Item 8. Financial Statements and Supplementary Data
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Managements Annual Report on Internal Controls Over Financial Reporting
82
Report of Independent Registered Public Accounting Firm
83
Consolidated Statements of Assets and Liabilities as of March
31, 2021 and March 31, 2020
85
Consolidated Statements of Operations for the years ended March
31, 2021, 2020 and 2019
86
Consolidated Statements of Changes in Net Assets for the years ended March 31,
2021, 2020 and 2019
88
Consolidated Statements of Cash Flows for the years ended March
31, 2021, 2020 and 2019
89
Consolidated Schedules of Investments as of March
31, 2021 and March 31, 2020
91
Notes to Consolidated Financial Statements
105
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Managements Annual Report on Internal Control over
Financial Reporting
To the Board of Directors and Stockholders of Gladstone Investment Corporation:
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and include those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we assessed the
effectiveness of our internal control over financial reporting as of March 31, 2021, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework
(2013) . Based on its assessment, management has concluded that our internal control over financial reporting was effective as of March 31, 2021.
May 11, 2021
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Gladstone Investment Corporation
Opinion on the Financial Statements
We have
audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of Gladstone Investment Corporation and its subsidiaries (the Company) as of March 31,
2021 and 2020, and the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended March 31, 2021, including the related notes and financial statement
schedule listed in the index appearing under Item 15(a)(2) as of March 31, 2021 and 2020 (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the results of its operations, changes in its net assets and its cash flows for each of the three years in the period ended
March 31, 2021 in conformity with accounting principles generally accepted in the United States of America.
We have also previously audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of assets and liabilities, including the consolidated schedules of investments, of the Company as of March 31, 2019,
2018, 2017, 2016, 2015, 2014, 2013, and 2012, and the related consolidated statements of operations, changes in net assets and cash flows for the years ended March 31, 2018, 2017, 2016, 2015, 2014, 2013, and 2012 (none of which are
presented herein), and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the Senior Securities table of the Company for each of the ten years in the period ended
March 31, 2021, appearing on pages 56-59 under Item 5 of this Form 10-K, is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been
derived.
Basis for Opinion
These
consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities owned as of March 31, 2021 and 2020 by correspondence with the custodians, agent banks and portfolio company
investees; when replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
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Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated
or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Level 3 Investments
As described in Notes 2 and 3 to the consolidated financial statements, the Company held $633.7 million of total level 3 investments at fair value as of
March 31, 2021. Management uses significant unobservable inputs in estimating the fair value of its level 3 investments, including (i) with respect to investments valued using a total enterprise value, portfolio company earnings before
interest, taxes, depreciation and amortization (EBITDA) and EBITDA multiples, revenue and revenue multiples, or a discounted cash flow analysis using estimated risk-adjusted discount rates; (ii) with respect to investments valued
using a yield analysis, a modified discount rate; and (iii) with respect to investments valued using market quotations for which a limited market exists, the lower indicative bid price in the bid-to-ask price range.
The principal considerations for our determination that performing procedures relating
to the valuation of level 3 investments is a critical audit matter are (i) the significant judgment by management to determine the fair value of these level 3 investments using a total enterprise value or yield analysis due to the use of
significant unobservable inputs, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the EBITDA and EBITDA multiples and revenue and revenue multiples used
in a total enterprise value and the modified discount rate used in a yield analysis, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included, among others, either (i) testing managements process for determining the fair value estimate, including testing the completeness and accuracy of data provided by management, evaluating the
appropriateness of managements valuation methods, and evaluating the reasonableness of the EBITDA and EBITDA multiples and revenue and revenue multiples used in a total enterprise value and the modified discount rate used in a yield analysis
by considering current and past performance of the investment, consistency of the unobservable inputs with external market data and evidence obtained in other areas of the audit, and managements historical forecasting accuracy, or
(ii) the involvement of professionals with specialized skill and knowledge to assist in developing an independent fair value estimate for certain level 3 investments and comparison of managements estimate to the independently developed
estimate. Developing an independent fair value estimate involved testing the completeness and accuracy of data provided by management and independently developing significant unobservable inputs related to the EBITDA and EBITDA multiples or revenue
and revenue multiples for those investments valued using a total enterprise value.
/s/ PricewaterhouseCoopers LLP
Arlington, Virginia
May 11, 2021
We have served as the Companys auditor since 2005.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
March 31,
2021
2020
ASSETS
Investments at fair value
Non-Control/Non-Affiliate
investments (Cost of $297,400 and $276,589, respectively)
$
298,222
$
292,129
Affiliate investments (Cost of $341,651 and $311,481, respectively)
307,977
247,637
Control investments (Cost of $24,512 and $21,512, respectively)
27,630
26,158
Cash and cash equivalents
2,062
2,778
Restricted cash and cash equivalents
336
1,282
Interest receivable
3,369
3,429
Due from administrative agent
1,164
771
Deferred financing costs, net
1,359
991
Other assets, net
1,612
1,202
TOTAL ASSETS
$
643,731
$
576,377
LIABILITIES
Borrowings:
Line of credit at fair value (Cost of $22,400 and $49,200, respectively)
$
22,400
$
49,200
Notes payable, net
123,883
Secured borrowing
5,096
5,096
Total borrowings
151,379
54,296
Mandatorily redeemable preferred stock, $0.001 par value per share, $25.00 liquidation
preference per share; 5,990,000 and 6,500,000 shares authorized; 3,774,853 and 5,290,000 shares issued and outstanding, respectively, net
92,209
129,160
Accounts payable and accrued expenses
563
1,084
Interest payable
591
138
Fees due to Adviser (A)
15,664
7,178
Fee due to Administrator (A)
577
582
Other liabilities
384
14,908
TOTAL LIABILITIES
261,367
207,346
Commitments and contingencies (B)
NET ASSETS
$
382,364
$
369,031
ANALYSIS OF NET ASSETS
Common stock, $0.001 par value per share, 100,000,000 shares authorized;
33,205,023 and 33,049,463 shares issued and outstanding, respectively
$
33
$
33
Capital in excess of par value
400,796
401,023
Cumulative net unrealized depreciation of investments
(29,734
)
(43,658
)
Underdistributed net investment income
2,592
6,370
Accumulated net realized gain in excess of distributions
8,677
5,263
Total distributable earnings
(18,465
)
(32,025
)
TOTAL NET ASSETS
$
382,364
$
369,031
NET ASSET VALUE PER SHARE
$
11.52
$
11.17
(A)
Refer to Note 4 Related Party Transactions in the accompanying Notes to Consolidated Financial
Statements for additional information.
(B)
Refer to Note 11 Commitments and Contingencies in the accompanying Notes to Consolidated
Financial Statements for additional information.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Year Ended March 31,
2021
2020
2019
INVESTMENT INCOME
Interest income:
Non-Control/Non-Affiliate
investments
$
26,031
$
26,744
$
23,977
Affiliate investments
20,208
21,894
24,767
Control investments
920
848
848
Cash and cash equivalents
5
68
40
Total interest income
47,164
49,554
49,632
Dividend income:
Non-Control/Non-Affiliate
investments
910
6,351
4,337
Affiliate investments
6,165
3,080
(401
)
Total dividend income
7,075
9,431
3,936
Success fee income:
Non-Control/Non-Affiliate
investments
871
818
2,099
Affiliate investments
1,517
2,121
1,996
Control investments
2,000
Total success fee income
2,388
2,939
6,095
Total investment income
56,627
61,924
59,663
EXPENSES
Base management fee (A)
12,115
12,145
12,752
Loan servicing fee (A)
7,082
6,859
6,827
Incentive fee (A)
8,778
(2,380
)
22,254
Administration fee (A)
1,619
1,476
1,312
Interest expense on borrowings
4,440
3,958
6,147
Dividends on mandatorily redeemable preferred stock
8,674
8,359
8,747
Amortization of deferred financing costs and discounts
1,750
1,492
1,610
Professional fees
1,935
1,881
1,272
Other general and administrative expenses
2,327
3,067
3,537
Expenses before credits from Adviser
48,720
36,857
64,458
Credits to base management fee loan servicing fee (A)
(7,082
)
(6,859
)
(6,827
)
Credits to fees from
Adviserother (A)
(2,949
)
(4,436
)
(5,509
)
Total expenses, net of credits to fees
38,689
25,562
52,122
NET INVESTMENT INCOME
$
17,938
$
36,362
$
7,541
(A)
Refer to Note 4 Related Party Transactions in the
accompanying Notes to Consolidated Financial Statements for additional information.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Year Ended March 31,
2021
2020
2019
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss):
Non-Control/Non-Affiliate
investments
$
6,401
$
36,991
$
12,815
Affiliate investments
4,973
7,812
55,741
Other
(782
)
(1,687
)
Total net realized gain
10,592
44,803
66,869
Taxes on deemed distribution of long-term capital gains
(10,260
)
(13,500
)
Net unrealized appreciation (depreciation):
Non-Control/Non-Affiliate
investments
(14,718
)
(44,208
)
32,537
Affiliate investments
30,170
(46,781
)
(13,209
)
Control investments
(1,528
)
12,850
852
Other
500
Total net unrealized appreciation (depreciation)
13,924
(78,139
)
20,680
Net realized and unrealized gain (loss), net of taxes on deemed distribution of long-term capital
gains
24,516
(43,596
)
74,049
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
$
42,454
$
(7,234
)
$
81,590
BASIC AND DILUTED PER COMMON SHARE:
Net investment income
$
0.54
$
1.11
$
0.23
Net increase (decrease) in net assets resulting from operations
$
1.28
$
(0.22
)
$
2.49
WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic and diluted
33,176,760
32,865,840
32,807,597
THE
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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G LADSTONE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Year Ended March 31,
2021
2020
2019
NET ASSETS, BEGINNING OF YEAR
$
369,031
$
407,110
$
354,200
OPERATIONS
Net investment income
$
17,938
$
36,362
$
7,541
Net realized gain on investments
11,374
44,803
68,556
Taxes on deemed distributions of long-term capital gains
(10,260
)
(13,500
)
Net realized loss on other
(782
)
(1,687
)
Net unrealized appreciation (depreciation) of investments
13,924
(78,139
)
20,180
Net unrealized depreciation of other
500
Net increase (decrease) in net assets from operations
42,454
(7,234
)
81,590
DISTRIBUTIONS (A)
Distributions to common stockholders from net investment income ( $0.83 , $0.75, and $0.69
per share, respectively)
(27,407
)
(24,790
)
(22,670
)
Distributions to common stockholders from realized gains ( $0.10 , $0.28, and $0.24 per
share, respectively)
(3,451
)
(9,130
)
(7,846
)
Net decrease in net assets from distributions
(30,858
)
(33,920
)
(30,516
)
CAPITAL ACTIVITY
Issuance of common stock
1,772
3,131
1,873
Discounts, commissions, and offering costs for issuance of common stock
(35
)
(56
)
(37
)
Net increase in net assets from capital activity
1,737
3,075
1,836
TOTAL INCREASE (DECREASE) IN NET ASSETS
13,333
(38,079
)
52,910
NET ASSETS, END OF YEAR (A)
$
382,364
$
369,031
$
407,110
(A)
Refer to Note 9 Distributions to Common Stockholders in the accompanying Notes to Consolidated
Financial Statements for additional information.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended March 31,
2021
2020
2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in net assets resulting from operations
$
42,454
$
(7,234
)
$
81,590
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net
cash (used in) provided by operating activities:
Purchase of investments
(95,272
)
(145,449
)
(91,936
)
Principal repayments of investments
20,734
79,997
45,214
Net proceeds from the sale of investments
31,047
89,943
109,437
Net realized gain on investments
(11,374
)
(44,803
)
(68,058
)
Net realized loss on other
782
1,670
Net unrealized (appreciation) depreciation of investments
(13,924
)
78,139
(20,180
)
Net unrealized depreciation of other
(500
)
Amortization of premiums, discounts, and acquisition costs, net
(18
)
(18
)
(18
)
Amortization of deferred financing costs and discounts
1,750
1,492
1,610
Bad debt expense, net of recoveries
88
433
1,668
Changes in assets and liabilities:
Decrease (increase) in interest receivable
16
(621
)
(287
)
(Increase) decrease in due from administrative agent
(393
)
514
1,039
Increase in other assets, net
(19
)
(558
)
(Decrease) increase in accounts payable and accrued expenses
(521
)
376
151
Increase (decrease) in interest payable
453
(46
)
(175
)
Increase (decrease) in fees due to
Adviser (A)
8,442
(17,546
)
18,053
(Decrease) increase in fee due to
Administrator (A)
(5
)
238
27
(Decrease) increase in other liabilities
(13,972
)
(106
)
14,868
Net cash (used in) provided by operating activities
(29,732
)
35,309
93,615
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock
1,772
3,131
1,873
Discounts, commissions, and offering costs for issuance of common stock
(31
)
(56
)
(28
)
Proceeds from line of credit
125,900
188,300
205,500
Repayments on line of credit
(152,700
)
(192,100
)
(259,500
)
Proceeds from issuance of notes payable
127,938
Proceeds from issuance of mandatorily redeemable preferred stock
19,276
74,750
Redemption of mandatorily redeemable preferred stock
(57,500
)
(81,650
)
Deferred financing and offering costs
(5,727
)
(209
)
(4,406
)
Distributions paid to common stockholders
(30,858
)
(33,920
)
(30,516
)
Net cash provided by (used in) financing activities
28,070
(34,854
)
(93,977
)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH
EQUIVALENTS
(1,662
)
455
(362
)
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF
YEAR
4,060
3,605
3,967
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, END OF
YEAR
$
2,398
$
4,060
$
3,605
CASH PAID FOR INTEREST
$
3,169
$
2,362
$
5,665
NON-CASH ACTIVITIES (B)
$
$
$
20,099
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(A)
Refer to Note 4 Related Party Transactions in the accompanying Notes to Consolidated Financial
Statements for additional information.
(B)
2019: Significant non-cash operating activities consisted principally
of the following transactions:
In January 2019, we restructured two of our first lien term loans to SOG Specialty
Knives & Tools, LLC with a total cost basis of $18.4 million into a new $8.4 million first lien term loan, which resulted in a realized loss of $10.0 million.
