Item 1. Financial Statements
Item 1. Financial Statements.
FIDUS INVESTMENT CORPORATION
Consolidated Statements of Assets and Liabilities
(in thousands, except shares and per share data)
June 30,
2021
December 31,
2020
ASSETS
Investments, at fair value:
Control investments (cost: $71,869 and $32,969, respectively)
$
61,168
$
28,253
Affiliate investments (cost: $26,713 and $31,836, respectively)
92,639
81,394
Non-control/non-affiliate
investments (cost: $572,350 and $622,222, respectively)
589,651
633,222
Total investments, at fair value (cost: $670,932 and $687,027, respectively)
743,458
742,869
Cash and cash equivalents
54,211
124,308
Interest receivable
7,767
7,548
Prepaid expenses and other assets
2,244
1,015
Total assets
$
807,680
$
875,740
LIABILITIES
SBA debentures, net of deferred financing costs (Note 6)
$
135,848
$
144,004
Notes, net of deferred financing costs (Note 6)
202,857
300,294
Borrowings under Credit Facility, net of deferred financing costs (Note 6)
(824
)
(1,048
)
Secured Borrowings
13,500
Accrued interest and fees payable
5,476
3,500
Base management fee payable, net of base management fee waiver due to affiliate
3,186
3,244
Income incentive fee payable, net of income incentive fee waiver due to affiliate
2,550
2,610
Capital gains incentive fee payable due to affiliate
15,005
11,031
Administration fee payable and other due to affiliate
183
576
Taxes (receivable) payable
(425
)
275
Accounts payable and other liabilities
957
494
Total liabilities
378,313
464,980
Commitments and contingencies (Note 7)
NET ASSETS
Common stock, $0.001 par value (100,000,000 shares authorized, 24,437,400 and 24,437,400 shares
issued and outstanding at June 30, 2021 and December 31, 2020, respectively)
24
24
Additional paid-in capital
363,751
363,751
Total distributable earnings
65,592
46,985
Total net assets
429,367
410,760
Total liabilities and net assets
$
807,680
$
875,740
Net asset value per common share
$
17.57
$
16.81
See Notes to Consolidated Financial Statements (unaudited).
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FIDUS INVESTMENT CORPORATION
Consolidated Statements of Operations (unaudited)
(in thousands, except shares and per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
2021
2020
2021
2020
Investment Income:
Interest income
Control investments
$
975
$
449
$
1,568
$
881
Affiliate investments
711
831
1,559
1,814
Non-control/non-affiliate
investments
16,105
17,559
33,802
33,611
Total interest income
17,791
18,839
36,929
36,306
Payment-in-kind interest
income
Control investments
596
445
937
870
Affiliate investments
84
29
195
69
Non-control/non-affiliate
investments
424
707
940
1,323
Total
payment-in-kind interest income
1,104
1,181
2,072
2,262
Dividend income
Control investments
568
568
Affiliate investments
110
1
110
108
Non-control/non-affiliate
investments
149
17
242
46
Total dividend income
827
18
920
154
Fee income
Control investments
400
Affiliate investments
85
66
268
66
Non-control/non-affiliate
investments
2,018
327
4,526
1,618
Total fee income
2,103
393
5,194
1,684
Interest on idle funds
1
2
1
10
Total investment income
21,826
20,433
45,116
40,416
Expenses:
Interest and financing expenses
4,562
4,863
9,756
9,823
Base management fee
3,215
3,193
6,391
6,465
Incentive feeincome
2,550
2,113
5,219
3,968
Incentive fee (reversal)capital gains
3,883
(263
)
3,974
(9,141
)
Administrative service expenses
430
364
843
830
Professional fees
312
654
635
1,207
Other general and administrative expenses
396
500
741
835
Total expenses before base management and income incentive fee waivers
15,348
11,424
27,559
13,987
Base management and income incentive fee waivers
(29
)
(423
)
(29
)
(423
)
Total expenses, net of base management and incentive fee waivers
15,319
11,001
27,530
13,564
Net investment income before income taxes
6,507
9,432
17,586
26,852
Income tax provision (benefit)
34
141
32
144
Net investment income
6,473
9,291
17,554
26,708
Net realized and unrealized gains (losses) on investments:
Net realized gains (losses):
Control investments
957
Affiliate investments
87
24,419
Non-control/non-affiliate
investments
2,150
117
4,409
7,163
Total net realized gain (loss) on investments
2,150
204
5,366
31,582
Income tax (provision) benefit from realized gains on investments
(14
)
(1,065
)
Net change in unrealized appreciation (depreciation):
Control investments
(6,877
)
(68
)
(5,985
)
(1,764
)
Affiliate investments
12,416
3,797
16,368
(35,453
)
Non-control/non-affiliate
investments
11,724
(5,237
)
6,301
(38,881
)
Total net change in unrealized appreciation (depreciation) on investments
17,263
(1,508
)
16,684
(76,098
)
Net gain (loss) on investments
19,413
(1,318
)
22,050
(45,581
)
Realized losses on extinguishment of debt
(2,180
)
(125
)
Net increase (decrease) in net assets resulting from operations
$
25,886
$
7,973
$
37,424
$
(18,998
)
Per common share data:
Net investment income per share-basic and diluted
$
0.26
$
0.38
$
0.72
$
1.09
Net increase in net assets resulting from operations per share basic and diluted
$
1.06
$
0.33
$
1.53
$
(0.78
)
Dividends declared per share
$
0.39
$
0.30
$
0.77
$
0.69
Weighted average number of shares outstanding basic and diluted
24,437,400
24,437,400
24,437,400
24,447,517
See Notes to Consolidated Financial Statements (unaudited).
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FIDUS INVESTMENT CORPORATION
Consolidated Statements of Changes in Net Assets (unaudited)
(in thousands, except shares)
Common Stock
Additional
paid-in
capital
Total
distributable
earnings
Total net
assets
Number of
shares
Par
value
Balances at December 31, 2019
24,463,119
$
24
$
366,061
$
46,225
$
412,310
Repurchases of common stock under Stock Repurchase Program (Note 8)
(25,719
)
(0
)*
(268
)
(268
)
Net investment income
17,417
17,417
Net realized gain (loss) on investments, net of taxes
30,327
30,327
Net unrealized appreciation (depreciation) on investments
(74,590
)
(74,590
)
Realized losses on extinguishment of debt
(125
)
(125
)
Dividends declared
(9,537
)
(9,537
)
Balances at March 31, 2020
24,437,400
$
24
$
365,793
$
9,717
$
375,534
Net investment income
9,291
9,291
Net realized gain (loss) on investments, net of taxes
190
190
Net unrealized appreciation (depreciation) on investments
(1,508
)
(1,508
)
Realized losses on extinguishment of debt
Dividends declared
(7,331
)
(7,331
)
Balances at June 30, 2020
24,437,400
$
24
$
365,793
$
10,359
$
376,176
Balances at December 31, 2020
24,437,400
$
24
$
363,751
$
46,985
$
410,760
Net investment income
11,081
11,081
Net realized gain (loss) on investments, net of taxes
3,216
3,216
Net unrealized appreciation (depreciation) on investments
(579
)
(579
)
Realized losses on extinguishment of debt
(2,180
)
(2,180
)
Dividends declared
(9,286
)
(9,286
)
Balances at March 31, 2021
24,437,400
$
24
$
363,751
$
49,237
$
413,012
Net investment income
6,473
6,473
Net realized gain (loss) on investments, net of taxes
2,150
2,150
Net unrealized appreciation (depreciation) on investments
17,263
17,263
Realized losses on extinguishment of debt
Dividends declared
(9,531
)
(9,531
)
Balances at June 30, 2021
24,437,400
$
24
$
363,751
$
65,592
$
429,367
* amount is greater than zero but less than one
See Notes to Consolidated Financial Statements (unaudited).
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FIDUS INVESTMENT CORPORATION
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Six Months Ended June 30,
2021
2020
Cash Flows from Operating Activities:
Net increase (decrease) in net assets resulting from operations
$
37,424
$
(18,998
)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net
cash provided by (used for) operating activities:
Net change in unrealized (appreciation) depreciation on investments
(16,684
)
76,098
Net realized (gain) loss on investments
(5,366
)
(31,582
)
Interest and dividend
income paid-in-kind
(2,177
)
(2,262
)
Accretion of original issue discount
(605
)
(103
)
Accretion of loan origination fees
(1,139
)
(514
)
Purchase of investments
(167,349
)
(85,097
)
Proceeds from sales and repayments of investments
191,560
76,315
Proceeds from loan origination fees
1,171
1,444
Realized losses on extinguishment of debt
2,180
125
Amortization of deferred financing costs
1,117
1,098
Changes in operating assets and liabilities:
Interest receivable
(219
)
(1,877
)
Prepaid expenses and other assets
(1,164
)
(171
)
Accrued interest and fees payable
1,976
(94
)
Base management fee payable, net of base management fee waiver due to affiliate
(58
)
(141
)
Income incentive fee payable, net of income incentive fee waiver due to affiliate
(60
)
193
Capital gains incentive fee (reversal) due to (from) affiliate
3,974
(9,141
)
Administration fee payable and other due to affiliate
(393
)
(72
)
Taxes payable
(700
)
(424
)
Accounts payable and other liabilities
463
91
Net cash provided by (used for) operating activities
43,951
4,888
Cash Flows from Financing Activities:
Proceeds received from SBA debentures
11,500
6,000
Repayments of SBA debentures
(19,200
)
(7,000
)
Principal payments on Notes
(100,000
)
Proceeds received from (repayments of) borrowings under Credit Facility, net
18,000
Proceeds from secured borrowings
13,500
Payment of deferred financing costs
(1,031
)
(496
)
Dividends paid to stockholders, including expenses
(18,817
)
(16,868
)
Repurchases of common stock under Stock Repurchase Program
(268
)
Net cash provided by (used for) financing activities
(114,048
)
(632
)
Net increase (decrease) in cash and cash equivalents
(70,097
)
4,256
Cash and cash equivalents:
Beginning of period
124,308
15,012
End of period
$
54,211
$
19,268
Supplemental disclosure of cash flow information :
Cash payments for interest
$
6,663
$
8,819
Cash payments for taxes, net of tax refunds received
$
732
$
1,633
See Notes to Consolidated Financial Statements (unaudited).
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Table of Contents
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments (unaudited)
June 30, 2021
(in
thousands, except shares)
Portfolio Company (a)(b)
Investment Type (c)
Industry
Variable Index
Spread / Floor (d)
Rate (e)
Cash/PIK
Investment
Date (f)
Maturity
Principal
Amount
Cost
Fair
Value (g)
Percent of
Net Assets
Control Investments (t)
Hilco Plastics Holdings, LLC (dba Hilco Technologies)
Component Manufacturing
Revolving Loan (j)
(L + 9.50%) / (0.50%
)
10.00%/0.00
%
12/20/2019
6/30/2022
$
5,962
$
5,962
$
5,962
First Lien Debt (j)
(L + 9.50%) / (0.50%
)
10.00%/0.00
%
12/20/2019
6/30/2022
4,324
4,324
4,324
Preferred Equity (1,000,000 units) (h)(j)
4/18/2018
1,000
Common Equity (72,507 units) (h)(j)
9/23/2016
473
Common Equity (Units N/A)
4/6/2021
10,450
10,428
22,209
20,714
5
%
Mesa Line Services, LLC
Utilities: Services
Second Lien Debt (j)
5.00%/7.00
%
11/30/2017
2/1/2024
20,804
20,745
16,298
Common Equity (981 shares) (j)
11/30/2017
1,148
Common Equity (10 shares) (j)
4/22/2021
21,893
16,298
4
%
US GreenFiber, LLC
Building Products Manufacturing
Second Lien Debt (j)
8.00%/5.00
%
7/3/2014
8/30/2024
15,784
15,780
13,557
Second Lien Debt (j)
8.50%/6.50
%
11/9/2018
8/30/2024
5,203
5,203
5,328
Second Lien Debt (j)
8.50%/6.50
%
8/10/2020
8/30/2024
5,174
5,174
5,271
Common Equity (2,522 units) (h)(j)
7/3/2014
586
Common Equity (425,508 units) (j)
8/30/2019
1
Common Equity (1,022,813 units) (h)(j)
7/1/2020
1,023
27,767
24,156
5
%
Total Control Investments
$
71,869
$
61,168
14
%
Affiliate Investments (l)
FAR Research Inc. (n)
Specialty Chemicals
Common Equity (1,396 units)
3/31/2014
$
$
28
0
%
Fiber Materials, Inc. (n)
Aerospace & Defense Manufacturing
Common Equity (10 units)
11/30/2016
42
0
%
Medsurant Holdings, LLC
Healthcare Services
Preferred Equity (63,331 units) (h)(j)
4/12/2011
673
864
Warrant (252,588 units) (h)(j)(m)
4/12/2011
2,258
3,140
2,931
4,004
1
%
Mirage Trailers LLC
Utility Equipment Manufacturing
Second Lien Debt (k)
(L + 10.00%) / (1.00%
)
11.00%/5.00
%
11/25/2015
11/25/2021
6,532
6,615
6,532
Common Equity (2,500,000 shares)
11/25/2015
2,188
3,540
8,803
10,072
2
%
Pfanstiehl, Inc.
Healthcare Products
Common Equity (4,250 units) (j)
3/29/2013
425
43,181
10
%
Pinnergy, Ltd.
Oil & Gas Services
Common EquityClass A-2 (42,500 units)
(j)
10/13/2016
3,000
20,797
5
%
Spectra A&D Acquisition, Inc. (fka FDS Avionics Corp.)
Aerospace & Defense Manufacturing
First Lien Debt (ag)
(L + 5.50%) / (1.00%
)
6.50%/0.00
%
2/12/2021
2/11/2026
8,000
7,946
7,946
Common Equity (41,290 units) (j)
2/12/2021
2,608
4,272
10,554
12,218
3
%
Steward Holding LLC (dba Steward Advanced Materials)
Aerospace & Defense Manufacturing
Common Equity (1,000,000 units)
11/12/2015
1,000
2,297
1
%
Total Affiliate Investments
$
26,713
$
92,639
22
%
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FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments (unaudited)
June 30, 2021
(in
thousands, except shares)
Portfolio Company (a)(b)
Investment Type (c)
Industry
Variable Index
Spread / Floor (d)
Rate (e)
Cash/PIK
Investment
Date (f)
Maturity
Principal
Amount
Cost
Fair
Value (g)
Percent of
Net Assets
Non-control/Non-affiliate
Investments
2KDirect, Inc. (dba iPromote)
Information Technology Services
First Lien Debt (k)(ah)
(L + 6.75%) / (0.50%
)
7.25%/0.00
%
6/25/2021
6/25/2026
$
17,000
$
16,931
$
16,931
Common Equity (1,000,000 units)
6/25/2021
1,000
1,000
17,931
17,931
4
%
Aeronix Inc.
Aerospace & Defense Manufacturing
First Lien Debt (ai)
(L + 5.88%) / (0.50%
)
6.38%/0.00
%
6/11/2021
6/11/2026
6,500
6,454
6,454
Common Equity (500 units)
6/11/2021
500
500
6,954
6,954
2
%
Allied 100 Group, Inc.
Healthcare Products
Subordinated Debt (k)
11.25%/0.00
%
7/31/2019
5/26/2023
21,500
21,446
21,500
Common Equity (625,000 units) (j)
11/26/2014
626
1,138
22,072
22,638
5
%
Allredi, LLC (fka Marco Group International OpCo, LLC)
Industrial Cleaning & Coatings
Second Lien Debt
10.50%/1.75
%
3/2/2020
9/2/2026
10,169
10,090
8,109
Common Equity (570,636 units) (h)(j)
7/21/2017
637
52
10,727
8,161
2
%
Alzheimers Research and Treatment Center, LLC
Healthcare Services
Common Equity (500 units) (h)(j)
10/23/2018
500
1,098
0
%
American AllWaste LLC (dba WasteWater Transport Services)
Environmental Industries
First Lien Debt (j)(p)
(L + 6.15%) / (1.00%
)
7.15%/0.00
%
6/28/2021
6/28/2026
19,000
18,851
18,851
Delayed Draw Commitment ($3,900 unfunded commitment) (j)(o)
(L + 3.75%) / (1.00%
)
4.75%/0.00
%
6/28/2021
12/31/2022
Preferred Equity (500 units) (h)(j)
5/31/2018
500
188
Preferred Equity (207 units) (h)(j)
8/6/2019
250
226
Preferred Equity (141 units) (h)(j)
11/2/2020
171
171
19,772
19,436
5
%
Applied Data Corporation
Information Technology Services
First Lien Debt (v)
(L + 6.25%) / (1.50%
)
7.75%/0.00
%
11/6/2020
11/6/2025
8,000
7,954
8,000
Common Equity (22 units)
11/6/2020
Preferred Equity (1,070,614 units)
11/6/2020
1,071
1,101
9,025
9,101
2
%
Argo Turboserve Corporation
Business Services
Second Lien Debt (j)
(L + 12.00%) / (2.00%
)
14.00%/0.00
%
12/26/2018
6/28/2023
12,469
12,436
12,469
3
%
AVC Investors, LLC (dba Auveco)
Specialty Distribution
Common Equity (5,000 units) (j)
1/3/2018
383
515
0
%
B&B Roadway and Security Solutions, LLC
Component Manufacturing
Second Lien Debt
11.25%/4.00
%
2/27/2018
1/1/2022
11,131
11,120
10,451
Common Equity (50,000 units) (h)(j)
2/27/2018
497
11,617
10,451
2
%
Bandon Fitness (Texas), Inc.
Retail
Common Equity (545,810 units) (j)
8/9/2019
931
1,659
0
%
BCM One Group Holdings, Inc.
Information Technology Services
Subordinated Debt (k)
11.00%/0.00
%
1/3/2019
7/3/2024
30,000
29,903
30,000
Common Equity (1,281 shares)
1/3/2019
48
752
Preferred Equity (74 shares)
1/3/2019
736
737
30,687
31,489
7
%
Bedford Precision Parts LLC
Specialty Distribution
First Lien Debt (j)(s)
(L + 6.25%) / (2.00%
)
8.25%/0.00
%
3/12/2019
3/12/2024
4,531
4,510
4,477
Common Equity (500,000 units) (h)(j)
3/12/2019
500
313
5,010
4,790
1
%
Cardboard Box LLC (dba Anthonys Coal Fired Pizza)
Restaurants
Common Equity (521,021 units) (j)
12/15/2015
521
Preferred Equity (1,043,133 units) (j)
12/6/2019
96
21
617
21
0
%
Combined Systems, Inc.
Aerospace & Defense Manufacturing
First Lien Debt
(L + 11.00%) / (2.00%
)
13.00%/0.00
%
1/31/2020
1/31/2025
7,291
7,250
7,105
Revolving Loan ($550 unfunded commitment) (j)(ac)
(L + 10.00%) / (2.00%
)
12.00%/0.00
%
1/31/2020
1/31/2025
3,450
3,432
3,450
10,682
10,555
2
%
Comply365, LLC
Aerospace & Defense Manufacturing
First Lien Debt (ad)
(L + 8.00%) /(1.00%
)
9.00%/0.00
%
12/11/2020
12/11/2025
9,570
9,440
9,570
Common Equity (1,000,000 units)
12/11/2020
1,000
1,232
10,440
10,802
3
%
CRS Solutions Holdings, LLC (dba CRS Texas)
Business Services
Second Lien Debt
10.50%/1.50
%
3/14/2018
4/30/2024
11,390
11,360
11,390
Common Equity (538,875 units) (h)(j)
3/14/2018
621
709
11,981
12,099
3
%
Dataguise, Inc.
Information Technology Services
First Lien Debt (j)
11.00%/0.00
%
12/31/2020
12/31/2023
19,950
19,867
19,751
Common Equity (909 shares) (j)
12/31/2020
1,500
1,491
21,367
21,242
5
%
Diversified Search LLC
Business Services
First Lien Debt (k)(r)
(L + 6.50%) / (1.00%
)
7.50%/0.00
%
2/7/2019
2/7/2024
17,355
17,190
17,355
Common Equity (573 units) (h)(j)
2/7/2019
593
784
17,783
18,139
4
%
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FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments (unaudited)
June 30, 2021
(in
thousands, except shares)
Portfolio Company (a)(b)
Investment Type (c)
Industry
Variable Index
Spread / Floor (d)
Rate (e)
Cash/PIK
Investment
Date (f)
Maturity
Principal
Amount
Cost
Fair
Value (g)
Percent of
Net Assets
EBL, LLC (EbLens)
Retail
Second Lien Debt (j)
12.00%/1.00
%
7/13/2017
1/13/2023
9,277
9,247
7,939
Common Equity (75,000 units) (j)
7/13/2017
750
9,997
7,939
2
%
ECM Industries, LLC
Component Manufacturing
Subordinated Debt (j)
11.50%/0.00
%
4/30/2020
5/23/2026
11,500
11,314
11,500
Common Equity (1,000,000 units) (h)(j)
4/30/2020
1,000
1,847
12,314
13,347
3
%
Elements Brands, LLC
Consumer Products
First Lien Debt
12.25%/0.00
%
12/31/2020
12/31/2025
5,925
5,895
5,925
Revolving Loan ($838 unfunded commitment) (i)(j)
12.25%/0.00
%
12/31/2020
12/31/2025
2,162
2,147
2,162
8,042
8,087
2
%
Frontline Food Services, LLC (f/k/a Accent Food Services, LLC)
Vending Equipment Manufacturing
Preferred Equity (Class A Units) (46 units) (j)
12/31/2020
2,000
1,825
Common Equity (Class B Units) (124 units) (j)
12/31/2020
Preferred Equity (Class C Units) (100 units) (j)
12/31/2020
2,000
1,825
0
%
Global Plasma Solutions, Inc.
Component Manufacturing
Common Equity (947 shares) (j)
9/21/2018
52
6,108
1
%
GP&C Operations, LLC (dba Garlock Printing and Converting)
Component Manufacturing
First Lien Debt (w)
(L + 7.25%) / (1.00%
)
8.25%/0.00
%
1/22/2021
1/22/2026
11,000
10,849
10,849
Common Equity (515,625 units) (h)(j)
1/22/2021
516
516
11,365
11,365
3
%
Gurobi Optimization, LLC
Information Technology Services
Common Equity (3 shares)
12/19/2017
607
2,138
0
%
Haematologic Technologies, Inc.
Healthcare Services
First Lien Debt (x)
(L + 8.25%) / (2.00%
)
10.25%/0.00
%
10/11/2019
10/11/2024
5,500
5,473
4,759
Common Equity (549 units) (h)(j)
10/11/2019
549
49
6,022
4,808
1
%
Hallmark Health Care Solutions, Inc.
Healthcare Services
First Lien Debt (j)(ae)
(L + 7.25%) / (1.50%
)
8.75%/0.00
%
12/4/2020
12/4/2025
8,460
8,404
8,460
Common Equity (750,000 units) (j)
12/4/2020
750
1,633
9,154
10,093
2
%
Healthfuse, LLC
Healthcare Services
First Lien Debt (af)
(L + 7.25%) / (1.00%
)
8.25%/0.00
%
11/13/2020
11/13/2025
5,985
5,949
5,985
Preferred Equity (197,980 units)
11/13/2020
750
801
6,699
6,786
2
%
Hub Acquisition Sub, LLC (dba Hub Pen)
Promotional products
Second Lien Debt (k)
13.50%/0.00
%
3/23/2016
3/31/2023
25,000
24,979
21,672
Common Equity (3,750 units)
3/23/2016
128
Preferred Equity (868 units) (j)
10/16/2020
153
25,260
21,672
5
%
IBH Holdings, LLC (fka Inflexxion, Inc.)
Business Services
Common Equity (150,000 units)
6/20/2018
390
0
%
Ipro Tech, LLC
Information Technology Services
First Lien Debt (j)(u)
(L + 8.50%) / (2.00%
)
10.50%/0.00
%
6/30/2020
6/30/2025
2,453
1,961
2,438
1
%
ISI PSG Holdings, LLC (dba Incentive Solutions, Inc.)
Business Services
First Lien Debt (j)(aj)
(L + 7.50%) / (0.50%
)
8.00%/0.00
%
4/5/2021
4/5/2026
11,500
11,410
11,410
First Lien Debt (j)(an)
(L + 7.50%) / (0.50%
)
8.00%/0.00
%
6/30/2021
4/5/2026
13,500
13,500
13,500
Common Equity (256,964 units) (h)(j)
4/5/2021
500
500
25,410
25,410
6
%
K2 Merger Agreement Agent, LLC (fka K2 Industrial Services, Inc.) (n)
Industrial Cleaning & Coatings
Second Lien Debt (j)
0.00%/10.00
%
1/28/2019
1/28/2023
2,250
2,250
2,250
1
%
The Kyjen Company, LLC (dba Outward Hound)
Consumer Products
Common Equity (855 shares) (j)
12/8/2017
933
1,601
0
%
Level Education Group, LLC (dba CE4Less)
Business Services
First Lien Debt (ak)
(L + 6.75%) / (0.50%
)
7.25%/0.00
%
4/1/2021
4/1/2026
5,500
5,461
5,461
Common Equity (1,000,000 units) (j)
4/1/2021
1,000
1,000
6,461
6,461
1
%
LifeSpan Biosciences, Inc.
Healthcare Products
Subordinated Debt (j)
11.50%/0.00
%
3/19/2021
9/19/2026
16,000
15,924
15,924
Common Equity (100 shares) (j)
3/19/2021
1,000
1,000
16,924
16,924
4
%
LNG Indy, LLC (dba Kinetrex Energy)
Oil & Gas Distribution
Second Lien Debt (k)
11.50%/0.00
%
12/28/2016
12/31/2023
11,000
10,986
11,000
Common Equity (500 units)
12/28/2016
500
1,689
11,486
12,689
3
%
Midwest Transit Equipment, Inc.
Transportation services
Warrant (7,192 shares) (j)(m)
6/23/2017
180
18
Warrant (4.79% of Junior Subordinated Notes) (j)(q)
6/23/2017
190
256
370
274
0
%
9
Table of Contents
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments (unaudited)
June 30, 2021
(in
thousands, except shares)
Portfolio Company (a)(b)
Investment Type (c)
Industry
Variable Index
Spread / Floor (d)
Rate (e)
Cash/PIK
Investment
Date (f)
Maturity
Principal
Amount
Cost
Fair
Value (g)
Percent of
Net Assets
NGT Acquisition Holdings, LLC (dba Techniks Industries)
Component Manufacturing
Common Equity (378 units) (j)
5/24/2017
500
238
0
%
OMC Investors, LLC (dba Ohio Medical Corporation)
Healthcare Products
Second Lien Debt
13.00%/0.00
%
1/26/2021
6/30/2024
5,000
4,956
5,000
Common Equity (5,000 units)
1/15/2016
215
721
5,171
5,721
1
%
Palisade Company, LLC
Information Technology Services
Common Equity (50 shares) (j)
11/15/2018
500
1,010
0
%
Palmetto Moon, LLC
Retail
Common Equity (499 units) (j)
11/3/2016
494
513
0
%
Pool & Electrical Products, LLC
Specialty Distribution
Second Lien Debt (j)
11.75%/0.00
%
10/28/2020
4/28/2027
12,000
11,892
12,000
Common Equity (15,000 units) (h)(j)
10/28/2020
1,500
3,688
13,392
15,688
4
%
Power Grid Components, Inc.
