capital markets have resulted in illiquidity in certain market areas.

These market disruptions and illiquidity initially had an adverse effect on our business, financial condition, results of operations and cash flows.

These events initially limited our investment originations, which may occur again in the future and may also have a material negative impact on our operating results.

We will continue to carefully monitor the impact of COVID-19 on our business and the business of our portfolio companies.

Because the full effects of COVID-19 are not capable of being known at this time, we cannot estimate the impacts of COVID-19 on our future financial condition, results of operations or cash flows, including its effects on us with respect to our compliance with covenants in our financing arrangements with lenders.

On February 11, 2021, we entered into a Note Purchase Agreement with certain purchasers, or the Note Purchase Agreement, in connection with our issuance of $125 million aggregate principal amount of our 4.50% senior unsecured notes due in 2026, or the 2026 Notes.

The net proceeds to us were approximately $122.3 million, after the deduction of placement agent fees and other financing expenses, which we used to repay debt under our secured financing arrangements.

The offering was conducted, and the 2026 Notes were issued, as a private placement under Section 4(a)(2) of the Securities Act, and the rules and regulations promulgated thereunder.

As a result, the 2026 Notes have not been and will not be registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements.

See Note 16 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our 2026 Notes.

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business