In March 2019, we restructured our existing second lien term loans and delayed draw term loan to The Mountain Corporation with a total cost
basis of $21.7 million into a new $11.7 million second lien term loan, which resulted in a realized loss of $10.0 million.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
MARCH 31, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/Shares/
Units (F)(J)
Cost
Fair Value
NON-CONTROL/NON-AFFILIATE
INVESTMENTS (N) 77.9%
Secured First Lien Debt48.9%
Diversified/Conglomerate Manufacturing1.1%
Phoenix Door Systems, Inc.Line of Credit, $0 available (L+7.0%, 9.0% Cash (0.3% Unused Fee),
Due 3/2022) (L)
$
1,150
$
1,150
$
1,150
Phoenix Door Systems, Inc.Term Debt (L+11.0%, 13.0% Cash, Due 9/2024) (L)
3,200
3,200
3,200
4,350
4,350
Diversified/Conglomerate Services30.6%
Bassett Creek Services, Inc.Term Debt (L+10.0%, 12.0% Cash, Due 4/2023) (K)
37,500
37,500
36,656
Counsel Press, Inc.Term Debt (L+11.8%, 12.8% Cash, Due 3/2023) (L)
21,100
21,100
21,100
Counsel Press, Inc.Term Debt (L+13.0%, 14.0% Cash, Due 3/2023) (L)
6,400
6,400
6,400
Horizon Facilities Services, Inc.Term Debt (L+9.5%, 12.0% Cash, Due 6/2024) (G)(L)
27,700
27,700
27,700
Mason West, LLCLine of Credit, $3,000 available (L+8.0%, 10.0% Cash, Due 7/2021) (L)
Mason West, LLCTerm Debt (L+10.0%, 12.5% Cash, Due 7/2025) (L)
25,250
25,250
25,250
117,950
117,106
Healthcare, Education, and Childcare5.2%
Educators Resource, Inc.Term Debt (L+10.5%, 13.0% Cash, Due 11/2023) (L)
20,000
20,000
20,000
Home and Office Furnishings, Housewares, and Durable Consumer Products6.4%
Brunswick Bowling Products, Inc.Term Debt (L+10.0%, 12.0% Cash, Due 1/2023) (L)
17,700
17,700
17,700
Brunswick Bowling Products, Inc.Term Debt (L+10.0%, 12.0% Cash, Due 1/2023) (L)
6,850
6,850
6,850
24,550
24,550
Leisure, Amusement, Motion Pictures, and Entertainment 5.6%
Schylling, Inc.Term Debt (L+11.0%, 13.0% Cash, Due 8/2024) (L)
13,081
13,081
13,081
Schylling, Inc.Term Debt (L+11.0%, 13.0% Cash, Due 8/2024) (L)
8,500
8,500
8,500
21,581
21,581
Total Secured First Lien Debt
$
188,431
$
187,587
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/Shares/
Units (F)(J)
Cost
Fair Value
Secured Second Lien Debt11.0%
Automobile1.0%
Country Club Enterprises, LLCTerm Debt (L+8.0%, 10.0% Cash, Due 2/2022) (K)
$
4,000
$
4,000
$
3,890
Country Club Enterprises, LLCGuaranty
($1,000) (T)
4,000
3,890
Cargo Transport3.4%
Diligent Delivery SystemsTerm Debt (L+9.0%, 11.0% Cash, Due 11/2022) (Q)
13,000
12,970
13,000
Home and Office Furnishings, Housewares, and Durable Consumer Products3.5%
Ginsey Home Solutions, Inc.Term Debt (L+10.0%, 13.5% Cash, Due 1/2025) (H)(L)
13,300
13,300
13,300
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)3.1%
SBS Industries Holdings, Inc.Term Debt (L+7.0%, 9.0% Cash, Due 11/2024) (L)
11,736
11,736
11,736
Total Secured Second Lien Debt
$
42,006
$
41,926
Preferred Equity17.3%
Diversified/Conglomerate Services9.2%
Bassett Creek Services, Inc.Preferred
Stock (C)(L)
4,900
$
4,900
$
Counsel Press, Inc.Preferred
Stock (C)(L)
6,995
6,995
21,348
Horizon Facilities Services, Inc.Preferred Stock (C)(L)
10,080
10,080
3,663
Mason West, LLCPreferred
Stock (C)(L)
11,206
11,206
9,774
33,181
34,785
Healthcare, Education, and Childcare2.9%
Educators Resource, Inc.Preferred
Stock (C)(L)
8,560
8,560
11,194
Home and Office Furnishings, Housewares, and Durable Consumer Products2.5%
Brunswick Bowling Products, Inc.Preferred
Stock (C)(L)
6,653
6,653
1,015
Ginsey Home Solutions, Inc.Preferred
Stock (C)(L)
19,280
9,583
8,550
16,236
9,565
Leisure, Amusement, Motion Pictures, and Entertainment 2.1%
Schylling, Inc.Preferred
Stock (C)(L)
4,000
4,000
7,936
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)0.6%
SBS Industries Holdings, Inc.Preferred
Stock (C)(L)
27,705
2,771
2,463
Total Preferred Equity
$
64,748
$
65,943
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/Shares/
Units (F)(J)
Cost
Fair Value
Common Equity/Equivalents0.7%
Cargo Transport0.6%
Diligent Delivery SystemsCommon Stock Warrants (C)(Q)
8
%
$
500
$
2,211
Diversified/Conglomerate Manufacturing0.1%
Phoenix Door Systems, Inc.Common
Stock (C)(L)
3,195
1,452
460
Home and Office Furnishings, Housewares, and Durable Consumer Products0.0%
Ginsey Home Solutions, Inc.Common
Stock (C)(L)
63,747
8
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)0.0%
SBS Industries Holdings, Inc.Common
Stock (C)(L)
221,500
222
Personal and Non-Durable Consumer Products
(Manufacturing Only)0.0%
Funko Acquisition Holdings,
LLC (M) Common Units (C)(S)
7,178
33
95
Total Common Equity/Equivalents
$
2,215
$
2,766
Total
Non-Control/Non-Affiliate Investments
$
297,400
$
298,222
AFFILIATE
INVESTMENTS (O) 80.9%
Secured First Lien Debt47.6%
Beverage, Food, and Tobacco2.4%
Head Country, Inc.Term Debt (L+10.5%, 12.5% Cash, Due 2/2023) (L)
$
9,050
$
9,050
$
9,050
Chemicals, Plastics, and Rubber6.0%
PSI Molded Plastics, Inc.Term Debt (L+5.5%, 7.0% Cash, Due 1/2024) (L)
26,618
26,618
22,985
Diversified/Conglomerate Manufacturing5.4%
D.P.M.S., Inc.Line of Credit, $0 available (L+6.5%, 9.0% Cash (0.5% Unused Fee), Due
10/2023) (L)
1,500
1,500
1,500
D.P.M.S., Inc.Term Debt (10.0% Cash, Due 10/2023) (I)(L)
10,796
10,796
5,751
Edge Adhesives Holdings, Inc. (M) Line of
Credit, $0 available (L+8.0%, 10.0% Cash, Due 9/2021) (K)
1,020
1,020
1,005
Edge Adhesives Holdings, Inc. (M) Term
Debt (L+10.5%, 12.5% Cash, Due 2/2022) (K)
9,300
9,300
9,161
Edge Adhesives Holdings, Inc. (M) Term
Debt (L+11.8%, 13.8% Cash, Due 2/2022) (K)
3,000
3,000
2,955
25,616
20,372
Diversified/Conglomerate Services13.3%
ImageWorks Display and Marketing Group, Inc.Term Debt (L+11.0%, 13.0% Cash,
Due 11/2022) (L)
22,000
22,000
22,000
The Maids International, LLCTerm Debt (L+10.5%, 12.0% Cash, Due 3/2025) (L)
28,560
28,560
28,560
50,560
50,560
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/Shares/
Units (F)(J)
Cost
Fair Value
Home and Office Furnishings, Housewares, and Durable Consumer Products7.1%
Old World Christmas, Inc.Secured First Lien Term Loan (L+9.5%, 11.0% Cash, Due 12/2025) (L)
27,000
27,000
27,000
Leisure, Amusement, Motion Pictures, and Entertainment2.3%
SOG Specialty Knives & Tools, LLCTerm Debt (Due 12/2023) (L)(R)
538
538
538
SOG Specialty Knives & Tools, LLCTerm Debt (L+4.0%, 6.0% Cash, Due 12/2023) (L)
8,399
8,399
8,399
8,937
8,937
Personal and Non-Durable Consumer Products
(Manufacturing Only)7.0%
The Mountain CorporationLine of Credit, $0 available (L+5.0%, 9.0% Cash, Due 4/2021) (G)(L)
3,400
3,400
3,400
Pioneer Square Brands, Inc.Term Debt (L+12.0%, 13.0% Cash, Due 8/2022) (Q)
23,100
23,100
23,215
26,500
26,615
Telecommunications4.1%
B+T Group Acquisition, Inc. (M) Line of
Credit, $0 available (L+11.0%, 13.0% Cash, Due 12/2021) (G)(K)
2,800
2,800
2,597
B+T Group Acquisition, Inc. (M) Term Debt
(L+11.0%, 13.0% Cash, Due 12/2021) (G)(K)
14,000
14,000
12,985
16,800
15,582
Total Secured First Lien Debt
$
191,081
$
181,101
Secured Second Lien Debt12.6%
Diversified/Conglomerate Services12.0%
J.R. Hobbs Co.Atlanta, LLCLine of Credit, $0 available (L+6.0%, 8.0% Cash, Due
10/2024) (K)
$
10,000
$
10,000
$
9,975
J.R. Hobbs Co.Atlanta, LLCTerm Debt (L+10.3%, 11.8% Cash, Due 10/2024) (K)
36,000
36,000
35,910
46,000
45,885
Personal and Non-Durable Consumer Products
(Manufacturing Only)0.6%
The Mountain CorporationTerm Debt (L+4.0%, 7.0% Cash, Due 4/2024) (G)(L)
11,700
11,700
1,849
The Mountain CorporationDelayed Draw Term Debt, $0 available (L+4.0%, 7.0% Cash, Due 4/2024) (G)(L)
1,500
1,500
237
13,200
2,086
Total Secured Second Lien Debt
$
59,200
$
47,971
Preferred Equity20.7%
Beverage, Food, and Tobacco1.7%
Head Country, Inc.Preferred
Stock (C)(L)
4,000
$
4,000
$
6,469
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/Shares/
Units (F)(J)
Cost
Fair Value
Chemicals, Plastics, and Rubber0.0%
PSI Molded Plastics, Inc.Preferred
Stock (C)(L)
158,598
19,730
Diversified/Conglomerate Manufacturing 0.0%
Channel Technologies Group, LLCPreferred
Stock (C)(L)
2,279
1,841
Edge Adhesives Holdings,
Inc. (M) Preferred Stock (C)(L)
8,199
8,199
10,040
Diversified/Conglomerate Services3.5%
ImageWorks Display and Marketing Group, Inc.Preferred Stock (C)(L)
67,490
6,749
9,819
J.R. Hobbs Co.Atlanta, LLCPreferred
Stock (C)(L)
10,920
10,920
The Maids International, LLCPreferred
Stock (C)(L)
6,640
6,640
3,560
24,309
13,379
Home and Office Furnishings, Housewares, and Durable Consumer Products5.3%
Old World Christmas, Inc.Preferred
Stock (C)(L)
6,180
20,248
Leisure, Amusement, Motion Pictures, and Entertainment1.8%
SOG Specialty Knives & Tools, LLCPreferred Stock (C)(L)
14,949
14,949
6,754
Personal and Non-Durable Consumer Products
(Manufacturing Only)8.4%
The Mountain CorporationPreferred
Stock (C)(L)
6,899
6,899
Pioneer Square Brands, Inc.Preferred
Stock (C)(Q)
5,502
5,500
32,055
12,399
32,055
Telecommunications0.0%
B+T Group Acquisition,
Inc. (M) Preferred Stock (C)(L)
14,304
4,722
Total Preferred Equity
$
90,149
$
78,905
Common Equity/Equivalents0.0%
Diversified/Conglomerate Manufacturing0.0%
Channel Technologies Group, LLCCommon
Stock (C)(L)
2,319,184
$
$
D.P.M.S., Inc.Common
Stock (C)(L)
627
1
1
Diversified/Conglomerate Services0.0%
Nth Degree Investment Group, LLCCommon
Stock (C)(L)
14,360,000
1,219
Personal and Non-Durable Consumer Products
(Manufacturing Only)0.0%
The Mountain CorporationCommon
Stock (C)(L)
751
1
Telecommunications0.0%
B+T Group Acquisition, Inc. (M) Common
Stock Warrant (C)(L)
3.5
%
Total Common Equity/Equivalents
$
1,221
$
Total Affiliate Investments
$
341,651
$
307,977
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
95
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/Shares/
Units (F)(J)
Cost
Fair Value
CONTROL
INVESTMENTS (P) 7.2%:
Secured Second Lien Debt3.4%
Aerospace and Defense3.4%
Galaxy Technologies, Inc.Line of Credit, $0 available (L+4.5%, 6.5% Cash (0.5% Unused Fee),
Due 8/2023) (L)
$
5,000
$
5,000
$
5,000
Galaxy Technologies, Inc.Term Debt (L+6.0%, 10.0% Cash, Due 8/2023) (L)
8,000
8,000
8,000
$
13,000
$
13,000
Preferred Equity3.8%
Aerospace and Defense3.8%
Galaxy Technologies, Inc.Preferred
Stock (C)(L)
5,517,444
$
11,464
$
14,630
Common Equity0.0%
Aerospace and Defense0.0%
Galaxy Technologies, Inc.Common
Stock (C)(L)
88,843
$
48
$
Total Control Investments
$
24,512
$
27,630
TOTAL INVESTMENTS166.0%
$
663,563
$
633,829
(A)
Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The
majority of the securities listed, totaling $524.0 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5 Borrowings in the accompanying Notes to Consolidated
Financial Statements . Additionally, under Section 55 of the Investment Company Act of 1940, as amended (the 1940 Act), we may not acquire any non-qualifying assets unless, at the time such
acquisition is made, qualifying assets represent at least 70% of our total assets. As of March 31, 2021, our investment in Funko Acquisition Holdings, LLC (Funko) was considered a
non-qualifying asset under Section 55 of the 1940 Act and represented less than 0.1% of total investments, at fair value.
(B)
Unless indicated otherwise, all cash interest rates are indexed to
30-day London Interbank Offered Rate (LIBOR or L), which was 0.1% as of March 31, 2021. If applicable,
paid-in-kind interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the
greater of the floor or 30-day LIBOR plus a spread. Due dates represent the contractual maturity date.
(C)
Security is non-income producing.
(D)
Category percentages represent the fair value of each category and subcategory as a percentage of net assets as
of March 31, 2021.
(E)
Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the Financial
Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820) fair value hierarchy. Refer to Note 3
Investments in the accompanying Notes to Consolidated Financial Statements for additional information.
(F)
Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned
within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase.
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
(G)
Debt security is on non-accrual status.
(H)
$5.1 million of the debt security was participated to a third-party, but is accounted for as collateral
for a secured borrowing under accounting principles generally accepted in the U.S. and presented as Secured borrowing on our accompanying Consolidated Statements of Assets and Liabilities as of March 31, 2021.
(I)
Debt security has a fixed interest rate.
(J)
Represents the principal balance for debt investments and the number of shares/units held for equity
investments. Warrants are represented as a percentage of ownership, as applicable.
(K)
Fair value was based on internal yield analysis or on estimates of value submitted by ICE Data Pricing and
Reference Data, LLC. Refer to Note 3 Investments in the accompanying Notes to Consolidated Financial Statements for additional information.
(L)
Fair value was based on the total enterprise value of the portfolio company, which is generally allocated to
the portfolio companys securities in order of their relative priority in the capital structure. Refer to Note 3 Investments in the accompanying Notes to Consolidated Financial Statements for additional information.
(M)
One of our affiliated funds, Gladstone Capital Corporation, co-invested
with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.
(N)
Non-Control/Non-Affiliate
investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities.
(O)
Affiliate investments, as defined by the 1940 Act, are those that are not Control investments and in which we
own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.
(P)
Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling
influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.
(Q)
Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to
occur imminently.
(R)
Debt security does not have a stated current interest rate.
(S)
Our investment in Funko was valued using Level 2 inputs within the ASC 820 fair value hierarchy. Our
common units in Funko are convertible into class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of
marketability. Funko, Inc. is traded on the Nasdaq Global Select Market under the trading symbol FNKO. Refer to Note 3 Investments in the accompanying Notes to Consolidated Financial Statements for additional
information.
(T)
Refer to Note 11 Commitments and Contingencies in the accompanying Notes to
Consolidated Financial Statements for additional information regarding this guaranty.