Specialty Distribution
Second Lien Debt (k)
11.00%/0.50
%
4/12/2018
12/2/2025
17,488
17,420
17,488
Preferred Equity (392 shares) (j)
4/12/2018
392
535
Preferred Equity (48 shares) (j)
12/2/2019
48
66
Common Equity (10,622 shares) (j)
4/12/2018
462
585
18,322
18,674
4
%
Prime AE Group, Inc.
Business Services
First Lien Debt (j)
(L + 6.25%) / (2.00%
)
8.25%/0.00
%
11/25/2019
11/25/2024
6,500
6,369
6,500
Preferred Equity (500,000 shares) (j)
11/25/2019
500
568
6,869
7,068
2
%
Pugh Lubricants, LLC (n)
Specialty Distribution
Common Equity (3,062 units) (h)(j)
11/10/2016
23
0
%
Revenue Management Solutions, LLC
Information Technology Services
Common Equity (113 shares)
1/4/2017
1,125
3,982
1
%
Rhino Assembly Company, LLC
Specialty Distribution
Second Lien Debt (k)
12.00%/1.50
%
8/11/2017
2/11/2023
10,748
10,729
10,748
Delayed Draw Commitment ($875 unfunded commitment) (i)(j)
12.00%/1.50
%
8/11/2017
5/17/2022
Common Equity (Class A Units) (8,864 units) (h)(j)
8/11/2017
944
694
Preferred Equity (Units N/A) (h)(j)
12/10/2020
136
144
Common Equity (Class F Units) (355 units) (h)(j)
12/10/2020
11,809
11,586
3
%
Road Safety Services, Inc.
Business Services
Second Lien Debt
11.25%/1.00
%
9/18/2018
3/18/2024
10,451
10,427
10,451
Common Equity (655 units)
9/18/2018
621
972
11,048
11,423
3
%
Routeware, Inc.
Information Technology Services
First Lien Debt (k)(aa)
(L + 6.75%) / (1.25%
)
8.00%/0.00
%
2/7/2020
2/7/2026
16,845
16,759
16,845
4
%
SES Investors, LLC (dba SES Foam)
Building Products Manufacturing
Second Lien Debt (h)(j)
9/8/2016
Common Equity (6,000 units) (h)(j)
9/8/2016
537
2,091
537
2,091
1
%
Specialized Elevator Services Holdings, LLC
Business Services
First Lien Debt (j)(y)
(L + 5.50%) / (2.00%
)
7.50%/0.00
%
5/7/2019
5/3/2024
12,889
12,798
12,889
Common Equity (596 units) (j)
5/8/2019
596
586
13,394
13,475
3
%
SpendMend LLC
Business Services
Common Equity (1,000,000 units)
1/8/2018
967
2,000
1
%
TransGo, LLC
Component Manufacturing
Common Equity (500 units) (j)
2/28/2017
430
1,416
0
%
The Tranzonic Companies
Specialty Distribution
Subordinated Debt (j)
10.00%/1.00
%
3/27/2018
3/27/2025
7,037
7,000
7,037
Preferred Equity (5,653 units) (j)
3/27/2018
565
765
Common Equity (1 units) (j)
3/27/2018
1,227
7,565
9,029
2
%
UBEO, LLC
Business Services
Subordinated Debt (j)
11.00%/0.00
%
4/3/2018
10/3/2024
13,893
13,824
13,893
Common Equity (705,000 units) (h)(j)
4/3/2018
668
866
14,492
14,759
3
%
United Biologics, LLC
Healthcare Services
Preferred Equity (98,377 units) (h)(j)
4/1/2012
1,008
Warrant (57,469 units) (j)(m)
3/5/2012
566
1,574
0
%
UPG Company, LLC
Component Manufacturing
First Lien Debt (j)(al)
(L + 8.25%) / (0.50%
)
8.75%/0.00
%
6/21/2021
6/21/2024
12,000
11,906
11,906
3
%
Virginia Tile Company, LLC
Specialty Distribution
Common Equity (17 units) (j)
12/19/2014
342
686
0
%
10
Table of Contents
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments (unaudited)
June 30, 2021
(in
thousands, except shares)
Portfolio Company (a)(b)
Investment Type (c)
Industry
Variable Index
Spread / Floor (d)
Rate (e)
Cash/PIK
Investment
Date (f)
Maturity
Principal
Amount
Cost
Fair
Value (g)
Percent of
Net Assets
Westerns Smokehouse, LLC
Consumer Products
First Lien Debt (j)(ab)
(L + 6.50%) / (1.25%)
7.75%/0.00%
2/28/2020
12/23/2024
9,625
9,517
9,625
2
%
Winona Foods, Inc.
Specialty Distribution
First Lien Debt (j)(am)
(L + 12.00%) / (1.00%)
13.00%/0.00%
4/1/2021
4/1/2026
4,000
3,864
3,864
First Lien Debt
(L + 13.00%) / (1.00%)
14.00%/0.00%
4/1/2021
4/1/2026
7,000
6,950
6,950
10,814
10,814
3
%
Wonderware Holdings, LLC (dba CORE Business Technologies)
Information Technology Services
First Lien Debt ($2,000 unfunded commitment) (k)(z)
(L + 7.25%) / (1.00%)
8.25%/0.00%
2/10/2021
2/9/2026
6,500
6,455
6,455
2
%
Worldwide Express Operations, LLC
Transportation services
Second Lien Debt (j)
(L + 8.00%) / (1.00%)
9.00%/0.00%
2/27/2017
2/3/2025
20,000
19,816
20,000
Common Equity (2,000 units) (h)(j)
2/27/2017
1,478
3,617
21,294
23,617
6
%
Xeeva, Inc.
Information Technology Services
First Lien Debt (j)
(L + 10.50%) / (1.50%)
12.00%/0.00%
2/11/2021
2/11/2026
8,900
8,852
8,852
2
%
Total
Non-control/Non-affiliate Investments
$
572,350
$
589,651
137
%
Total Investments
$
670,932
$
743,458
173
%
(a)
See Note 3 to the consolidated financial statements for portfolio composition by geographic location.
(b)
Equity ownership may be held in shares or units of companies related to the portfolio companies.
(c)
All debt investments are income producing, unless otherwise indicated. Equity investments are non-income producing unless otherwise noted.
(d)
Variable rate investments bear interest at a rate indexed to LIBOR (L), which is reset monthly, bimonthly,
quarterly, or semi-annually. Certain variable rate investments also include a LIBOR interest rate floor. For each investment, the Company has provided the spread over the reference rate and the LIBOR floor, if any, as of June 30, 2021.
(e)
Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any, as of June 30, 2021. Generally, payment-in-kind interest can be paid-in-kind or all in cash.
(f)
Investment date represents the date of the initial investment in the security.
(g)
The Companys investment portfolio is comprised entirely of debt and equity securities of privately held
companies for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the board of
directors, using significant unobservable Level 3 inputs.
(h)
Investment is held by a taxable subsidiary of the Company.
(i)
The disclosed commitment represents the unfunded amount as of June 30, 2021. The Company is earning 0.50%
interest on the unfunded balance of the commitment. The interest rate disclosed represents the rate which will be earned if the commitment is funded.
(j)
Investment pledged as collateral for the Credit Facility and, as a result, is not directly available to the
creditors of the Company to satisfy any obligations of the Company other than the Companys obligations under the Credit Facility (see Note 6 to the consolidated financial statements).
(k)
The portion of the investment not held by the Funds is pledged as collateral for the Credit Facility and, as a
result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Companys obligations under the Credit Facility (see Note 6 to the consolidated financial statements).
(l)
As defined in the 1940 Act, the Company is deemed to be an Affiliated Person of this portfolio
company because it owns 5% or more of the portfolio companys outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was an Affiliated
Person are detailed in Note 3 to the consolidated financial statements.
(m)
Warrants entitle the Company to purchase a predetermined number of shares or units of common equity, and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any.
(n)
Investment in portfolio company that has sold its operations and is in the process of winding down.
(o)
The disclosed commitment represents the unfunded amount as of June 30, 2021. The Company is earning 0.75%
interest on the unfunded balance of the commitment. The interest rate disclosed represents the rate which will be earned if the commitment is funded.
(p)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.54% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(q)
Warrant entitles the Company to purchase 4.79% of the outstanding principal of Junior Subordinated Notes prior
to exercise, and is non-income producing.
(r)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 5.15% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(s)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.05% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(t)
As defined in the 1940 Act, the Company is deemed to be both an Affiliated Person of and
Control this portfolio company because it owns 25% or more of the portfolio companys outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in
which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are detailed in Note 3 to the consolidated financial statements.
(u)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 4.49% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(v)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 4.23% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(w)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 7.20% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(x)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.09% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(y)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.30% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(z)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 5.85% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(aa)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.09% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(ab)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.52% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
11
Table of Contents
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments (unaudited)
June 30, 2021
(in
thousands, except shares)
(ac)
The disclosed commitment represents the unfunded amount as of June 30, 2021. The Company is earning 1.00%
interest on the unfunded balance of the commitment. The interest rate disclosed represents the rate earned on the outstanding, funded balance of the commitment.
(ad)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.32% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(ae)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.31% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(af)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.50% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(ag)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 5.48% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(ah)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 1.25% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(ai)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 4.84% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(aj)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 4.11% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(ak)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 4.83% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(al)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.56% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(am)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 8.25% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(an)
The Company sold a participating interest of approximately $13.5 million in aggregate principal amount of
the portfolio companys first lien senior secured term loan. As the transaction did not qualify as a true sale in accordance with U.S. generally accepted accounting principles (GAAP), the Company recorded a corresponding
secured borrowing in the Consolidated Statements of Assets and Liabilities.
12
Table of Contents
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments
December 31, 2020
(in thousands, except shares)
Portfolio Company (a)(b)
Investment Type (c)
Industry
Variable Index
Spread / Floor (d)
Rate (e)
Cash/PIK
Investment
Date (f)
Maturity
Principal
Amount
Cost
Fair
Value (g)
Percent of
Net Assets
Control Investments (t)
FDS Avionics Corp. (dba Flight Display Systems)
Aerospace & Defense Manufacturing
Second Lien Debt
6.00%/9.00%
11/5/2014
12/31/2021
$
4,836
$
4,836
$
4,836
Revolving Loan ($30 unfunded commitment)
6.00%/9.00%
4/12/2018
12/31/2021
286
286
286
Common Equity (7,478 shares) (j)
11/10/2017
748
Preferred Equity (2,550 shares)
12/26/2019
2,550
2,269
8,420
7,391
2
%
US GreenFiber, LLC
Building Products Manufacturing
Second Lien Debt (j)
8.00%/5.00%
7/3/2014
8/30/2024
15,382
15,378
13,078
Second Lien Debt (j)
8.50%/6.50%
11/9/2018
8/30/2024
5,028
5,028
5,183
Second Lien Debt (j)
8.50%/6.50%
8/10/2020
8/30/2024
2,533
2,533
2,601
Common Equity (2,522 units) (h)(j)
7/3/2014
586
Common Equity (425,508 units) (j)
8/30/2019
1
Common Equity (1,022,813 units) (h)(j)
7/1/2020
1,023
24,549
20,862
5
%
Total Control Investments
$
32,969
$
28,253
7
%
Affiliate Investments (l)
FAR Research Inc. (n)
Specialty Chemicals
Common Equity (1,396 units)
3/31/2014
$
$
28
0
%
Fiber Materials, Inc. (n)
Aerospace & Defense Manufacturing
Common Equity (10 units)
11/30/2016
41
0
%
Medsurant Holdings, LLC
Healthcare Services
Second Lien Debt (j)
14.00%/0.00%
12/18/2015
3/10/2022
8,031
8,028
8,091
Preferred Equity (63,331 units) (h)(j)
4/12/2011
673
620
Warrant (252,588 units) (h)(j)(m)
4/12/2011
2,258
2,249
10,959
10,960
3
%
Mirage Trailers LLC
Utility Equipment Manufacturing
Second Lien Debt (k)
(L + 10.00%) / (1.00%)
11.00%/5.00%
11/25/2015
11/25/2021
6,410
6,483
6,410
Common Equity (2,500,000 shares) (o)
11/25/2015
2,188
84
8,671
6,494
2
%
Pfanstiehl, Inc.
Healthcare Products
Common Equity (4,250 units) (j)
3/29/2013
425
33,505
8
%
Pinnergy, Ltd.
Oil & Gas Services
Common EquityClass A-2 (42,500 units) (j)
10/13/2016
3,000
20,589
5
%
Steward Holding LLC (dba Steward Advanced Materials)
Aerospace & Defense Manufacturing
Second Lien Debt
12.00%/1.50%
11/12/2015
10/31/2021
7,783
7,781
7,783
Common Equity (1,000,000 units)
11/12/2015
1,000
1,994
8,781
9,777
2
%
Total Affiliate Investments
$
31,836
$
81,394
20
%
13
Table of Contents
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments
December 31, 2020
(in thousands, except shares)
Portfolio Company (a)(b)
Investment Type (c)
Industry
Variable Index
Spread / Floor (d)
Rate (e)
Cash/PIK
Investment
Date (f)
Maturity
Principal
Amount
Cost
Fair
Value (g)
Percent of
Net Assets
Non-control/Non-affiliate
Investments
Frontline Food Services, LLC
(f/k/a Accent Food Services, LLC)
Vending Equipment Manufacturing
Preferred Equity (Class A Units) (46 units) (j)
12/31/2020
$
2,000
$
2,000
Common Equity (Class B Units) (124 units) (j)
12/31/2020
Preferred Equity (Class C Units) (100 units) (j)
12/31/2020
2,000
2,000
0
%
Allied 100 Group, Inc.
Healthcare Products
Subordinated Debt (k)
11.25%/0.00%
7/31/2019
5/26/2023
21,500
21,432
21,500
Common Equity (625,000 units) (j)
11/26/2014
625
1,087
22,057
22,587
5
%
Allredi, LLC (fka Marco Group International OpCo, LLC)
Industrial Cleaning & Coatings
Second Lien Debt
10.50%/1.75%
3/2/2020
9/2/2026
10,080
9,993
7,761
Common Equity (570,636 units) (h)(j)
7/21/2017
637
275
10,630
8,036
2
%
Alzheimers Research and Treatment Center, LLC
Healthcare Services
First Lien Debt (j)(w)
(L + 5.75%) / (2.00%)
7.75%/0.00%
10/23/2018
10/23/2023
6,500
6,471
6,584
Common Equity (500 units) (h)(j)
10/23/2018
500
766
6,971
7,350
2
%
American AllWaste LLC (dba WasteWater Transport Services)
Environmental Industries
Second Lien Debt (j)
(L + 11.00%) / (2.00%)
13.00%/0.00%
5/31/2018
11/30/2023
17,503
17,434
17,503
Preferred Equity (500 units) (h)(j)
5/31/2018
500
241
Preferred Equity (207 units) (h)(j)
8/6/2019
250
226
Preferred Equity (141 units) (h)(j)
11/2/2020
171
171
18,355
18,141
4
%
Applied Data Corporation
Information Technology Services
First Lien Debt (v)
(L + 6.25%) / (1.50%)
7.75%/0.00%
11/6/2020
11/6/2025
8,000
7,949
7,949
Common Equity (22 units)
11/6/2020
Preferred Equity (1,070,614 units)
11/6/2020
1,071
1,071
9,020
9,020
2
%
Argo Turboserve Corporation
Business Services
Second Lien Debt (j)
(L + 10.75%) / (2.00%)
12.75%/0.00%
12/26/2018
6/28/2023
13,031
12,990
13,031
3
%
AVC Investors, LLC (dba Auveco)
Specialty Distribution
Second Lien Debt (k)
11.50%/0.00%
1/3/2018
7/3/2023
22,500
22,448
22,500
Common Equity (5,000 units) (j)
1/3/2018
487
464
22,935
22,964
6
%
B&B Roadway and Security Solutions, LLC
Component Manufacturing
Second Lien Debt
11.25%/4.00%
2/27/2018
1/1/2022
10,910
10,890
10,782
Common Equity (50,000 units) (h)(j)
2/27/2018
497
11,387
10,782
3
%
Bandon Fitness (Texas), Inc.
Retail
First Lien Debt (j)(z)
(L + 6.50%) / (2.25%)
8.75%/0.25%
8/9/2019
8/9/2024
14,680
14,289
15,591
Common Equity (545,810 units) (j)
8/9/2019
931
554
15,220
16,145
4
%
BCM One Group Holdings, Inc.
Information Technology Services
Subordinated Debt (k)
11.00%/0.00%
1/3/2019
7/3/2024
30,000
29,887
30,000
Common Equity (1,281 shares)
1/3/2019
48
458
Preferred Equity (74 shares)
1/3/2019
736
737
30,671
31,195
8
%
Bedford Precision Parts LLC
Specialty Distribution
First Lien Debt (j)(s)
(L + 6.25%) / (2.00%)
8.25%/0.00%
3/12/2019
3/12/2024
4,531
4,507
4,531
Common Equity (500,000 units) (h)(j)
3/12/2019
500
263
5,007
4,794
1
%
Cardboard Box LLC (dba Anthonys Coal Fired Pizza)
Restaurants
Common Equity (521,021 units) (j)
12/15/2015
521
Preferred Equity (1,043,133 units) (j)
12/6/2019
96
34
617
34
0
%
Combined Systems, Inc.
Aerospace & Defense Manufacturing
First Lien Debt
(L + 10.00%) / (2.00%)
12.00%/0.00%
1/31/2020
1/31/2025
7,600
7,553
7,600
Revolving Loan ($1,050 unfunded commitment) (j)(ac)
(L + 9.00%) / (2.00%)
11.00%/0.00%
1/31/2020
1/31/2025
2,950
2,930
2,950
10,483
10,550
3
%
Comply365, LLC
Aerospace & Defense Manufacturing
First Lien Debt (ad)
(L + 8.00%) / (1.00%)
9.00%/0.00%
12/11/2020
12/11/2025
10,000
9,855
9,855
Common Equity (1,000,000 units)
12/11/2020
1,000
1,000
10,855
10,855
3
%
CRS Solutions Holdings, LLC (dba CRS Texas)
Business Services
Second Lien Debt
10.50%/1.50%
3/14/2018
4/30/2024
11,305
11,270
11,305
Common Equity (450,382 units) (h)(j)
3/14/2018
488
321
11,758
11,626
3
%
Dataguise, Inc.
Information Technology Services
First Lien Debt (j)
11.00%/0.00%
12/31/2020
12/31/2023
20,000
19,900
19,900
Common Equity (909 shares) (j)
12/31/2020
1,500
1,500
21,400
21,400
5
%
Diversified Search LLC
Business Services
First Lien Debt (k)(r)
(L + 8.00%) / (1.75%)
9.75%/0.00%
2/7/2019
2/7/2024
17,355
17,159
17,355
Common Equity (573 units) (h)(j)
2/7/2019
593
494
17,752
17,849
4
%
EBL, LLC (EbLens)
Retail
Second Lien Debt (j)(p)
12.00%/1.00%
7/13/2017
1/13/2023
9,253
9,214
5,454
Common Equity (75,000 units) (j)
7/13/2017
750
9,964
5,454
1
%
14
Table of Contents
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments (unaudited)
December 31, 2020
(in thousands, except shares)
Portfolio Company (a)(b)
Investment Type (c)
Industry
Variable Index
Spread / Floor (d)
Rate (e)
Cash/PIK
Investment
Date (f)
Maturity
Principal
Amount
Cost
Fair
Value (g)
Percent of
Net Assets
ECM Industries, LLC
Component Manufacturing
Subordinated Debt (j)
11.50%/0.00%
4/30/2020
5/23/2026
11,500
11,295
11,500
Common Equity (1,000,000 units) (h)(j)
4/30/2020
1,000
1,562
12,295
13,062
3
%
Elements Brands, LLC
Consumer Products
First Lien Debt
12.25%/0.00%
12/31/2020
12/31/2025
6,000
5,967
5,967
Revolving Loan ($838 unfunded commitment) (i)(j)
12.25%/0.00%
12/31/2020
12/31/2025
2,162
2,146
2,146
8,113
8,113
2
%
French Transit, LLC
Consumer Products
First Lien Debt (j)
(L + 10.00%) / (2.25%)
12.25%/0.00%
6/21/2019
6/21/2024
4,116
4,088
4,116
1
%
Global Plasma Solutions, Inc.
Component Manufacturing
Common Equity (947 shares) (j)
9/21/2018
9,995
2
%
Gurobi Optimization, LLC
Information Technology Services
Common Equity (3 shares)
12/19/2017
592
1,660
0
%
Haematologic Technologies, Inc.
Healthcare Services
First Lien Debt (x)
(L + 8.25%) / (2.00%)
10.25%/0.00%
10/11/2019
10/11/2024
5,500
5,469
5,500
Common Equity (549 units) (h)(j)
10/11/2019
549
255
6,018
5,755
1
%
Hallmark Health Care Solutions, Inc.
Healthcare Services
First Lien Debt (j)(ae)
(L + 7.25%) / (1.50%)
8.75%/0.00%
12/4/2020
12/4/2025
8,500
8,437
8,437
Common Equity (750,000 units) (j)
12/4/2020
750
750
9,187
9,187
2
%
Healthfuse, LLC
Healthcare Services
First Lien Debt (af)
(L + 7.25%) / (1.00%)
8.25%/0.00%
11/13/2020
11/13/2025
6,000
5,960
5,960
Preferred Equity (197,980 units)
11/13/2020
750
750
6,710
6,710
2
%
Hilco Plastics Holdings, LLC (dba Hilco Technologies)
Component Manufacturing
Second Lien Debt (j)
11.50%/1.50%
9/23/2016
12/31/2019
10,301
10,301
8,878
Revolving Loan (j)
(L + 6.50%) / (0.00%)
6.65%/0.00%
12/20/2019
12/15/2019
5,962
5,962
5,962
First Lien Debt (j)
(L + 6.95%) / (0.00%)
7.10%/0.00%
12/20/2019
12/15/2019
5,092
5,092
5,092
Preferred Equity (1,000,000 units) (h)(j)
4/18/2018
1,000
Common Equity (72,507 units) (h)(j)
9/23/2016
473
22,828
19,932
5
%
Hub Acquisition Sub, LLC (dba Hub Pen)
Promotional products
Second Lien Debt (k)
13.00%/0.00%
3/23/2016
3/31/2023
25,000
24,976
24,106
Common Equity (3,750 units)
3/23/2016
131
283
Preferred Equity (868 units) (j)
10/16/2020
154
158
25,261
24,547
6
%
IBH Holdings, LLC (fka Inflexxion, Inc.)
Business Services
Common Equity (150,000 units)
6/20/2018
235
0
%
Ipro Tech, LLC
Information Technology Services
First Lien Debt (j)(u)
(L + 8.50%) / (2.00%)
10.50%/0.00%
6/30/2020
6/30/2025
2,469
1,923
2,469
1
%
K2 Merger Agreement Agent, LLC (fka K2 Industrial Services, Inc.) (n)
Industrial Cleaning & Coatings
Second Lien Debt (j)
0.00%/10.00%
1/28/2019
1/28/2021
2,140
2,140
2,140
1
%
The Kyjen Company, LLC (dba Outward Hound)
Consumer Products
Second Lien Debt (k)
12.00%/0.00%
12/8/2017
6/8/2024
15,000
14,960
15,000
Common Equity (765 shares) (j)
12/8/2017
765
841
15,725
15,841
4
%
LNG Indy, LLC (dba Kinetrex Energy)
Oil & Gas Distribution
Second Lien Debt (k)
11.50%/1.50%
12/28/2016
11/12/2021
10,127
10,108
10,127
Common Equity (500 units)
12/28/2016
500
959
10,608
11,086
3
%
Mesa Line Services, LLC
Utilities: Services
Second Lien Debt (j)
10.50%/0.50%
11/30/2017
8/1/2024
17,511
17,442
17,511
Common Equity (981 shares) (j)
11/30/2017
1,148
1,076
18,590
18,587
5
%
Midwest Transit Equipment, Inc.
Transportation services
Warrant (7,192 shares) (j)(m)
6/23/2017
180
118
Warrant (4.79% of Junior Subordinated Notes) (j)(q)
6/23/2017
190
248
370
366
0
%
NGT Acquisition Holdings, LLC (dba Techniks Industries)
Component Manufacturing
Common Equity (378 units) (j)
5/24/2017
500
227
0
%
OMC Investors, LLC (dba Ohio Medical Corporation)
Healthcare Products
Second Lien Debt
12.00%/0.00%
1/15/2016
6/30/2022
10,000
9,985
10,000
Common Equity (5,000 units)
1/15/2016
462
869
10,447
10,869
3
%
15
Table of Contents
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments
December 31, 2020
(in
thousands, except shares)
Portfolio Company (a)(b)
Investment Type (c)
Industry
Variable Index
Spread /Floor (d)
Rate (e)
Cash/PIK
Investment
Date (f)
Maturity
Principal
Amount
Cost
Fair
Value (g)
Percent of
Net Assets
Palisade Company, LLC
Information Technology Services
Common Equity (50 shares) (j)
11/15/2018
500
630
0
%
Palmetto Moon, LLC
Retail
First Lien Debt (j)
11.50%/2.50
%
11/3/2016
10/31/2021
4,779
4,773
4,779
Common Equity (499 units) (j)
11/3/2016
494
159
5,267
4,938
1
%
Pool & Electrical Products, LLC
Specialty Distribution
Second Lien Debt (j)
11.75%/0.00
%
10/28/2020
4/28/2027
12,000
11,883
11,883
Common Equity (15,000 units) (h)(j)
10/28/2020
1,500
1,500
13,383
13,383
3
%
Power Grid Components, Inc.
Specialty Distribution
Second Lien Debt (k)
11.00%/1.00
%
4/12/2018
12/2/2025
22,433
22,357
22,433
Preferred Equity (392 shares) (j)
4/12/2018
392
509
Preferred Equity (48 shares) (j)
12/2/2019
48
63
Common Equity (10,622 shares) (j)
4/12/2018
462
740
23,259
23,745
6
%
Prime AE Group, Inc.