(V)
Cumulative gross unrealized depreciation for federal income tax purposes is $109.0 million; cumulative
gross unrealized appreciation for federal income tax purposes is $78.5 million. Cumulative net unrealized depreciation is $30.5 million, based on a tax cost of $664.3 million.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
MARCH 31, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/Shares/
Units (F)(J)
Cost
Fair Value
NON-CONTROL/NON-AFFILIATE
INVESTMENTS (N) 79.4%
Secured First Lien Debt46.8%
Containers, Packaging, and Glass2.6%
Frontier Packaging, Inc.Term Debt (L+10.0%, 12.0% Cash, Due 3/2021) (L)
$
9,500
$
9,500
$
9,500
Diversified/Conglomerate Manufacturing1.0%
Phoenix Door Systems, IncLine of Credit, $380 available (L+7.0%, 9.0% Cash (0.3% Unused
Fee), Due 3/2021) (L)
370
370
370
Phoenix Door Systems, Inc.Term Debt (L+11.0%, 13.0% Cash, Due 9/2024) (L)
3,200
3,200
3,200
3,570
3,570
Diversified/Conglomerate Services 24.1%
Bassett Creek Services, Inc. Term Debt (L+10.0%, 12.0% Cash, Due 4/2023) (L)
37,500
37,500
37,500
Counsel Press, Inc.Term Debt (L+11.8%, 12.8% Cash, Due 3/2023) (L)
18,000
18,000
18,000
Counsel Press, Inc.Term Debt (L+13.0%, 14.0% Cash, Due 3/2023) (L)
5,500
5,500
5,500
Horizon Facilities Services, Inc.Term Debt (L+9.5%, 12.0% Cash, Due 6/2024) (L)
27,700
27,700
27,700
88,700
88,700
Healthcare, Education, and Childcare5.4%
Educators Resource, Inc.Term Debt (L+10.5%, 13.0% Cash, Due 11/2023) (L)
20,000
20,000
20,000
Home and Office Furnishings, Housewares, and Durable Consumer Products4.8%
Brunswick Bowling Products, Inc.Term Debt (L+10.0%, 12.0% Cash, Due 1/2023) (L)
17,700
17,700
17,700
Leisure, Amusement, Motion Pictures, and Entertainment5.8%
Schylling, Inc.Term Debt (L+11.0%, 13.0% Cash, Due 8/2024) (L)
13,081
13,081
13,081
Schylling, Inc.Term Debt (L+11.0%, 13.0% Cash, Due 8/2024) (L)
8,500
8,500
8,500
21,581
21,581
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)3.1%
SBS Industries Holdings, Inc.Term Debt (L+12.0%, 14.0% Cash, Due 11/2024) (L)
11,355
11,355
11,355
Total Secured First Lien Debt
$
172,406
$
172,406
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/Shares/
Units (F)(J)
Cost
Fair Value
Secured Second Lien Debt13.1%
Automobile1.0%
Country Club Enterprises, LLCTerm Debt (L+8.0%, 10.0% Cash, Due 2/2022) (K)
$
4,000
$
4,000
$
3,600
Country Club Enterprises, LLCGuaranty ($1,000) (U)
4,000
3,600
Cargo Transport 3.4%
Diligent Delivery SystemsTerm Debt (L+9.0%, 11.0% Cash, Due 11/2022) (K)
13,000
12,951
12,545
Home and Office Furnishings, Housewares, and Durable Consumer Products5.5%
Brunswick Bowling Products, Inc.Term Debt (L+10.0%, 12.0% Cash, Due 1/2023) (L)
6,850
6,850
6,850
Ginsey Home Solutions, Inc.Term Debt (L+10.0%, 13.5% Cash, Due 1/2021) (H)(L)
13,300
13,300
13,300
20,150
20,150
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)3.2%
SBS Industries Holdings, Inc.Term Debt (L+12.0%, 14.0% Cash, Due 11/2024) (L)
11,736
11,736
11,736
Total Secured Second Lien Debt
$
48,837
$
48,031
Preferred Equity16.5%
Containers, Packaging, and Glass0.4%
Frontier Packaging, Inc.Preferred
Stock (C)(L)
1,373
$
1,373
$
1,400
Diversified/Conglomerate Services6.3%
Bassett Creek Services, Inc.Preferred
Stock (C)(L)
4,900
4,900
Counsel Press, Inc.Preferred
Stock (C)(L)
6,995
6,995
20,593
Horizon Facilities Services, Inc.Preferred Stock (C)(L)
10,080
10,080
2,699
21,975
23,292
Healthcare, Education, and Childcare1.5%
Educators Resource, Inc.Preferred
Stock (C)(L)
8,560
8,560
5,563
Home and Office Furnishings, Housewares, and Durable Consumer Products7.1%
Brunswick Bowling Products, Inc.Preferred
Stock (C)(L)
4,943
4,943
19,848
Ginsey Home Solutions, Inc.Preferred
Stock (C)(L)
19,280
9,583
6,419
14,526
26,267
Leisure, Amusement, Motion Pictures, and Entertainment1.2%
Schylling, Inc.Preferred
Stock (C)(L)
4,000
4,000
4,332
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/
Shares/
Units (F)(J)
Cost
Fair Value
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)0.0%
SBS Industries Holdings, Inc.Preferred
Stock (C)(L)
27,705
2,771
Total Preferred Equity
$
53,205
$
60,854
Common Equity/Equivalents3.0%
Cargo Transport0.2%
Diligent Delivery SystemsCommon Stock Warrants (C)(L)
8
%
$
500
$
771
Containers, Packaging, and Glass2.6%
Frontier Packaging, Inc.Common
Stock (C)(L)
152
152
9,460
Diversified/Conglomerate Manufacturing 0.2%
Phoenix Door Systems, Inc.Common
Stock (C)(L)
2,515
1,200
574
Home and Office Furnishings, Housewares, and Durable Consumer Products0.0%
Ginsey Home Solutions, Inc.Common
Stock (C)(L)
63,747
8
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)0.0%
SBS Industries Holdings, Inc.Common
Stock (C)(L)
221,500
222
Personal and Non-Durable Consumer Products
(Manufacturing Only) 0.0%
Funko Acquisition Holdings,
LLC (M) Common Units (C)(S)
12,180
59
33
Total Common Equity/Equivalents
$
2,141
$
10,838
Total
Non-Control/Non-Affiliate Investments
$
276,589
$
292,129
AFFILIATE
INVESTMENTS (O) 67.0%
Secured First Lien Debt36.8%
Beverage, Food, and Tobacco2.5%
Head Country, Inc.Term Debt (L+10.5%, 12.5% Cash, Due 2/2021) (L)
$
9,050
$
9,050
$
9,050
Diversified/Conglomerate Manufacturing6.4%
D.P.M.S., Inc.Line of Credit, $250 available (L+6.5%, 9.0% Cash (0.5% Unused Fee), Due
10/2021) (L)
1,250
1,250
1,250
D.P.M.S., Inc.Term Debt (10.0% Cash, Due 10/2021) (I)(L)
10,796
10,796
10,796
Edge Adhesives Holdings, Inc. (M) Line of
Credit, $600 available (L+8.0%, 10.0% Cash, Due 5/2020) (K)
420
420
395
Edge Adhesives Holdings, Inc. (M) Term
Debt (L+10.5%, 12.5% Cash, Due 2/2022) (K)
9,300
9,300
8,742
Edge Adhesives Holdings, Inc. (M) Term
Debt (L+11.8%, 13.8% Cash, Due 2/2022) (K)
3,000
3,000
2,820
24,766
24,003
Diversified/Conglomerate Services14.0%
ImageWorks Display and Marketing Group, Inc.Term Debt (L+11.0%, 13.0% Cash, Due 11/2022) (L)
22,000
22,000
22,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/Shares/
Units (F)(J)
Cost
Fair Value
The Maids International, LLCLine of Credit, $0 available (L+7.5%, 9.5% Cash (0.3% Unused
Fee), Due 3/2021) (L)
1,000
1,000
1,000
The Maids International, LLCTerm Debt (L+10.5%, 12.0% Cash, Due 3/2025) (L)
28,560
28,560
28,560
51,560
51,560
Leisure, Amusement, Motion Pictures, and
Entertainment 2.4%
SOG Specialty Knives & Tools, LLCTerm Debt (Due 8/2020) (L)(R)
538
538
538
SOG Specialty Knives & Tools, LLCTerm Debt (L+4.0%, 6.0% Cash, Due 8/2022) (G)(L)
8,399
8,399
8,399
8,937
8,937
Personal and Non-Durable Consumer Products
(Manufacturing Only)7.2%
The Mountain CorporationLine of Credit, $0 available (L+5.0%, 9.0% Cash, Due 4/2021) (L)
3,400
3,400
3,400
Pioneer Square Brands, Inc.Term Debt (L+12.0%, 13.0% Cash, Due 8/2022) (L)
23,100
23,100
23,100
26,500
26,500
Telecommunications4.3%
B+T Group Acquisition, Inc. (M) Line of
Credit, $0 available (L+11.0%, 13.0% Cash, Due 12/2021) (G)(K)
2,800
2,800
2,632
B+T Group Acquisition, Inc. (M) Term Debt
(L+11.0%, 13.0% Cash, Due 12/2021) (G)(K)
14,000
14,000
13,160
16,800
15,792
Total Secured First Lien Debt
$
137,613
$
135,842
Secured Second Lien Debt17.7%
Chemicals, Plastics, and Rubber4.5%
PSI Molded Plastics, Inc.Term Debt (L+12.0%, 13.5% Cash, Due 1/2024) (G)(L)
$
26,618
$
26,618
$
16,737
Diversified/Conglomerate Services12.5%
J.R. Hobbs Co. Atlanta, LLCLine of Credit, $0 available (L+6.0%, 8.0% Cash, Due
10/2024) (L)
10,000
10,000
10,000
J.R. Hobbs Co. Atlanta, LLCTerm Debt (L+10.3%, 11.8% Cash, Due 10/2024) (L)
36,000
36,000
36,000
46,000
46,000
Personal and Non-Durable Consumer Products
(Manufacturing Only)0.7%
The Mountain CorporationTerm Debt (L+4.0%, 7.0% Cash, Due 4/2024) (G)(L)
11,700
11,700
2,572
Total Secured Second Lien Debt
$
84,318
$
65,309
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/
Shares/
Units (F)(J)
Cost
Fair Value
Preferred Equity11.5%
Beverage, Food, and Tobacco0.9%
Head Country, Inc.Preferred
Stock (C)(L)
4,000
$
4,000
$
3,495
Chemicals, Plastics, and Rubber0.0%
PSI Molded Plastics, Inc.Preferred
Stock (C)(L)
78,598
11,730
Diversified/Conglomerate Manufacturing0.0%
Channel Technologies Group, LLCPreferred
Stock (C)(L)
2,279
1,841
Edge Adhesives Holdings,
Inc. (M) Preferred Stock (C)(L)
8,199
8,199
10,040
Diversified/Conglomerate Services3.6%
ImageWorks Display and Marketing Group, Inc. Preferred Stock (C)(L)
67,490
6,749
8,265
J.R. Hobbs Co.Atlanta, LLCPreferred
Stock (C)(L)
10,920
10,920
The Maids International, LLCPreferred
Stock (C)(L)
6,640
6,640
5,339
24,309
13,604
Home and Office Furnishings, Housewares, and Durable Consumer Products5.3%
Old World Christmas, Inc.Preferred
Stock (C)(L)
6,180
6,180
19,588
Leisure, Amusement, Motion Pictures, and
Entertainment 0.1%
SOG Specialty Knives & Tools, LLCPreferred Stock (C)(L)
14,949
14,949
390
Personal and Non-Durable Consumer Products
(Manufacturing Only)1.6%
The Mountain CorporationPreferred
Stock (C)(L)
6,899
6,899
Pioneer Square Brands, Inc.Preferred
Stock (C)(L)
5,502
5,500
5,760
12,399
5,760
Telecommunications0.0%
B+T Group Acquisition,
Inc. (M) Preferred Stock (C)(L)
14,304
4,722
Total Preferred Equity
$
88,329
$
42,837
Common Equity/Equivalents1.0%
Diversified/Conglomerate Manufacturing0.0%
Channel Technologies Group, LLCCommon
Stock (C)(L)
2,319,184
$
$
D.P.M.S., Inc.Common
Stock (C)(L)
627
1
1
Diversified/Conglomerate Services1.0%
Nth Degree Investment Group, LLCCommon
Stock (C)(L)
14,360,000
1,219
3,649
Personal and Non-Durable Consumer Products
(Manufacturing Only)0.0%
The Mountain CorporationCommon
Stock (C)(L)
751
1
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(D)(E)
Principal/
Shares/
Units (F)(J)
Cost
Fair Value
Telecommunications 0.0%
B+T Group Acquisition, Inc. (M) Common
Stock Warrants (C)(L)
3.5
%
Total Common Equity/Equivalents
$
1,221
$
3,649
Total Affiliate Investments
$
311,481
$
247,637
CONTROL
INVESTMENTS (P) 7.2%:
Secured Second Lien Debt2.8%
Aerospace and Defense2.8%
Galaxy Tool Holding CorporationLine of Credit, $0 available (L+4.5%, 6.5% Cash (1.0% Unused
Fee), Due 8/2021) (L)
$
5,000
$
5,000
$
5,000
Galaxy Tool Holding CorporationTerm Debt (L+6.0%, 10.0% Cash, Due 8/2021) (L)
5,000
5,000
5,000
$
10,000
$
10,000
Preferred Equity4.4%
Aerospace and Defense4.4%
Galaxy Tool Holding CorporationPreferred Stock (C)(L)
5,517,444
$
11,464
$
16,158
Common Equity0.0%
Aerospace and Defense0.0%
Galaxy Tool Holding CorporationCommon
Stock (C)(L)
88,843
$
48
$
Total Control Investments
$
21,512
$
26,158
TOTAL
INVESTMENTS153.6% (V)
$
609,582
$
565,924
(A)
Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The
majority of the securities listed, totaling $496.4 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5 Borrowings in the accompanying Notes to Consolidated
Financial Statements . Additionally, under Section 55 of the 1940 Act, we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least
70% of our total assets. As of March 31, 2020, our investment in Funko was considered a non-qualifying asset under Section 55 of the 1940 Act and represented less than 0.1% of total investments, at
fair value.
(B)
Unless indicated otherwise, all cash interest rates are indexed to
30-day LIBOR, which was 1.0% as of March 31, 2020. If applicable, paid-in-kind interest rates are noted separately from the
cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or 30-day LIBOR plus a spread. Due dates represent the contractual maturity
date.
(C)
Security is non-income producing.
(D)
Category percentages represent the fair value of each category and subcategory as a percentage of net assets as
of March 31, 2020.
(E)
Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the ASC 820 fair
value hierarchy. Refer to Note 3 Investments in the accompanying Notes to Consolidated Financial Statements for additional information.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
(F)
Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned
within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase.
(G)
Debt security is on non-accrual status.
(H)
$5.1 million of the debt security was participated to a third-party, but is accounted for as collateral
for a secured borrowing under accounting principles generally accepted in the U.S. and presented as Secured borrowing on our accompanying Consolidated Statements of Assets and Liabilities as of March 31, 2020.
(I)
Debt security has a fixed interest rate.
(J)
Represents the principal balance for debt investments and the number of shares/units held for equity
investments. Warrants are represented as a percentage of ownership, as applicable.
(K)
Fair value was based on internal yield analysis or on estimates of value submitted by ICE Data Pricing and
Reference Data, LLC. Refer to Note 3 Investments in the accompanying Notes to Consolidated Financial Statements for additional information.
(L)
Fair value was based on the total enterprise value of the portfolio company, which is generally allocated to
the portfolio companys securities in order of their relative priority in the capital structure. Refer to Note 3 Investments in the accompanying Notes to Consolidated Financial Statements for additional information.
(M)
One of our affiliated funds, Gladstone Capital Corporation, co-invested
with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.
(N)
Non-Control/Non-Affiliate
investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities.
(O)
Affiliate investments, as defined by the 1940 Act, are those that are not Control investments and in which we
own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.
(P)
Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling
influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.
(Q)
Reserved.
(R)
Debt security does not have a stated current interest rate.
(S)
Our investment in Funko was valued using Level 2 inputs within the ASC 820 fair value hierarchy. Our
common units in Funko are convertible into class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of
marketability. Funko, Inc. is traded on the Nasdaq Global Select Market under the trading symbol FNKO. Refer to Note 3 Investments in the accompanying Notes to Consolidated Financial Statements for additional
information.
(T)
Reserved.
(U)
Refer to Note 11 Commitments and Contingencies in the accompanying Notes to Consolidated
Financial Statements for additional information regarding this guaranty.
(V)
Cumulative gross unrealized depreciation for federal income tax purposes is $105.3 million; cumulative
gross unrealized appreciation for federal income tax purposes is $60.7 million. Cumulative net unrealized depreciation is $44.6 million, based on a tax cost of $610.5 million.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE INDICATED)
NOTE 1. ORGANIZATION
Gladstone Investment
Corporation (Gladstone Investment) was incorporated under the General Corporation Law of the State of Delaware on February 18, 2005, and completed an initial public offering on June 22, 2005. The terms the Company,
we, our and us all refer to Gladstone Investment and its consolidated subsidiaries. We are an externally advised, closed-end,
non-diversified management investment company that has elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act),
and are applying the guidance of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 946, Financial Services-Investment Companies (ASC 946). In addition, we
have elected to be treated for U.S. federal income tax purposes as a regulated investment company (RIC) under the Internal Revenue Code of 1986, as amended (the Code). We were established for the purpose of investing in debt
and equity securities of established private businesses in the United States (U.S.). Debt investments primarily take the form of two types of loans: secured first lien loans and secured second lien loans. Equity investments primarily
take the form of preferred or common equity (or warrants or options to acquire the foregoing), often in connection with buyouts and other recapitalizations. Our investment objectives are to: (i) achieve and grow current income by investing in
debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time,
and (ii) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses, generally in combination with the aforementioned debt securities, that we believe can
grow over time to permit us to sell our equity investments for capital gains. We intend that our investment portfolio over time will consist of approximately 75.0% in debt investments and 25.0% in equity investments, at cost.
Gladstone Business Investment, LLC (Business Investment), a wholly-owned subsidiary of ours, was established on August 11, 2006 for the sole
purpose of holding certain investments pledged as collateral under our line of credit. The financial statements of Business Investment are consolidated with those of Gladstone Investment. Refer to Note 13 Unconsolidated Significant
Subsidiaries for additional information regarding our unconsolidated significant subsidiaries.
We are externally managed by Gladstone Management
Corporation (the Adviser), an affiliate of ours and an SEC-registered investment adviser, pursuant to an investment advisory and management agreement (the Advisory Agreement).
Administrative services are provided by Gladstone Administration, LLC (the Administrator), an affiliate of ours and the Adviser, pursuant to an administration agreement (the Administration Agreement). Refer to Note 4
Related Party Transactions for more information regarding these arrangements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial
Statements and these accompanying notes are prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) and conform to the applicable requirements of Regulation S-X.
Management believes it has made all necessary adjustments so that our accompanying Consolidated Financial Statements are presented fairly and that all such adjustments are of a normal recurring
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nature. Our accompanying Consolidated Financial Statements include our accounts and the accounts of our wholly-owned subsidiaries. All significant intercompany balances and transactions
have been eliminated.
Consolidation
In accordance
with Article 6 of Regulation S-X, we do not consolidate portfolio company investments. Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants
(AICPA) Audit and Accounting Guide for Investment Companies, codified in ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled
operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries.
Use of Estimates
Preparing financial statements requires management to make estimates and assumptions that affect the amounts reported in our accompanying
Consolidated Financial Statements and these Notes to Consolidated Financial Statements . Actual results may differ from those estimates.
Reclassifications
Certain prior period amounts have been
reclassified to conform to the current period presentation in the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements . Reclassifications did not impact net increase (decrease) in net assets
resulting from operations, total assets, total liabilities or total net assets, or Consolidated Statements of Changes in Net Assets and Consolidated Statements of Cash Flows classifications.
Classification of Investments
In accordance with the
provisions of the 1940 Act applicable to BDCs, we classify portfolio investments on our accompanying Consolidated Statements of Assets and Liabilities , Consolidated Statements of Operations , and Consolidated Schedules of
Investments into the following categories:
Non-Control/Non-Affiliate
Investments Non-Control/Non-Affiliate investments are those that are neither control nor affiliate investments and in which we typically own less than 5.0% of
the issued and outstanding voting securities;
Affiliate Investments Affiliate investments are those that are not Control investments and in which
we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities; and
Control Investments Control investments are those where we have the power to exercise a controlling
influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.
Investment Valuation Policy
Accounting Recognition
We record our investments at fair value in accordance with the FASB ASC Topic 820, Fair Value Measurements and Disclosures
(ASC 820) and the 1940 Act. Investment transactions are recorded on the trade date. Realized gains or losses are generally measured by the difference between the net proceeds from the repayment or sale and the cost basis of the
investment, without regard to unrealized appreciation or depreciation previously recognized, and include investments charged off during the period, net of recoveries. Unrealized appreciation or depreciation primarily reflects the change in
investment fair values, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
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Board Responsibility
In accordance with the 1940 Act, our board of directors (Board of Directors) has the ultimate responsibility for reviewing and determining, in good
faith, the fair value of our investments for which market quotations are not readily available based on our investment valuation policy (which has been approved by our Board of Directors) (the Policy). Such review occurs in three phases.
First, prior to its quarterly meetings, the Board of Directors receives written valuation recommendations and supporting materials provided by professionals of the Adviser and Administrator with oversight and direction from the chief valuation
officer (the Valuation Team). Second, the Valuation Committee of our Board of Directors (comprised entirely of independent directors) meets to review the valuation recommendations and supporting materials, discusses the information
provided by the Valuation Team, determines whether the Valuation Team has followed the Policy, determines whether the Valuation Teams recommended fair value is reasonable in light of the Policy, and reviews other facts and circumstances.
Third, after the Valuation Committee concludes its meeting, it and the chief valuation officer present the Valuation Committees findings to the entire Board of Directors so that the full Board of Directors may review and determine in good
faith the fair value of such investments in accordance with the Policy.
There is no single standard for determining fair value (especially for
privately-held businesses), as fair value depends upon the specific facts and circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by the chief valuation officer, uses the Policy, and
each quarter the Valuation Committee and Board of Directors review the Policy to determine if changes thereto are advisable and whether the Valuation Team has applied the Policy consistently.
Use of Third-Party Valuation Firms
The Valuation Team
engages third party valuation firms to provide independent assessments of fair value of certain of our investments.
ICE Data Pricing and Reference Data,
LLC (ICE), a valuation specialist, generally provides estimates of fair value on our debt investments. The Valuation Team generally assigns ICEs estimates of fair value to our debt investments where we do not have the ability to
effectuate a sale of the applicable portfolio company. The Valuation Team corroborates ICEs estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Teams estimate of value on a specific debt
investment may significantly differ from ICEs. When this occurs, our Valuation Committee and Board of Directors review whether the Valuation Team has followed the Policy and whether the Valuation Teams recommended fair value is
reasonable in light of the Policy and other facts and circumstances before determining fair value.
We may engage other independent valuation firms to
provide earnings multiple ranges, as well as other information, and evaluate such information for incorporation into the total enterprise value (TEV) of certain of our investments. Generally, at least once per year, we engage an
independent valuation firm to value or review the valuation of each of our significant equity investments, which includes providing the information noted above. The Valuation Team evaluates such information for incorporation into our TEV, including
review of all inputs provided by the independent valuation firm. The Valuation Team then makes a recommendation to our Valuation Committee and Board of Directors as to the fair value. Our Board of Directors reviews the recommended fair
value and whether it is reasonable in light of the Policy and other relevant facts and circumstances before determining fair value.
Valuation
Techniques
In accordance with ASC 820, the Valuation Team uses the following techniques when valuing our investment portfolio:
Total Enterprise Value In determining the fair value using a TEV, the Valuation Team first
calculates the TEV of the portfolio company by incorporating some or all of the following factors: the
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portfolio companys ability to make payments and other specific portfolio company attributes; the earnings of the portfolio company (the trailing or projected twelve month revenue or
earnings before interest, taxes, depreciation and amortization (EBITDA)); EBITDA multiples obtained from our indexing methodology whereby the original transaction EBITDA multiple at the time of our closing is indexed to a general subset
of comparable disclosed transactions and EBITDA multiples from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries; and other pertinent factors. The Valuation
Team generally reviews industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team generally allocates the TEV to the portfolio companys securities
based on the facts and circumstances of the securities, which typically results in the allocation of fair value to securities based on the order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our
equity investments and, in the circumstances where we have the ability to effectuate a sale of a portfolio company, our debt investments.
TEV is primarily calculated using EBITDA and EBITDA multiples; however, TEV may also be calculated using revenue and revenue multiples or a
discounted cash flow (DCF) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate adjustments for
nonperformance and liquidity risks. Generally, the Valuation Team uses a DCF analysis to calculate TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio company or for
debt of credit-impaired portfolio companies.
Yield Analysis The Valuation Team generally determines the fair value of our debt investments for
which we do not have the ability to effectuate a sale of the applicable portfolio company using the yield analysis, which includes a DCF calculation and assumptions that the Valuation Team believes market participants would use, including: estimated
remaining life, current market yield, current leverage, and interest rate spreads. This technique develops a modified discount rate that incorporates risk premiums including, among other things, increased probability of default, increased loss upon
default, and increased liquidity risk. Generally, the Valuation Team uses the yield analysis to corroborate both estimates of value provided by ICE and market quotes.
Market Quotes For our investments for which a limited market exists, we generally base fair value
on readily available and reliable market quotations, which are corroborated by the Valuation Team (generally by using the yield analysis described above). In addition, the Valuation Team assesses trading activity for similar investments and
evaluates variances in quotations and other market insights to determine if any available quoted prices are reliable. Typically, the Valuation Team uses the lower indicative bid price in the bid-to-ask price range obtained from the respective originating syndication agents trading desk on or near the valuation date. The Valuation Team may take further steps to consider additional
information to validate that price in accordance with the Policy. For securities that are publicly traded, we generally base fair value on the closing market price of the securities we hold as of the reporting date. For restricted securities that
are publicly traded, we generally base fair value on the closing market price of the securities we hold as of the reporting date less a discount for the restriction, which includes consideration of the nature and term to expiration of the
restriction.
Investments in Funds For equity investments in other funds for which we cannot effectuate a sale of
the fund, the Valuation Team generally determines the fair value of our invested capital at the net asset value (NAV) provided by the fund. Any invested capital that is not yet reflected in the NAV provided by the fund is valued at par
value. The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying entity.
In addition to the valuation techniques listed above, the Valuation Team may also consider other factors when determining the fair value of our investments,
including: the nature and realizable value of the collateral,
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including external parties guaranties, any relevant offers or letters of intent to acquire the portfolio company, timing of expected loan repayments, and the markets in which the portfolio
company operates.
Fair value measurements of our investments may involve subjective judgments and estimates and, due to the uncertainty inherent in
valuing these securities, the determinations of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be materially affected if
the determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities. Additionally, changes in the market environment and other events that may occur
over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other restrictions on resale
or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded.
Refer to Note 3 Investments for additional information regarding fair value measurements and our application of ASC 820.
Realized Gain or Loss and Unrealized Appreciation or Depreciation of Portfolio Investments
Gains or losses on the sale of investments are calculated by using the specific identification method. A realized gain or loss is recognized on the trade date,
typically when an investment is disposed of, and is computed as the difference between the cost basis of the investment on the disposition date and the net proceeds received from such disposition. Unrealized appreciation or depreciation reflects the
difference between the fair value of the investment and the cost basis of such investment. We determine the fair value of each individual investment each reporting period and record changes in fair value as unrealized appreciation or depreciation in
our accompanying Consolidated Statement of Operations .
Revenue Recognition
Interest Income Recognition
Interest income, adjusted for
amortization of premiums, amendment fees, and acquisition costs and the accretion of discounts, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due,
or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan
until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be
recognized as income or applied to the cost basis, depending upon managements judgment. Generally, non-accrual loans are restored to accrual status when past-due
principal and interest are paid, and, in managements judgment, are likely to remain current, or, due to a restructuring, the interest income is deemed to be collectible. As of March 31, 2021, our loans to B+T Group Acquisition, Inc.
(B+T), Horizon Facilities Services, Inc., and The Mountain Corporation (The Mountain) were on non-accrual status, with an aggregate debt cost basis of $61.1 million, or 12.4% of
the cost basis of all debt investments in our portfolio, and an aggregate fair value of $48.8 million, or 10.3% of the fair value of all debt investments in our portfolio. As of March 31, 2020, certain of our loans to B+T, The Mountain,
PSI Molded Plastics, Inc. (PSI Molded), and SOG Specialty Knives & Tools, LLC were on non-accrual status, with an aggregate debt cost basis of $63.5 million, or 14.0% of the cost
basis of all debt investments in our portfolio, and an aggregate fair value of $43.5 million, or 10.1% of the fair value of all debt investments in our portfolio.
Paid-in-kind (PIK) interest, computed at the contractual rate
specified in the loan agreement, is added to the principal balance of the loan and recorded as interest income. As of March 31, 2021 and 2020, we did not have any loans with a PIK interest component.
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Success Fee Income Recognition
We record success fees as income when earned, which often occurs upon receipt of cash. Success fees are generally contractually due upon a change of control in
a portfolio company, typically resulting from an exit or sale, and are non-recurring.
Dividend Income
Recognition
We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we
have the option to collect such amounts in cash or other consideration. During the year ended March 31, 2019, we re-characterized $0.5 million of dividend income from our investment in Logo
Sportswear, Inc., which was originally recorded during our fiscal year ended March 31, 2018, as a return of capital.
Cash and Cash Equivalents
We consider all short-term, highly-liquid investments that are both readily convertible to cash and have a maturity of three months or less at the
time of purchase to be cash equivalents. Cash and cash equivalents are carried at cost, which approximates fair value. We place our cash with financial institutions, and at times, cash held in checking accounts may exceed the Federal Deposit
Insurance Corporation insured limit. We seek to mitigate this concentration of credit risk by depositing funds with major financial institutions.
Restricted Cash and Cash Equivalents
Restricted cash and
cash equivalents are generally cash and cash equivalents held in escrow received as part of an investment exit. Restricted cash and cash equivalents are carried at cost, which approximates fair value.
Deferred Financing and Offering Costs
Deferred financing
and offering costs consist of costs incurred to obtain financing, including lender fees, underwriting discounts and commissions, and legal fees. Certain costs associated with our revolving line of credit are deferred and amortized using the
straight-line method, which approximates the effective interest method, over the term of the revolving line of credit. Costs associated with the issuance of our notes payable and mandatorily redeemable preferred stock are presented as discounts to
the liquidation value of the notes payable and mandatorily redeemable preferred stock and are amortized using the straight-line method, which approximates the effective interest method, over the term of the notes payable and respective series of
preferred stock. Refer to Note 5 Borrowings and Note 6 Mandatorily Redeemable Preferred Stock for further discussion.
Related Party Fees
We are party to the Advisory
Agreement with the Adviser, which is owned and controlled by our chairman and chief executive officer. In accordance with the Advisory Agreement, we pay the Adviser fees as compensation for its services, consisting of a base management fee and an
incentive fee. Additionally, we pay the Adviser a loan servicing fee as compensation for its services as servicer under the terms of the Fifth Amended and Restated Credit Agreement dated April 30, 2013, as amended (the Credit
Facility).
We are also party to the Administration Agreement with the Administrator, which is owned and controlled by our chairman and chief
executive officer, whereby we pay separately for administrative services.
Refer to Note 4 Related Party Transactions for additional
information regarding these related party fees and agreements.
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Federal Income Taxes
We intend to continue to maintain our qualification as a RIC under subchapter M of the Code for federal income tax purposes. As a RIC, we generally are not
subject to federal income tax on the portion of our taxable income and gains distributed to our stockholders. To maintain our qualification as a RIC, we must maintain our status as a BDC and meet certain source-of-income and asset diversification requirements. In addition, to qualify to be taxed as a RIC, we must generally distribute to stockholders, for each taxable year, at least 90% of our taxable ordinary
income plus the excess of our net short-term capital gains over net long-term capital losses (Investment Company Taxable Income). Our policy generally is to make distributions to our stockholders in an amount up to 100% of our Investment
Company Taxable Income. We intend to continue to make sufficient distributions to qualify as a RIC and to generally limit taxable income, although we may retain some or all of our net long-term capital gains and pay income taxes on such gains. Refer
to Note 10 Federal and State Income Taxes for additional information regarding our RIC requirements.
FASB ASC 740, Income Taxes
(ASC 740) requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are
more-likely-than-not of being sustained by the applicable tax authorities. Tax positions not deemed to satisfy the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current fiscal year. We have evaluated the implications of ASC 740 for all open tax years and in all major tax jurisdictions and determined that there is no material impact on our accompanying
Consolidated Financial Statements . Our federal income tax returns for fiscal years 2020, 2019, and 2018 remain subject to examination by the Internal Revenue Service (IRS).
Distributions
Distributions to stockholders are recorded
on the ex-dividend date. We are required to distribute at least 90% of our Investment Company Taxable Income for each taxable year as a distribution to our stockholders to maintain our ability to be taxed as a
RIC under Subchapter M of the Code. It is our policy to generally pay out as a distribution up to 100% of those amounts. The amount to be paid is determined by our Board of Directors and is based upon managements estimate of Investment Company
Taxable Income, net long-term capital gains, as well as amounts to be distributed in accordance with Section 855(a) of the Code. Based on that estimate, our Board of Directors declares monthly distributions, and supplemental distributions, as
applicable, each quarter. At fiscal year-end, we may elect to treat a portion of the first distributions paid after year-end as having been paid in the prior year in
accordance with Section 855(a) of the Code. We may retain some or all of our net long-term capital gains, if any, and designate them as deemed distributions, or distribute these capital gains to stockholders in cash. If we elect to retain net
long-term capital gains and deem them distributed, each U.S. common stockholder will be treated as if they received a distribution of their pro-rata share of the retained net long-term capital gain and the
U.S. federal income tax paid. As a result, each common stockholder will (i) be required to report their pro-rata share of the retained gain on their tax return as long-term capital gain, (ii) receive
a refundable tax credit for their pro-rata share of federal income tax paid by us on the retained gain, and (iii) increase the tax basis of their shares of common stock by an amount equal to the deemed
distribution less the tax credit. Refer to Note 9 Distributions to Common Stockholders for further information.
Our common stockholders who
hold their shares through our transfer agent, Computershare, Inc. (Computershare), have the option to participate in a dividend reinvestment plan offered by Computershare, as the plan agent. This is an opt in dividend
reinvestment plan, meaning that common stockholders may elect to have their cash distributions automatically reinvested in additional shares of our common stock. Common stockholders who do not so elect will receive their distributions in cash. Any
distributions reinvested under the plan will be taxable to a common stockholder to the same extent, and with the same character, as if the common stockholder had received the distribution in cash. The common stockholder will have an adjusted basis
in the additional common shares purchased through the plan equal to the dollar amount that would have been received if the U.S. stockholder had received the dividend or distribution in cash. The additional common shares will have a new holding
period commencing on the day following the date on which the shares are credited to the common
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stockholders account. Computershare purchases shares in the open market in connection with the obligations under the plan. The dividend reinvestment plan is not open to holders of our
preferred stock.
Recent Accounting Pronouncements
In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820):
Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value (ASU 2018-13), which modifies the disclosure requirements in ASC 820. ASU 2018-13 was effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted, and we adopted ASU 2018-13 effective April 1, 2020. The adoption of ASU 2018-13 did not have a material impact on our financial position, results of operations or cash flows.
In May 2020, the Securities and Exchange Commission (SEC) adopted the final rule under SEC release
No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses , amending certain disclosure requirements applicable to acquisitions and dispositions of businesses,
including real estate operations and investment companies. The final rule became effective on January 1, 2021, with early adoption is permitted, and we adopted the final rule on January 1, 2021.
NOTE 3. INVESTMENTS
Fair Value
In accordance with ASC 820, we determine the fair value of our investments to be the price that would be received for an investment in a current sale, which
assumes an orderly transaction between willing market participants on the measurement date. This fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use
of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical financial instruments in active markets;
Level 2 inputs to the valuation methodology include quoted prices for similar
financial instruments in active or inactive markets, and inputs that are observable for the financial instrument, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are those in markets
for which there are few transactions, the prices are not current, little public information exists, or instances where prices vary substantially over time or among brokered market makers; and
Level 3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants would use when pricing the financial instrument and can include the Valuation Teams assumptions based upon the best available
information.
When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such
determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable
inputs (or components that are actively quoted and can be validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the
fair value measurement.