Business Services
First Lien Debt (j)
(L + 6.25%) / (2.00%
)
8.25%/0.00
%
11/25/2019
11/25/2024
6,833
6,683
6,833
Preferred Equity (500,000 shares) (j)
11/25/2019
500
566
7,183
7,399
2
%
Revenue Management Solutions, LLC
Information Technology Services
Common Equity (113 shares)
1/4/2017
1,125
3,081
1
%
Rhino Assembly Company, LLC
Specialty Distribution
Second Lien Debt (k)
12.00%/1.50
%
8/11/2017
2/11/2023
10,682
10,655
10,682
Delayed Draw Commitment ($875 unfunded commitment) (i)(j)
12.00%/1.00
%
8/11/2017
5/17/2022
Common Equity (Class A Units) (8,864 units) (h)(j)
8/11/2017
944
629
Preferred Equity (Units N/A) (h)(j)
12/10/2020
136
137
Common Equity (Class F Units) (355 units) (h)(j)
12/10/2020
11,735
11,448
3
%
Road Safety Services, Inc.
Business Services
Second Lien Debt
11.25%/1.50
%
9/18/2018
3/18/2024
10,379
10,351
10,379
Common Equity (655 units)
9/18/2018
621
882
10,972
11,261
3
%
Rohrer Corporation
Packaging
Subordinated Debt (j)
10.50%/1.00
%
10/1/2018
4/1/2024
14,017
13,976
14,017
Common Equity (400 shares) (j)
7/18/2016
780
1,591
14,756
15,608
4
%
Routeware, Inc.
Information Technology Services
First Lien Debt (k)(aa)
(L + 7.00%) / (1.75%
)
8.75%/0.00
%
2/7/2020
2/7/2025
14,888
14,814
14,888
4
%
SES Investors, LLC (dba SES Foam)
Building Products Manufacturing
Second Lien Debt
13.00%/0.00
%
9/8/2016
12/29/2022
1,000
997
1,000
Common Equity (6,000 units) (h)(j)
9/8/2016
537
1,869
1,534
2,869
1
%
Software Technology, LLC
Information Technology Services
Subordinated Debt (k)
11.00%/0.00
%
12/23/2016
6/23/2023
10,000
9,980
10,000
Common Equity (6 shares)
12/23/2016
646
942
10,626
10,942
3
%
Specialized Elevator Services Holdings, LLC
Business Services
First Lien Debt (j)(y)
(L + 5.25%) / (2.00%
)
7.25%/0.00
%
5/7/2019
5/3/2024
12,889
12,782
12,889
Common Equity (596 units) (j)
5/8/2019
596
647
13,378
13,536
3
%
SpendMend LLC
Business Services
Common Equity (1,000,000 units)
1/8/2018
972
1,915
0
%
TransGo, LLC
Component Manufacturing
Common Equity (500 units) (j)
2/28/2017
474
996
0
%
The Tranzonic Companies
Specialty Distribution
Subordinated Debt (j)
10.00%/1.00
%
3/27/2018
3/27/2025
7,001
6,959
7,001
Preferred Equity (5,653 units) (j)
3/27/2018
565
730
Common Equity (1 units) (j)
3/27/2018
683
7,524
8,414
2
%
UBEO, LLC
Business Services
Subordinated Debt (j)
11.00%/0.00
%
4/3/2018
10/3/2024
13,893
13,814
13,893
Common Equity (705,000 units) (h)(j)
4/3/2018
668
661
14,482
14,554
3
%
United Biologics, LLC
Healthcare Services
Preferred Equity (98,377 units) (h)(j)
4/1/2012
1,008
Warrant (57,469 units) (j)(m)
3/5/2012
566
1,574
0
%
Virginia Tile Company, LLC
Specialty Distribution
Second Lien Debt (j)
12.25%/0.00
%
12/19/2014
4/7/2022
12,000
11,998
12,000
Common Equity (17 units) (j)
12/19/2014
342
521
12,340
12,521
3
%
Westerns Smokehouse, LLC
Consumer Products
First Lien Debt (j)(ab)
(L + 6.50%) / (1.25%
)
7.75%/0.00
%
2/28/2020
12/23/2024
10,000
9,876
10,000
2
%
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FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments
December 31, 2020
(in
thousands, except shares)
Portfolio Company (a)(b)
Investment Type (c)
Industry
Variable Index
Spread / Floor (d)
Rate (e)
Cash/PIK
Investment
Date (f)
Maturity
Principal
Amount
Cost
Fair
Value (g)
Percent of
Net Assets
Wheel Pros, Inc.
Specialty Distribution
Second Lien Debt (j)
(L + 9.00%) / (1.00%
)
10.00%/0.00
%
11/10/2020
11/10/2028
20,000
19,411
19,411
Preferred Equity (347,222 units) (j)
5/15/2019
301
1,031
19,712
20,442
5
%
Worldwide Express Operations, LLC
Transportation services
Second Lien Debt (j)
(L + 8.00%) / (1.00%
)
9.00%/0.00
%
2/27/2017
2/3/2025
20,000
19,791
20,000
Common Equity (2,000 units) (h)(j)
2/27/2017
1,478
1,942
21,269
21,942
5
%
Total
Non-control/Non-affiliate Investments
$
622,222
$
633,222
154
%
Total Investments
$
687,027
$
742,869
181
%
(a)
See Note 3 to the consolidated financial statements for portfolio composition by geographic location.
(b)
Equity ownership may be held in shares or units of companies related to the portfolio companies.
(c)
All debt investments are income producing, unless otherwise indicated. Equity investments are non-income producing unless otherwise noted.
(d)
Variable rate investments bear interest at a rate indexed to LIBOR (L), which is reset monthly, bimonthly,
quarterly, or semi-annually. Certain variable rate investments also include a LIBOR interest rate floor. For each investment, the Company has provided the spread over the reference rate and the LIBOR floor, if any, as of December 31, 2020.
(e)
Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any, as of December 31, 2020. Generally, payment-in-kind interest can be paid-in-kind or all in cash.
(f)
Investment date represents the date of the initial investment in the security.
(g)
The Companys investment portfolio is comprised entirely of debt and equity securities of privately held
companies for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the board of
directors, using significant unobservable Level 3 inputs.
(h)
Investment is held by a taxable subsidiary of the Company.
(i)
The disclosed commitment represents the unfunded amount as of December 31, 2020. The Company is earning
0.50% interest on the unfunded balance of the commitment. The interest rate disclosed represents the rate which will be earned if the commitment is funded.
(j)
Investment pledged as collateral for the Credit Facility and, as a result, is not directly available to the
creditors of the Company to satisfy any obligations of the Company other than the Companys obligations under the Credit Facility (see Note 6 to the consolidated financial statements).
(k)
The portion of the investment not held by the Funds is pledged as collateral for the Credit Facility and, as a
result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Companys obligations under the Credit Facility (see Note 6 to the consolidated financial statements).
(l)
As defined in the 1940 Act, the Company is deemed to be an Affiliated Person of this portfolio
company because it owns 5% or more of the portfolio companys outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was an Affiliated
Person are detailed in Note 3 to the consolidated financial statements.
(m)
Warrants entitle the Company to purchase a predetermined number of shares or units of common equity, and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any.
(n)
Investment in portfolio company that has sold its operations and is in the process of winding down.
(o)
Income producing. Maturity date, if any, represents mandatory redemption date.
(p)
Investment was on PIK-only
non-accrual status as of December 31, 2020, meaning the Company has ceased recognizing PIK interest income on the investment.
(q)
Warrant entitles the Company to purchase 4.79% of the outstanding principal of Junior Subordinated Notes prior
to exercise, and is non-income producing.
(r)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 5.92% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(s)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.34% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(t)
As defined in the 1940 Act, the Company is deemed to be both an Affiliated Person of and
Control this portfolio company because it owns 25% or more of the portfolio companys outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in
which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are detailed in Note 3 to the consolidated financial statements.
(u)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 4.50% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(v)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 4.25% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(w)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.27% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(x)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.13% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(y)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.93% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(z)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 4.21% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(aa)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 2.84% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(ab)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 2.95% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(ac)
The disclosed commitment represents the unfunded amount as of December 31, 2020. The Company is earning
1.00% interest on the unfunded balance of the commitment. The interest rate disclosed represents the rate earned on the outstanding, funded balance of the commitment.
(ad)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.33% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(ae)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 3.31% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
(af)
In addition to the interest earned based on the stated interest rate of this security, the Company is entitled
to receive an additional interest amount of 4.03% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the
first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.
See Notes to Consolidated Financial Statements.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Note 1. Organization and Nature of Business
Fidus Investment Corporation (FIC, and together with its subsidiaries, the Company), a Maryland corporation, operates
as an externally managed, closed-end, non-diversified business development company (BDC) under the Investment Company Act of 1940, as amended (1940
Act). FIC completed its initial public offering, or IPO, in June 2011. In addition, for federal income tax purposes, the Company elected to be treated as a regulated investment company (RIC) under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code).
The Company provides customized debt and equity financing solutions to lower
middle-market companies, and may make investments directly or through its two wholly-owned investment company subsidiaries, Fidus Mezzanine Capital II, L.P. (Fund II) and Fidus Mezzanine Capital III, L.P. (Fund III)
(collectively, Fund II and Fund III are referred to as the Funds). The Funds are licensed by the U.S. Small Business Administration (the SBA) as small business investment companies (SBIC). The SBIC licenses allow
the Funds to obtain leverage by issuing SBA-guaranteed debentures (SBA debentures), subject to the issuance of leverage commitments by the SBA and other customary procedures. As SBICs, the Funds
are subject to a variety of regulations and oversight by the SBA under the Small Business Investment Act of 1958, as amended (the SBIC Act), concerning, among other things, the size and nature of the companies in which they may invest
and the structure of those investments.
We believe that utilizing both FIC and the Funds as investment vehicles provides us with access
to a broader array of investment opportunities. Given our access to lower cost capital through the SBAs SBIC debenture program, we expect that we will continue to make investments through the Funds until the Funds reach their borrowing limit
under the program. For two or more SBICs under common control, the maximum amount of outstanding SBA debentures cannot exceed $350,000.
Fund II and Fund III are not registered under the 1940 Act and rely on the exclusion from the definition of investment company contained in
Section 3(c)(7) of the 1940 Act.
The Company pays a quarterly base management fee and an incentive fee to Fidus Investment Advisors,
LLC, our investment advisor (the Investment Advisor or Fidus Investment Advisors) under an investment advisory agreement (the Investment Advisory Agreement).
Note 2. Significant Accounting Policies
Basis of presentation: The accompanying consolidated financial statements of the Company have been prepared in accordance with generally
accepted accounting principles in the United States of America (GAAP) pursuant to the requirements for reporting on Form 10-Q, Accounting Standards Codification (ASC) 946, Financial
Services Investment Companies (ASC 946), and Articles 6 or 10 of Regulation S-X. In the opinion of management, the consolidated financial statements reflect all adjustments and
reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation. The current periods
results of operation are not necessarily indicative of results that ultimately may be achieved for the year. Therefore, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 2020.
Use of estimates: The preparation of the consolidated financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Consolidation: Pursuant to Article 6 of Regulation S-X and ASC 946, the Company will generally
not consolidate its investments in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. As a result, the consolidated financial statements of the
Company include only the accounts of the Company and its wholly-owned subsidiaries, including the Funds. All significant intercompany balances and transactions have been eliminated.
Investment risks: The Companys investments are subject to a variety of risks. These risks may include, but are not limited to the
following:
Market risk In contrast to investment-grade bonds (the market prices of which change primarily as a
reaction to changes in interest rates), the market prices of high-yield bonds (which are also affected by changes in interest rates) are influenced much more by credit factors and financial results of the issuer as well as general economic factors
that influence the financial markets as a whole. The portfolio companies in which the Company invests may be unseasoned, unprofitable and/or have little established operating history or earnings. These companies may also lack technical, marketing,
financial, and other resources or may be dependent upon the success of one product or service, a unique distribution channel, or the effectiveness of a manager or management team, as compared to larger, more established
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
entities. The failure of a single product, service or distribution channel, or the loss or the ineffectiveness of a key executive or executives within the management team may have a materially
adverse impact on such companies. Furthermore, these companies may be more vulnerable to competition and to overall economic conditions than larger, more established entities.
Credit risk Credit risk represents the risk that the Company would incur if the counterparties failed
to perform pursuant to the terms of their agreements with the Company. Issues of high-yield debt securities in which the Company invests are more likely to default on interest or principal than are issues of investment-grade securities.
Liquidity risk Liquidity risk represents the possibility that the Company may not be able to sell its
investments quickly or at a reasonable price (given the lack of an established market).
Interest rate risk Interest rate risk represents the likelihood that a change in interest rates could
have an adverse impact on the fair value of an interest-bearing financial instrument.
Prepayment risk Certain of the Companys debt investments allow for prepayment of principal
without penalty. Downward changes in market interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the debt investments and making the instrument less likely to be an income
producing instrument through the stated maturity date.
Off-Balance sheet risk Some of the Companys financial
instruments contain off-balance sheet risk. Generally, these financial instruments represent future commitments to purchase other financial instruments at defined terms at defined future dates. See Note 7 for
further details.
Fair value of financial instruments: The Company measures and discloses fair value with respect
to substantially all of its financial instruments in accordance with ASC Topic 820 Fair Value Measurements and Disclosures (ASC Topic 820). ASC Topic 820 defines fair value, establishes a framework used to measure fair
value, and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. See Note 4 to the consolidated financial statements for
further discussion regarding the fair value measurements and hierarchy.
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 those companies where the Company owns more than 25% of the voting securities of such company or has
rights to maintain greater than 50% of the board representation. Under the 1940 Act, Affiliate Investments are defined as investments in those companies where the Company owns between 5% and 25% of the voting securities of such company. Non-Control/Non-Affiliate Investments are those that neither qualify as Control Investments nor Affiliate Investments.
Segments: In accordance with ASC Topic 280 Segment Reporting , the Company has determined that it has a single reporting
segment and operating unit structure.
Cash and cash equivalents: Cash and cash equivalents are highly liquid investments with an
original maturity of three months or less at the date of acquisition. The Company places its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. The Company does
not believe its cash balances are exposed to any significant credit risk.
Deferred financing costs: Deferred financing costs
consist of fees and expenses paid in connection with the SBA debentures, the Credit Facility and the Notes (as defined in Note 6). Deferred financing costs are capitalized and amortized to interest and financing expenses over the term of the debt
agreement using the effective interest method. Unamortized deferred financing costs are presented as an offset to the corresponding debt liabilities on the consolidated statements of assets and liabilities.
Realized losses on extinguishment of debt: Upon the repayment of debt obligations which are deemed to be extinguishments, the
difference between the principal amount due at maturity, adjusted for any unamortized deferred financing costs, is recognized as a loss (i.e., the unamortized deferred financing costs are recognized as a loss upon extinguishment of the underlying
debt obligation). There is no change in historical net increase in net assets resulting from operations due to this change in presentation.
Deferred offering costs: Deferred offering costs include registration expenses related to shelf filings. These expenses primarily
consist of U.S. Securities and Exchange Commission (SEC) registration fees, legal fees and accounting fees incurred. These expenses are included in prepaid expenses and other assets on the consolidated statements of assets and
liabilities. Upon the completion of an equity offering or a debt offering, the deferred expenses are charged to additional paid-in capital or deferred financing costs, respectively. If no offering is completed
prior to the expiration of the registration statement, the deferred costs are charged to expense.
Realized gains or losses and
unrealized appreciation or depreciation on investments: Realized gains or losses on investments are recorded upon the sale or disposition of a portfolio investment and are calculated as the difference between the net proceeds from the sale or
disposition and
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation on the consolidated
statements of operations includes changes in the fair value of investments from the prior period, as determined in good faith by the Companys board of directors (the Board) through the application of the Companys valuation
policy, as well as reclassifications of any prior period unrealized appreciation or depreciation on exited investments to realized gains or losses on investments.
Interest and dividend income: Interest and dividend income are recorded on the accrual basis to the extent that the Company expects to
collect such amounts. Interest is accrued daily based on the outstanding principal amount and the contractual terms of the debt. Dividend income is recorded as dividends are declared or at the point an obligation exists for the portfolio company to
make a distribution, and is generally recognized when received. Distributions from portfolio companies are evaluated to determine if the distribution is a distribution of earnings or a return of capital. Distributions of earnings are included in
dividend income while a return of capital is recorded as a reduction in the cost basis of the investment. Estimates are adjusted as necessary after the relevant tax forms are received from the portfolio company.
PIK income: Certain of the Companys investments contain a
payment-in-kind (PIK) income provision. The PIK income, computed at the contractual rate specified in the applicable investment agreement, is added to the
principal balance of the investment, rather than being paid in cash, and recorded as interest or dividend income, as applicable, on the consolidated statements of operations. Generally, PIK can be paid-in-kind or all in cash. The Company stops accruing PIK income when there is reasonable doubt that PIK income will be collected. PIK income that has been contractually capitalized to the principal balance
of the investment prior to the non-accrual designation date is not reserved against interest or dividend income, but rather is assessed through the valuation of the investment (with corresponding adjustments
to unrealized depreciation, as applicable). PIK income is included in the Companys taxable income and, therefore, affects the amount the Company is required to pay to shareholders in the form of dividends in order to maintain the
Companys tax treatment as a RIC and to avoid corporate federal income tax, even though the Company has not yet collected the cash.
Non-accrual: Debt investments or preferred equity investments (for which the Company is
accruing PIK dividends) are placed on non-accrual status when principal, interest or dividend payments become materially past due, or when there is reasonable doubt that principal, interest or
dividends will be collected. Any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on full non-accrual status. Interest and dividend
payments received on non-accrual investments may be recognized as interest or dividend income or may be applied to the investment principal balance based on managements judgment. Non-accrual investments are restored to accrual status when past due principal, interest or dividends are paid and, in managements judgment, payments are likely to remain current.
Origination and closing fees: The Company also typically receives debt investment origination or closing fees in connection with such
investments. Such debt investment origination and closing fees are capitalized as unearned income and offset against investment cost basis on the consolidated statements of assets and liabilities and accreted into interest income over the life of
the investment. Upon the prepayment of a debt investment, any unaccreted debt investment origination and closing fees are accelerated into interest income.
Warrants : In connection with the Companys debt investments, the Company will sometimes receive warrants or other equity-related
securities from the borrower (Warrants). The Company determines the cost basis of Warrants based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and Warrants received. Any
resulting difference between the face amount of the debt and its recorded fair value resulting from the assignment of value to the Warrants is treated as original issue discount (OID), and accreted into interest income using the
effective interest method over the term of the debt investment. Upon the prepayment of a debt investment, any unaccreted OID is accelerated into interest income.
Fee income : Transaction fees earned in connection with the Companys investments are recognized as fee income and are generally non-recurring. Such fees typically include fees for services, including structuring and advisory services, provided to portfolio companies. The Company recognizes income from fees for providing such structuring and
advisory services when the services are rendered or the transactions are completed. Upon the prepayment of a debt investment, any prepayment penalties are recorded as fee income when earned. In 2020, the Company elected to change the manner in which
it presents the recognition of management services fees income. Previously, the Company classified management services fees as a component of interest on idle funds and other income on the consolidated statements of operations. Currently management
services fees are a component of fee income on the consolidated statements of operations. Comparative prior periods presented have been reclassified retrospectively to conform to the revised presentation. There is no change in historical net
increase in net assets resulting from operations due to this change in presentation.
Partial loan and equity sales: The Company
follows the guidance in ASC 860, Transfers and Servicing, when accounting for loan (debt investment) participations, equity assignments and other partial loan sales. Such guidance requires a participation, assignment or other partial
loan or equity sale to meet the definition of a participating interest, as defined in the guidance, in order for sale treatment to be allowed. Participations, assignments or other partial loan or equity sales which do not meet the
definition of a participating interest should remain on the Companys
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
consolidated statements of assets and liabilities and the proceeds recorded as a secured borrowing until the definition is met. For these partial loan sales, the interest earned on the entire
loan balance is recorded within interest income and the interest earned by the buyer is the partial loan sale is recorded within interest and financing expenses in the accompanying consolidated statements of operations.
Income taxes: The Company has elected to be treated as a RIC under Subchapter M of the Code, which will generally relieve the Company
from U.S. federal income taxes with respect to all income distributed to stockholders. To maintain the tax treatment of a RIC, the Company is required to timely distribute to its stockholders at least 90.0% of investment company taxable
income, as defined by Subchapter M of the Code, each year. Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year;
however, the Company will pay a 4.0% excise tax if it does not distribute at least 98.0% of the current years ordinary taxable income. Any such carryover taxable income must be distributed through a dividend declared prior to the later of the
date on which the final tax return related to the year in which the Company generated such taxable income is filed or the 15 th day of the 10 th
month following the close of such taxable year. In addition, the Company will be subject to federal excise tax if it does not distribute at least 98.2% of its net capital gains realized, computed for any one year period ending October 31.
In the future, the Funds may be limited by provisions of the SBIC Act and SBA regulations governing SBICs from making certain distributions to
FIC that may be necessary to enable FIC to make the minimum distributions required to maintain the tax treatment of a RIC.
The Company
has certain wholly-owned taxable subsidiaries (the Taxable Subsidiaries), each of which generally holds one or more of the Companys portfolio investments listed on the consolidated schedules of investments. The Taxable Subsidiaries
are consolidated for financial reporting purposes, such that the Companys consolidated financial statements reflect the Companys investment in the portfolio company investments owned by the Taxable Subsidiaries. The purpose of the
Taxable Subsidiaries is to permit the Company to hold equity investments in portfolio companies that are taxed as partnerships for U.S. federal income tax purposes (such as entities organized as limited liability companies (LLCs) or
other forms of pass through entities) while complying with the source-of-income requirements contained in the RIC tax provisions. The Taxable Subsidiaries
are not consolidated with the Company for U.S. federal corporate income tax purposes, and each Taxable Subsidiary will be subject to U.S. federal corporate income tax on its taxable income. Any such income or expense is reflected in the consolidated
statements of operations.
U.S. federal income tax regulations differ from GAAP, and as a result, distributions in accordance with tax
regulations may differ from net investment income and realized gains recognized under GAAP. Differences may be permanent or temporary. Permanent differences may arise as a result of, among other items, a difference in the book and tax basis of
certain assets and nondeductible federal income taxes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.
ASC Topic 740 Accounting for Uncertainty in Income Taxes (ASC Topic 740) provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in the consolidated financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Companys tax returns to determine whether
the tax positions are more-likely-than-not to be respected by the applicable tax authorities. Tax benefits of positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax expense in the current year. It is the Companys policy to recognize accrued interest and penalties related to uncertain tax benefits included in
the income tax provision, if any. There were no material uncertain income tax positions at June 30, 2021 and December 31, 2020. The Companys tax returns are generally subject to examination by U.S. federal and most state tax
authorities for a period of three years from the date the respective returns are filed, and, accordingly, the Companys 2017 through 2019 tax years remain subject to examination.
Dividends to stockholders: Dividends to stockholders are recorded on the record date with respect to such distributions. 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, may be distributed at least annually, although the Company may
decide to retain such capital gains for investment.
The determination of the tax attributes for the Companys distributions is made
annually, and is based upon the Companys taxable income and distributions paid to its stockholders for the full year. Ordinary dividend distributions from a RIC do not qualify for the preferential tax rate on qualified dividend income
from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax characterization of
the Companys distributions generally includes both ordinary income and capital gains but may also include qualified dividends or return of capital.
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 Companys stockholders who have not opted out of the DRIP at least two days prior to the dividend
payment date will have their cash dividend automatically reinvested into additional shares of the Companys common stock. The Company has the option to satisfy the share requirements of the DRIP through
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
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 Companys common stock on a date determined by the Board. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator
before any associated brokerage or other costs. See Note 9 to the consolidated financial statements regarding dividend declarations and distributions.
Earnings and net asset value per share: The earnings per share calculations for the three and six months ended June 30, 2021 and
2020, are computed utilizing the weighted average shares outstanding for the period. Net asset value per share is calculated using the number of shares outstanding as of the end of the period.
Stock Repurchase Program: The Company has an open market stock repurchase program (the Stock Repurchase Program) under
which the Company may acquire up to $5,000 of its outstanding common stock. Under the Stock Repurchase Program, the Company may, but is not obligated to, repurchase outstanding common stock in the open market from time to time provided that the
Company complies with the prohibitions under its insider trading policies and the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), including
certain price, market value and timing constraints. The timing, manner, price and amount of any share repurchases will be determined by the Companys management, in its discretion, based upon the evaluation of economic and market conditions,
stock price, capital availability, applicable legal and regulatory requirements and other corporate considerations. On October 26, 2020, the Board extended the Stock Repurchase Program through December 31, 2021, or until the approved
dollar amount has been used to repurchase shares. The Stock Repurchase Program does not require the Company to repurchase any specific number of shares and the Company cannot assure that any shares will be repurchased under the Stock Repurchase
Program. The Stock Repurchase Program may be suspended, extended, modified or discontinued at any time. The Company did not make any repurchases of common stock during the three and six months ended June 30, 2021. During the three and six
months ended June 30, 2020, the Company repurchased zero and 25,719 shares of common stock on the open market for zero and $268, respectively. Refer to Note 8 for additional information concerning stock repurchases.
Recent accounting pronouncements:
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by
reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU
2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging
relationships entered into or evaluated after December 31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging
relationship. The Company did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the six months ended June 30, 2021.
SEC Rule 1-02(w)(2) Update:
In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the
financial statements of certain of their portfolio companies or certain acquired funds (the Final Rules). The Final Rules adopted a new definition of significant subsidiary set forth in Rule
1-02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of
Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment companys periodic reports for any portfolio company
that meets the definition of significant subsidiary. The Final Rules adopt a new definition of significant subsidiary applicable only to investment companies that (i) modifies the investment test and the income test, and
(ii) eliminates the asset test currently in the definition of significant subsidiary in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an
investment company. The Final Rules became effective on January 1, 2021, however the Company elected to early adopt this rule change as of December 31, 2020. The adoption of this guidance did not have a material impact on the
Companys Consolidated Financial Statements.
SEC Regulation S-K Update:
In November 2020, the SEC issued a final rule that modernized and simplifies Managements Discussion and Analysis and certain financial
disclosure requirements in Regulation S-K (the Amendments). Specifically, the Amendments: (i) eliminate Item 301 of Regulation S-K (Selected Financial
Data); (ii) simplify Item 302 of Regulation S-K (Supplementary Financial Information); and (iii) amend certain aspects of Item 303 of Regulation S-K
(Managements Discussion and Analysis of Financial Condition and Results of Operations). The Amendments became effective on February 10, 2021 and compliance will be required for the registrants fiscal year ending on or after
August 9, 2021. Early adoption of the Amendments is permitted on an item-by-item basis after the effective date; however, a registrant must fully comply with each
adopted item in its entirety. The Company adopted the Amendments on the effective date which did not have a material impact on the Companys Consolidated Financial Statements.