As of March 31, 2021 and 2020, all of our investments were valued using Level 3 inputs within the ASC 820 fair value
hierarchy, except for our investment in Funko Acquisition Holdings, LLC (Funko), which was valued using Level 2 inputs.
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We transfer investments in and out of Level 1, 2 and 3 of the valuation hierarchy as of the beginning
balance sheet date, based on changes in the use of observable and unobservable inputs utilized to perform the valuation for the period. There were no transfers in or out of Level 1, 2 and 3 during the years ended March 31, 2021 and 2020,
respectively.
As of March 31, 2021 and 2020, our investments, by security type, at fair value were categorized as follows within the ASC 820 fair
value hierarchy:
Fair Value Measurements
Fair Value
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of March 31, 2021:
Secured first lien debt
$
368,688
$
$
$
368,688
Secured second lien debt
102,897
102,897
Preferred equity
159,478
159,478
Common equity/equivalents
2,766
95
(A)
2,671
Total Investments at March 31, 2021
$
633,829
$
$
95
$
633,734
Fair Value Measurements
Fair Value
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of March 31, 2020:
Secured first lien debt
$
308,248
$
$
$
308,248
Secured second lien debt
123,340
123,340
Preferred equity
119,849
119,849
Common equity/equivalents
14,487
33
(A)
14,454
Total Investments at March 31, 2020
$
565,924
$
$
33
$
565,891
(A)
Fair value was determined based on the closing market price of shares of Funko, Inc. (our units in Funko can be
converted into common shares of Funko, Inc.) at the reporting date less a discount for lack of marketability, as our investment was subject to certain restrictions.
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The following table presents our investments, valued using Level 3 inputs within the ASC 820 fair value
hierarchy, and carried at fair value as of March 31, 2021 and 2020, by caption on our accompanying Consolidated Statements of Assets and Liabilities, and by security type:
Total Recurring Fair Value
Measurements Reported in
Consolidated Statements
of Assets and
Liabilities
Valued Using Level 3
Inputs March 31,
2021
2020
Non-Control/Non-Affiliate
Investments
Secured first lien debt
$
187,587
$
172,406
Secured second lien debt
41,926
48,031
Preferred equity
65,943
60,854
Common equity/equivalents (A)
2,671
10,805
Total
Non-Control/Non-Affiliate Investments
298,127
292,096
Affiliate Investments
Secured first lien debt
181,101
135,842
Secured second lien debt
47,971
65,309
Preferred equity
78,905
42,837
Common equity/equivalents
3,649
Total Affiliate Investments
307,977
247,637
Control Investments
Secured first lien debt
Secured second lien debt
13,000
10,000
Preferred equity
14,630
16,158
Common equity/equivalents
Total Control Investments
27,630
26,158
Total investments at fair value using Level 3 inputs
$
633,734
$
565,891
(A)
Excludes our investment in Funko with a fair value of $95 and $33 as of March 31, 2021 and 2020,
respectively, which was valued using Level 2 inputs.
In accordance with ASC 820, the following table provides quantitative
information about our investments valued using Level 3 fair value measurements as of March 31, 2021 and 2020. The table below is not intended to be all-inclusive, but rather provides information on
the significant Level 3 inputs as they relate to our fair value
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measurements. The weighted-average calculations in the table below are based on the principal balances for all debt-related calculations and on the cost basis for all equity-related calculations
for the particular input.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value as of
Valuation
Technique/
Methodology
Unobservable
Input
Range/Weighted-Average as of
March 31, 2021
March 31, 2020
March 31, 2021
March 31, 2020
Secured first lien debt
$
303,330
(A)
$
280,499
TEV
EBITDA
multiple
4.6x 8.0x / 7.0x
4.2x 8.1x / 6.2x
EBITDA
$1,403 $9,500 /
$5,746
$1,372 $13,042 /
$5,894
Revenue
multiple
0.6x 0.7x / 0.6x
0.3x 0.7x / 0.5x
Revenue
$14,474 $30,537
/ $26,110
$14,343 $24,060
/ $18,141
65,358
27,749
Yield
Analysis
Discount
Rate
13.3% 17.9% /
14.7%
16.2% 18.7% /
16.8%
Secured second lien debt
53,122
(B)
107,195
TEV
EBITDA
multiple
5.9x 6.6x / 6.2x
5.1x 6.2x / 5.6x
EBITDA
$4,551 $5,100
/ $4,772
$4,459 $13,042
/ $7,444
Revenue
multiple
0.7x 0.7x / 0.7x
0.7x 0.7x / 0.7x
Revenue
$14,474 $14,474
/ $14,474
$15,267 $15,267
/ $15,267
49,775
16,145
Yield
Analysis
Discount
Rate
8.1% 13.5% /
11.2%
12.6% 16.4% /
13.5%
Preferred equity
159,478
(C)
119,849
TEV
EBITDA
multiple
5.6x 8.0 / 6.6 x
5.1x 8.1x / 6.1x
EBITDA
$2,587 $9,720 /
$5,938
$356 $13,042 /
$5,596
Revenue
multiple
0.6x 0.7x / 0.6x
0.6x 0.7x / 0.6x
Revenue
$14,474 $30,537
/ $25,465
$15,267 $24,060
/ $21,283
Common equity/equivalents (E)
2,671
(D)
14,454
TEV
EBITDA
multiple
4.6x 7.1x / 5.7x
4.2x 7.4x / 5.9x
EBITDA
$1,403 $7,135 /
$4,132
$1,372 $16,061
/ $9,258
Revenue
multiple
0.7x 0.7x / 0.7x
0.7x 0.7x / 0.7x
Revenue
$14,474 $14,474
/ $14,474
$15,267 $15,267
/ $15,267
Total
$
633,734
$
565,891
(A)
Fair value as of March 31, 2021 includes one proprietary debt investment with a fair value of
$23.2 million, which was valued at the expected payoff amount as the unobservable input.
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(B)
Fair value as of March 31, 2021 includes one proprietary debt investment with a fair value of
$13.0 million, which was valued at the expected payoff amount as the unobservable input.
(C)
Fair value as of March 31, 2021 includes one proprietary equity investment with a fair value of
$32.1 million, which was valued at the expected exit amount as the unobservable input.
(D)
Fair value as of March 31, 2021 includes one proprietary equity investment with a fair value of
$2.2 million, which was valued at the expected exit amount as the unobservable input.
(E)
Fair value as of both March 31, 2021 and 2020 excludes our investment in Funko with a fair value of $95
and $33, respectively, which was valued using Level 2 inputs.
Fair value measurements can be sensitive to changes in one or more
of the valuation inputs. Changes in discount rates, EBITDA, or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase/(decrease) in discount rates or a
(decrease)/increase in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a (decrease)/increase in the fair value of certain of our investments.
Changes in Level 3 Fair Value Measurements of Investments
The following tables provide our portfolios changes in fair value, broken out by security type, during the years ended March 31, 2021 and 2020 for
all investments for which the Adviser determines fair value using unobservable (Level 3) inputs.
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Secured
First Lien
Debt
Secured
Second
Lien Debt
Preferred
Equity
Common
Equity/
Equivalents
Total
Year ended March 31, 2021:
Fair value as of March 31, 2020
$
308,248
$
123,340
$
119,849
$
14,454
$
565,891
Total gain (loss):
Net realized gain (loss) (A)
(8,470
)
3,545
14,433
9,508
Net unrealized appreciation
(depreciation) (B)
453
(998
)
26,349
(98
)
25,706
Reversal of previously recorded (appreciation) depreciation upon realization (B)
(84
)
(11,785
)
(11,869
)
New investments, repayments and
settlements (C) :
Issuances / originations
65,227
4,519
25,294
252
95,292
Settlements / repayments
(20,734
)
(20,734
)
Sales
(15,475
)
(14,585
)
(30,060
)
Transfers (D)
23,964
(23,964
)
Fair value as of March 31, 2021
$
368,688
$
102,897
$
159,478
$
2,671
$
633,734
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Secured
First Lien
Debt
Secured
Second Lien
Debt
Preferred
Equity
Common
Equity/
Equivalents
Total
Year ended March 31, 2020:
Fair value as of March 31, 2019
$
331,090
$
75,293
$
195,377
$
22,011
$
623,771
Total gain (loss):
Net realized gain (loss) (A)
(9,659
)
33,976
18,995
43,312
Net unrealized appreciation
(depreciation) (B)
(3,439
)
(3,324
)
(35,619
)
(8,556
)
(50,938
)
Reversal of previously recorded (appreciation) depreciation upon realization (B)
9,660
67
(25,187
)
(11,448
)
(26,908
)
New investments, repayments and
settlements (C) :
Issuances / originations
86,895
25,002
32,371
1,200
145,468
Settlements / repayments
(56,697
)
(23,300
)
(79,997
)
Sales
(68,635
)
(20,182
)
(88,817
)
Transfers (D)
(49,602
)
49,602
(12,434
)
12,434
Fair value as of March 31, 2020
$
308,248
$
123,340
$
119,849
$
14,454
$
565,891
(A)
Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of
Operations for the respective years ended March 31, 2021 and 2020.
(B)
Included in net unrealized appreciation (depreciation) of investments on our accompanying Consolidated
Statements of Operations for the respective years ended March 31, 2021 and 2020.
(C)
Includes increases in the cost basis of investments resulting from new portfolio investments, the amortization
of discounts, PIK, and other non-cash disbursements to portfolio companies, as well as decreases in the cost basis of investments resulting from principal repayments or sales, the amortization of premiums and
acquisition costs, and other cost-basis adjustments.
(D)
2021: Transfers represent (1) secured second lien debt of Brunswick Bowling Products, Inc. with a total
cost basis and fair value of $6.9 million, which was converted into secured first lien debt during the three months ended June 30, 2020 and (2) secured second lien debt of PSI Molded, with a total cost basis and fair value of
$26.6 million and $17.1 million, respectively, which was converted into secured first lien debt during the three months ended September 30, 2020.
2020: Transfers represent (1) secured first lien debt of B-Dry, LLC with a cost basis of
$11.9 million and a fair value of $0, which was converted into equity during the three months ended June 30, 2019, (2) secured first lien debt of J.R. Hobbs Co. Atlanta, LLC, with a total cost basis and fair value of
$41.0 million, that was converted into secured second lien debt during the three months ended September 30, 2019, (3) secured first lien debt of SBS Investment Holdings, Inc., with a total cost basis and fair value of $8.6 million,
which was converted to secured second lien debt during the three months ended December 31, 2019, and (4) preferred equity of Nth Degree, Inc. with a cost basis of $1.2 million and fair value of $12.4 million, that was converted
to common equity in Nth Degree Investment Group, LLC during the three months ended December 31, 2019.
Investment Activity
During the fiscal year ended March 31, 2021, the following significant transactions occurred:
In July 2020, we invested $46.9 million in Mason West, LLC (Mason West) through a combination of
secured first lien debt and preferred equity. Mason West, headquartered in Placentia, California, is a provider of engineered seismic restraint and vibration isolation solutions. In September 2020, Mason West repaid $7.0 million of secured
first lien debt and redeemed $3.1 million of preferred equity.
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In September 2020, we invested an additional $8.0 million in PSI Molded in the form of preferred equity and
also amended certain terms of our existing debt.
In December 2020, we recapitalized our investment in Old World Christmas, Inc. (Old World) and
invested an additional $27.0 million in the form of secured first lien debt. In connection with this investment, Old World paid dividend income of $3.2 million and additional equity proceeds of $10.8 million, resulting in a
$7.5 million return of preferred equity cost basis and a realized gain of $3.3 million.
In December 2020, we invested an additional $3.0 million in Galaxy Technologies, Inc. (Galaxy)
in the form of secured second lien debt. In connection with this investment, Galaxy purchased SBS Industries, LLC (a subsidiary of SBS Industries Holdings, Inc., one of our other portfolio companies). SBS Industries Holdings, Inc. used proceeds from
the sale to partially repay our $11.4 million first lien debt, resulting in a realized loss of $8.5 million.
In December 2020, we sold our investment in Frontier Packaging, Inc., which resulted in dividend income of
$0.9 million, success fee income of $0.2 million, and a realized gain of $14.0 million. In connection with the sale, we received net cash proceeds of $26.0 million, including the repayment of our debt investment of
$9.5 million at par.
Investment Concentrations
As of March 31, 2021, our investment portfolio consisted of investments in 28 portfolio companies located in 17 states across 13 different industries with
an aggregate fair value of $633.8 million. Our investments in Pioneer Square Brands Inc., Counsel Press, Inc., Old World, J.R. Hobbs Co. Atlanta, LLC, and Bassett Creek Services, Inc., represent our five largest portfolio investments at
fair value, and collectively comprised $233.9 million, or 36.9%, of our total investment portfolio at fair value as of March 31, 2021.
The
following table summarizes our investments by security type as of March 31, 2021 and 2020:
March 31, 2021
March 31, 2020
Cost
Fair Value
Cost
Fair Value
Secured first lien debt
$
379,512
57.2
%
$
368,688
58.2
%
$
310,019
50.9
%
$
308,248
54.5
%
Secured second lien debt
114,206
17.2
102,897
16.2
143,155
23.5
123,340
21.8
Total debt
493,718
74.4
471,585
74.4
453,174
74.4
431,588
76.3
Preferred equity
166,361
25.1
159,478
25.2
152,998
25.1
119,849
21.2
Common equity/equivalents
3,484
0.5
2,766
0.4
3,410
0.5
14,487
2.5
Total equity/equivalents
169,845
25.6
162,244
25.6
156,408
25.6
134,336
23.7
Total investments
$
663,563
100.0
%
$
633,829
100.0
%
$
609,582
100.0
%
$
565,924
100.0
%
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Investments at fair value consisted of the following industry classifications as of March 31, 2021 and
2020:
March 31, 2021
March 31, 2020
Fair Value
Percentage
of Total
Investments
Fair Value
Percentage
of Total
Investments
Diversified/Conglomerate Services
$
261,714
41.3
%
$
226,805
40.1
%
Home and Office Furnishings, Housewares, and Durable Consumer Products
94,663
15.0
83,705
14.8
Personal and Non-Durable Consumer Products
(Manufacturing Only)
60,852
9.6
34,865
6.2
Leisure, Amusement, Motion Pictures, Entertainment
45,209
7.1
35,240
6.2
Healthcare, Education, and Childcare
31,194
4.9
25,563
4.5
Aerospace and Defense
27,630
4.4
26,158
4.6
Diversified/Conglomerate Manufacturing
25,181
4.0
28,147
5.0
Chemicals, Plastics, and Rubber
22,985
3.6
16,737
3.0
Telecommunications
15,582
2.5
15,792
2.8
Beverage, Food, and Tobacco
15,519
2.4
12,545
2.2
Cargo Transport
15,211
2.4
13,316
2.4
Machinery (Non-agriculture, Non-construction, and Non-electronic)
14,199
2.2
23,091
4.1
Containers, Packaging, and Glass
20,360
3.6
Other < 2.0%
3,890
0.6
3,600
0.5
Total investments
$
633,829
100.0
%
$
565,924
100.0
%
Investments at fair value were included in the following geographic regions of the U.S. as of March 31, 2021 and 2020:
March 31, 2021
March 31, 2020
Location
Fair Value
Percentage
of Total
Investments
Fair Value
Percentage
of Total
Investments
South
$
182,529
28.8
%
$
182,178
32.2
%
Northeast
163,938
25.9
146,434
25.9
West
160,581
25.3
90,214
15.9
Midwest
126,781
20.0
147,098
26.0
Total investments
$
633,829
100.0
%
$
565,924
100.0
%
The geographic region indicates the location of the headquarters for our portfolio companies. A portfolio company may have
additional business locations in other geographic regions.
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Investment Principal Repayments
The following table summarizes the contractual principal repayment and maturity of our investment portfolio for the next five fiscal years and thereafter,
assuming no voluntary prepayments, as of March 31, 2021:
Amount
For the fiscal years ending March 31:
2022
$
38,670
2023
119,200
2024
118,350
2025
165,278
2026
52,250
Thereafter
Total contractual repayments
$
493,748
Adjustments to cost basis of debt investments
(30
)
Investments in equity securities
169,845
Total cost basis of investments held as of March 31, 2021:
$
663,563
Receivables from Portfolio Companies
Receivables from portfolio companies represent non-recurring costs that we incurred on behalf of portfolio companies.
Such receivables, net of any allowance for uncollectible receivables, are included in Other assets, net on our accompanying Consolidated Statements of Assets and Liabilities . We generally maintain an allowance for uncollectible receivables
from portfolio companies when the receivable balance becomes 90 days or more past due or if it is determined, based upon managements judgment, that the portfolio company is unable to pay its obligations. We
write-off accounts receivable when we have exhausted collection efforts and have deemed the receivables uncollectible. As of March 31, 2021 and 2020, we had gross receivables from portfolio companies of
$1.5 million and $1.4 million, respectively. As of both March 31, 2021 and 2020, the allowance for uncollectible receivables was $0.9 million.