22
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Note 3. Portfolio Company Investments
The Companys portfolio investments principally consist of secured and unsecured debt, equity warrants and direct equity investments in
privately held companies. The debt investments may or may not be secured by either a first or second lien on the assets of the portfolio company. The debt investments generally bear interest at fixed rates, and generally mature between five and
seven years from the original investment. In connection with a debt investment, the Company also may receive nominally priced equity warrants and/or make a direct equity investment in the portfolio company. The Companys warrants or equity
investments may be investments in a holding company related to the portfolio company. In addition, the Company periodically makes equity investments in its portfolio companies through Taxable Subsidiaries. In both situations, the investment is
generally reported under the name of the operating company on the consolidated schedules of investments.
As of June 30, 2021, the
Company had active investments in 72 portfolio companies and residual investments in four portfolio companies that have sold their underlying operations. The aggregate fair value of the total portfolio was $743,458 and the weighted average effective
yield on the Companys debt investments was 12.2% as of such date. As of June 30, 2021, the Company held equity investments in 85.5% of its portfolio companies and the average fully diluted equity ownership in those portfolio companies was
7.4%.
As of December 31, 2020, the Company had active investments in 66 portfolio companies and residual investments in three
portfolio companies that have sold their underlying operations. The aggregate fair value of the total portfolio was $742,869 and the weighted average effective yield on the Companys debt investments was 12.2% as of such date. As of
December 31, 2020, the Company held equity investments in 88.4% of its portfolio companies and the average fully diluted equity ownership in those portfolio companies was 5.3%.
The weighted average yield of the Companys debt investments is not the same as a return on investment for its stockholders but, rather,
relates to a portion of the Companys investment portfolio and is calculated before the payment of all of the Companys and its subsidiaries fees and expenses. The weighted average yields were computed using the effective
interest rates for debt investments at cost as of June 30, 2021 and December 31, 2020, including accretion of OID and debt investment origination fees, but excluding investments on non-accrual status
and investments recorded as a secured borrowing, if any.
Purchases of debt and equity investments for the six months ended June 30,
2021 and 2020 totaled $167,349 and $85,097, respectively. Proceeds from sales and repayments, including principal, return of capital distributions and realized gains, of portfolio investments for the six months ended June 30, 2021 and 2020
totaled $191,560 and $76,315, respectively.
Investments by type with corresponding percentage of total portfolio investments consisted of
the following:
Fair Value
Cost
June 30,
December 31,
June 30,
December 31,
2021
2020
2021
2020
First Lien Debt (1)
$
285,011
38.3
%
$
187,353
25.2
%
$
284,630
42.4
%
$
184,585
26.9
%
Second Lien Debt
207,953
28.0
332,154
44.7
221,225
33.0
341,947
49.7
Subordinated Debt
99,854
13.4
107,911
14.5
99,411
14.8
107,343
15.6
Equity
147,226
19.8
112,836
15.2
62,472
9.3
49,958
7.3
Warrants
3,414
0.5
2,615
0.4
3,194
0.5
3,194
0.5
Total
$
743,458
100.0
%
$
742,869
100.0
%
$
670,932
100.0
%
$
687,027
100.0
%
(1)
Includes unitranche investments, which account for 30.6% and 33.8% of our portfolio on a fair value and cost
basis as of June 30, 2021, respectively. Includes unitranche investments, which account for 17.3% and 18.4% of our portfolio on a fair value and cost basis as of December 31, 2020, respectively.
All investments made by the Company as of June 30, 2021 and December 31, 2020 were made in portfolio companies headquartered in the
U.S. The following table shows portfolio composition by geographic region at fair value and cost and as a percentage of total investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio
company, which may not be indicative of the primary source of the portfolio companys business.
23
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Fair Value
Cost
June 30,
December 31,
June 30,
December 31,
2021
2020
2021
2020
Midwest
$
195,280
26.3
%
$
225,745
30.4
%
$
147,252
21.9
%
$
189,560
27.6
%
Southeast
170,342
22.9
153,291
20.6
144,190
21.5
129,974
18.9
Northeast
144,830
19.5
123,268
16.6
148,282
22.1
127,833
18.6
West
102,034
13.7
108,673
14.6
97,148
14.5
109,221
15.9
Southwest
130,972
17.6
131,892
17.8
134,060
20.0
130,439
19.0
Total
$
743,458
100.0
%
$
742,869
100.0
%
$
670,932
100.0
%
$
687,027
100.0
%
The following table shows portfolio composition by type and by geographic region at fair value as a percentage
of net assets.
By Type
By Geographic Region
June 30,
December 31,
June 30,
December 31,
2021
2020
2021
2020
First Lien Debt
66.4
%
45.6
%
Midwest
45.5
%
55.0
%
Second Lien Debt
48.4
80.9
Southeast
39.7
37.3
Subordinated Debt
23.3
26.3
Northeast
33.7
30.0
Equity
34.3
27.5
West
23.8
26.5
Warrants
0.8
0.6
Southwest
30.5
32.1
Total
173.2
%
180.9
%
Total
173.2
%
180.9
%
As of June 30, 2021 and December 31, 2020, the Company had no portfolio company investments that
represented more than 10% of the total investment portfolio on a fair value or cost basis. As of June 30, 2021 and December 31, 2020, the Company had no portfolio company investments that represented more than 5% of our total assets.
As of June 30, 2021, the Company had no debt investments on non-accrual status. As of
December 31, 2020, the Company had debt investments in one portfolio company on non-accrual status.
June 30, 2021
December 31, 2020
Fair
Fair
Portfolio Company
Value
Cost
Value
Cost
EBL, LLC (EbLens)
$
(2)
$
(2)
$
5,454
(1)
$
9,214
(1)
Total
$
$
$
5,454
$
9,214
(1)
Portfolio company was on PIK-only on
non-accrual status at period end, meaning the Company has ceased recognizing PIK interest income on the investment.
(2)
Portfolio company debt investment was not on non-accrual status at
period end.
Consolidated Schedule of Investments In and Advances To Affiliates
The table below represents the fair value of control and affiliate investments as of December 31, 2020 and any additions and reductions
made to such investments during the six months ended June 30, 2021, the ending fair value as of June 30, 2021, and the total investment income earned on such investments during the period.
24
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Six Months Ended June 30, 2021
Portfolio Company
(1)
June 30, 2021
Principal
Amount - Debt
Investments
December 31,
2020
Fair Value
Gross
Additions (2)
Gross
Reductions (3)
June 30,
2021 Fair
Value
Net Realized
Gains (Losses) (4)
Net Change in
Unrealized
Appreciation
(Depreciation)
Interest
Income
Payment-in-
kind Interest
Income
Dividend
Income
Fee Income
Control Investments
Hilco Plastics Holdings, LLC (dba Hilco Technologies) (6)
$
10,286
$
$
22,210
$
(1,496
)
$
20,714
$
$
(1,495
)
$
263
$
$
568
$
Mesa Line Services, LLC (6)
20,804
21,894
(5,596
)
16,298
(5,596
)
161
221
Spectra A&D Acquisition, Inc. (fka FDS Avionics Corp.) (5)
7,391
1,986
(9,377
)
957
1,029
90
400
US GreenFiber, LLC
26,161
20,862
3,294
24,156
77
1,054
716
Total Control Investments
$
57,251
$
28,253
$
49,384
$
(16,469
)
$
61,168
$
957
$
(5,985
)
$
1,568
$
937
$
568
$
400
Affiliate Investments
FAR Research Inc.
$
$
28
$
$
$
28
$
$
$
$
$
$
Fiber Materials, Inc.
41
1
42
Medsurant Holdings, LLC
10,960
1,075
(8,031
)
4,004
1,072
331
91
Mirage Trailers LLC
6,532
6,494
3,622
(44
)
10,072
3,447
375
165
110
Pfanstiehl, Inc.
33,505
9,676
43,181
9,677
Pinnergy, Ltd.
20,589
208
20,797
208
Spectra A&D Acquisition, Inc. (fka FDS Avionics Corp.) (5)
8,000
12,277
(59
)
12,218
1,664
395
177
Steward Holding LLC (dba Steward Advanced Materials)
9,777
332
(7,812
)
2,297
300
458
30
Total Affiliate Investments
$
14,532
$
81,394
$
27,191
$
(15,946
)
$
92,639
$
$
16,368
$
1,559
$
195
$
110
$
268
(1)
The investment type, industry, ownership detail for equity investments, and if the investment is income
producing is disclosed in the consolidated schedule of investments.
(2)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments,
follow-on investments, accrued PIK interest and PIK dividend income, accretion of OID and origination fees, and net unrealized appreciation recognized during the period. Gross additions also include transfers of portfolio companies into the control
or affiliate classification during the period, as applicable.
(3)
Gross reductions include decreases in the cost basis of investments resulting from principal repayments or
sales and net unrealized (depreciation) recognized during the period. Gross reductions also include include transfers of portfolio companies out of the control or affiliate classification during the period, as applicable.
(4)
The schedule does not reflect realized gains or losses on escrow receivables for investments which were
previously exited and were not held during the period presented. Gains and losses on escrow receivables are classified in the consolidated statements of operations according to the control classification at the time the investment was exited. Escrow
receivables are presented in prepaid expenses and other assets on the consolidated statements of assets and liabilities.
(5)
Portfolio company was transferred to Affiliate investments from Control investments during the six months ended
June 30, 2021.
(6)
Portfolio company was transferred to Control investments from Non-control/Non-affiliate investments
during the six months ended June 30, 2021.
The table below represents the fair value of control and affiliate investments as of
December 31, 2019 and any additions and reductions made to such investments during the year ended December 31, 2020, including the total investment income earned on such investments during the period.
Year Ended December 31, 2020
Portfolio Company
(1)
December 31,
2020 Principal
Amount - Debt
Investments
December 31,
2019
Fair Value
Gross
Additions (2)
Gross
Reductions (3)
December
31, 2020
Fair Value
Net Realized
Gains (Losses) (4)
Net Change in
Unrealized
Appreciation
(Depreciation)
Interest
Income
Payment-in-
kind Interest
Income
Dividend
Income
Fee Income
Control Investments
FDS Avionics Corp. (dba Flight Display Systems)
$
5,122
$
5,403
$
1,988
$
$
7,391
$
$
1,545
$
298
$
442
$
$
US GreenFiber, LLC
22,943
16,417
5,830
(1,385
)
20,862
(363
)
1,591
1,306
Total Control Investments
$
28,065
$
21,820
$
7,818
$
(1,385
)
$
28,253
$
$
1,182
$
1,889
$
1,748
$
$
Affiliate Investments
FAR Research Inc.
$
$
28
$
$
$
28
$
$
$
$
$
$
Fiber Materials, Inc.
10,449
9,681
(20,089
)
41
9,681
(9,762
)
354
Medsurant Holdings, LLC
8,031
16,980
1,721
(7,741
)
10,960
1,714
(2,304
)
1,145
79
Microbiology Research Associates,
Inc. (5)
11,611
21
(11,632
)
(751
)
84
11
Mirage Trailers LLC
6,410
7,218
235
(959
)
6,494
(959
)
718
159
5
16
Pfanstiehl, Inc.
32,822
20,128
(19,445
)
33,505
12,812
7,309
630
478
Pinnergy, Ltd.
32,978
301
(12,690
)
20,589
301
(9,388
)
Steward Holding LLC (dba Steward Advanced Materials)
7,783
9,469
308
9,777
186
934
117
25
Total Affiliate Investments
$
22,224
$
121,555
$
32,395
$
(72,556
)
$
81,394
$
24,508
$
(15,669
)
$
3,511
$
287
$
837
$
120
(1)
The investment type, industry, ownership detail for equity investments, and if the investment is income
producing is disclosed in the consolidated schedule of investments.
(2)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments,
follow-on investments, accrued PIK interest and PIK dividend income, accretion of OID and origination fees, and net unrealized appreciation recognized during the period. Gross additions also include transfers of portfolio companies into the control
or affiliate classification during the period, as applicable.
(3)
Gross reductions include decreases in the cost basis of investments resulting from principal repayments or
sales and net unrealized (depreciation) recognized during the period. Gross reductions also include include transfers of portfolio companies out of the control or affiliate classification during the period, as applicable.
(4)
The schedule does not reflect realized gains or losses on escrow receivables for investments which were
previously exited and were not held during the period presented. Gains and losses on escrow receivables are classified in the consolidated statements of operations according to the control classification at the time the investment was exited. Escrow
receivables are presented in prepaid expenses and other assets on the consolidated statements of assets and liabilities.
(5)
Portfolio company was transferred to Non-control/Non-affiliate investments from Affiliate investments during
the twelve months ended December 31, 2020.
Note 4. Fair Value Measurements
Investments
The Board has established and
documented processes and methodologies for determining the fair values of portfolio company investments on a recurring basis in accordance with ASC Topic 820 and consistent with the requirements of the 1940 Act. Fair value is the price, determined
at the measurement date, that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Where available, fair value is based on observable market prices or parameters, or derived
from such prices or parameters. Where observable prices or inputs are not available or reliable, valuation techniques described below are applied. Under ASC Topic 820, portfolio investments recorded at fair value in the consolidated financial
statements are classified within the fair value hierarchy based upon the level of judgment associated with the inputs used to measure their value, as defined below:
Level 1 Inputs are unadjusted, quoted prices in active markets for identical assets as of the measurement
date.
25
Table of Contents
FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Level 2 Inputs include quoted prices for similar assets in
active markets, or that are quoted prices for identical or similar assets in markets that are not active and inputs that are observable, either directly or indirectly, for substantially the full term, if applicable, of the investment.
Level 3 Inputs include those that are both unobservable and significant to the overall fair value
measurement.
An investments categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The Companys investment portfolio is comprised entirely of debt and equity securities of privately held companies for which quoted prices falling within the categories of Level 1 and Level 2
inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the Board, using Level 3 inputs. The degree of judgment exercised by the Board in determining fair value is
greatest for investments classified as Level 3 inputs. Due to the inherent uncertainty of determining the fair values of investments that do not have readily available market values, the Boards estimate of fair values may differ
significantly from the values that would have been used had a ready market for the securities existed, and those differences may be material. In addition, changes in the market environment, portfolio company performance and other events that may
occur over the lives of the investments may cause the amounts ultimately realized on these investments to be materially different than the valuations currently assigned.
With respect to investments for which market quotations are not readily available, the Board undertakes a multi-step valuation process each
quarter, as described below:
the quarterly valuation process begins with each portfolio company or investment being initially evaluated and
rated by the investment professionals of the Investment Advisor responsible for the portfolio investment;
preliminary valuation conclusions are then documented and discussed with the investment committee of the
Investment Advisor;
the Board engages one or more independent valuation firm(s) to conduct independent appraisals of a selection of
our portfolio investments for which market quotations are not readily available. Each portfolio company investment is generally appraised by the valuation firm(s) at least once every calendar year and each new portfolio company investment is
appraised at least once in the twelve-month period following the initial investment. In certain instances, the Company may determine that it is not cost-effective, and as a result it is not in the Companys stockholders best interest, to
request the independent appraisal of certain portfolio company investments. Such instances include, but are not limited to, situations where the Company determines that the fair value of the portfolio company investment is relatively insignificant
to the fair value of the total portfolio.
the audit committee of the Board reviews the preliminary valuations of the Investment Advisor and of the
independent valuation firm(s) and responds and supplements the valuation recommendations to reflect any comments; and
the Board discusses these valuations and determines the fair value of each investment in our portfolio in good
faith, based on the input of the Investment Advisor, the independent valuation firm(s) and the audit committee.
In
making the good faith determination of the value of portfolio investments, the Board starts with the cost basis of the security. The transaction price is typically the best estimate of fair value at inception. When evidence supports a subsequent
change to the carrying value from the original transaction price, adjustments are made to reflect the expected exit values.
Consistent
with the policies and methodologies adopted by the Board, the Company performs detailed valuations of its debt and equity investments, including an analysis on the Companys unfunded debt investment commitments, using both the market and income
approaches as appropriate. Under the market approach, the Company typically uses the enterprise value methodology to determine the fair value of an investment. There is no one methodology to estimate enterprise value and, in fact, for any one
portfolio company, enterprise value is generally best expressed as a range of values, from which the Company derives a single estimate of enterprise value. Under the income approach, the Company typically prepares and analyzes discounted cash flow
models to estimate the present value of future cash flows of either an individual debt investment or of the underlying portfolio company itself.
The Company evaluates investments in portfolio companies using the most recent portfolio company financial statements and forecasts. The
Company also consults with the portfolio companys senior management to obtain further updates on the portfolio companys performance, including information such as industry trends, new product development and other operational issues.
For the Companys debt investments the primary valuation technique used to estimate the fair value is the discounted cash flow
method. However, if there is deterioration in credit quality or a debt investment is in workout status, the Company may consider other methods in determining the fair value, including the value attributable to the debt investment from the enterprise
value of the portfolio company or the proceeds that would be received in a liquidation analysis. The Companys discounted cash flow models estimate a range of fair values by applying an appropriate discount rate to the future cash flow streams
of its debt investments, based on future interest and principal payments as set forth in the associated debt investment agreements. The Company prepares a weighted average cost of capital for use in the discounted cash flow model for each
investment, based on factors
26
Table of Contents
FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
including, but not limited to: current pricing and credit metrics for similar proposed or executed investment transactions of private companies; the portfolio companys historical financial
results and outlook; and the portfolio companys current leverage and credit quality as compared to leverage and credit quality as of the date the investment was made. The Company may also consider the following factors when determining the
fair value of debt investments: the portfolio companys ability to make future scheduled payments; prepayment penalties and other fees; estimated remaining life; the nature and realizable value of any collateral securing such debt investment;
and changes in the interest rate environment and the credit markets that generally may affect the price at which similar investments may be made. The Company estimates the remaining life of its debt investments to generally be the legal maturity
date of the instrument, as the Company generally intends to hold its debt investments to maturity. However, if the Company has information available to it that the debt investment is expected to be repaid in the near term, it would use an estimated
remaining life based on the expected repayment date.
For the Companys equity investments, including equity and warrants, the
Company generally uses a market approach, including valuation methodologies consistent with industry practice, to estimate the enterprise value of portfolio companies. Typically, the enterprise value of a private company is based on multiples of
EBITDA, net income, revenues, or in limited cases, book value. In estimating the enterprise value of a portfolio company, the Company analyzes various factors consistent with industry practice, including but not limited to original transaction
multiples, the portfolio companys historical and projected financial results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the nature and realizable value of any collateral, the markets
in which the portfolio company does business, and comparisons of financial ratios of peer companies that are public.
The Company may also
utilize an income approach when estimating the fair value of its equity securities, either as a primary methodology if consistent with industry practice or if the market approach is otherwise not applicable, or as a supporting methodology to
corroborate the fair value ranges determined by the market approach. The Company typically prepares and analyzes discounted cash flow models based on projections of the future free cash flows (or earnings) of the portfolio company. The Company
considers various factors, including, but not limited to, the portfolio companys projected financial results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the markets in which the
portfolio company does business, and comparisons of financial ratios of peer companies that are public.
The Company reviews the fair
value hierarchy classifications on a quarterly basis. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 category as of the beginning of the quarter in which the
reclassifications occur. There were no transfers among Levels 1, 2, and 3 during the six months ended June 30, 2021 and 2020.
The following tables present a reconciliation of the beginning and ending balances for fair valued investments measured using significant
unobservable inputs (Level 3) for the six months ended June 30, 2021 and 2020:
First Lien
Debt
Second
Lien Debt
Subordinated
Debt
Equity
Warrants
Total
Balance, December 31, 2019
$
108,327
$
383,077
$
140,843
$
126,564
$
8,108
$
766,919
Net realized gains (losses) on investments
(4
)
100
29,624
1,862
31,582
Net change in unrealized appreciation (depreciation) on investments
(1,890
)
(26,898
)
(1,254
)
(43,029
)
(3,027
)
(76,098
)
Purchase of investments
49,239
20,999
13,500
1,359
85,097
Proceeds from sales and repayments of investments
(15,263
)
(12,780
)
(1,567
)
(42,214
)
(4,491
)
(76,315
)
Interest and dividend income
paid-in-kind
71
1,918
273
2,262
Proceeds from loan origination fees
(1,036
)
(158
)
(250
)
(1,444
)
Accretion of loan origination fees
174
247
91
2
514
Accretion of original issue discount
72
31
103
Balance, June 30, 2020
$
139,690
$
366,536
$
151,636
$
72,306
$
2,452
$
732,620
Balance, December 31, 2020
$
187,353
$
332,154
$
107,911
$
112,836
$
2,615
$
742,869
Net realized gains (losses) on investments
5,366
5,366
Net change in unrealized appreciation (depreciation) on investments
(2,387
)
(3,479
)
(125
)
21,876
799
16,684
Purchase of investments
132,900
11,500
16,001
6,948
167,349
Proceeds from sales and repayments of investments
(32,568
)
(135,048
)
(24,039
)
95
(191,560
)
Interest and dividend income
paid-in-kind
40
1,974
58
105
2,177
Proceeds from loan origination fees
(1,038
)
(54
)
(79
)
(1,171
)
Accretion of loan origination fees
711
301
127
1,139
Accretion of original issue discount
605
605
Balance, June 30, 2021
$
285,011
$
207,953
$
99,854
$
147,226
$
3,414
$
743,458
Net change in unrealized appreciation/(depreciation) of $14,214 and $16,349 for the three and six months ended
June 30, 2021, respectively, was attributable to Level 3 investments held at June 30, 2021. Net change in unrealized (depreciation) of $(1,508) and $(75,441) for the three and six months ended June 30, 2020, respectively, was
attributable to Level 3 investments held at June 30, 2020.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
The following tables summarize the significant unobservable inputs by valuation technique
used to determine the fair value of the Companys Level 3 debt and equity investments as of June 30, 2021 and December 31, 2020. The tables are not intended to be all-inclusive, but instead
capture the significant unobservable inputs relevant to the Companys determination of fair values.
Fair Value at
June 30, 2021
Valuation
Techniques
Unobservable
Inputs
Range
(weighted average) (1)
Debt investments:
First Lien Debt
$
265,345
Discounted cash flow
Weighted average cost of capital
4.5% - 35.0% (12.2%)
10,814
Enterprise value
Asset Coverage
1.1x - 1.1x (1.1x)
8,852
Enterprise value
Revenue multiples
5.0x - 5.0x (5.0x)
Second Lien Debt
185,294
Discounted cash flow
Weighted average cost of capital
9.3% - 25.0% (16.4%)
7,940
Enterprise value
EBITDA multiples
3.3x - 3.3x (3.3x)
14,719
Enterprise value
Asset Coverage
1.1x - 1.3x (1.3x)
Subordinated Debt
99,854
Discounted cash flow
Weighted average cost of capital
11.5% - 12.0% (11.7%)
Equity investments:
Equity
147,226
Enterprise value
EBITDA multiples
3.3x - 17.8x (7.9x)
Warrants
3,414
Enterprise value
EBITDA multiples
4.5x - 6.0x (5.9x)
(1)
Unobservable inputs were weighted by the relative fair value of the instruments.
Fair Value at
December 31, 2020
Valuation
Techniques
Unobservable
Inputs
Range
(weighted average) (1)
Debt investments:
First Lien Debt
$
183,238
Discounted cash flow
Weighted average cost of capital
6.8% - 16.3% (10.3%)
4,115
Enterprise value
Asset Coverage
1.8x - 1.8x (1.8x)
Second Lien Debt
306,405
Discounted cash flow
Weighted average cost of capital
9.3% - 27.0% (14.0%)
5,454
Enterprise value
EBITDA multiples
3.9x - 3.9x (3.9x)
5,123
Enterprise value
Revenue multiples
2.1x - 2.1x (2.1x)
15,172
Enterprise value
Asset Coverage
1.2x - 1.2x (1.2x)
Subordinated Debt
107,911
Discounted cash flow
Weighted average cost of capital
11.5% - 12.0% (11.7%)
Equity investments:
Equity
110,568
Enterprise value
EBITDA multiples
3.9x - 15.3x (8.1x)
2,268
Enterprise value
Revenue multiples
2.1x - 2.1x (2.1x)
Warrants
2,615
Enterprise value
EBITDA multiples
4.5x - 6.5x (6.2x)
(1)
Unobservable inputs were weighted by the relative fair value of the instruments.
The significant unobservable input used in determining the fair value under the discounted cash flow technique is the weighted average cost of
capital of each security. Significant increases (or decreases) in this input would likely result in significantly lower (or higher) fair value estimates.
The significant unobservable inputs used in determining fair value under the enterprise value technique are revenue and EBITDA multiples, as
well as asset coverage. Significant increases (or decreases) in these inputs could result in significantly higher (or lower) fair value estimates.
Other Financial Assets and Liabilities
ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company
believes that the carrying amounts of its other financial instruments such as cash and cash equivalents, interest receivable and accounts payable and other liabilities approximate the fair value of such items due to the short maturity of such
instruments. The Companys borrowings under the Credit Facility (as defined in Note 6), SBA debentures, and Notes (as defined in Note 6) are recorded at their respective carrying values.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
The following tables summarize the carrying value and fair value of the Companys debt
obligations as of June 30, 2021 and December 31, 2020.
June 30, 2021 (6)
December 31, 2020
Carrying Value (1)
Fair Value
Carrying Value (1)
Fair Value
SBA debentures (2)
$
139,300
$
139,300
$
147,000
$
147,000
Credit Facility borrowings (3)
2023 Notes (4)
50,000
50,620
February 2024 Notes (4)
19,000
19,266
69,000
69,745
November 2024 Notes (4)
63,250
65,223
63,250
64,389
2026 Notes (5)
125,000
125,286
125,000
125,000
Total
$
346,550
$
349,075
$
454,250
$
456,754
(1)
Carrying value represents the outstanding principal balance of the debt obligation.
(2)
The fair value of the SBA debentures is estimated by discounting the remaining payments using current market
rates for similar instruments and considering such factors as the legal maturity date and the ability of market participants to prepay the debentures, which are Level 3 inputs under ASC Topic 820.
(3)
The fair value of borrowings under the Credit Facility, if valued under ASC Topic 820, are based on a market
yield approach and current interest rates, which are Level 3 inputs to the market yield model.
(4)
The Public Notes, if valued under ASC Topic 820, are valued using available market quotes, which is a
Level 1 input.
(5)
The fair value of the 2026 Notes is estimated by discounting the remaining payments using current market rates
for similar instruments and considering such factors as the legal maturity date, which are Level 3 inputs under ASC Topic 820.
(6)
Totals exclude $13,500 of Secured Borrowings.
The following table summarizes the inputs used to value the Companys debt obligations if measured at fair value as of June 30,
2021 and December 31, 2020.
Fair Value
Valuation Inputs
June 30,
2021
December 31,
2020
Level 1
$
84,489
$
184,754
Level 2
Level 3
264,586
272,000
Total
$
349,075
$
456,754
Note 5. Related Party Transactions
Investment Advisory Agreement: The Company has entered into an Investment Advisory Agreement with the Investment Advisor. On
June 10, 2021, the Board approved the renewal of the Investment Advisory Agreement through June 20, 2022. Pursuant to the Investment Advisory Agreement and subject to the overall supervision of the Board, the Investment Advisor provides
investment advisory services to the Company. For providing these services, the Investment Advisor receives a fee, consisting of two components a base management fee and an incentive fee.
The base management fee is calculated at an annual rate of 1.75% based on the average value of total assets (other than cash or cash
equivalents but including assets purchased with borrowed amounts) at the end of the two most recently completed calendar quarters. The Board of Directors accepted a voluntary, non-contractual, and
unconditional waiver from the Investment Advisor to exclude any investments recorded as secured borrowings as defined under GAAP from the base management fee payable as of June 30, 2021. The base management fee is payable quarterly in arrears.
The base management fee under the Investment Advisory Agreement was $3,215 and $6,391 for the three and six months ended June 30, 2021, and $3,193 and $6,465 for the three and six months ended June 30,
2020, respectively. The base management fee waiver was $29 for the three and six months ended June 30, 2021. There was no base management fee waiver for the three and six months ended June 30, 2020. As of June 30, 2021 and
December 31, 2020, the base management fee payable (net of the base management fee waiver) was $3,186 and $3,244, respectively.
The
incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears based on the Companys pre-incentive fee net investment income for the quarter. Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees
that the Company receives from portfolio
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, any expenses
payable under the Administration Agreement (defined below) and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee and excise taxes on realized gains).
Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as market discount, original issue discount, debt instruments with PIK income, preferred
stock with PIK dividends and zero-coupon securities), accrued income the Company has not yet received in cash. The Investment Advisor is not under any obligation to reimburse the Company for any part of the
incentive fee it receives that was based on accrued interest that the Company never collects.
Pre-incentive fee net investment income does not include any realized capital gains, taxes associated
with such realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter where the Company
incurs a loss. For example, if the Company generates pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, the Company will pay the applicable incentive fee
even if the Company has incurred a loss in that quarter due to a net loss on investments.
Pre-incentive fee net investment income, expressed as a rate of return on the value of the
Companys net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed hurdle
rate of 2.0% per quarter. If market interest rates rise, the Company may be able to invest funds in debt instruments that provide for a higher return, which would increase the Companys
pre-incentive fee net investment income and make it easier for the Investment Advisor to surpass the fixed hurdle rate and receive an incentive fee based on such net investment income.
The Company pays the Investment Advisor an incentive fee with respect to pre-incentive fee net
investment income in each calendar quarter as follows:
no incentive fee in any calendar quarter in which the pre-incentive fee
net investment income does not exceed the hurdle rate of 2.0%;
100.0% of the Companys pre-incentive fee net investment income with
respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.5% in any calendar quarter. This portion of the
pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 2.5%) is referred to as the catch-up provision. The catch-up is meant to provide the Investment Advisor with 20.0% of the pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income
exceeds 2.5% in any calendar quarter; and
20.0% of the amount of the Companys pre-incentive fee net
investment income, if any, that exceeds 2.5% in any calendar quarter.
The sum of the calculations above equals the
income incentive fee. The income incentive fee is appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the calendar quarter. The income incentive fee was $2,550 and $5,219
for the three and six months ended June 30, 2021, respectively, and $2,113 and $3,968 for the three and six months ended June 30, 2020, respectively. The Investment Advisor, in consultation with the Board,
agreed to voluntarily waive $423 of the income incentive fee for the three and six months ended June 30, 2020. There was no income incentive fee waiver for the three and six months ended June 30, 2021. As of June 30, 2021 and
December 31, 2020, the income incentive fee payable (net of the income incentive fee waiver) was $2,550 and $2,610, respectively.
The second part of the incentive fee is a capital gains incentive fee that is determined and paid in arrears as of the end of each fiscal year
(or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20.0% of the net capital gains as of the end of the fiscal year. In determining the capital gains incentive fee to be paid in cash to the Investment
Advisor, the Company calculates the cumulative aggregate realized capital gains and losses since the Formation Transactions (realized capital gains and losses include realized gains and losses on investments, net of income tax provision from
realized gains on investments, and realized losses on extinguishment of debt), and the aggregate unrealized capital depreciation on investments as of the date of the calculation. At the end of the applicable year, the amount of capital gains that
serves as the basis for the calculation of the capital gains incentive fee to be paid equals the cumulative aggregate realized capital gains on investments, less cumulative aggregate realized capital losses on investments, less aggregate unrealized
capital depreciation on investments, and less cumulative aggregate realized losses on extinguishment of debt. If this number is positive at the end of such year, then the capital gains incentive fee to be paid in cash for such year equals 20.0% of
such amount, less the aggregate amount of any capital gains incentive fees paid in all prior years. As of June 30, 2021 and December 31, 2020, the capital gains incentive fee payable in cash was $0 (as cumulative aggregate realized capital
gains and losses on investments plus aggregate unrealized capital depreciation on investments plus realized losses on extinguishment of debt was negative as of each period). The aggregate amount of capital gains incentive fees paid from the IPO
through June 30, 2021 was $348.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
In addition, the Company accrues, but does not pay in cash, a capital gains incentive fee in
connection with any unrealized capital appreciation on investments, as applicable. If, on a cumulative basis, the sum of (i) net realized gains/(losses) on investments plus (ii) net unrealized appreciation/(depreciation) on investments
plus (iii) realized losses on extinguishment of debt decreases during a period, the Company will reverse any excess capital gains incentive fee previously accrued such that the amount of capital gains incentive fee accrued is no more than 20.0%
of the sum of (i) net realized gains/(losses) on investments plus (ii) net unrealized appreciation/(depreciation) on investments plus (iii) realized losses on extinguishment of debt. The capital gains incentive fee accrued (reversed)
during the three and six months ended June 30, 2021 was $3,883 and $3,974, respectively, and $(263) and $(9,141) for the three and six months ended June 30, 2020, respectively. As of June 30, 2021 and December 31, 2020, the
accrued capital gains incentive fee payable was $15,005 and $11,031, respectively.
Unless terminated earlier as described below, the
Investment Advisory Agreement will continue in effect from year to year if approved annually by the Board or by the affirmative vote of the holders of a majority of the Companys outstanding voting securities, and, in either case, if also
approved by a majority of the directors who are not interested persons of the Company, as such term is defined under Section 2(a)(19) of the 1940 Act (the Independent Directors). The Investment Advisory Agreement
automatically terminates in the event of its assignment, as defined in the 1940 Act, by the Investment Advisor and may be terminated by either party without penalty upon not less than 60 days written notice to the other. The holders of a
majority of the Companys outstanding voting securities may also terminate the Investment Advisory Agreement without penalty.
Administration Agreement: The Company also entered into an administration agreement (the Administration Agreement) with the
Investment Advisor. On June 10, 2021, the Board approved the renewal of the Administration Agreement through June 20, 2022. Under the Administration Agreement, the Investment Advisor furnishes the Company with office facilities and
equipment, provides clerical, bookkeeping, and record keeping services at such facilities and provides the Company with other administrative services necessary to conduct its
day-to-day operations. The Company reimburses the Investment Advisor for the allocable portion of overhead expenses incurred in performing its obligations under the
Administration Agreement, including rent and the Companys allocable portion of the cost of its chief financial officer and chief compliance officer and their respective staffs. Under the Administration Agreement, the Investment Advisor also
provides managerial assistance to those portfolio companies to which the Company is required to provide such assistance and the Company reimburses the Investment Advisor for fees and expenses incurred with providing such services. In addition, the
Company reimburses the Investment Advisor for fees and expenses incurred while performing due diligence on the Companys prospective portfolio companies, including dead deal expenses . Under the Administration Agreement,
administrative service expenses for the three and six months ended June 30, 2021 were $430 and $843, respectively, and $364 and $830 for the three and six months ended June 30, 2020, respectively. As of June 30, 2021 and
December 31, 2020, the accrued administrative service expense payable was $339 and $593, respectively.
Fidus Equity Fund I,
L.P. : On February 25, 2020, the Company entered into a Limited Partnership Agreement (the Agreement) with Fidus Equity Fund I, L.P. (FEF I). Pursuant to the Agreement, the Company will serve as the General
Partner of FEF I. Owned by third-party investors, FEF I was formed to purchase 50% of select equity investments from the Company. On February 25, 2020, the Company sold 50% of its equity investments in 20 portfolio companies to FEF I and
received net proceeds of $35,903, resulting in a realized gain, net of estimated taxes, of $20,404. The Company will not receive any fees from FEF I for any services provided in its capacity as the General Partner of FEF I.
Note 6. Debt
Revolving Credit
Facility : On June 16, 2014, FIC entered into a senior secured revolving credit agreement (the Credit Facility) with ING Capital LLC (ING), as the administrative agent, collateral agent, and lender. The Credit
Facility is secured by certain portfolio investments held by the Company, but portfolio investments held by the Funds are not collateral for the Credit Facility. On April 24, 2019, the Company entered into an Amended & Restated Senior
Secured Revolving Credit Agreement (the Amended Credit Agreement) among the Company, as borrower, the lenders party thereto, and ING Capital LLC, as administrative agent. The Amended Credit Agreement amends, restates, and replaces the
Credit Facility. On June 26, 2020, the Company amended the Amended Credit Agreement, however the material terms were unchanged. Among other revisions, the amendment to the Amended Credit Agreement modifies certain covenants therein, including
to amend the minimum consolidated interest coverage ratio to be 2.25 to 1.00 for the four quarter period ending on June 30, 2020, 2.00 to 1.00 for the four quarter periods ending on each of September 30, 2020 and December 31, 2020,
and 1.75 to 1.00 for each four quarter period ending at the end of each quarter thereafter.
Under the Amended Credit Agreement,
(i) revolving commitments by lenders were increased from $90,000 to $100,000, with an accordion feature that allows for an increase in total commitments up to $250,000, subject to satisfaction of certain conditions at the time of any such
future increase, (ii) the maturity date of the Credit Facility was extended from June 16, 2019 to April 24, 2023, and (iii) borrowings under the credit facility bear interest, at our election, at a rate per annum equal to
(a) 3.00% (or 2.75% if certain conditions are satisfied, including if (x) no equity interests are included in the borrowing base, (y) the contribution to the borrowing base of eligible portfolio investments that are performing first
lien bank loans is greater than or equal to 35%, and (z) the contribution to the borrowing base of eligible portfolio investments that are performing first lien bank loans, performing last out loans, or performing second lien loans is greater
than or equal to 60%) plus the one, two, three or six month LIBOR rate,
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
as applicable, or (b) 2.00% (or 1.75% if the above conditions are satisfied) 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 Company pays a commitment fee that varies depending on the size of the unused portion of the Credit Facility: 3.00% per annum on the unused portion of the credit facility at or below 35% of the commitments and 0.50%
per annum on any remaining unused portion of the Credit Facility between the total commitments and the 35% minimum utilization. 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 (on a regulatory basis). The Credit Facility is secured by a first priority security interest in all of our assets, excluding the assets of our SBIC subsidiaries.
Amounts available to borrow under the Credit Facility are subject to a minimum borrowing/collateral base that applies an advance rate to
certain investments held by the Company, excluding investments held by the Funds. The Company is subject to limitations with respect to the investments securing the Credit Facility, including, but not limited to, restrictions on sector
concentrations, loan size, payment frequency and status and collateral interests, as well as restrictions on portfolio company leverage, which may also affect the borrowing base and therefore amounts available to borrow.
The Company has made customary representations and warranties and is required to comply with various covenants, reporting requirements and
other customary requirements for similar credit facilities. These covenants are subject to important limitations and exceptions that are described in the documents governing the Credit Facility. As of June 30, 2021 and December 31,
2020, the Company was in compliance in all material respect with the terms of the Credit Facility.
SBA debentures: The Company
uses debenture leverage provided through the SBA to fund a portion of its investment purchases.
Under the SBA debenture program, the SBA
commits to purchase debentures issued by SBICs; such debentures have 10-year terms with the entire principal balance due at maturity and are guaranteed by the SBA. Interest on SBA debentures is payable
semi-annually on March 1 and September 1. As of June 30, 2021 and December 31, 2020, approved and unused SBA debenture commitments were $75,000 and $11,500, respectively. The SBA may limit the amount that may be drawn each year
under these commitments, and each issuance of leverage is conditioned on the Companys full compliance, as determined by the SBA, with the terms and conditions set forth in the SBIC Act.
As of June 30, 2021 and December 31, 2020, the Companys issued and outstanding SBA debentures mature as follows:
Pooling
Date (1)
Maturity
Date
Fixed
Interest Rate
June 30,
2021
December 31,
2020
3/25/2015
3/1/2025
3.277
%
$
22,500
$
22,500
9/23/2015
9/1/2025
3.571
15,000
16,700
3/23/2016
3/1/2026
3.267
1,500
1,500
3/23/2016
3/1/2026
3.249
21,800
21,800
9/21/2016
9/1/2026
2.793
500
500
3/29/2017
3/1/2027
3.587
10,000
10,000
9/20/2017
9/1/2027
3.260
1,000
1,000
9/20/2017
9/1/2027
3.190
33,000
33,000
3/21/2018
3/1/2028
3.859
16,000
3/21/2018
3/1/2028
3.534
9,000
10,500
9/25/2019
9/1/2029
2.377
7,500
7,500
3/25/2020
3/1/2030
2.172
6,000
6,000
(2)
(2)
(2
)
6,000
(2)
(2)
(2
)
5,500
Total outstanding SBA debentures
$
139,300
$
147,000
(1)
The SBA has two scheduled pooling dates for debentures (in March and in September). Certain debentures funded
during the reporting periods may not be pooled until the subsequent pooling date.
(2)
The Company issued $6,000 and $5,500 in SBA debentures which will pool in September 2021. Until the pooling
date, the debentures bear interest at a fixed rate and an interim interest rate of 0.60% and 0.55%, respectively. The Company expects the current interim interest rate will reset to a higher long-term fixed rate on the pooling date.
Notes: On February 2, 2018, the Company closed the public offering of approximately $43,478 in aggregate
principal amount of its 5.875% notes due 2023, or the 2023 Notes. On February 22, 2018, the underwriters exercised their option to purchase an additional $6,522 in aggregate principal of the 2023 Notes. The total net proceeds to the
Company from the 2023 Notes, including the exercise of the underwriters option, after deducting
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
underwriting discounts of approximately $1,500 and offering expenses of $438, were approximately $48,062. The 2023 Notes mature on February 1, 2023 and bear interest at a rate of 5.875%. The
2023 Notes may be redeemed in whole or in part at any time or from time to time at the Companys option on or after February 1, 2020. On January 19, 2021, the Company redeemed $50,000 of the aggregate principal amount on the 2023
Notes, resulting in a realized loss on extinguishment of debt of approximately $794.
On February 8, 2019, the Company closed the
public offering of approximately $60,000 in aggregate principal amount of its 6.000% notes due 2024, or the February 2024 Notes. On February 19, 2019, the underwriters exercised their option to purchase an additional $9,000 in
aggregate principal of the February 2024 Notes. The total net proceeds to the Company from the February 2024 Notes, including the exercise of the underwriters option, after deducting underwriting discounts of approximately $2,070 and estimated
offering expenses of $409, were approximately $66,521.
The February 2024 Notes mature on February 15, 2024 and bear interest at a
rate of 6.000%. The February 2024 Notes may be redeemed in whole or in part at any time or from time to time at the Companys option on or after February 15, 2021. Interest on the February 2024 Notes is payable quarterly on
February 15, May 15, August 15 and November 15 of each year, beginning May 15, 2019. The February 2024 Notes are listed on the NASDAQ Global Select Market under the trading symbol FDUSZ. On February 16,
2021, the Company redeemed $50,000 of the $69,000 aggregate principal amount on the February 2024 Notes, resulting in a realized loss on extinguishment of debt of approximately $1,081.
On October 16, 2019, the Company closed the public offering of approximately $55,000 in aggregate principal amount of its 5.375% notes
due 2024, or the November 2024 Notes (and collectively with the 2023 Notes and February 2024 Notes, the Public Notes). On October 23, 2019, the underwriters exercised their option to purchase an additional $8,250 in
aggregate principal of the November 2024 Notes. The total net proceeds to the Company from the November 2024 Notes, including the exercise of the underwriters option, after deducting underwriting discounts of approximately $1,898 and estimated
offering expenses of $300, were approximately $61,053. The November 2024 Notes will mature on November 1, 2024 and bear interest at a rate of 5.375%. The November 2024 Notes may be redeemed in whole or in part at any time or from time to time
at the Companys option on or after November 1, 2021. Interest on the November 2024 Notes is payable quarterly on February 1, May 1, August 1 and November 1 of each year, beginning February 1, 2020. The November
2024 Notes are listed on the NASDAQ Global Select Market under the trading symbol FDUSG.
On December 23, 2020, the
Company closed the offering of approximately $125,000 in aggregate principal amount of its 4.75% notes due 2026, or the 2026 Notes (collectively with the Public Notes, the Notes). The total net proceeds to the Company from
the 2026 Notes after deducting underwriting discounts of approximately $2,500 and estimated offering expenses of $400, were approximately $122,100. The 2026 Notes will mature on January 31, 2026 and bear interest at a rate of 4.75%. The 2026
Notes may be redeemed in whole or in part at any time or from time to time at our option subject to a make whole provision if redeemed more than three months prior to maturity. Interest on the 2026 Notes is payable on January 31 and
July 31 of each year, beginning July 31, 2021. The Company does not intend to list the 2026 Notes on any securities exchange or automated dealer quotation system.
The Notes are unsecured obligations of the Company and rank pari passu with the Companys future unsecured indebtedness; effectively
subordinated to all of the Companys existing and future secured indebtedness; and structurally subordinated to all existing and future indebtedness and other obligations of any of its subsidiaries, financing vehicles, or similar facilities the
Company may form in the future, with respect to claims on the assets of any such subsidiaries, financing vehicles, or similar facilities.
Secured
Borrowing
As of June 30, 2021, secured borrowings at fair value totaled $13,500 and the fair value of the associated loans
included in investments was $13,500. As of December 31, 2020, there were no secured borrowings outstanding. These secured borrowings were created as a result of our completion of partial loan sales of certain unitranche loan assets that did not
meet the definition of a participating interest. As a result, sale treatment was not permitted and these partial loan sales were treated as secured borrowings. The weighted average interest rate on our secured borrowings was
approximately 4.5% as of June 30, 2021.
As of June 30, 2021, and December 31, 2020, the aggregate amount outstanding of
the senior securities (including secured borrowings) issued by the Company was $220,750 and $307,250, respectively, for which our asset coverage was 294.5% and 233.7%, respectively. The SBA-guaranteed
debentures are not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC effective June 30, 2014. The asset coverage ratio for a class of senior securities representing indebtedness
is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by total senior securities representing indebtedness.
33
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Interest and Financing Expenses
Interest and fees related to the Companys debt for the three and six months ended June 30, 2021 and 2020 which are
included in interest and financing expenses on the consolidated statements of operations, were as follows:
Three Months Ended June 30, 2021
Three Months Ended June 30, 2020
SBA
debentures
Credit
Facility
Notes
Total
SBA
debentures
Credit
Facility
Notes
Total
Stated interest expense
$
1,038
$
371
$
2,619
$
4,028
$
1,301
$
395
$
2,619
$
4,315
Amortization of deferred financing costs
140
113
281
534
139
83
326
548
Total interest and financing expenses
$
1,178
$
484
$
2,900
$
4,562
$
1,440
$
478
$
2,945
$
4,863
Six Months Ended June 30, 2021
Six Months Ended June 30, 2020
SBA
debentures
Credit
Facility
Notes
Total
SBA
debentures
Credit
Facility
Notes
Total
Stated interest expense
$
2,171
$
733
$
5,735
$
8,639
$
2,633
$
854
$
5,238
$
8,725
Amortization of deferred financing costs
270
225
622
1,117
280
166
652
1,098
Total interest and financing expenses
$
2,441
$
958
$
6,357
$
9,756
$
2,913
$
1,020
$
5,890
$
9,823
Weighted average stated interest rate, period end
3.002
%
0.000
%
5.055
%
4.230
% (1)
3.333
%
3.315
%
5.749
%
4.484
% (1)
Unused commitment fee rate, period end
N/A
1.375
%
N/A
1.375
%
N/A
0.500
%
N/A
0.500
%
(1) Weighted average stated interest rate at period end excludes
Secured Borrowings
Realized Losses on Extinguishment of Debt
During the six months ended June 30, 2021 and 2020, the Company prepaid $19,200 and $7,000 of SBA debentures, respectively, which were
scheduled to mature on dates ranging from 2025 to 2028 and 2024 to 2028, respectively. As a result of the prepayments, the Company recognized realized losses on extinguishment of debt of $305 and $125, respectively, equal to the write-off of the related unamortized deferred financing costs, during the six months ended June 30, 2021 and 2020.
Deferred Financing Costs
Deferred
financing costs are amortized into interest and financing expenses on the consolidated statements of operations, using the effective interest method, over the term of the respective financing instrument. Deferred financing costs related to the
Credit Facility, SBA debentures, and Notes as of June 30, 2021 and December 31, 2020 were as follows:
June 30, 2021
December 31, 2020
SBA
debentures
Credit
Facility
Notes
Total
SBA
debentures
Credit
Facility
Notes
Total
SBA debenture commitment fees
$
2,500
$
$
$
2,500
$
1,750
$
$
$
1,750
SBA debenture leverage fees
4,246
4,246
3,966
3,966
Credit Facility upfront fees
3,238
3,238
3,238
3,238
Notes underwriting discounts
6,468
6,468
7,968
7,968
Notes debt issue costs
1,076
1,076
1,579
1,579
Total deferred financing costs
6,746
3,238
7,544
17,528
5,716
3,238
9,547
18,501
Less: accumulated amortization
(3,294
)
(2,414
)
(3,151
)
(8,859
)
(2,720
)
(2,190
)
(2,591
)
(7,501
)
Unamortized deferred financing costs
$
3,452
$
824
$
4,393
$
8,669
$
2,996
$
1,048
$
6,956
$
11,000
Unamortized deferred financing costs are presented as a direct offset to the SBA debentures, Credit Facility
and Notes liabilities on the consolidated statements of assets and liabilities. The following table summarizes the outstanding debt net of unamortized deferred financing costs as of June 30, 2021 and December 31, 2020:
June 30, 2021 (1)
December 31, 2020
SBA
debentures
Credit
Facility
Notes
Total
SBA
debentures
Credit
Facility
Notes
Total
Outstanding debt
$
139,300
$
$
207,250
$
346,550
$
147,000
$
$
307,250
$
454,250
Less: unamortized deferred financing costs
(3,452
)
(824
)
(4,393
)
(8,669
)
(2,996
)
(1,048
)
(6,956
)
(11,000
)
Debt, net of deferred financing costs
$
135,848
$
(824
)
$
202,857
$
337,881
$
144,004
$
(1,048
)
$
300,294
$
443,250
(1) Total excludes $13,500 of Secured Borrowings
As of June 30, 2021, the Companys debt liabilities are scheduled to mature as follows (1) :
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Year
SBA debentures
Credit
Facility (2)
Notes
Total (3)
2021
$
$
$
$
2022
2023
2024
82,250
82,250
2025
37,500
37,500
Thereafter
101,800
125,000
226,800
Total
$
139,300
$
$
207,250
$
346,550
(1)
The table above presents scheduled maturities of the Companys outstanding debt liabilities as of a point
in time pursuant to the terms of those instruments. The timing of actual repayments of outstanding debt liabilities may not ultimately correspond with the scheduled maturity dates depending on the terms of the underlying instruments and the
potential for earlier prepayments.
(2)
The Credit Facility matures on April 24, 2023. As of June 30, 2021, there were no outstanding
borrowings under the Credit Facility.
(3)
Total excludes $13,500 of secured borrowings.
Note 7. Commitments and Contingencies
Commitments: The Company had outstanding commitments to portfolio companies to fund various undrawn revolving loans, other debt
investments and capital commitments totaling $45,388 and $5,645 as of June 30, 2021 and December 31, 2020, respectively. Such outstanding commitments are summarized in the following table:
June 30, 2021
December 31, 2020
Portfolio CompanyInvestment
Total
Commitment
Unfunded
Commitment
Total
Commitment
Unfunded
Commitment
American AllWaste LLC (dba WasteWater Transport Services)Delayed Draw Commitment
$
3,900
$
3,900
$
$
Combined Systems, Inc.Revolving Loan
4,000
550
4,000
1,050
CRS Solutions Holdings, LLC (dba CRS Texas)Common Equity (Units)
246
Elements Brands, LLCRevolving Loan
3,000
838
3,000
838
Ipro Tech, LLCFirst Lien Debt
14,373
14,373
Rhino Assembly Company, LLCDelayed Draw Commitment
875
875
875
875
Safety Products Group, LLCCommon Equity (Units)
2,852
(1)
2,852
(1)
2,852
(1)
2,852
(1)
Spectra A&D Acquisition, Inc. (fka FDS Avionics Corp.)Revolving Loan
250
30
Wonderware Holdings, LLC (dba CORE Business Technologies)Delayed Draw Term Loan
2,000
2,000
Worldwide Express Operations, LLCSenior Subordinated Note
20,000
20,000
Total
$
51,246
$
45,388
$
10,977
$
5,645
(1)
Portfolio company was no longer held at period end. The commitment represents the Companys maximum
potential liability related to certain guaranteed obligations stemming from the prior sale of the portfolio companys underlying operations.
Additional detail for each of the commitments above is provided in the Companys consolidated schedules of investments.
The commitments are generally subject to the borrowers meeting certain criteria such as compliance with financial and nonfinancial covenants.
Since commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.
Indemnifications: In the normal course of business, the Company enters into contracts and agreements that contain a variety of
representations and warranties that provide indemnifications under certain circumstances. In addition, in connection with the disposition of an investment in a portfolio company, the Company may be required to make representations about the business
and financial affairs of such portfolio company typical of those made in connection with the sale of a business. The Company may also be required to indemnify the purchasers of such investment to the extent that any such representations are
inaccurate. The Companys 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. The Company expects the risk of future obligation under these
indemnifications to be remote.
Legal proceedings: In the normal course of business, the Company may be subject to legal and
regulatory proceedings that are generally incidental to its ongoing operations. While the outcome of any such legal proceedings cannot be predicted with certainty, the Company does not believe any such legal proceedings will have a material adverse
effect on the Companys consolidated financial statements.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Note 8. Common Stock
Public Offerings of Common Stock
The
following table summarizes the cumulative total shares issued, net proceeds received, and weighted average offering price in public offerings of the Companys common stock since the IPO.