NOTE 4. RELATED PARTY TRANSACTIONS
Transactions
with the Adviser
We pay the Adviser certain fees as compensation for its services under the Advisory Agreement, consisting of a base management fee
and an incentive fee, and a loan servicing fee for the Advisers role as servicer pursuant to the Credit Facility, all as described below. On July 14, 2020, our Board of Directors, including a majority of the directors who are not parties
to the Advisory Agreement or interested persons of either party, approved the annual renewal of the Advisory Agreement through August 31, 2021.
Two
of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer) serve as directors and executive officers of the Adviser, which is 100% indirectly owned and
controlled by Mr. Gladstone. David Dullum (our president) is also the executive vice president of private equity (buyouts) of the Adviser. Michael LiCalsi, our general counsel and secretary (who also serves as the Administrators
president, general counsel and secretary), is also the executive vice president of administration of our Adviser.
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The following table summarizes the base management fees, loan servicing fees, incentive fees, and associated
non-contractual, unconditional, and irrevocable credits reflected in our accompanying Consolidated Statements of Operations :
Year Ended March 31,
2021
2020
2019
Average total assets subject to base management fee (A)
$
605,750
$
607,250
$
637,600
Multiplied by annual base management fee of 2.0%
2.0
%
2.0
%
2.0
%
Base management fee (B)
12,115
12,145
12,752
Credits to fees from
Adviserother (B)
(2,949
)
(4,436
)
(5,509
)
Net base management fee
$
9,166
$
7,709
$
7,243
Loan servicing fee (B)
$
7,082
$
6,859
$
6,827
Credits to base management feeloan servicing fee (B)
(7,082
)
(6,859
)
(6,827
)
Net loan servicing fee
$
$
$
Incentive fee income-based
$
3,746
$
4,338
$
4,419
Incentive fee capital
gains-based (C)
5,032
(6,718
)
17,835
Total incentive fee (B)
8,778
(2,380
)
22,254
Credits to fees from
Adviser-other (B)
Net total incentive fee
$
8,778
$
(2,380
)
$
22,254
(A)
Average total assets subject to the base management fee is defined in the Advisory Agreement as total
assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any
share issuances or repurchases during the periods.
(B)
Reflected as a line item on our accompanying Consolidated Statement of Operations .
(C)
The capital gains-based incentive fees are recorded in accordance with GAAP and do not necessarily
reflect amounts contractually due under the terms of the Advisory Agreement.
Base Management Fee
The base management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 2.0%, computed on the basis
of the value of our average gross assets at the end of the two most recently completed quarters (inclusive of the current quarter), which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash
equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective period and adjusted appropriately for any share issuances or repurchases during the period.
Additionally, pursuant to the requirements of the 1940 Act, the Adviser makes available significant managerial assistance to our portfolio companies. The
Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than managerial assistance. Such services may include: (i) assistance obtaining, sourcing or structuring credit
facilities, long term loans or additional equity from unaffiliated third parties; (ii) negotiating important contractual financial relationships; (iii) consulting services regarding restructuring of the portfolio company and financial
modeling as it relates to raising additional debt and equity capital from unaffiliated third parties; and (iv) taking a primary role in interviewing, vetting, and negotiating employment contracts with candidates in connection with adding and
retaining key portfolio
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company management team members. The Adviser non-contractually, unconditionally, and irrevocably credits 100% of any fees received for such services
against the base management fee that we would otherwise be required to pay to the Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees, totaling $0.2 million for each of the years ended
March 31, 2021, 2020, and 2019, was retained by the Adviser in the form of reimbursement, at cost, for tasks completed by personnel of the Adviser, primarily related to the valuation of portfolio companies.
Loan Servicing Fee
The Adviser also services the loans
held by our wholly-owned subsidiary, Business Investment (the borrower under the Credit Facility), in return for which the Adviser receives a 2.0% annual fee based on the monthly aggregate outstanding balance of loans pledged under the Credit
Facility. Since Business Investment is a consolidated subsidiary of ours, coupled with the fact that the total base management fee paid to the Adviser pursuant to the Advisory Agreement cannot exceed 2.0% of total assets (less any uninvested cash or
cash equivalents resulting from borrowings) during any given calendar year, we treat payment of the loan servicing fee pursuant to the Credit Facility as a pre-payment of the base management fee under the
Advisory Agreement. Accordingly, these loan servicing fees are 100% non-contractually, unconditionally, and irrevocably credited back to us by the Adviser.
Incentive Fee
The incentive fee payable to the Adviser
under our Advisory Agreement consists of two parts: an income-based incentive fee and a capital gains-based incentive fee.
The income-based incentive fee
rewards the Adviser if our quarterly net investment income (before giving effect to any incentive fee) exceeds 1.75% of our net assets, which we define as total assets less indebtedness and before taking into account any incentive fees payable or
contractually due but not payable during the period, at the end of the immediately preceding calendar quarter, adjusted appropriately for any share issuances or repurchases during the period (the Hurdle Rate). The income-based incentive
fee with respect to our pre-incentive fee net investment income is payable quarterly to the Adviser and is computed as follows:
No incentive fee in any calendar quarter in which our pre-incentive fee
net investment income does not exceed the Hurdle Rate;
100.0% of our pre-incentive fee net investment income with respect to
that portion of such pre-incentive fee net investment income, if any, that exceeds the Hurdle Rate but is less than 2.1875% of our net assets, adjusted appropriately for any share issuances or repurchases
during the period, in any calendar quarter; and
20.0% of the amount of our pre-incentive fee net investment income, if
any, that exceeds 2.1875% of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter.
The second part of the incentive fee is a capital gains-based incentive fee that is determined and payable in arrears as of the end of each fiscal year (or
upon termination of the Advisory Agreement, as of the termination date), and equals 20.0% of our realized capital gains, less any realized capital losses and unrealized depreciation, calculated as of the end of the preceding calendar year. The
capital gains-based incentive fee payable to the Adviser is calculated based on (i) cumulative aggregate realized capital gains since our inception, less (ii) cumulative aggregate realized capital losses since our inception, less
(iii) the entire portfolios aggregate unrealized capital depreciation, if any, as of the date of the calculation. If this number is positive at the applicable calculation date, then the capital gains-based incentive fee for such year
equals 20.0% of such amount, less the aggregate amount of any capital gains-based incentive fees paid in respect of our portfolio in all prior years. For calculation purposes, cumulative aggregate realized capital gains, if any, equals the sum of
the excess between
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the net sales price of each investment, when sold, and the original cost of such investment since our inception. Cumulative aggregate realized capital losses equals the sum of the deficit between
the net sales price of each investment, when sold, and the original cost of such investment since our inception. The entire portfolios aggregate unrealized capital depreciation, if any, equals the sum of the deficit between the fair value of
each investment security as of the applicable calculation date and the original cost of such investment security. As of and for the year ended March 31, 2021, no capital gains-based incentive fees were contractually due and paid to the Adviser.
During the year ended March 31, 2020, capital gains-based incentive fees of $8.1 million were contractually due and paid to the Adviser, which was the first payment of a capital gains-based incentive fee since our inception.
In accordance with GAAP, accrual of the capital gains-based incentive fee is determined as if our investments had been liquidated at their fair values as of
the end of the reporting period. Therefore, GAAP requires that the capital gains-based incentive fee accrual consider the aggregate unrealized capital appreciation in the calculation, as a capital gains-based incentive fee would be payable if such
unrealized capital appreciation were realized. There can be no assurance that any such unrealized capital appreciation will be realized in the future. Accordingly, a GAAP accrual is calculated at the end of the reporting period based on
(i) cumulative aggregate realized capital gains since our inception, plus (ii) the entire portfolios aggregate unrealized capital appreciation, if any, less (iii) cumulative aggregate realized capital losses since our inception,
less (iv) the entire portfolios aggregate unrealized capital depreciation, if any. If such amount is positive at the end of a reporting period, a capital gains-based incentive fee equal to 20.0% of such amount, less the aggregate amount
of capital gains-based incentive fees accrued in all prior years, is recorded, regardless of whether such amount is contractually due under the terms of the Advisory Agreement. If such amount is negative, then there is no accrual for such period and
prior period accruals are reversed, as appropriate. During the year ended March 31, 2021, we recorded capital gains-based incentive fees of $5.0 million. During the year ended March 31, 2020, we recorded a reversal of capital
gains-based incentive fees of $6.7 million. During the year ended March 31, 2019, we recorded capital gains-based incentive fees of $17.8 million.
Transactions with the Administrator
We reimburse the
Administrator pursuant to the Administration Agreement for our allocable portion of the Administrators expenses incurred while performing services to us, which are primarily rent and salaries and benefits expenses of the Administrators
employees, including, our chief financial officer and treasurer, chief valuation officer, chief compliance officer, and general counsel and secretary, and their respective staffs. Two of our executive officers, David Gladstone (our chairman and
chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer) serve as members of the board of managers and executive officers of the Administrator, which is 100% indirectly owned and controlled by
Mr. Gladstone. Another of our officers, Mr. LiCalsi (our general counsel & secretary), serves as the Administrators president as well as the executive vice president of administration for the Adviser.
Our allocable portion of the Administrators expenses is generally derived by multiplying the Administrators total expenses by the approximate
percentage of time during the current quarter the Administrators employees performed services for us in relation to their time spent performing services for all companies serviced by the Administrator. On July 14, 2020, our Board of
Directors, including a majority of the directors who are not parties to the Administration Agreement or interested persons of either party, approved the annual renewal of the Administration Agreement through August 31, 2021.
Transactions with Gladstone Securities, LLC
Gladstone
Securities, LLC (Gladstone Securities) is a privately held broker dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation. Gladstone Securities is an affiliate of
ours, as its parent company is 100% owned and controlled by David Gladstone, our chairman and chief executive officer. Mr. Gladstone also serves on the board of managers of Gladstone Securities.
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Dealer Manager Agreement
On May 22, 2020, the Company, entered into a dealer manager agreement (the Dealer Manager Agreement), with Gladstone Securities whereby
Gladstone Securities would serve as the Companys exclusive dealer manager in connection with the Companys offering (the Offering) of up to $350.0 million aggregate principal amount of the Companys 6.00% Notes due
2040 (the Notes) on a reasonable best efforts basis. From inception of the Offering through February 23, 2021, no Notes had been sold and the Company terminated the Dealer Manager Agreement and the Offering as of such
date.
Other Transactions
From time to time,
Gladstone Securities provides other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which it receives a fee. Any such fees paid by portfolio companies to Gladstone Securities do not impact
the fees we pay to the Adviser or the non-contractual, unconditional, and irrevocable credits against the base management fee. During the years ended March 31, 2021, 2020, and 2019, the fees received by
Gladstone Securities from portfolio companies totaled $0.6 million, $0.8 million, and $0.7 million, respectively.
Related Party Fees
Due
Amounts due to related parties on our accompanying Consolidated Statements of Assets and Liabilities were as follows:
As of March 31,
2021
2020
Base management and loan servicing fee due to Adviser, net of credits
$
1,435
$
(222
)
Incentive fee due to Adviser (A)
14,163
7,387
Other due to Adviser
66
13
Total fees due to Adviser
$
15,664
$
7,178
Fee due to Administrator
$
577
$
582
Total related party fees due
$
16,241
$
7,760
(A)
Includes a capital gains-based incentive fee of $12.4 million and $7.4 million as of March 31,
2021 and 2020, respectively, recorded in accordance with GAAP requirements and which was not contractually due under the terms of the Advisory Agreement. Refer to Note 4 Related Party Transactions Transactions with the
Adviser Incentive Fee for additional information, including capital gains-based incentive fee payments made.
Net
expenses receivable from Gladstone Capital Corporation, one of our affiliated funds, for reimbursement purposes, which includes certain co-investment expenses, totaled $0 and $70 as of March 31, 2021 and
2020, respectively. These amounts are generally settled in the quarter subsequent to being incurred and have been included in Other assets, net on the accompanying Consolidated Statements of Assets and Liabilities as of March 31, 2021
and 2020, respectively.
NOTE 5. BORROWINGS
Revolving Line of Credit
On March 8, 2021, we,
through our wholly-owned subsidiary, Business Investment, entered into Amendment No. 6 to the Fifth Amended and Restated Credit Agreement, originally entered into on April 30, 2013 and as previously amended, with KeyBank National
Association (KeyBank) as administrative agent, lead arranger, managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto. The revolving period
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was extended to February 29, 2024, and if not renewed or extended by such date, all principal and interest will be due and payable on February 28, 2026 (two years after the revolving
period end date). As of March 31, 2021, the Credit Facility provided two one-year extension options that may be exercised on or before the first and second anniversary of March 8, 2021, subject to
approval by all lenders. Additionally, the COVID-19 Relief Period (described below) was extended to September 30, 2021.
On August 10, 2020, we, through Business Investment, entered into Amendment No. 5 to the Credit Facility. Among other things, Amendment No. 5
amended the Credit Facility to (i) add London Interbank Offered Rate (LIBOR) replacement language; (ii) implement a 0.5% LIBOR floor; (iii) reduce the facility size from $200.0 million to $180.0 million, which
may be expanded to $300.0 million through additional commitments; and (iv) provide certain other changes to existing terms and covenants. In addition, Amendment No. 5 provided for certain temporary changes during the COVID-19 Relief Period (August 10, 2020 until March 31, 2021, which may be extended, subject to certain conditions) including: (i) amending the definition of Effective Advance Rate, provided
that during such period the overall effective advance rate does not exceed 55%; and (ii) removing or changing certain Excess Concentration Limits (as defined in the Credit Facility).
Advances under the Credit Facility generally bear interest at 30-day LIBOR, subject to a floor of 0.5%, plus 2.85% per
annum until February 29, 2024, with the margin then increasing to 3.10% for the period from February 29, 2024 to February 28, 2025, and increasing further to 3.35% thereafter. The Credit Facility has an unused commitment fee on the
daily unused commitment amount of 0.50% per annum if the average unused commitment amount for the period is less than or equal to 50% of the total commitment amount, 0.75% per annum if the average unused commitment amount for the period is greater
than 50% but less than or equal to 65% of the total commitment amount, and 1.00% per annum if the average unused commitment amount for the period is greater than 65% of the total commitment amount.
The following tables summarize noteworthy information related to the Credit Facility:
As of March 31,
2021
2020
Commitment amount
$
180,000
$
200,000
Borrowings outstanding at cost
22,400
49,200
Availability (A)
157,600
150,800
For the Years Ended March 31
2021
2020
2019
Weighted-average borrowings outstanding
$
82,632
$
38,374
$
97,866
Effective interest rate ( B )
4.3
%
9.4
%
5.9
%
Commitment (unused) fees incurred
$
819
$
1,643
$
656
(A)
Availability is subject to various constraints, characteristics, and applicable advance rates based on
collateral quality under the Credit Facility, which equated to an adjusted availability of $157.6 million and $137.6 million as of March 31, 2021 and 2020, respectively.
(B)
Excludes the impact of deferred financing costs and includes unused commitment fees.
Interest is payable monthly during the term of the Credit Facility. Available borrowings are subject to various constraints and applicable advance rates,
which are generally based on the size, characteristics, and quality of the collateral pledged by Business Investment. The Credit Facility also requires that any interest and principal payments on pledged loans be remitted directly by the borrower
into a lockbox account with KeyBank. KeyBank is also the trustee of the account and generally remits the collected funds to us once a month. Amounts collected in the lockbox account with KeyBank are presented as Due from administrative agent on the
accompanying Consolidated Statements of Assets and Liabilities.
Among other things, the Credit Facility contains a performance guaranty that
requires us to maintain (i) a minimum net worth (defined in the Credit Facility to include our mandatory redeemable term preferred stock) of
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the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised minus 50% of any equity or subordinated debt redeemed or retired after
November 16, 2016, which equated to $266.2 million as of March 31, 2021, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of
the 1940 Act, as modified by Section 61 of the 1940 Act); and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of March 31, 2021, and as defined in the performance guaranty of the Credit Facility, we had a
net worth of $597.1 million, asset coverage on our senior securities representing indebtedness of 398.0%, calculated in compliance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC. As of
March 31, 2021, we were in compliance with all covenants under the Credit Facility.
Fair Value
We elected to apply the fair value option of ASC Topic 825, Financial Instruments , to the Credit Facility, which was consistent with our
application of ASC 820 to our investments. Generally, the fair value of the Credit Facility is determined using a yield analysis, which includes a DCF calculation and also takes into account the assumptions the Valuation Team believes market
participants would use, including the estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. At March 31, 2021, the discount rate used to determine
the fair value of the Credit Facility was 30-day LIBOR, with a 0.5% floor, plus 2.85% per annum, plus an unused commitment fee of 1.0%. At March 31, 2020, the discount rate used to determine the
fair value of the Credit Facility was 30-day LIBOR, plus 2.85% per annum, plus an unused commitment fee of 1.0%. Generally, an increase or decrease in the discount rate used in the DCF calculation
may result in a corresponding decrease or increase, respectively, in the fair value of the Credit Facility. At each of March 31, 2021 and 2020, the Credit Facility was valued using Level 3 inputs and any changes in its fair value are
recorded in Net unrealized depreciation of other on our accompanying Consolidated Statements of Operations .
The following tables provide
relevant information and disclosures about the Credit Facility as of and for the years ended March 31, 2021 and 2020, as required by ASC 820:
Level 3 Borrowings
Recurring Fair Value Measurements
Reported in Consolidated
Statements of Assets and Liabilities Using Significant
Unobservable Inputs (Level 3)
As of
March 31,
2021
2020
Credit Facility
$
22,400
$
49,200
Fair Value Measurements of Borrowings Using Significant
Unobservable Inputs (Level 3) Reported in
Consolidated Statements of
Assets and Liabilities
Credit
Facility
Year ended March 31, 2021:
Fair value at March 31, 2020
$
49,200
Borrowings
125,900
Repayments
(152,700
)
Fair value at March 31, 2021
$
22,400
Year ended March 31, 2020:
Fair value at March 31, 2019
$
53,000
Borrowings
188,300
Repayments
(192,100
)
Fair value at March 31, 2020
$
49,200
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The fair value of the collateral under the Credit Facility was $524.0 million and $496.4 million
as of March 31, 2021 and 2020, respectively.
Notes Payable
In March 2021, we completed a public offering of 5.00% Notes due 2026 with an aggregate principal amount of $127.9 million (the 2026 Notes),
which resulted in net proceeds of approximately $123.8 million after deducting underwriting discounts, commissions and offering costs borne by us. The 2026 Notes are traded under the ticker symbol GAINN on the Nasdaq Global Select
Market (Nasdaq). The 2026 Notes will mature on May 1, 2026 and may be redeemed in whole or in part at any time or from time to time at the Companys option on or after May 1, 2023. The 2026 Notes bear interest at a rate of
5.00% per year, which is payable quarterly in arrears.
The indenture relating to the 2026 Notes contains certain covenants, including (i) an
inability to incur additional debt or issue additional debt or preferred securities unless the Companys asset coverage meets the threshold specified in the 1940 Act after such borrowing, (ii) an inability to declare any dividend or
distribution (except a dividend payable in our stock) on a class of our capital stock or to purchase shares of our capital stock unless the Companys asset coverage meets the threshold specified in the 1940 Act at the time of (and giving effect
to) such declaration or purchase, and (iii) if, at any time, we are not subject to the reporting requirements of the Exchange Act, we will provide the holders of the 2026 Notes, as applicable, and the trustee with audited annual consolidated
financial statements and unaudited interim consolidated financial statements.
The 2026 Notes are recorded at the aggregate principal amount, less
underwriting discounts, commissions, and offering costs, on our accompanying Consolidated Statements of Assets and Liabilities . Total underwriting discounts, commissions, and offering costs related to this offering were
$4.1 million, which have been recorded as discounts to the aggregate principal amount on our accompanying Consolidated Statements of Assets and Liabilities and are being amortized over the period ending May 1, 2026, the
maturity date.
The following table summarizes our 2026 Notes as of March 31, 2021:
Description
Ticker
Symbol
Date Issued
Maturity
Date (A)
Interest
Rate
Notes
Outstanding
Principal
Amount
per Note
Aggregate
Principal
Amount
2026 Notes
GAINN
March 2, 2021
May 1, 2026
5.00
%
5,117,500
$
25.00
$
127,938
Notes payable,
gross (B)
$
127,938
Less: Discounts
(4,055
)
Notes payable,
net (C)
$
123,883
(A)
The 2026 Notes can be redeemed at our option at any time on or after May 1, 2023.
(B)
As of March 31, 2021 and 2020, asset coverage on our senior securities representing indebtedness,
calculated pursuant to Sections 18 and 61 of the 1940 Act, was 398.0% and 993.5%, respectively.
(C)
Reflected as a line item on our accompanying Consolidated Statement of Assets and Liabilities pursuant to the
adoption of Accounting Standard Update 2015-03, Simplifying the Presentation of Debt Issuance Costs.
The fair value, based on the last reported closing price, of the 2026 Notes as of March 31, 2021 was $132.3 million. We consider the closing price
of the 2026 Notes to be a Level 1 input within the ASC 820 hierarchy.
Secured Borrowing
In August 2012, we entered into a participation agreement with a third-party related to $5.0 million of our secured second lien term debt investment in
Ginsey Home Solutions, Inc. (Ginsey). In May 2014, we amended
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the agreement with the third-party to include an additional $0.1 million. ASC Topic 860, Transfers and Servicing requires us to treat the participation as a financing-type
transaction. Specifically, the third-party has a senior claim to our remaining investment in the event of default by Ginsey which, in part, resulted in the loan participation bearing a rate of interest lower than the contractual rate established at
origination. Therefore, our accompanying Consolidated Statements of Assets and Liabilities reflect the entire secured second lien term debt investment in Ginsey and a corresponding $5.1 million secured borrowing liability. The secured
borrowing has a stated fixed interest rate of 7.0% and a maturity date of January 3, 2025.
NOTE 6. MANDATORILY REDEEMABLE PREFERRED STOCK
In August 2018, we completed a public offering of 2,990,000 shares of 6.375% Series E Cumulative Term Preferred Stock (our Series E Term
Preferred Stock or Series E) at a public offering price of $25.00 per share. Gross proceeds totaled $74.8 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were
$72.1 million. Total underwriting discounts and offering costs related to this offering were $2.7 million, which have been recorded as discounts to the liquidation value on our accompanying Consolidated Statements of Assets and
Liabilities and are being amortized over the period ending August 31, 2025, the mandatory redemption date.
The shares of Series E Term
Preferred Stock are traded under the ticker symbol GAINL on the Nasdaq Global Select Market (Nasdaq). Our Series E Term Preferred Stock is not convertible into our common stock or any other security and provides for a fixed
dividend equal to 6.375% per year, payable monthly. We are required to redeem all shares of our outstanding Series E Term Preferred Stock on August 31, 2025, for cash at a redemption price equal to $25.00 per share, plus an amount equal to
accumulated but unpaid dividends, if any, to, but excluding, the date of redemption. In addition, two other potential mandatory redemption triggers are as follows: (1) upon the occurrence of certain events that would constitute a change in
control of us, we would be required to redeem all of our outstanding Series E Term Preferred Stock, and (2) if we fail to maintain asset coverage as required by Sections 18 and 61 of the 1940 Act (which is currently 150%) and are unable to
correct such failure within a specific amount of time, we are required to redeem a portion of our outstanding Series E Term Preferred Stock or otherwise cure the asset coverage redemption trigger (we may also redeem additional securities to cause
asset coverage to be up to 200%). We may also voluntarily redeem all or a portion of our Series E Term Preferred Stock at any time.
In August 2018, we
used the proceeds from the issuance of our Series E Term Preferred Stock, along with borrowings under the Credit Facility, to voluntarily redeem all outstanding shares of our 6.750% Series B Cumulative Term Preferred Stock (our Series B Term
Preferred Stock) and 6.500% Series C Cumulative Term Preferred Stock (our Series C Term Preferred Stock), each of which had a liquidation preference of $25.00 per share. In connection with the voluntary redemption of our Series B
Term Preferred Stock and Series C Term Preferred Stock, we incurred a loss on extinguishment of debt of $1.7 million, which was recorded in Realized loss on other in our accompanying Consolidated Statements of Operations and
which was primarily comprised of unamortized deferred issuance costs at the time of redemption.
In March 2021, we used a portion of the proceeds from the
issuance of our 2026 Notes to voluntarily redeem all outstanding shares of our 6.25% Series D Cumulative Term Preferred Stock (or Series D Term Preferred Stock or Series D), which had a liquidation preference of $25.00 per
share. In connection with the voluntary redemption of our Series D Term Preferred Stock, we incurred a loss on extinguishment of debt of $0.8 million, which was recorded in Realized loss on other in our accompanying Consolidated Statements
of Operations and which was primarily comprised of unamortized deferred issuance costs at the time of redemption.
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The following tables summarize our Series D Term Preferred Stock and our Series E Term Preferred Stock
outstanding as of March 31, 2021 and 2020:
As of March 31, 2021 :
Class of
Term
Preferred
Stock (A)
Ticker
Symbol
Initial Issuance
Mandatory Redemption
Date (B)
Interest
Rate
Shares
Outstanding
Liquidation
Preference
per Share
Aggregate
Liquidation
Preference
Series E
GAINL
August 22,2018
August 31, 2025
6.375
%
3,774,853
$
25.00
$
94,371
Term preferred stock,
gross (C)
3,774,853
$
25.00
$
94,371
Less: Discounts
(2,162
)
Term preferred stock,
net (D)
$
92,209
As of March 31, 2020 :
Class of
Term
Preferred
Stock (A)
Ticker
Symbol
Initial Issuance
Mandatory Redemption
Date (B)
Interest
Rate
Shares
Outstanding
Liquidation
Preference
per Share
Aggregate
Liquidation
Preference
Series D
GAINM
September 26, 2016
September 30, 2023
6.250
%
2,300,000
$
25.00
$
57,500
Series E
GAINL
August 22,2018
August 31, 2025
6.375
%
2,990,000
25.00
74,750
Term preferred stock,
gross (C)
5,290,000
$
25.00
$
132,250
Less: Discounts
(3,090
)
Term preferred stock,
net (D)
$
129,160
(A)
We voluntarily redeemed all outstanding shares of our Series D Term Preferred Stock on March 3, 2021.
(B)
Our Series E Term Preferred Stock is currently redeemable at our option.
(C)
As of March 31, 2021 and 2020, asset coverage on our senior securities that are stock, calculated pursuant
to Sections 18 and 61 of the 1940 Act, was 248.6% and 293.8%, respectively.
(D)
Reflected as a line item on our accompanying Consolidated Statement of Assets and Liabilities pursuant to the
adoption of Accounting Standard Update 2015-03, Simplifying the Presentation of Debt Issuance Costs.
The following tables summarize dividends declared by our Board of Directors and paid by us on each of our series of mandatorily redeemable preferred stock
during the years ended March 31, 2021, 2020, and 2019:
For the Year Ended March 31, 2021 :
Declaration Date
Record Date
Payment Date
Dividend per
Share of
Series D Term
Preferred
Stock (A)
Dividend per
Share
of
Series E Term
Preferred
Stock (B)
April 14, 2020
April 24, 2020
April 30, 2020
$
0.13020833
$
0.13281250
April 14, 2020
May 19, 2020
May 29, 2020
0.13020833
0.13281250
April 14, 2020
June 19, 2020
June 30, 2020
0.13020833
0.13281250
July 14, 2020
July 24, 2020
July 31, 2020
0.13020833
0.13281250
July 14, 2020
August 24, 2020
August 31, 2020
0.13020833
0.13281250
July 14, 2020
September 23, 2020
September 30, 2020
0.13020833
0.13281250
October 13, 2020
October 23, 2020
October 30, 2020
0.13020833
0.13281250
October 13, 2020
November 20, 2020
November 30, 2020
0.13020833
0.13281250
October 13, 2020
December 23, 2020
December 31, 2020
0.13020833
0.13281250
January 12, 2021
January 22, 2021
January 29, 2021
0.13020833
0.13281250
January 12, 2021
February 17, 2021
February 26, 2021
0.13020833
0.13281250
January 12, 2021
March 18, 2021
March 31, 2021
0.00868056
(C)
0.13281250
Total
$
1.44097219
$
1.59375000
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For the Year Ended March 31, 2020 :
Declaration Date
Record Date
Payment Date
Dividend per
Share of
Series D Term
Preferred
Stock (A)
Dividend per
Share of
Series E Term
Preferred
Stock (B)
April 9, 2019
April 22, 2019
April 30, 2019
$0.13020833
$0.13281250
April 9, 2019
May 22, 2019
May 31, 2019
0.13020833
0.13281250
April 9, 2019
June 19, 2019
June 28, 2019
0.13020833
0.13281250
July 9, 2019
July 22, 2019
July 31, 2019
0.13020833
0.13281250
July 9, 2019
August 20, 2019
August 30, 2019
0.13020833
0.13281250
July 9, 2019
September 17, 2019
September 30, 2019
0.13020833
0.13281250
October 8, 2019
October 22, 2019
October 31, 2019
0.13020833
0.13281250
October 8, 2019
November 19, 2019
November 29, 2019
0.13020833
0.13281250
October 8, 2019
December 19, 2019
December 31, 2019
0.13020833
0.13281250
January 14, 2020
January 24, 2020
January 31, 2020
0.13020833
0.13281250
January 14, 2020
February 19, 2020
February 28, 2020
0.13020833
0.13281250
January 14, 2020
March 20, 2020
March 31, 2020
0.13020833
0.13281250
Total
$1.56249996
$1.59375000
For the Year Ended March 31, 2019 :
Declaration Date
Record Date
Payment Date
Dividend
per
Share of
Series B
Term
Preferred
Stock (D)
Dividend
per
Share of
Series C
Term
Preferred
Stock (D)
Dividend per
Share of
Series D Term
Preferred
Stock (A)
Dividend per
Share of
Series E Term
Preferred
Stock (B)
April 10, 2018
April 20, 2018
April 30, 2018
$
0.140625
$
0.135417
$
0.13020833
$
April 10, 2018
May 22, 2018
May 31, 2018
0.140625
0.135417
0.13020833
April 10, 2018
June 20, 2018
June 29, 2018
0.140625
0.135417
0.13020833
July 10, 2018
July 20, 2018
July 31, 2018
0.140625
0.135417
0.13020833
July 10, 2018
August 21, 2018
August 31, 2018
0.140625
0.135417
0.13020833
July 10, 2018
September 19, 2018
September 28, 2018
0.13020833
September 6, 2018
September 19, 2018
September 28, 2018
0.17265625
(E)
October 9, 2018
October 19, 2018
October 31, 2018
0.13020833
0.13281250
October 9, 2018
November 20, 2018
November 30, 2018
0.13020833
0.13281250
October 9, 2018
December 20, 2018
December 31, 2018
0.13020833
0.13281250
January 8, 2019
January 18, 2019
January 31, 2019
0.13020833
0.13281250
January 8, 2019
February 20, 2019
February 28, 2019
0.13020833
0.13281250
January 8, 2019
March 20, 2019
March 29, 2019
0.13020833
0.13281250
Total
$
0.703125
$
0.677085
$
1.56249996
$
0.96953125
(A)
We voluntarily redeemed all outstanding shares of our Series D Term Preferred Stock on March 3, 2021.
(B)
We issued our Series E Term Preferred Stock on August 22, 2018.
(C)
Represents accrued and unpaid dividends up to, but excluding, the redemption date of March 3, 2021.
(D)
We voluntarily redeemed all outstanding shares of our Series B Term Preferred Stock and Series C Term Preferred
Stock on August 31, 2018.
(E)
Represents a combined dividend for the prorated month of August 2018, based upon the issuance date of our
Series E Term Preferred Stock, combined with the full month of September 2018.
The federal income tax characteristics of dividends paid
to our preferred stockholders generally constitute ordinary income or capital gains to the extent of our current and accumulated earnings and profits and are
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reported after the end of the calendar year based on tax information for the full fiscal year. Estimates of tax characterization made on a quarterly basis may not be representative of the actual
tax characterization of dividends for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date. The tax characterization of dividends paid to our preferred stockholders during the calendar year ended
December 31, 2020 was 42.1% from ordinary income and 57.9% from capital gains. The tax characterization of dividends paid to our preferred stockholders during the calendar year ended December 31, 2019 was 27.3% from ordinary income and
72.7% from capital gains.
In accordance with ASC Topic 480, Distinguishing Liabilities from Equity , mandatorily redeemable financial
instruments should be classified as liabilities on the balance sheet. Our mandatorily redeemable preferred stock is recorded at the liquidation preference, less discounts, on our accompanying Consolidated Statements of Assets and Liabilities
as of March 31, 2021 and 2020. The related dividend payments to preferred stockholders are treated as dividend expense on our accompanying Consolidated Statements of Operations on the ex-dividend
date.
The following table summarizes the fair value of each of our series of mandatorily redeemable preferred stock based on the last reported closing
sale price as of March 31, 2021 and 2020, each of which we consider to be a Level 1 input within the fair value hierarchy:
Fair Value as of March 31,
2021
2020
Series D Term Preferred Stock (A)
$
$
53,590
Series E Term Preferred Stock
96,108
64,554
Total
$
96,108
$
118,144
(A)
We voluntarily redeemed all outstanding shares of our Series D Term Preferred Stock on March 3, 2021.
NOTE 7. REGISTRATION STATEMENT AND COMMON EQUITY OFFERINGS
Registration Statement
On June 14, 2019, we filed a
registration statement on Form N-2 (File No. 333-232124), which the SEC declared effective on July 24, 2019. The registration statement permits us to issue,
through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities, and warrants to purchase common stock, preferred stock, or debt securities,
including through concurrent, separate offerings of such securities. As of March 31, 2021, we had the ability to issue up to $147.5 million of the securities registered under the registration statement.