Period
Cumulative
Number of Shares
Cumulative Gross
Proceeds
Cumulative Underwriting Fees and
Commissions and Offering Costs
(1)
Weighted Average
Offering Price
Cumulative since IPO
14,388,414
$
236,597
$
8,989
$
16.44
(1)
Fidus Investment Advisors, LLC agreed to bear a cumulative of $1,925 of underwriting fees and commissions and
offering costs associated with these offerings (such amounts are not included in the number reported above). All such payments made by Fidus Investment Advisors, LLC are not subject to reimbursement by the Company.
No shares have been issued for the three and six months ended June 30, 2021 and 2020.
Common Stock ATM Program
On
August 21, 2014, the Company entered into an equity distribution agreement with Raymond James & Associates, Inc. and Robert W. Baird & Co. Incorporated through which the Company could sell, by means of at-the-market offerings from time to time, shares of the Companys common stock having an aggregate offering price of up to $50,000 (the ATM Program). There
were no issuances of common stock under the ATM program during the last two fiscal years and for the six months ended June 30, 2021.
Stock
Repurchase Program
As described in Note 2, the Company has a Stock Repurchase Program under which the Company may acquire up to $5,000
of its outstanding common stock. The Company did not make any repurchases of common stock during the three and six months ended June 30, 2021. During the three and six months ended June 30, 2020, the Company repurchased 0 and 25,719 shares
of common stock, respectively, on the open market for zero and $268, respectively. The Companys NAV per share increased by approximately zero and $0.01 for the three and six months ended June 30, 2020, respectively, as a result of the
share repurchases. The following table summarizes the Companys share repurchases under the Stock Repurchase Program for the three and six months ended June 30, 2021 and 2020:
Three Months Ended June 30,
Six Months Ended June 30,
Repurchases of Common Stock
2021
2020
2021
2020
Number of shares repurchased
25,719
Cost of shares repurchased, including commissions
$
$
$
$
268
Weighted average price per share
$
$
$
$
10.37
Weighted average discount to net asset value prior to repurchases
N/A
N/A
N/A
38.5
%
Refer to Note 9 for additional information regarding the issuance of shares under the DRIP.
The Company had 24,437,400 shares of common stock outstanding as of June 30, 2021 and December 31, 2020.
Note 9. Dividends and Distributions
The
Companys dividends and distributions are recorded on the record date. The following table summarizes the dividends paid during the last two fiscal years and for the six months ended June 30, 2021.
36
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Date Declared
Record
Date
Payment
Date
Amount
Per Share
Total
Distribution
Cash
Distribution
Drip
Shares
Value
DRIP
Shares
Share
Issue
Price
Year Ended December 31, 2019:
1/31/2019
3/8/2019
3/22/2019
$
0.39
$
9,541
$
9,541
$
(3)
(3)
4/29/2019
6/7/2019
6/21/2019
0.39
9,540
9,540
(3)
(3)
7/29/2019
9/6/2019
9/20/2019
0.39
9,541
9,541
(3)
(3)
10/29/2019
12/6/2019
12/20/2019
0.39
9,541
9,541
(3)
(3)
10/29/2019 (1)
12/6/2019
12/20/2019
0.04
978
978
(3)
(3)
$
1.60
$
39,141
$
39,141
$
Year Ended December 31, 2020:
2/14/2020
3/13/2020
3/27/2020
$
0.39
$
9,537
$
9,537
$
(3)
(3)
4/29/2020
6/12/2020
6/26/2020
0.30
7,331
7,331
(3)
(3)
8/03/2020
9/11/2020
9/25/2020
0.30
7,331
7,331
(3)
(3)
10/26/2020
12/4/2020
12/18/2020
0.30
7,331
7,331
(3)
(3)
10/26/2020 (2)
12/4/2020
12/18/2020
0.04
978
978
(3)
(3)
$
1.33
$
32,508
$
32,508
$
Six Months Ended June 30, 2021:
2/09/2021
3/12/2021
3/26/2021
$
0.31
$
7,575
$
7,575
$
(3)
(3)
2/09/2021 (2)
3/12/2021
3/26/2021
0.07
1,711
1,711
(3)
(3)
5/03/2021
6/14/2021
6/28/2021
0.31
7,576
7,576
(3)
(3)
5/03/2021 (2)
6/14/2021
6/28/2021
0.08
1,955
1,955
(3)
(3)
$
0.77
$
18,817
$
18,817
$
(1)
Special dividend
(2)
Supplemental dividend
(3)
During the six months ended June 30, 2021 and the years ended December 31, 2020 and 2019, the Company
directed the DRIP program plan administrator to repurchase shares on the open market in order to satisfy the DRIP obligation to deliver shares of common stock in lieu of issuing new shares. Accordingly, the Company purchased and reissued shares to
satisfy the DRIP obligation as follows:
Fiscal Year Ended December 31, 2019:
Number of
Shares
Purchased
and Reissued
Average
Price Paid
Per Share
Total
Amount Paid
January 1, 2019 through March 31, 2019
21,855
$
15.25
$
333
April 1, 2019 through June 30, 2019
14,067
16.23
228
July 1, 2019 through September 30, 2019
15,289
15.35
235
October 1, 2019 through December 31, 2019
17,525
15.27
268
Total
68,736
$
15.48
$
1,064
Fiscal Year Ended December 31, 2020:
Number of
Shares
Purchased
and Reissued
Average
Price Paid
Per Share
Total
Amount Paid
January 1, 2020 through March 31, 2020
31,586
$
7.58
$
239
April 1, 2020 through June 30, 2020
21,904
9.04
198
July 1, 2020 through September 30, 2020
28,871
10.18
294
October 1, 2020 through December 31, 2020
20,222
12.91
261
Total
102,583
$
9.67
$
992
Six Months Ended June 30, 2021:
Number of
Shares
Purchased
and Reissued
Average
Price Paid
Per Share
Total
Amount Paid
January 1, 2021 through March 31, 2021
15,562
$
15.62
$
243
April 1, 2021 through June 30, 2021
17,042
17.20
293
Total
32,604
$
16.44
$
536
37
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Note 10. Financial Highlights
The following is a schedule of financial highlights for the six months ended June 30, 2021 and 2020:
Six Months Ended June 30,
2021
2020
Per share data:
Net asset value at beginning of period
$
16.81
$
16.85
Net investment income (1)
0.72
1.09
Net realized gain (loss) on investments, net of tax (provision) (1)
0.22
1.25
Net unrealized appreciation (depreciation) on investments (1)
0.68
(3.11
)
Realized losses on extinguishment of debt
(1)
(0.09
)
(0.01
)
Total increase from investment
operations (1)
1.53
(0.78
)
Accretive (dilutive) effect of share issuances and repurchases
0.01
Dividends to stockholders
(0.77
)
(0.69
)
Net asset value at end of period
$
17.57
$
15.39
Market value at end of period
$
17.00
$
9.07
Shares outstanding at end of period
24,437,400
24,437,400
Weighted average shares outstanding during the period
24,437,400
24,447,517
Net assets at end of period
$
429,367
$
376,176
Average net assets (6)
$
417,713
$
388,007
Ratios to average net assets:
Total expenses (2)(4)(11)
13.2
%
7.1
%
Net investment income (2)(5)
8.4
%
13.7
%
Total return based on market
value (3)
39.3
%
(33.5
%)
Total return based on net asset value
(8)
9.1
%
(4.6
%)
Portfolio turnover ratio (9)
45.6
%
20.6
%
Supplemental Data:
Average debt outstanding (7)
$
390,117
$
373,417
Average debt per share (1)
$
15.96
$
15.27
(1)
Weighted average per share data.
(2)
Annualized with the exception of the Income Incentive Fee Waiver.
(3)
Total return based on market value equals the change in the market value of the Companys common stock per
share during the period divided by the market value per share at the beginning of the period, and assumes reinvestment of dividends at prices obtained by our dividend reinvestment plan during the period. The return does not reflect any sales load
that may be paid by an investor.
(4)
The total expenses to average net assets ratio is calculated using the total expenses before income incentive
fee waiver and the income tax provision (benefit) captions as presented on the consolidated statements of operations.
(5)
The net investment income to average net assets ratio is calculated using the net investment income caption as
presented on the consolidated statements of operations, which includes incentive fee.
(6)
Average net assets is calculated as the average of the net asset balances as of each quarter end during the
fiscal year and the prior year end.
(7)
Average debt outstanding is calculated as the average of the outstanding debt balances, including secured
borrowings, as of each quarter end during the fiscal year and the prior year end.
(8)
Total return based on net asset value per share equals the change in net asset value per share during the
period, plus dividends paid per share during the period, less other non-operating changes during the period, and divided by beginning net asset value per share for the period.
Non-operating changes include any items that affect net asset value per share other than increase from investment operations, such as the effects of share issuances and repurchases and other miscellaneous
items.
(9)
Annualized.
(10)
The ratio of waived incentive fees to average net assets was zero and (0.11%) for the six months ended
June 30, 2021 and 2020, respectively.
(11)
The following is a schedule of supplemental expense ratios to average net assets:
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Six Months Ended June 30,
Ratio to average net assets:
2021
2020
Expenses other than incentive fee
(2)
8.8
%
9.9
%
Incentive fee, net of incentive fee waiver
(2)(10)
4.4
%
(2.8
%)
Total expenses (2)(4)
13.2
%
7.1
%
Note 11. Subsequent Events
On July 16, 2021, the Company exited its debt and equity investments in Hilco Technologies. The Company received payment in full of
$10,286 on its first lien debt and revolving loan. The Company received a distribution on its equity investments for a realized loss of approximately ($990).
On July 23, 2021, the Company exited its debt investment in CRS Solutions Holdings, LLC. The Company received payment in full of $11,390
on its second lien debt.
On July 26, 2021, the Company exited its debt and equity investments in Worldwide Express Operations, LLC,
which was acquired under a new holding company, Accord Topco, LP (dba Worldwide Express). The Company received payment in full of $20,000 on its second lien debt. The Company sold a portion of its common equity investment for a realized gain of
approximately $2,960. In conjunction with the transaction, the Company invested $1,547 in common equity, of which $752 was rolled over from its original common equity investment and funded its $20,000 second lien loan commitment.
On August 2, 2021, the Board declared a regular quarterly dividend of $0.32 per share, a supplemental dividend of $0.06 per share, and a
special dividend of $0.04 per share payable September 28, 2021 to stockholders of record as of September 14, 2021.
39
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with Fidus Investment Corporations consolidated financial statements and related notes appearing in our annual report on Form 10-K for the year ended December 31, 2020, filed with the
SEC on February 25, 2021. The information contained in this section should also be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q.
Except as otherwise specified, references to we, us,
our, Fidus and FIC refer to Fidus Investment Corporation and its consolidated subsidiaries.
Forward Looking
Statements
This Quarterly Report on Form 10-Q 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 Fidus Investment Corporation, our current and prospective portfolio
investments, our industry, our beliefs, and our assumptions. Words such as anticipates, expects, intends, plans, will, may, continue, believes,
seeks, estimates, would, could, should, targets, projects and variations of these words and similar expressions are intended to identify forward-looking statements.
The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties, including statements as to:
our future operating results and the impact of the COVID-19 pandemic
thereon;
our business prospects and the prospects of our portfolio companies, including our and their ability to achieve
our respective objectives as a result of the current COVID-19 pandemic;
the impact of investments that we expect to make;
pandemics or other serious public health events, such as the recent global outbreak of COVID-19;
our contractual arrangements and relationships with third parties;
the dependence of our future success on the general economy and its impact on the industries in which we invest
and the impact of the COVID-19 pandemic thereon;
the ability of our portfolio companies to achieve their objectives;
our expected financing and investments;
the adequacy of our cash resources and working capital;
the timing of cash flows, if any, from the operations of our portfolio companies and the impact of the COVID-19 pandemic thereon;
the ability of the Investment Advisor to locate suitable investments for us and to monitor and administer our
investments and the impacts of the COVID-19 pandemic thereon;
the ability of our investment advisor to attract and retain highly talented professionals;
our regulatory structure and tax status;
our ability to operate as a BDC, a SBIC and a RIC;
the timing, form and amount of any dividend distributions;
the impact of fluctuations in interest rates on our business;
the valuation of any investments in portfolio companies, particularly those having no liquid trading market; and
our ability to recover unrealized losses.
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 difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
an economic downturn, including as a result of the current COVID-19
pandemic, could impair our portfolio companies ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;
a contraction of available credit and/or an inability to access the equity markets, including as a result of the COVID-19 pandemic, could impair our lending and investment activities;
interest rate volatility could adversely affect our results, particularly because we use leverage as part of our
investment strategy;
currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to
the extent that we receive payments denominated in foreign currency rather than the U.S. dollars; and
the risks, uncertainties and other factors we identify in Item 1A. Risk Factors contained in our
Annual Report on Form 10-K for the year ended December 31, 2020, elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Although we believe that the assumptions on which these forward-looking statements are based
are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new debt investments,
certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in Item 1.A Risk Factors
contained in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 25, 2021. You should not place undue reliance on these forward-looking statements,
which apply only as of the date of this Quarterly Report on Form 10-Q.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Overview
General and Corporate Structure
We provide customized debt and equity financing solutions to lower middle-market companies, which we define as U.S. based companies having
revenues between $10.0 million and $150.0 million. Our investment objective is to provide attractive risk-adjusted returns by generating both current income from our debt investments and capital appreciation from our equity related
investments. Our investment strategy includes partnering with business owners, management teams and financial sponsors by providing customized financing for ownership transactions, recapitalizations, strategic acquisitions, business expansion and
other growth initiatives. Although we are classified as a non-diversified investment company within the meaning of the 1940 Act, we maintain the flexibility to operate as a diversified investment company and
have done so for an extended period of time. We seek to maintain a diversified portfolio of investments in order to help mitigate the potential effects of adverse economic events related to particular companies, regions or industries.
FIC was formed as a Maryland corporation on February 14, 2011. We completed our initial public offering, or IPO, in June 2011. FIC has
elected to be treated as business development company, or BDC, under the 1940 Act and our investment activities are managed by Fidus Investment Advisors, our investment advisor, and supervised by the Board, a majority of whom are independent of us.
On March 29, 2013, we commenced operations of a wholly-owned subsidiary, Fund II. On April 18, 2018, we commenced operations of another wholly-owned subsidiary, Fund III. Fund II and Fund III are collectively referred to as the
Funds.
Fund II and Fund III received their SBIC licenses on May 28, 2013, and March 21, 2019, respectively. We plan
to continue to operate the Funds as SBICs, subject to SBA approval, and to utilize the proceeds of the sale of SBA-guaranteed debentures to enhance returns to our stockholders. We have also made, and continue
to make, investments directly through FIC. We believe that utilizing FIC and the Funds as investment vehicles provides us with access to a broader array of investment opportunities.
We have certain wholly-owned taxable subsidiaries (the Taxable Subsidiaries), each of which generally holds one or more of our
portfolio investments listed on the consolidated schedules of investments. The Taxable Subsidiaries are consolidated for financial reporting purposes, such that our consolidated financial statements reflect our investment in the portfolio company
investments owned by the Taxable Subsidiaries. The purpose of the Taxable Subsidiaries is to permit us to hold equity investments in portfolio companies that are taxed as partnerships for U.S. federal income tax purposes (such as entities organized
as limited liability companies (LLCs) or other forms of pass through entities) while complying with the source-of-income requirements contained
in the RIC tax provisions. The Taxable Subsidiaries are not consolidated with us for U.S. federal corporate income tax purposes, and each Taxable Subsidiary will be subject to U.S. federal corporate income tax on its taxable income. Any such income
or expense is reflected in the consolidated statements of operations.
COVID-19 Update
On March 11, 2020, the World Health Organization declared the novel coronavirus, or COVID-19, as a
pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19. The outbreak of COVID-19 has severely impacted global
economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines,
restricting travel and hospitality, and temporarily closing or limiting operations at many corporate offices, retail stores, restaurants, fitness clubs and manufacturing facilities and factories in affected jurisdictions. Such actions are creating
disruption in global supply chains and adversely impacting a number of industries. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and
fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty and risks with
respect to the underlying value of the Companys portfolio companies, the Companys business, financial condition, results of operations and cash flows, such as the potential negative impact to financing arrangements, company decisions to
delay, defer and/or modify the character of dividends in order to preserve liquidity, increased costs of operations, changes in law and/or regulation, and uncertainty regarding government and regulatory policy.
We have evaluated subsequent events from July 1, 2021 to August 5, 2021. However, as the discussion in this Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations relates to the Companys financial statements for the year ended December 31, 2020, the analysis contained herein may not fully account for impacts
relating to the COVID-19 pandemic. In that regard, for example, as of June 30, 2021, the Company valued its portfolio investments in conformity with GAAP based on the facts and circumstances known by the
Company at that time, or reasonably expected to be known at that time. Due to the overall volatility that the COVID-19 pandemic has caused during the months that followed June 30, 2021, any valuations
conducted now or in the future in conformity with GAAP could result in a lower fair value of our portfolio. The potential impact to our results going forward will depend to a large extent on future developments and new information that may emerge
regarding the duration and severity of COVID-19 and the actions taken by authorities and other entities to contain the coronavirus or treat its impact, all of which are beyond our control. Accordingly, the
Company cannot predict the extent to which its financial condition and results of operations will be affected at this time.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Investments
We seek to create a diversified investment portfolio that primarily includes debt investments and, to a lesser extent, equity securities. Our
investments typically range between $5.0 million to $35.0 million per portfolio company, although this investment size may vary proportionately with the size of our capital base. Our investment objective is to provide attractive
risk-adjusted returns by generating both current income from our debt investments and capital appreciation from our equity related investments. We may invest in the equity securities of our portfolio companies, such as preferred stock, common stock,
warrants and other equity interests, either directly or in conjunction with our debt investments.
First Lien Debt . To a lesser
extent, we also structure some of our debt investments as senior secured or first lien debt investments. First lien debt investments are secured by a first priority lien on existing and future assets of the borrower and may take the form of term
loans or revolving lines of credit. First lien debt is typically senior on a lien basis to other liabilities in the issuers capital structure and has the benefit of a first-priority security interest in assets of the issuer. The security
interest ranks above the security interest of any second lien lenders in those assets. Our first lien debt may include stand-alone first lien loans, last out first lien loans, or unitranche loans. Stand-alone first lien loans
are traditional first lien loans. All lenders in the facility have equal rights to the collateral that is subject to the first-priority security interest. Last out first lien loans have a secondary priority behind super-senior
first out first lien loans in the collateral securing the loans in certain circumstances. The arrangements for a last out first lien loan are set forth in an agreement among lenders, which provides lenders with
first out and last out payment streams based on a single lien on the collateral. Since the first out lenders generally have priority over the last out lenders for receiving payment under certain
specified events of default, or upon the occurrence of other triggering events under intercreditor agreements or agreements among lenders, the last out lenders bear a greater risk and, in exchange, receive a higher effective interest
rate, through arrangements among the lenders, than the first out lenders or lenders in stand-alone first lien loans. Agreements among lenders also typically provide greater voting rights to the last out lenders than the
intercreditor agreements to which second lien lenders often are subject.
Many of our debt investments also include excess cash flow sweep
features, whereby principal repayment may be required before maturity if the portfolio company achieves certain defined operating targets. Additionally, our debt investments typically have principal prepayment penalties in the early years of the
debt investment. The majority of our debt investments provide for a fixed interest rate.
Second Lien Debt. The majority of our
debt investments take the form of second lien debt, which includes senior subordinated notes. Second lien debt investments obtain security interests in the assets of the portfolio company as collateral in support of the repayment of such loans.
Second lien debt typically is senior on a lien basis to other liabilities in the issuers capital structure and has the benefit of a security interest over assets of the issuer, though ranking junior to first lien debt secured by those assets.
First lien lenders and second lien lenders typically have separate liens on the collateral, and an intercreditor agreement provides the first lien lenders with priority over the second lien lenders liens on the collateral. These loans
typically provide for no contractual loan amortization, with all amortization deferred until loan maturity, and may include payment-in-kind (PIK) interest,
which increases the principal balance over the term and, coupled with the deferred principal payment provision, increases credit risk exposure over the life of the loan.
Subordinated Debt. These investments are typically structured as unsecured, subordinated notes. Structurally, subordinated debt usually
ranks subordinate in priority of payment to first lien and second lien debt and may not have the benefit of financial covenants common in first lien and second lien debt. Subordinated debt may rank junior as it relates to proceeds in certain
liquidations where it does not have the benefit of a lien in specific collateral held by creditors (typically first lien and/or second lien) who have a perfected security interest in such collateral. However, subordinated debt ranks senior to common
and preferred equity in an issuers capital structure. These loans typically have relatively higher fixed interest rates (often representing a combination of cash pay and PIK interest) and amortization of principal deferred to maturity. The PIK
feature (meaning a feature allowing for the payment of interest in the form of additional principal amount of the loan instead of in cash), which effectively operates as negative amortization of loan principal, coupled with the deferred principal
payment provision, increases credit risk exposure over the life of the loan.
Equity Securities . Our equity securities typically
consist of either a direct minority equity investment in common or preferred stock or membership/partnership interests of a portfolio company, or we may receive warrants to buy a minority equity interest in a portfolio company in connection with a
debt investment. Warrants we receive with our debt investments typically require only a nominal cost to exercise, and thus, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. Our
equity investments are typically not control-oriented investments, and in many cases, we acquire equity securities as part of a group of private equity investors in which we are not the lead investor. We may structure such equity investments to
include provisions protecting our rights as a minority-interest holder, as well as a put, or right to sell such securities back to the issuer, upon the occurrence of specified events. In many cases, we may also seek to obtain
registration rights in
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
connection with these equity interests, which may include demand and piggyback registration rights. Our equity investments typically are made in connection with debt investments to
the same portfolio companies.
Revenues : We generate revenue in the form of interest and fee income on debt investments and
dividends, if any, on equity investments. Our debt investments, whether in the form of second lien, subordinated or first lien loans, typically have terms of five to seven years and most bear interest at a fixed rate, but some bear interest at a
floating rate. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we may receive repayments of some of our debt investments prior to their scheduled maturity
dates, which may include prepayment penalties. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity may reflect the proceeds of sales of securities. In some cases, our investments provide
for deferred interest payments or PIK interest. The principal amount of debt investments and any accrued but unpaid interest generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination,
amendment, or structuring fees and fees for providing managerial assistance. Debt investment origination fees, OID and market discount or premium, if any, are capitalized, and we accrete or amortize such amounts into interest income. We record
prepayment penalties on debt investments as fee income when earned. Interest and dividend income is recorded on the accrual basis to the extent that we expect to collect such amounts. Interest is accrued daily based on the outstanding principal
amount and the contractual terms of the debt investment. Dividend income is recorded as dividends are declared or at the point an obligation exists for the portfolio company to make a distribution, and is generally recognized when received.
Distributions of earnings from portfolio companies are evaluated to determine if the distribution is a distribution of earnings or a return of capital. Distributions of earnings are included in dividend income while a return of capital is recorded
as a reduction in the cost basis of the investment. Estimates are adjusted as necessary after the relevant tax forms are received from the portfolio company. Debt investments or preferred equity investments (for which we are accruing PIK dividends)
are placed on non-accrual status when principal, interest or dividend payments become materially past due, or when there is reasonable doubt that principal, interest or dividends will be collected.
Interest and dividend payments received on non-accrual investments may be recognized as interest or dividend income or may be applied to the investment principal balance based on managements judgment. Non-accrual investments are restored to accrual status when past due principal, interest or dividends are paid and, in managements judgment, payments are likely to remain current. See Critical Accounting
Policies and Use of Estimates Revenue Recognition.
We recognize realized gains or losses on investments based on the
difference between the net proceeds from the disposition and the cost basis of the investment, without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments that are measured at
fair value as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.
Expenses : All investment professionals of the Investment Advisor and/or its affiliates, when and to the extent engaged in providing
investment advisory and management services to us, and the compensation and routine overhead expenses allocable to personnel who provide these services to us, are provided and paid for by the Investment Advisor and not by us. We bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation, those relating to:
organization;
calculating our net asset value (including the cost and expenses of any independent valuation firm);
fees and expenses incurred by the Investment Advisor under the Investment Advisory Agreement or payable to third
parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated
with, evaluating and making investments, including dead deal costs;
interest payable on debt, if any, incurred to finance our investments;
offerings of our common stock and other securities;
investment advisory fees and management fees;
administration fees and expenses, if any, payable under the Administration Agreement (including payments under
the Administration Agreement between us and the Investment Advisor based upon our allocable portion of the Investment Advisors overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion
of the cost of our officers, including our chief compliance officer, our chief financial officer, and their respective staffs);
transfer agent, dividend agent and custodial fees and expenses;
federal and state registration fees;
all costs of registration and listing our shares on any securities exchange;
U.S. federal, state and local taxes;
Independent Directors fees and expenses;
costs of preparing and filing reports or other documents required by the SEC or other regulators including
printing costs;
costs of any reports, proxy statements or other notices to stockholders, including printing and mailing costs;
our allocable portion of any fidelity bond, directors and officers/errors and omissions liability insurance, and
any other insurance premiums;
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
direct costs and expenses of administration, including printing, mailing, long distance telephone, copying,
secretarial and other staff, independent auditors and outside legal costs;
proxy voting expenses; and
all other expenses reasonably incurred by us or the Investment Advisor in connection with administering our
business.
Portfolio Composition, Investment Activity and Yield
During the six months ended June 30, 2021 and 2020, we invested $167.3 million and $85.1 million, respectively, in debt and
equity investments including ten and five new portfolio companies, respectively. During the six months ended June 30, 2021 and 2020, we received proceeds from sales or repayments, including principal, return of capital dividends and net
realized gains (losses), of $191.6 million and $76.3 million, respectively, including exits of four and one portfolio companies, respectively. The following table summarizes investment purchases and sales and repayments of investments by
type for the six months ended June 30, 2021 and 2020 (dollars in millions).
Purchases of Investments
Sales and Repayments of Investments
Six Months Ended June 30,
2021
2020
2021
2020
First Lien Debt (1)
$
132.9
79.4
%
$
49.2
57.8
%
$
32.6
17.0
%
$
15.3
20.1
%
Second Lien Debt
11.5
6.8
21.0
24.7
135.0
70.5
12.8
16.7
Subordinated Debt
16.0
9.6
13.5
15.9
24.0
12.5
1.5
2.0
Equity
6.9
4.2
1.4
1.6
42.2
55.3
Warrants
4.5
5.9
Total
$
167.3
100.0
%
$
85.1
100.0
%
$
191.6
100.0
%
$
76.3
100.0
%
(1)
For the Six Months Ended June 30, 2021 and 2020, includes unitranche securities, which account for 73.8%
and 43.4% of purchases, respectively. For the Six Months Ended June 30, 2021 and 2020, includes unitranche securities, which account for 11.7% and 0.8% of repayments, respectively.
As of June 30, 2021, the fair value of our investment portfolio totaled $743.5 million and consisted of 72 active portfolio
companies and four portfolio companies that have sold their underlying operations. As of June 30, 2021, 28 portfolio companies debt investments bore interest at a variable rate, which represented $296.2 million, or 50.0%, of our debt
investment portfolio on a fair value basis, and the remainder of our debt investment portfolio was comprised of fixed rate investments. Overall, the portfolio had net unrealized appreciation of $72.6 million as of June 30, 2021. As of
June 30, 2021, our average active portfolio company investment at amortized cost was $9.3 million, which excludes investments in the four portfolio companies that have sold their underlying operations.
As of December 31, 2020, the fair value of our investment portfolio totaled $742.9 million and consisted of 66 active portfolio
companies and three portfolio companies that have sold their underlying operations. As of December 31, 2020, 22 portfolio companies debt investments bore interest at a variable rate, which represented $230.9 million, or 36.8%, of our
debt investment portfolio on a fair value basis, and the remainder of our debt investment portfolio was comprised of fixed rate investments. Overall, the portfolio had net unrealized appreciation of $55.8 million as of December 31, 2020.
As of December 31, 2020, our average active portfolio company investment at amortized cost was $10.4 million, which excludes investments in the three portfolio companies that have sold their underlying operations.
The weighted average yield on debt investments as of June 30, 2021 and December 31, 2020 was 12.2% and 12.2%, respectively. The
weighted average yield of our debt investments is not the same as a return on investment for our stockholders but, rather, relates to a portion of our investment portfolio and is calculated before the payment of all of our and our subsidiaries
fees and expenses. The weighted average yields were computed using the effective interest rates for debt investments at cost including the accretion of OID and debt investment origination fees, but excluding investments on non-accrual status and investments recorded as a secured borrowing, if any.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
The following table shows the portfolio composition by investment type at fair value and cost
and as a percentage of total investments (dollars in millions):
Fair Value
Cost
June 30, 2021
December 31, 2020
June 30, 2021
December 31, 2020
First Lien Debt (1)
$
285.0
38.3
%
$
187.4
25.2
%
$
284.6
42.4
%
$
184.6
26.9
%
Second Lien Debt
208.0
28.0
332.2
44.7
221.2
33.0
341.9
49.7
Subordinated Debt
99.9
13.4
107.9
14.5
99.4
14.8
107.3
15.6
Equity
147.2
19.8
112.8
15.2
62.5
9.3
50.0
7.3
Warrants
3.4
0.5
2.6
0.4
3.2
0.5
3.2
0.5
Total
$
743.5
100.0
%
$
742.9
100.0
%
$
670.9
100.0
%
$
687.0
100.0
%
(1)
Includes unitranche investments, which account for 30.6% and 33.8% of our portfolio on a fair value and cost
basis as of June 30, 2021, respectively. Includes unitranche investments, which account for 17.3% and 18.4% of our portfolio on a fair value and cost basis as of December 31, 2020, respectively.
All investments made by us as of June 30, 2021 and December 31, 2020 were made in portfolio companies headquartered in the U.S. The
following table shows portfolio composition by geographic region at fair value and cost and as a percentage of total investments (dollars in millions). The geographic composition is determined by the location of the corporate headquarters of the
portfolio company, which may not be indicative of the primary source of the portfolio companys business.
Fair Value
Cost
June 30, 2021
December 31, 2020
June 30, 2021
December 31, 2020
Midwest
$
195.4
26.3
%
$
225.7
30.4
%
$
147.2
21.9
%
$
189.6
27.6
%
Southeast
170.3
22.9
153.3
20.6
144.2
21.5
130.0
18.9
Northeast
144.8
19.5
123.3
16.6
148.3
22.1
127.8
18.6
West
102.0
13.7
108.7
14.6
97.1
14.5
109.2
15.9
Southwest
131.0
17.6
131.9
17.8
134.1
20.0
130.4
19.0
Total
$
743.5
100.0
%
$
742.9
100.0
%
$
670.9
100.0
%
$
687.0
100.0
%
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
The following table shows the detailed industry composition of our portfolio at fair value
and cost as a percentage of total investments:
Fair Value
Cost
June 30, 2021
December 31, 2020
June 30, 2021
December 31, 2020
Business Services
16.6
%
12.3
%
18.0
%
13.0
%
Information Technology Services
16.3
12.8
17.2
13.2
Healthcare Products
11.9
9.0
6.6
4.8
Component Manufacturing
10.2
7.4
10.5
6.9
Specialty Distribution
9.7
15.8
10.2
17.0
Aerospace & Defense Manufacturing
5.8
5.2
5.9
5.6
Healthcare Services
3.6
5.4
4.0
6.0
Building Products Manufacturing
3.5
3.2
4.2
3.8
Transportation Services
3.2
3.0
3.2
3.1
Promotional Products
2.9
3.3
3.8
3.7
Oil & Gas Services
2.8
2.8
0.4
0.4
Consumer Products
2.6
5.1
2.8
5.5
Environmental Industries
2.6
2.4
2.9
2.7
Utilities: Services
2.2
2.5
3.3
2.7
Oil & Gas Distribution
1.7
1.5
1.7
1.5
Retail
1.4
3.6
1.7
4.4
Industrial Cleaning & Coatings
1.4
1.4
1.9
1.9
Utility Equipment Manufacturing
1.4
0.9
1.3
1.3
Vending Equipment Manufacturing
0.2
0.3
0.3
0.3
Restaurants
0.0
(1)
0.0
(1)
0.1
0.1
Specialty Chemicals
0.0
(1)
0.0
(1)
0.0
(1)
0.0
(1)
Packaging
2.1
2.1
Total
100.0
%
100.0
%
100.0
%
100.0
%
(1)
Percentage is less than 0.1% of respective total.
Portfolio Asset Quality
In addition to
various risk management and monitoring tools, the Investment Advisor uses an internally developed investment rating system to characterize and monitor the credit profile and our expected level of returns on each investment in our portfolio. We use a
five-level numeric rating scale. The following is a description of the conditions associated with each investment rating:
Investment Rating 1 is used for investments that involve the least amount of risk in our portfolio. The portfolio
company is performing above expectations, the debt investment is expected to be paid in the near term and the trends and risk factors are favorable, and may include an expected capital gain on the equity investment.
Investment Rating 2 is used for investments that involve a level of risk similar to the risk at the time of
origination. The portfolio company is performing substantially within our expectations and the risk factors are neutral or favorable. Each new portfolio investment enters our portfolio with Investment Rating 2.
Investment Rating 3 is used for investments performing below expectations and indicates the investments
risk has increased somewhat since origination. The portfolio company requires closer monitoring, but we expect a full return of principal and collection of all interest and/or dividends.
Investment Rating 4 is used for investments performing materially below expectations and the risk has increased
materially since origination. The investment has the potential for some loss of investment return, but we expect no loss of principal.
Investment Rating 5 is used for investments performing substantially below our expectations and the risks have
increased substantially since origination. We expect some loss of principal.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
The following table shows the distribution of our investments on the 1 to 5 investment rating
scale at fair value and cost as of June 30, 2021 and December 31, 2020 (dollars in millions):
Fair Value
Cost
Investment Rating
June 30, 2021
December 31, 2020
June 30, 2021
December 31, 2020
1
$
131.2
17.6
%
$
109.3
14.7
%
$
45.6
6.8
%
$
38.7
5.6
%
2
527.2
70.9
544.4
73.3
520.3
77.6
537.6
78.3
3
67.4
9.1
80.1
10.8
73.9
11.0
87.5
12.7
4
17.7
2.4
9.0
1.2
23.4
3.5
13.7
2.0
5
0.1
7.7
1.1
9.5
1.4
Total
$
743.5
100.0
%
$
742.9
100.0
%
$
670.9
100.0
%
$
687.0
100.0
%
Based on our investment rating system, the weighted average rating of our portfolio as of June 30, 2021
and December 31, 2020 was 2.0 and 2.0, respectively, on a fair value basis and 2.1 and 2.2, respectively, on a cost basis.
Non-Accrual
As of June 30, 2021, we had no debt investments on
non-accrual status. As of December 31, 2020, we had debt investments in one portfolio company on non-accrual status, (dollars in millions).
June 30, 2021
December 31, 2020
Portfolio Company
Fair Value
Cost
Fair Value
Cost
EBL, LLC (EbLens)
$
(2)
$
(2)
$
5.5
(1)
$
9.2
(1)
Total
$
$
$
5.5
$
9.2
(1)
Portfolio company was on PIK-only on
non-accrual status at period end, meaning the Company has ceased recognizing PIK interest income on the investment.
(2)
Portfolio company debt investment was not on non-accrual status at
period end.
Discussion and Analysis of Results of Operations
Comparison of three and six months ended June 30, 2021 and 2020
Investment Income
Below
is a summary of the changes in total investment income for the three months ended June 30, 2021 as compared to the same period in 2020 (dollars in millions):
Three Months Ended June 30,
2021
2020
$ Change
% Change (1)(2)
Interest income
$
17.8
$
18.8
$
(1.0)
(5.6%)
Payment-in-kind interest
income
1.1
1.2
(0.1)
(6.5%)
Dividend income
0.8
0.8
NM
Fee income
2.1
0.4
1.7
435.1%
Interest on idle funds and other income
NM
Total investment income
$
21.8
$
20.4
$
1.4
6.8%
(1)
NM = Not meaningful
(2)
Percent change calculated based on underlying dollar amounts in thousands as presented on the consolidated
statements of operations.
For the three months ended June 30, 2021, total investment income was
$21.8 million, an increase of $1.4 million or 6.8%, from the $20.4 million of total investment income for the three months ended June 30, 2020. As reflected in the table above, the increase is primarily attributable to the
following:
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
$1.7 million increase in fee income resulting from an increase in origination, prepayment, and amendment
fees during 2021 as compared to 2020.
$0.8 million increase in dividend income due to increased levels of distributions received from equity
investments.
$1.1 million decrease in total interest income (which includes a $0.1 million decrease in payment-in-kind interest income) resulting from a decrease in average debt investment balances, partially offset by a higher weighted average yield on debt investment balances
outstanding, during 2021 as compared to 2020.
Below is a summary of the changes in total investment income for the six
months ended June 30, 2021 as compared to the same period in 2020 (dollars in millions):
Six Months Ended June 30,
2021
2020
$ Change
% Change (1)(2)
Interest income
$
36.9
$
36.3
$
0.6
1.7%
Payment-in-kind interest
income
2.1
2.3
(0.2
)
(8.4%)
Dividend income
0.9
0.1
0.8
497.4%
Fee income
5.2
1.7
3.5
208.4%
Interest on idle funds and other income
NM
Total investment income
$
45.1
$
40.4
$
4.7
11.6%
(1)
NM = Not meaningful
(2)
Percent change calculated based on underlying dollar amounts in thousands as presented on the consolidated
statements of operations.
For the six months ended June 30, 2021, total investment income was $45.1 million,
an increase of $4.7 million or 11.6%, from the $40.4 million of total investment income for the six months ended June 30, 2020. As reflected in the table above, the increase is primarily attributable to the following:
$3.5 million increase in fee income resulting from an increase in origination, prepayment, and amendment
fees during 2021 as compared to 2020.
$0.8 million increase in dividend income due to increased levels of distributions received from equity
investments.
$0.4 million increase in total interest income (which includes a $0.2 million decrease in payment-in-kind interest income) resulting from a decrease in average debt investment balances outstanding, partially offset by a higher weighted average yield on debt
investment balances outstanding, during 2021 as compared to 2020.
Expenses
Below is a summary of the changes in total expenses, including income tax provision, for the three months ended June 30, 2021 as compared
to the same period in 2020 (dollars in millions):
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Three Months Ended June 30,
2021
2020
$ Change
% Change (1)(2)
Interest and financing expenses
$
4.6
$
4.9
$
(0.3)
(6.2%)
Base management fee
3.2
3.2
NM
Incentive fee - income
2.5
2.1
0.4
20.7%
Incentive fee (reversal) - capital gains
3.8
(0.3)
4.1
(1576.4%)
Administrative service expenses
0.5
0.4
0.1
18.1%
Professional fees
0.3
0.6
(0.3)
(52.3%)
Other general and administrative expenses
0.4
0.5
(0.1)
(20.8%)
Total expenses, before base management and income incentive fee waivers
15.3
11.4
3.9
34.3%
Base management and income incentive fee waivers
(0.4)
0.4
(93.1%)
Total expenses, before income tax provision
15.3
11.0
4.3
39.3%
Income tax provision (benefit)
0.1
(0.1)
(75.9%)
Total expenses, including income tax provision
$
15.3
$
11.1
$
4.2
37.8%
(1)
NM = Not meaningful
(2)
Percent change calculated based on underlying dollar amounts in thousands as presented on the consolidated
statements of operations.
For the three months ended June 30, 2021, total expenses, including income tax
provision, were $15.3 million, an increase of $4.2 million or 37.8%, from the $11.1 million of total expenses for the three months ended June 30, 2020. As reflected in the table above, changes across periods were primarily
attributable to the following:
$4.1 million increase in the accrued capital gains incentive fee due to a $20.7 million increase in net
gain on investments (net realized gains (losses), plus net change in unrealized appreciation (depreciation) on investments), plus realized losses on extinguishment of debt during 2021 as compared to the same period in 2020.
$0.8 million net increase in the income incentive fee due to a $1.8 million increase in pre-incentive fee net investment income during 2021 and a one-time $0.4 income incentive fee waiver in 2020, as compared to the same period in 2020.
$0.3 million decrease in interest and financing expenses due to a decrease in average borrowings outstanding
and the weighted average interest rate during 2021 as compared to 2020.
$0.3 million decrease in professional fees due to decreased legal, audit and tax compliance costs during
2021 as compared to 2020.
Below is a summary of the changes in total expenses, including income tax provision, for the
six months ended June 30, 2021 as compared to the same period in 2020 (dollars in millions):
Six Months Ended June 30,
2021
2020
$ Change
% Change (1)(2)
Interest and financing expenses
$
9.7
$
9.8
$
(0.1)
(0.7%)
Base management fee
6.3
6.4
(0.1)
(1.1%)
Incentive fee - income
5.3
4.0
1.3
31.5%
Incentive fee - capital gains
4.0
(9.1)
13.1
(143.5%)
Administrative service expenses
0.8
0.8
NM
Professional fees
0.7
1.3
(0.6)
(47.4%)
Other general and administrative expenses
0.7
0.8
(0.1)
(11.3%)
Total expenses, before base management and income incentive fee waivers
27.5
14.0
13.5
97.0%
Base management and income incentive fee waivers
(0.4)
0.4
(93.1%)
Total expenses, before income tax provision
27.5
13.6
13.9
103.0%
Income tax provision (benefit)
0.1
(0.1)
(77.8%)
Total expenses, including income tax provision
$
27.5
$
13.7
$
13.8
101.1%
(1)
NM = Not meaningful
(2)
Percent change calculated based on underlying dollar amounts in thousands as presented on the consolidated
statements of operations.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
For the six months ended June 30, 2021, total expenses, including income tax provision,
were $27.5 million, an increase of $13.8 million or 101.1%, from the $13.7 million of total expenses for the six months ended June 30, 2020. As reflected in the table above, changes across periods were primarily attributable to
the following:
$13.1 million increase in the accrued capital gains incentive fee due to a $67.6 million increase in
net gain on investments (net realized gains (losses), plus net change in unrealized appreciation (depreciation) on investments, plus realized losses on extinguishment of debt during 2021 as compared to the same period in 2020. The reversal in the
capital gains incentive fee accrued for the six months ended June 30, 2020 was primarily driven by COVID related write-downs across the portfolio due to fair value calibration to public company multiples.
$1.7 million net increase in the income incentive fee due to a $5.2 million increase in pre-incentive fee net investment income during 2021 and a one-time $0.4 income incentive fee waiver in 2020, as compared to the same period in 2020.
$0.1 million decrease in interest and financing expenses due to a decrease in weighted average interest rate
during 2021 as compared to 2020.
$0.1 million decrease in base management fee due to lower average total assets during 2021 as compared to
2020.
$0.6 million decrease in professional fees due to decreased legal, audit and tax compliance costs during
2021 as compared to 2020.
Net Investment Income
Net investment income decreased by $(2.8) million, or (30.3)%, to $6.5 million during the three months ended June 30, 2021 as
compared to the same period in 2020, as a result of the $4.2 million increase in total expenses, including base management and incentive fee waivers and income tax provision, partially offset by the $1.4 increase in total investment income.
Net investment income decreased by $(9.1) million, or (34.3)%, to $17.6 million during the six months ended June 30, 2021 as
compared to the same period in 2020, as a result of the $13.8 million increase in total expenses, including base management and incentive fee waivers and income tax provision, partially offset by the $4.7 increase in total investment income.
Net Gain (Loss) on Investments
For the three and six months ended June 30, 2021, the total net realized gain/(loss) on investments, before income tax
(provision)/benefit, was $2.2 million and $5.4 million, respectively. There was no income tax (provision) benefit from realized gains on investments for the three and six months ended June 30, 2021, respectively. Significant realized
gains (losses) for the three and six months ended June 30, 2021 are summarized below (dollars in millions):
Period Ended June 30, 2021
Portfolio Company
Realization Event
(1)
Three
Months
Six
Months
Wheel Pros, Inc.
Exit of portfolio company
$
2.1
$
2.1
Software Technology, LLC
Exit of portfolio company
1.4
Spectra A&D Acquisition, Inc. (fka FDS Avionics Corp.)
Sale of portfolio company
1.0
Rohrer Corporation
Exit of portfolio company
0.9
Other
0.1
Net realized gain (loss) on investments
2.2
5.4
Income tax (provision) benefit from realized gains on investments
Net realized gain (loss), net of income tax provision, on investments
$
2.2
$
5.4
(1) As it relates to realization events, we define an
exit of a portfolio company as situations where we have completely exited our position in all of the portfolio companys securities and no longer carry the portfolio company on our schedule of investments. We define a
sale of a portfolio company, distinguished from an exit, as situations where the underlying operations of a portfolio company have been sold, but where we retain a residual ownership interest in the legacy entity (we generally
distinguish these residual portfolio company investments from active portfolio company investments).
For the three and six months ended June 30, 2020, the total net realized gain/(loss) on investments,
before income tax (provision)/benefit, was $0.2 million and $31.6 million, respectively. Income tax (provision) benefit from realized gains on investments was $(0) and $(1.1) for the three and six months ended June 30, 2020,
respectively. Significant realized gains (losses) for the three and six months ended June 30, 2020 are summarized below (dollars in millions):
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Period Ended June 30,2020
Portfolio Company
Realization Event
(1)
Three
Months
Six
Months
Pfanstiehl, Inc.
Sold 50% of equity investment
$
$
12.8
Fiber Materials, Inc.
Sale of portfolio company
9.8
Medsurant Holdings, LLC
Sold 50% of equity investment
1.7
Revenue Management Solutions, LLC
Sold 50% of equity investment
1.5
Worldwide Express Operations, LLC
Sold 50% of equity investment
1.1
Gurobi Optimization, LLC
Sold 50% of equity investment
1.0
Hub Acquisition Sub, LLC (dba Hub Pen)
Sold 50% of equity investment
0.6
Midwest Transit Equipment, Inc.
Sold 50% of equity investment
0.5
Pugh Lubricants, LLC
Sold 50% of equity investment
0.4
Microbiology Research Associates, Inc.
Sold 50% of equity investment
0.4
ControlScan, Inc.
Sold 50% of equity investment
0.3
Alzheimers Research and Treatment Center, LLC
Sold 50% of equity investment
0.3
BCM One Group Holdings, Inc.
Sold 50% of equity investment
0.2
Software Technology, LLC
Sold 50% of equity investment
0.2
LNG Indy, LLC (dba Kinetrex Energy)
Sold 50% of equity investment
0.2
Wheel Pros, Inc.
Sold 50% of equity investment
0.1
New Era Technology, Inc.
Escrow distribution
0.1
0.1
Apex Microtechnology, Inc.
Escrow distribution
0.1
0.1
Allied 100 Group, Inc.
Sold 50% of equity investment
0.1
Restaurant Finance Co, LLC
Escrow distribution
0.1
Other
0.1
Palisade Company, LLC
Sale of portfolio company
(0.1
)
Net realized gain (loss) on investments
0.2
31.6
Income tax provision from realized gains on investments
(1.1
)
Net realized gain (loss), net of income tax provision, on investments
$
0.2
$
(30.5
)
(1) As it relates to realization events, we define an
exit of a portfolio company as situations where we have completely exited our position in all of the portfolio companys securities and no longer carry the portfolio company on our schedule of investments. We define a
sale of a portfolio company, distinguished from an exit, as situations where the underlying operations of a portfolio company have been sold, but where we retain a residual ownership interest in the legacy entity (we generally
distinguish these residual portfolio company investments from active portfolio company investments).
During the three and six months ended June 30, 2021 and 2020, we recorded a net change in unrealized
appreciation (depreciation) on investments attributable to the following (dollars in millions):
Three Months
Ended June 30,
Six Months
Ended June 30,
Unrealized Appreciation (Depreciation)
2021
2020
2021
2020
Exit, sale or restructuring of investments
$
(1.7
)
$
$
(3.3
)
$
(30.0
)
Fair value adjustments to debt investments
0.7
(7.3
)
(4.5
)
(30.0
)
Fair value adjustments to equity investments
18.3
5.8
24.5
(16.1
)
Net change in unrealized appreciation (depreciation)
$
17.3
$
(1.5
)
$
16.7
$
(76.1
)
Net Increase in Net Assets Resulting From Operations
Net increase (decrease) in net assets resulting from operations during the three months ended June 30, 2021 and 2020 was
$25.9 million and $8.0 million, respectively, as a result of the events described above.
Net increase (decrease) in net assets
resulting from operations during the six months ended June 30, 2021 and 2020 was $37.4 million and $(19.0) million, respectively, as a result of the events described above.
Liquidity and Capital Resources
As of June 30, 2021, we had $54.2 million in cash and cash equivalents and our net assets totaled $429.4 million. We believe
that our current cash and cash equivalents on hand, our Credit Facility, our continued access to SBA-guaranteed debentures, and our anticipated cash flows from investments will provide adequate capital
resources with which to operate and finance our investment business and make distributions to our stockholders for at least the next 12 months. We intend to generate additional cash primarily from the future offerings of securities (including the at-the-market program) and future borrowings, as well as cash flows from operations, including income earned from investments in our portfolio companies. On both a
short-term
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
and long-term basis, our primary use of funds will be investments in portfolio companies and cash distributions to our stockholders. During the six months ended June 30, 2021, we repaid
$19.2 million of SBA debentures which would have matured during the period September 1, 2025 through March 1, 2028. Our remaining outstanding SBA debentures continue to mature in 2025 and subsequent years through 2031, which will
require repayment on or before the respective maturity dates.
Cash Flows
For the six months ended June 30, 2021, we experienced a net decrease in cash and cash equivalents in the amount of $70.1 million.
During that period, we received proceeds of $44.0 million of cash for operating activities, which included proceeds received from sales and repayments of investments of $191.6 million, which were partially offset by the funding of
$167.3 million of investments. During the same period, received proceeds of $13.5 million on our secured borrowings, made repayments on outstanding notes of $100.0 million, made repayments of SBA debentures of $19.2 million;
which were partially offset by proceeds from the issuances of SBA debentures of $11.5 million, paid cash dividends paid to stockholders of $18.8 million, and made payment of deferred financing costs related to our debt financings of
$1.0 million.
Capital Resources
We anticipate that we will continue to fund our investment activities on a long-term basis through a combination of additional debt and equity
capital.
SBA debentures
The Funds are licensed SBICs, and have the ability to issue debentures guaranteed by the SBA at favorable interest rates. Under the Small
Business Investment Act and the SBA rules applicable to SBICs, an SBIC can have outstanding at any time debentures guaranteed by the SBA in an amount up to twice its regulatory capital. The SBA regulations currently limit the amount that is
available to be borrowed by any SBIC and guaranteed by the SBA to 300.0% of an SBICs regulatory capital or $175.0 million, whichever is less. For two or more SBICs under common control, the maximum amount of outstanding SBA debentures
cannot exceed $350.0 million. SBA debentures have fixed interest rates that approximate prevailing 10-year Treasury Note rates plus a spread and have a maturity of ten years with interest payable
semi-annually. The principal amount of the SBA debentures is not required to be paid before maturity but may be pre-paid at any time. As of June 30, 2021, Fund II and Fund III had $114.3 million and
$25.0 million of outstanding SBA debentures, respectively. Subject to SBA regulatory requirements and approval, Fund III may access up to $150.0 million of additional SBA debentures under the SBIC debenture program. For more information on
the SBA debentures, please refer to Note 6 to our consolidated financial statements.
Credit Facility
In June 2014, we entered into the Credit Facility to provide additional funding for our investment and operational activities. On
April 24, 2019, we entered into the Amended Credit Agreement, which amends, restates, and replaces the Credit Facility. On June 26, 2020, the Company amended the Amended Credit Agreement, however the material terms were unchanged. Among
other revisions, the amendment to the Amended Credit Agreement modifies certain covenants therein, including to amend the minimum consolidated interest coverage ratio to be 2.25 to 1.00 for the four quarter period ending on June 30, 2020, 2.00
to 1.00 for the four quarter periods ending on each of September 30, 2020 and December 31, 2020, and 1.75 to 1.00 for each four quarter period ending at the end of each quarter thereafter. The Credit Facility is secured by substantially
all of our assets, excluding the assets of the Funds.
Under the Amended Credit Agreement, (i) revolving commitments by lenders were
increased from $90.0 million to $100.0 million, with an accordion feature that allows for an increase in total commitments up to $250.0 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 from June 16, 2019 to April 24, 2023, and (iii) borrowings under the Credit Facility bear interest, at our election, at a rate per annum equal to (a) 3.00% (or 2.75%
if certain conditions are satisfied, including if (x) no equity interests are included in the borrowing base, (y) the contribution to the borrowing base of eligible portfolio investments that are performing first lien bank loans is greater
than or equal to 35%, and (z) the contribution to the borrowing base of eligible portfolio investments that are performing first lien bank loans, performing last out loans, or performing second lien loans is greater than or equal to 60%) plus
the one, two, three or six month LIBOR rate, as applicable, or (b) 2.00% (or 1.75% if the above conditions are satisfied) 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. We pay a commitment fee that varies depending on the size of the unused portion of the Credit Facility: 3.00% per annum on the unused portion of the Credit Facility at or below 35% of the commitments and 0.50% per annum on
any remaining unused portion of the Credit Facility between the total commitments and the 35% minimum utilization. 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 (on a regulatory basis). The Credit Facility is secured by a first priority security interest in all of our assets, excluding the assets of our SBIC subsidiaries.
Amounts available to borrow under the Credit Facility are subject to a minimum borrowing/collateral base that applies an advance rate to
certain portfolio investments held by us, excluding investments held by the Funds. We are subject to limitations with respect to the investments securing the Credit Facility, including, but not limited to, restrictions on sector concentrations, loan
size, payment frequency and status and collateral interests, as well as restrictions on portfolio company leverage, which may also affect the borrowing base and therefore amounts available to borrow.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
We have made customary representations and warranties and are required to comply with various
covenants, reporting requirements and other customary requirements for similar credit facilities. These covenants are subject to important limitations and exceptions that are described in the documents governing the Credit Facility. As of
June 30, 2021, we were in compliance with all covenants of the Credit Facility and there were no borrowings outstanding under the Credit Facility.
Notes
On
February 2, 2018, we closed the public offering of approximately $43.5 million in aggregate principal amount of our 5.875% notes due 2023, or the 2023 Notes. On February 22, 2018, the underwriters exercised their option to
purchase an additional $6.5 million in aggregate principal of the 2023 Notes. The total net proceeds to us from the 2023 Notes, including the exercise of the underwriters option, after deducting underwriting discounts of approximately
$1.5 million and offering expenses of $0.4 million, were approximately $48.1 million. The 2023 Notes will mature on February 1, 2023 and bear interest at a rate of 5.875%. The 2023 Notes may be redeemed in whole or in part at any
time or from time to time at our option on or after February 1, 2020. On January 19, 2021, we redeemed $50.0 million of the aggregate principal amount on the 2023 Notes, resulting in a realized loss on extinguishment of debt of
approximately $0.8 million.
On February 8, 2019, we closed the public offering of approximately $60.0 million in aggregate
principal amount of our 6.000% notes due 2024, or the 2024 Notes. On February 19, 2019, the underwriters exercised their option to purchase an additional $9.0 million in aggregate principal of the 2024 Notes. The total net
proceeds to us from the 2024 Notes, including the exercise of the underwriters option, after deducting underwriting discounts of approximately $2.1 million and offering expenses of $0.4 million, were approximately $66.5 million.
The 2024 Notes will mature on February 15, 2024 and bear interest at a rate of 6.000%. The 2024 Notes may be redeemed in whole or in part at any time or from time to time at our option on or after February 15, 2021. Interest on the 2024
Notes is payable quarterly on February 15, May 15, August 15 and November 15 of each year, beginning May 15, 2019. The 2024 Notes are listed on the NASDAQ Global Select Market under the trading symbol FDUSZ. On
February 16, 2021, we redeemed $50.0 million of the $69.0 million aggregate principal amount on the February 2024 Notes, resulting in a realized loss on extinguishment of debt of approximately $1.1 million. As of June 30,
2021, the outstanding principal balance of the 2024 Notes was $19.0 million.
On October 16, 2019, we closed the public offering
of approximately $55.0 million in aggregate principal amount of our 5.375% notes due 2024, or the November 2024 Notes (and collectively with the 2023 Notes and the February 2024 Notes, the Public Notes). On
October 23, 2019, the underwriters exercised their option to purchase an additional $8.3 million in aggregate principal of the November 2024 Notes. The total net proceeds to us from the November 2024 Notes, including the exercise of the
underwriters option, after deducting underwriting discounts of approximately $1.9 million and offering expenses of $0.3 million, were approximately $61.1 million. The November 2024 Notes will mature on November 1, 2024 and
bear interest at a rate of 5.375%. The November 2024 Notes may be redeemed in whole or in part at any time or from time to time at our option on or after November 1, 2021. Interest on the November 2024 Notes is payable quarterly on
February 1, May 1, August 1 and November 1 of each year, beginning February 1, 2020. The November 2024 Notes are listed on the NASDAQ Global Select Market under the trading symbol FDUSG. As of June 30, 2021,
the outstanding principal balance of the November 2024 Notes was approximately $63.3 million.
On December 23, 2020, we closed
the offering of approximately $125.0 million in aggregate principal amount of our 4.75% notes due 2026, or the 2026 Notes (collectively with the Public Notes, the Notes). The total net proceeds to us from the 2026 Notes
after deducting underwriting discounts of approximately $2.5 million and estimated offering expenses of $0.4 million, were approximately $122.1 million. The 2026 Notes will mature on January 31, 2026 and bear interest at a rate
of 4.75%. The 2026 Notes may be redeemed in whole or in part at any time or from time to time at our option subject to a make whole provision if redeemed more than three months prior to maturity. Interest on the 2026 Notes is payable on
January 31 and July 31 of each year, beginning July 31, 2021. We do not intend to list the 2026 Notes on any securities exchange or automated dealer quotation system.
The Notes are unsecured obligations and rank pari passu with our future unsecured indebtedness; effectively subordinated to all of our
existing and future secured indebtedness; and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles, or similar facilities we may form in the future, with respect to
claims on the assets of any such subsidiaries, financing vehicles, or similar facilities.
As of June 30, 2021, the weighted average
stated interest rates for our SBA debentures and Notes were 3.002% and 5.055%, respectively. As of June 30, 2021, the weighted average stated interest rate on total debt outstanding was 4.23% (excluding secured borrowings).
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Secured Borrowing
As of June 30, 2021, secured borrowings at fair value totaled $13.5 million and the fair value of the associated loans included in
investments was $13.5 million. As of December 31, 2020, there were no secured borrowings outstanding. These secured borrowings were created as a result of our completion of partial loan sales of certain unitranche loan assets that did not
meet the definition of a participating interest. As a result, sale treatment was not permitted and these partial loan sales were treated as secured borrowings. The weighted average interest rate on our secured borrowings was
approximately 4.5% as of June 30, 2021.
As a BDC, we are generally required to meet an asset coverage ratio of at least 150.0%
(defined as the ratio which the value of our consolidated total assets, less all consolidated liabilities and indebtedness not represented by senior securities, bears to the aggregate amount of senior securities representing indebtedness), which
includes borrowings and any preferred stock we may issue in the future. This requirement limits the amount that we may borrow. We have received exemptive relief from the SEC to allow us to exclude any indebtedness guaranteed by the SBA and issued by
the Funds from the 150.0% asset coverage requirements, which, in turn, will enable us to fund more investments with debt capital.
As a
BDC, we are generally not permitted to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current
net asset value per share of our common stock if the Board, including the Independent Directors, determines that such sale is in the best interests of us and our stockholders, and if our stockholders approve such sale. On July 14, 2021, our
stockholders voted to allow us to sell or otherwise issue common stock at a price below net asset value per share for a period of one year ending on the earlier of June 14, 2022 or the date of our 2022 Annual Meeting of Stockholders. We expect
to present to our stockholders a similar proposal at our 2022 Annual Meeting of Stockholders. Our stockholders specified that the cumulative number of shares sold in each offering during the one-year period
ending on the earlier of June 14, 2022 or the date of our 2022 Annual Meeting of Stockholders may not exceed 25.0% of our outstanding common stock immediately prior to each such sale.
Stock Repurchase Program
We have an open market stock repurchase program (the Stock Repurchase Program) under which we may acquire up to $5.0 million
of our outstanding common stock. Under the Stock Repurchase Program, we may, but are not obligated to, repurchase outstanding common stock in the open market from time to time provided that we comply with the prohibitions under our insider trading
policies and the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended, including certain price, market value and timing constraints. The timing, manner, price and amount of any share
repurchases will be determined by our management, in its discretion, based upon the evaluation of economic and market conditions, stock price, capital availability, applicable legal and regulatory requirements and other corporate
considerations. On October 26, 2020, the Board extended the Stock Repurchase Program through December 31, 2021, or until the approved dollar amount has been used to repurchase shares. The Stock Repurchase Program does not require us
to repurchase any specific number of shares and we cannot assure that any shares will be repurchased under the Stock Repurchase Program. The Stock Repurchase Program may be suspended, extended, modified or discontinued at any time. We did not make
any repurchases of common stock during the three and six months ended June 30, 2021. During the three and six months ended June 30, 2020, we repurchased zero and 25,719 shares of common stock on the open market for zero and
$0.3 million, respectively. Refer to Note 8 to our consolidated financial statements for additional information concerning stock repurchases.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions affecting amounts
reported in the financial statements. We have identified investment valuation, revenue recognition and transfers of financial assets as our most critical accounting policies and estimates. We continuously evaluate our policies and estimates,
including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could
differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.
Valuation of Portfolio Investments
As a BDC, we report our assets and liabilities at fair value at all times consistent with GAAP and the 1940 Act. Accordingly, we are required
to periodically determine the fair value of all of our portfolio investments.
Our investments generally consist of illiquid securities
including debt and equity investments in lower middle-market companies. Investments for which market quotations are readily available are valued at such market quotations. Because we expect that there will not be a readily available market for
substantially all of the investments in our portfolio, we value substantially all of our portfolio investments at fair value as determined in good faith by the Board using a documented valuation policy and 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 our investments may differ significantly from the values that would have been used had a readily available
market value existed for such investments, and the difference could be material.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
With respect to investments for which market quotations are not readily available, the Board
undertakes a multi-step valuation process each quarter, as described below:
our quarterly valuation process begins with each portfolio company or investment being initially evaluated and
rated by the investment professionals of the Investment Advisor responsible for the portfolio investment;
preliminary valuation conclusions are then documented and discussed with the investment committee of the
Investment Advisor;
the Board engages one or more independent valuation firm(s) to conduct independent appraisals of a selection of
our portfolio investments for which market quotations are not readily available. Each portfolio company investment is generally appraised by the valuation firm(s) at least once every calendar year and each new portfolio company investment is
appraised at least once in the twelve-month period following the initial investment. In certain instances, we may determine that it is not cost-effective, and as a result it is not in our stockholders best interest, to request the independent
appraisal of certain portfolio company investments. Such instances include, but are not limited to, situations where we determine that the fair value of the portfolio company investment is relatively insignificant to the fair value of the total
portfolio. The Board consulted with the independent valuation firm(s) in arriving at our determination of fair value for 9 and 12 of our portfolio company investments representing 18.3% and 25.8% of the total portfolio investments at fair value
(exclusive of new portfolio company investments made during the three months ended June 30, 2021 and December 31, 2020, respectively) as of June 30, 2021 and December 31, 2020, respectively;
the audit committee of the Board reviews the preliminary valuations of the Investment Advisor and of the
independent valuation firm(s) and responds and supplements the valuation recommendations to reflect any comments; and
the Board discusses the valuations and determines the fair value of each investment in our portfolio in good
faith, based on the input of the Investment Advisor, the independent valuation firm(s) and the audit committee.
In
making the good faith determination of the value of portfolio investments, we start with the cost basis of the security. The transaction price is typically the best estimate of fair value at inception. When evidence supports a subsequent change to
the carrying value from the original transaction price, adjustments are made to reflect the expected exit values.
Consistent with the
policies and methodologies adopted by the Board, we perform detailed valuations of our debt and equity investments, including an analysis on the Companys unfunded debt investment commitments, using both the market and income approaches as
appropriate. Under the market approach, we typically use the enterprise value methodology to determine the fair value of an investment. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise
value is generally best expressed as a range of values, from which we derive a single estimate of enterprise value. Under the income approach, we typically prepare and analyze discounted cash flow models to estimate the present value of future cash
flows of either an individual debt investment or of the underlying portfolio company itself.
We evaluate investments in portfolio
companies using the most recent portfolio company financial statements and forecasts. We also consult with the portfolio companys senior management to obtain further updates on the portfolio companys performance, including information
such as industry trends, new product development and other operational issues.
For our debt investments the primary valuation technique
used to estimate the fair value is the discounted cash flow method. However, if there is deterioration in credit quality or a debt investment is in workout status, we may consider other methods in determining the fair value, including the value
attributable to the debt investment from the enterprise value of the portfolio company or the proceeds that would be received in a liquidation analysis. Our discounted cash flow models estimate a range of fair values by applying an appropriate
discount rate to the future cash flow streams of our debt investments, based on future interest and principal payments as set forth in the associated debt investment agreements. We prepare a weighted average cost of capital for use in the discounted
cash flow model for each investment, based on factors including, but not limited to: current pricing and credit metrics for similar proposed or executed investment transactions of private companies; the portfolio companys historical financial
results and outlook; and the portfolio companys current leverage and credit quality as compared to leverage and credit quality as of the date the investment was made. We may also consider the following factors when determining the fair value
of debt investments: the portfolio companys ability to make future scheduled payments; prepayment penalties and other fees; estimated remaining life; the nature and realizable value of any collateral securing such debt investment; and changes
in the interest rate environment and the credit markets that generally may affect the price at which similar investments may be made. We estimate the remaining life of our debt investments to generally be the legal maturity date of the instrument,
as we generally intend to hold debt investments to maturity. However, if we have information available to us that the debt investment is expected to be repaid in the near term, we would use an estimated remaining life based on the expected repayment
date.
For our equity investments, including equity securities and warrants, we generally use a market approach, including valuation
methodologies consistent with industry practice, to estimate the enterprise value of portfolio companies. Typically, the enterprise value of a private company is based on multiples of EBITDA, net income, revenues, or in limited cases, book value. In
estimating the enterprise value of a portfolio company, we analyze various factors consistent with industry practice, including but not limited to original transaction multiples, the portfolio companys historical and projected financial
results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the nature and realizable value of any collateral, the markets in which the portfolio company does business, and comparisons of financial
ratios of peer companies that are public.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
We may also utilize an income approach when estimating the fair value of our equity
securities, either as a primary methodology if consistent with industry practice or if the market approach is otherwise not applicable, or as a supporting methodology to corroborate the fair value ranges determined by the market approach. We
typically prepare and analyze discounted cash flow models based on projections of the future free cash flows (or earnings) of the portfolio company. We consider various factors, including but not limited to the portfolio companys projected
financial results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the markets in which the portfolio company does business, and comparisons of financial ratios of peer companies that are public.
Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements
express the uncertainties with respect to the possible effect of such valuations, and any changes in such valuations, on the consolidated financial statements.
Revenue Recognition
Investments and related investment income. Realized gains or losses on investments are recorded upon the sale or disposition of a
portfolio investment and are calculated as the difference between the net proceeds from the sale or disposition and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in
unrealized appreciation or depreciation on the consolidated statements of operations includes changes in the fair value of investments from the prior period, as determined by the Board through the application of our valuation policy, as well as
reclassifications of any prior period unrealized appreciation or depreciation on exited investments to realized gains or losses on investments.
Interest and dividend income . Interest and dividend income are recorded on the accrual basis to the extent that we expect to collect
such amounts. Interest is accrued daily based on the outstanding principal amount and the contractual terms of the debt. Dividend income is recorded as dividends are declared or at the point an obligation exists for the portfolio company to make a
distribution, and is generally recognized when received. Distributions from portfolio companies are evaluated to determine if the distribution is a distribution of earnings or a return of capital. Distributions of earnings are included in dividend
income while a return of capital is recorded as a reduction in the cost basis of the investment. Estimates are adjusted as necessary after the relevant tax forms are received from the portfolio company.
PIK income. Certain of our investments contain a PIK income provision. The PIK income, computed at the contractual rate specified in
the applicable investment agreement, is added to the principal balance of the investment, rather than being paid in cash, and recorded as interest or dividend income, as applicable, on the consolidated statements of operations. Generally, PIK can be
paid-in-kind or all in cash. We stop accruing PIK income when there is reasonable doubt that PIK income will be collected. PIK income that has been contractually
capitalized to the principal balance of the investment prior to the non-accrual designation date is not reserved against interest or dividend income, but rather is assessed through the valuation of the
investment (with corresponding adjustments to unrealized depreciation, as applicable). PIK income is included in our taxable income and, therefore, affects the amount we are required to pay to our stockholders in the form of dividends in order to
maintain our tax treatment as a RIC and to avoid paying corporate-level U.S. federal income tax, even though we have not yet collected the cash.
Non-accrual. Debt investments or preferred equity investments (for which we are accruing PIK
dividends) are placed on non-accrual status when principal, interest or dividend payments become materially past due, or when there is reasonable doubt that principal, interest or dividends will be
collected. Any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on full non-accrual status. Interest and dividend payments received on non-accrual investments may be recognized as interest or dividend income or applied to the investment principal balance based on managements judgment. Non-accrual
investments are restored to accrual status when past due principal, interest or dividends are paid and, in managements judgment, are likely to remain current.
Warrants. In connection with our debt investments, we will sometimes receive warrants or other equity-related securities (Warrants). We
determine the cost basis of Warrants based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and Warrants received. Any resulting difference between the face amount of the debt and its
recorded fair value resulting from the assignment of value to the Warrants is treated as OID and accreted into interest income using the effective interest method over the term of the debt investment. Upon the prepayment of a debt investment, any
unaccreted OID is accelerated into interest income.
Fee income. All transaction fees earned in connection with our investments are
recognized as fee income and are generally non-recurring. Such fees typically include fees for services, including structuring and advisory services, provided to portfolio companies. We recognize income from
fees for providing such structuring and advisory services when the services are rendered or the transactions are completed. Upon the prepayment of a debt investment, any prepayment penalties are recorded as fee income when earned. In 2020, the
Company elected to change the manner in which it presents the recognition of management services fees income. Previously, the Company classified management services fees as a component of interest on idle
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
funds and other income on the Consolidated Statement of Operations. Comparative prior periods presented have been reclassified retrospectively to conform to the revised presentation. There is no
change in historical net increase in net assets resulting from operations due to this change in presentation.
We also typically receive
debt investment origination or closing fees in connection with investments. Such debt investment origination and closing fees are capitalized as unearned income and offset against investment cost basis on our consolidated statements of assets and
liabilities and accreted into interest income over the term of the investment. Upon the prepayment of a debt investment, any unaccreted debt investment origination and closing fees are accelerated into interest income.
Transfers of Financial Assets
Partial loan and equity sales. The Company follows the guidance in ASC 860, Transfers and Servicing, when accounting for
loan (debt investment) participations, equity assignments and other partial loan sales. Such guidance requires a participation, assignment or other partial loan or equity sale to meet the definition of a participating interest, as
defined in the guidance, in order for sale treatment to be allowed. Participations, assignments or other partial loan or equity sales which do not meet the definition of a participating interest should remain on the Companys consolidated
statements of assets and liabilities and the proceeds recorded as a secured borrowing until the definition is met.
Recently Issued Accounting
Standards
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other
transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of
reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract
modifications and hedging relationships entered into or evaluated after December 31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through
the end of the hedging relationship. The Company did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the six months ended June 30, 2021.
SEC Rule 1-02(w)(2) Update
In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the
financial statements of certain of their portfolio companies or certain acquired funds (the Final Rules). The Final Rules adopted a new definition of significant subsidiary set forth in
Rule 1-02(w)(2) of Regulation S-X under the Securities Act.
Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial
statements or summary financial information, respectively, in such investment companys periodic reports for any portfolio company that meets the definition of significant subsidiary. The Final Rules adopt a new definition of
significant subsidiary applicable only to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of significant subsidiary in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of
Regulation S-X is intended to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an investment company. The Final Rules became
effective on January 1, 2021, however the Company elected to early adopt this rule change as of December 31, 2020. The adoption of this guidance did not have a material impact on the Companys Consolidated Financial Statements.
SEC Regulation S-K Update
In November 2020, the SEC issued a final rule that modernized and simplifies Managements Discussion and Analysis of Financial Condition
and Results of Operations and certain financial disclosure requirements in Regulation S-K (the Amendments). Specifically, the Amendments: (i) eliminate Item 301 of Regulation S-K (Selected Financial Data); (ii) simplify Item 302 of Regulation S-K (Supplementary Financial Information); and (iii) amend certain
aspects of Item 303 of Regulation S-K (Managements Discussion and Analysis of Financial Condition and Results of Operations). The Amendments became effective on February 10, 2021 and compliance
will be required for the registrants fiscal year ending on or after August 9, 2021. Early adoption of the Amendments is permitted on
an item-by-item basis after the effective date; however, a registrant must fully comply with each adopted item in its entirety. The Company adopted the
Amendments on the effective date which did not have a material impact on the Companys Consolidated Financial Statements.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
Off-Balance Sheet Arrangements
We may be a party to financial instruments with off-balance sheet risk in the normal course of business
to meet the financial needs of our portfolio companies. We had off-balance sheet arrangements consisting of outstanding commitments to fund various undrawn revolving loans, other debt investments and capital
commitments totaling $45.4 and $5.6 million as of June 30, 2021 and December 31, 2020, respectively. Such outstanding commitments are summarized in the following table (dollars in millions):
June 30, 2021
December 31, 2020
Portfolio CompanyInvestment
Total
Commitment
Unfunded
Commitment
Total
Commitment
Unfunded
Commitment
American AllWaste LLC (dba WasteWater Transport Services)Delayed Draw Commitment
$
3.9
$
3.9
$
$
Combined Systems, Inc.Revolving Loan
4.0
0.6
4.0
1.0
CRS Solutions Holdings, LLC (dba CRS Texas)Common Equity (Units)
0.2
Elements Brands, LLCRevolving Loan
3.0
0.8
3.0
0.8
Ipro Tech, LLCFirst Lien Debt
14.3
14.3
Rhino Assembly Company, LLCDelayed Draw Commitment
0.9
0.9
0.9
0.9
Safety Products Group, LLCCommon Equity (Units)
2.9
(1)
2.9
(1)
2.9
(1)
2.9
(1)
Spectra A&D Acquisition, Inc. (fka FDS Avionics Corp.)Revolving Loan
0.2
Wonderware Holdings, LLC (dba CORE Business Technologies)Delayed Draw Term Loan
2.0
2.0
Worldwide Express Operations, LLCSenior Subordinated Note
20.0
20.0
Total
$
51.2
$
45.4
$
11.0
$
5.6
(1)
Portfolio company was no longer held at period end. The commitment represents our maximum potential liability
related to certain guaranteed obligations stemming from the prior sale of the portfolio companys underlying operations.
Additional detail for each of the commitments above is provided in our consolidated schedules of investments.
Related Party Transactions
We have
entered into a number of business relationships with affiliated or related parties, including the following:
We have entered into the Investment Advisory Agreement with Fidus Investment Advisors as our investment advisor.
Pursuant to the agreement, the Investment Advisor manages our day-to-day operating and investing activities. We pay the Investment Advisor a fee for its services under
the Investment Advisory Agreement consisting of two components a base management fee and an incentive fee. See Note 5 to our consolidated financial statements.
Edward H. Ross, our Chairman and Chief Executive Officer, and Thomas C. Lauer, our President, are managers of
Fidus Investment Advisors. In May 2015, Fidus Investment Advisors entered into a combination with Fidus Partners, LLC (the Combination), by which members of Fidus Investment Advisors and Fidus Partners, LLC (Partners)
contributed all of their respective membership interest in Fidus Investment Advisors and Partners to a newly formed limited liability company, Fidus Group Holdings, LLC (Holdings). As a result, Fidus Investment Advisors is a wholly-owned
subsidiary of Holdings, which is a limited liability company organized under the laws of Delaware.
We entered into the Administration Agreement with Fidus Investment Advisors to provide us with the office
facilities and administrative services necessary to conduct day-to-day operations. See Note 5 to our consolidated financial statements.
We entered into a license agreement with Fidus Partners, LLC, pursuant to which Fidus Partners, LLC has granted
us a non-exclusive, royalty-free license to use the name Fidus.
On February 25, 2020, the Company entered into a Limited Partnership Agreement (the Agreement)
with Fidus Equity Fund I, L.P. (FEF I). Pursuant to the Agreement, we will serve as the General Partner of FEF I. Owned by third-party investors, FEF I was formed to purchase 50% of select equity investments from us. On
February 25, 2020, we sold 50% of our equity investments in 20 portfolio companies to FEF I and received net proceeds of $35.9 million, resulting in a realized gain, net of estimated taxes, of approximately $20.4 million. We will not
receive any fees from FEF I for any services provided in our capacity as the General Partner of FEF I.
The Investment Advisor, in consultation with the Board, agreed to voluntarily waive $0.4 million of the
income incentive fee for the three and six months ended June 30, 2020. There was no income incentive fee waiver for the three and six months ended June 30, 2021.
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FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except shares and per share data)
The Investment Advisor, in consultation with the Board, agreed to voluntarily waive base management fees on any
assets accounted for as secured borrowings as defined under GAAP for the three and six months ended June 30, 2021. There were no secured borrowings included in total assets for the three and six months ended June 30, 2020.
In connection with the IPO and our election to be regulated as a BDC, we applied for and received exemptive relief from
the SEC on March 27, 2012 to allow us to take certain actions that would otherwise be prohibited by the 1940 Act, as applicable to BDCs. Effective June 30, 2014, pursuant to separate exemptive relief from the SEC, any SBA debentures issued
by Fund II and Fund III are not considered senior securities for purposes of the asset coverage requirements.
While we may co-invest with investment entities managed by the Investment Advisor or its affiliates, to the extent permitted by the 1940 Act and the rules and regulations thereunder, the 1940 Act imposes significant limits on co-investment. The SEC staff has granted us relief sought in an exemptive application that expands our ability to co-invest in portfolio companies with other funds managed by
the Investment Advisor or its affiliates (Affiliated Funds) in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to
compliance with certain conditions (the Order). Pursuant to the Order, we are permitted to co-invest with our affiliates if a required majority (as defined in Section 57(o) of the
1940 Act) or the Independent Directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid,
are reasonable and fair to us and our stockholders and do not involve overreaching by us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent
with our investment objective and strategies.
In addition, we and our Investment Advisor have each adopted a joint code of ethics
pursuant to Rule 17j-1 under the 1940 Act that governs the conduct of our and the Investment Advisors officers, directors and employees. Additionally, the Investment Advisor has adopted a code
of ethics pursuant to rule 204A-1 under the Advisers Act of 1940 and in accordance with Rule 17j-1(c) under the 1940 Act. We have also adopted a code
of business conduct that is applicable to all officers, directors and employees of Fidus and our Investment Advisor. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Maryland General Corporation Law.
Recent Developments
On
July 16, 2021, we exited our debt investments in Hilco Technologies. We received payment in full of $10.3 million on our first lien debt and revolving loan. We received a distribution on our equity investments for a realized loss of
approximately ($1.0) million.
On July 23, 2021, we exited our debt investment in CRS Solutions Holdings, LLC. We received payment in
full of $11.4 million on our second lien debt.
On July 26, 2021, we exited our debt and equity investments in Worldwide Express
Operations, LLC, which was acquired under a new holding company, Accord Topco, LP (dba Worldwide Express). We received payment in full of $20.0 million on our second lien debt. We sold a portion of our common equity investment for a realized
gain of approximately $3.0 million. In conjunction with the transaction, we invested $1.5 million in common equity, of which $0.8 million was rolled over from our original common equity investment and funded a $20.0 million
second lien loan commitment.
On August 2, 2021, our Board declared a regular quarterly dividend of $0.32 per share, a supplemental
dividend of $0.06 per share, and a special dividend of $0.04 per share payable September 28, 2021, to stockholders of record as of September 14, 2021.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.