Common Equity Offerings
In December 2019, we entered
into equity distribution agreements with Wedbush Securities, Inc., Cantor Fitzgerald & Co., and Ladenburg Thalmann & Co., Inc. (each a Common Stock ATM Sales Agent), under which we have the ability to issue and sell
shares of our common stock, from time to time, through the Common Stock ATM Sales Agents, up to an aggregate offering price of $35.0 million in an at-the-market
program (the Common Stock ATM Program). As of March 31, 2021, we had remaining capacity to sell up to $30.1 million of common stock under the Common Stock ATM Program.
During the year ended March 31, 2021, we sold 155,560 shares of our common stock under the Common Stock ATM Program at a weighted-average gross price of
$11.39 per share and raised approximately $1.8 million of gross proceeds. The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $11.17 and resulted in total net proceeds of approximately
$1.7 million. These sales were above our then current estimated NAV per share.
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During the year ended March 31, 2020, we sold 227,004 shares of our common stock under the Common Stock
ATM Program at a weighted-average gross price of $13.80 per share and raised approximately $3.1 million of gross proceeds. The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $13.55 and
resulted in total net proceeds of approximately $3.1 million. These sales were above our then current estimated NAV per share.
During the year ended
March 31, 2019, we sold 168,824 shares of our common stock under a previous Common Stock ATM Program at a weighted-average gross price of $11.09 per share and raised approximately $1.9 million of gross proceeds. The weighted-average net
price per share, after deducting commissions and offering costs borne by us, was $10.87 and resulted in total net proceeds of approximately $1.8 million. Certain of these sales were below our then-current estimated NAV per share during the
sales period, with a discount of $0.002 per share, when comparing the sales price per share, after deducting commissions, to the then-current estimated NAV per share; however, the net dilutive effect (after commissions and offering costs borne by
us) of these sales was $0.00 per common share as a result of the small number of shares sold at a slight discount to NAV per share and resulting rounding. In aggregate, the sales during the year ended March 31, 2019 were above our then-current
estimated NAV per share.
NOTE 8. NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER WEIGHTED-AVERAGE COMMON SHARE
The following table sets forth the computation of basic and diluted Net increase (decrease) in net assets resulting from operations per weighted-average common
share for the years ended March 31, 2021, 2020, and 2019:
Year Ended March 31,
2021
2020
2019
Numerator: net increase (decrease) in net assets resulting from operations
$
42,454
$
(7,234
)
$
81,590
Denominator: basic and diluted weighted-average common shares
33,176,760
32,865,840
32,807,597
Basic and diluted net increase (decrease) in net assets resulting from operations per
weighted-average common share
$
1.28
$
(0.22
)
$
2.49
NOTE 9. DISTRIBUTIONS TO COMMON STOCKHOLDERS
To qualify to be taxed as a RIC under Subchapter M of the Code, we must generally distribute to our stockholders, for each taxable year, at least 90% of our
Investment Company Taxable Income. The amount to be paid out as distributions to our stockholders is determined by our Board of Directors and is based upon managements estimate of Investment Company Taxable Income and net long-term capital
gains, as well as amounts to be distributed in accordance with Section 855(a) of the Code. Based on that estimate, our Board of Directors declares monthly distributions, and supplemental distributions, as appropriate, to stockholders each
quarter and deemed distributions of long-term capital gains annually as of the end of the fiscal year, as applicable.
The U.S. federal income tax
characteristics of cash distributions paid to our common stockholders generally are reported to stockholders on IRS Form 1099 after the end of each calendar year. Estimates of tax characterization made on a quarterly basis may not be representative
of the actual tax characterization of cash distributions for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date. The tax characterization of cash distributions paid to our common stockholders during the
calendar year ended December 31, 2020 was 93.9% from ordinary income and 6.1% from capital gains. The tax characterization of
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cash distributions paid to our common stockholders during the calendar year ended December 31, 2019 was 67.8% from ordinary income and 32.2% from capital gains.
We paid the following monthly distributions to our common stockholders for the years ended March 31, 2021, 2020 and 2019:
Fiscal Year
Declaration Date
Record Date
Payment Date
Distribution
per Common Share
2021
April 14, 2020
April 24, 2020
April 30, 2020
$0.070
April 14, 2020
May 19, 2020
May 29, 2020
0.070
April 14, 2020
June 8, 2020
June 17, 2020
0.090
(A)
April 14, 2020
June 19, 2020
June 30, 2020
0.070
July 14, 2020
July 24, 2020
July 31, 2020
0.070
July 14, 2020
August 24, 2020
August 31, 2020
0.070
July 14, 2020
September 23, 2020
September 30, 2020
0.070
October 13, 2020
October 23, 2020
October 30, 2020
0.070
October 13, 2020
November 20, 2020
November 30, 2020
0.070
October 13, 2020
December 23, 2020
December 31, 2020
0.070
January 12, 2021
January 22, 2021
January 29, 2021
0.070
January 12, 2021
February 17, 2021
February 26, 2021
0.070
January 12, 2021
March 18, 2021
March 31, 2021
0.070
Year end March 31, 2021:
$0.930
Fiscal Year
Declaration Date
Record Date
Payment Date
Distribution
per Common Share
2020
April 9, 2019
April 22, 2019
April 30, 2019
$0.068
April 9, 2019
May 22, 2019
May 31, 2019
0.068
April 9, 2019
June 5, 2019
June 14, 2019
0.090
(A)
April 9, 2019
June 19, 2019
June 28, 2019
0.068
July 9, 2019
July 22, 2019
July 31, 2019
0.068
July 9, 2019
August 20, 2019
August 30, 2019
0.068
July 9, 2019
September 4, 2019
September 13, 2019
0.030
(A)
July 9, 2019
September 17, 2019
September 30, 2019
0.068
October 8, 2019
October 22, 2019
October 31, 2019
0.068
October 8, 2019
November 19, 2019
November 29, 2019
0.068
October 8, 2019
December 3, 2019
December 13, 2019
0.090
(A)
October 8, 2019
December 19, 2019
December 31, 2019
0.068
January 14, 2020
January 24, 2020
January 31, 2020
0.070
January 14, 2020
February 19, 2020
February 28, 2020
0.070
January 14, 2020
March 20, 2020
March 31, 2020
0.070
Year ended March 31, 2020:
$1.032
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Fiscal Year
Declaration Date
Record Date
Payment Date
Distribution
per Common Share
2019
April 10, 2018
April 20, 2018
April 30, 2018
$0.067
April 10, 2018
May 22, 2018
May 31, 2018
0.067
April 10, 2018
June 6, 2018
June 15, 2018
0.060
(A)
April 10, 2018
June 20, 2018
June 29, 2018
0.067
July 10, 2018
July 20, 2018
July 31, 2018
0.067
July 10, 2018
August 21, 2018
August 31, 2018
0.067
July 10, 2018
September 19, 2018
September 28, 2018
0.067
October 9, 2018
October 19, 2018
October 31, 2018
0.068
October 9, 2018
November 20, 2018
November 30, 2018
0.068
October 9, 2018
December 6, 2018
December 14, 2018
0.060
(A)
October 9, 2018
December 20, 2018
December 31, 2018
0.068
January 8, 2019
January 18, 2019
January 31, 2019
0.068
January 8, 2019
February 20, 2019
February 28, 2019
0.068
January 8, 2019
March 20, 2019
March 29, 2019
0.068
Year ended March 31, 2019:
$0.930
(A)
Represents a supplemental distribution to common stockholders.
Aggregate cash distributions to our common stockholders declared and paid for the years ended March 31, 2021, 2020 and 2019 were $30.9 million,
$33.9 million, and $30.5 million, respectively.
For the fiscal years ended March 31, 2021, 2020, and 2019, Investment Company Taxable
Income exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $16.1 million, $17.9 million, and $16.0 million, respectively, of the first distributions paid subsequent to
fiscal year-end, as having been paid in the prior year. In addition, for the fiscal years ended March 31, 2021, 2020, and 2019, net capital gains exceeded distributions declared and paid, and, in
accordance with Section 855(a) of the Code, we elected to treat $8.5 million, $5.3 million, and $13.2 million, respectively, of the first distributions paid subsequent to fiscal year-end as
having been paid in the prior year.
We may distribute our net long-term capital gains, if any, in cash or elect to retain some or all of such gains, pay
taxes at the U.S. federal corporate-level income tax rate on the amount retained, and designate the retained amount as a deemed distribution. If we elect to retain net long-term capital gains and deem them distributed, each U.S. common
stockholder will be treated as if they received a distribution of their pro-rata share of the retained net long-term capital gain and the U.S. federal income tax paid. As a result, each U.S. common stockholder
will (i) be required to report their pro-rata share of the retained gain on their tax return as long-term capital gain, (ii) receive a refundable tax credit for their
pro-rata share of federal income tax paid by us on the retained gain, and (iii) increase the tax basis of their shares of common stock by an amount equal to the deemed distribution less the tax credit. To
use the deemed distribution approach, we must provide written notice to our common stockholders prior to the expiration of 60 days after the close of the relevant taxable year. For the year ended March 31, 2021, we did not elect to retain
long-term capital gains and to treat them as deemed distributions to common stockholders. For the years ended March 31, 2020 and 2019, we elected to retain $38.0 million, or $1.15 per common share, and $50.0 million, or $1.52 per
common share, respectively, of long-term capital gains and to treat them as deemed distributions to common stockholders. For the years ended March 31, 2020 and 2019, we incurred $8.0 million, or $0.24 per common share, and
$10.5 million, or $0.32 per common share, respectively, of federal income taxes on behalf of common stockholders, which were included in Taxes on deemed distribution of long-term capital gains on our accompanying Consolidated Statements of
Operations and in Other liabilities on our Consolidated Statements of Assets and Liabilities as of March 31, 2020 and 2019, respectively, which were paid subsequent to each fiscal year end.
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In addition, we obtained clarification of the treatment of deemed distributions with respect to Virginia
state taxes from the Virginia Department of Revenue, which ruled that Virginia state taxes are imposed. As a result of this ruling, we incurred $2.3 million and $3.0 million of Virginia state taxes related to the deemed distributions for
the years ended March 31, 2020 and 2019, respectively, which were included in Taxes on deemed distribution of long-term capital gains on our accompanying Consolidated Statements of Operations and in Other Liabilities on our
Consolidated Statements of Assets and Liabilities as of March 31, 2020 and 2019, respectively, and which were paid subsequent to March 31, 2020.
The components of our net assets on a tax basis were as follows:
Year Ended March 31,
2021
2020
Common stock
$
33
$
33
Capital in excess of par value
400,796
401,023
Cumulative unrealized (depreciation) appreciation of investments
(30,497
)
(44,598
)
Undistributed ordinary income
16,141
17,877
Undistributed capital gain
8,513
5,336
Other temporary differences
(12,622
)
(10,640
)
Net Assets
$
382,364
$
369,031
For the years ended March 31, 2021 and 2020, we recorded the following adjustments for estimated permanent book-tax differences to reflect tax character. Results of operations, total net assets, and cash flows were not affected by these adjustments.
Tax Year Ended March 31,
2021
2020
Underdistributed net investment income
$
5,692
$
2,142
Accumulated net realized gain in excess of distributions
(3,728
)
4,334
Capital in excess of par value
(1,964
)
(6,476
)
NOTE 10. FEDERAL AND STATE INCOME TAXES
We intend to continue to maintain our qualifications as a RIC for federal income tax purposes. As a RIC, we generally are not subject to federal income tax on
the portion of our taxable income and gains that we distribute to stockholders. To maintain our qualification as a RIC, we must maintain our status as a BDC and meet certain
source-of-income and asset diversification requirements. In addition, to qualify to be taxed as a RIC, we must distribute to stockholders at least 90% of our Investment
Company Taxable Income. Our policy generally is to make distributions to our stockholders in an amount up to 100% of our Investment Company Taxable Income. We may retain some or all of our net long-term capital gains, if any, and designate them as
deemed distributions, or distribute such gains to stockholders in cash. Because we have distributed or intend to distribute 100% of our Investment Company Taxable Income and net long-term capital gains, no income tax provisions have been recorded
for the years ended March 31, 2021, 2020, and 2019.
In an effort to limit federal excise taxes, we have to distribute to stockholders, during each
calendar year, an amount close to the sum of (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our net capital gains (both long-term and short-term), if any, for the one-year period ending on
October 31 of the calendar year and (3) any income realized, but not distributed, in the preceding period (to the extent that income tax was not imposed on such amounts), less certain reductions, as applicable. We incurred an excise tax of
$0.5 million, $0.8 million, and $0.3 million for the calendar years ended December 31, 2020, 2019 and 2018, respectively.
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Under the RIC Modernization Act, we are permitted to carryforward any capital losses that we may incur for
an unlimited period, and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. Our capital loss carryforward balance was $0 as of both March 31, 2021 and 2020.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Legal
Proceedings
We are party to certain legal proceedings incidental to the normal course of our business. We are required to establish reserves for
litigation matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish reserves. Based on current knowledge, we do not believe that
loss contingencies, if any, arising from pending investigations, litigation, or regulatory matters will have a material adverse effect on our financial condition, results of operation, or cash flows. Additionally, based on our current knowledge, we
do not believe such loss contingencies are both probable and estimable and, therefore, as of March 31, 2021 and 2020, we had no established reserves for such loss contingencies.
Escrow Holdbacks
From time to time, we enter into
arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used to satisfy potential obligations, as stipulated in the sales agreements. We record escrow amounts in Restricted cash and
cash equivalents, if received in cash but subject to potential obligations or other contractual restrictions, or as escrow receivables in Other assets, net, if not yet received in cash, on our accompanying Consolidated Statements of Assets and
Liabilities . We establish reserves and holdbacks against escrow amounts if we determine that it is probable and estimable that a portion of the escrow amounts will not ultimately be released or received at the end of the escrow period. Reserves
and holdbacks against escrow amounts were $0.7 million and $2.3 million as of March 31, 2021 and 2020, respectively.
Financial
Commitments and Obligations
We may have line of credit and delayed draw term loan commitments to certain of our portfolio companies that have not been
fully drawn. Since these line of credit and delayed draw term loan commitments have expiration dates and we expect many will never be fully drawn, the total line of credit and delayed draw term loan commitment amounts do not necessarily represent
future cash requirements. We estimate the fair value of the combined unused line of credit and delayed draw term loan commitments as of March 31, 2021 and 2020 to be immaterial.
We have also extended a guaranty on behalf of one of our portfolio companies. As of March 31, 2021 and 2020, we have not been required to make any
payments on this guaranty, or any guaranties that existed in previous periods, and we consider the credit risk to be remote and the fair value of the guaranty as of March 31, 2021 and 2020 to be immaterial.
As of March 31, 2021, the following guaranty was outstanding:
A $1.0 million continuing guaranty of a wholesale financing facility agreement (the Floor Plan
Facility) between DLL Finance LLC (f/k/a Agricredit Acceptance, LLC) and Country Club Enterprises, LLC. The Floor Plan Facility provides Country Club Enterprises, LLC with financing to bridge the time and cash flow gap between the order and
delivery of golf carts to customers.
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The following table summarizes the principal balances of unused line of credit and delayed draw term loan
commitments and guaranties as of March 31, 2021 and 2020, which are not reflected as liabilities in the accompanying Consolidated Statements of Assets and Liabilities :
As of March 31,
2021
2020
Unused line of credit and delayed draw term loan commitments
$
3,000
$
1,230
Guaranty
1,000
1,000
Total
$
4,000
$
2,230
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NOTE 12. FINANCIAL HIGHLIGHTS
As of and for the Year Ended March 31,
2021
2020
2019
2018
2017
Per Common Share Data:
Net asset value at beginning of year
(A)
$
11.17
$
12.40
10.85
9.95
9.22
Income from investment
operations (B)
Net investment income
0.54
1.11
0.23
0.68
0.74
Net realized gain (loss) on investments and other
0.32
1.36
2.04
0.04
0.51
Taxes on deemed distributions of long-term capital gains
(0.31
)
(0.41
)
Net unrealized appreciation (depreciation) of investments and other
0.42
(2.38
)
0.63
1.16
0.23
Total from investment operations
1.28
(0.22
)
2.49
1.88
1.48
Effect of equity capital
activity (B)
Cash distributions to common stockholders from net investment income (C)
(0.83
)
(0.75
)
(0.69
)
(0.84
)
(0.75
)
Cash distributions to common stockholders from realized gains (C)
(0.10
)
(0.28
)
(0.24
)
(0.05
)
Discounts, commissions, and offering costs
(0.03
)
Net accretive (dilutive) effect of equity offering (D)
0.01
(0.04
)
Total from equity capital activity
(0.93
)
(1.02
)
(0.93
)
(0.96
)
(0.75
)
Other, net (B)(E)
0.01
(0.01
)
(0.02
)
Net asset value at end of year (A)
$
11.52
$
11.17
12.40
10.85
9.95
Per common share market value at beginning of year
$
7.85
$
11.60
10.10
9.07
7.02
Per common share market value at end of year
12.23
7.85
11.60
10.10
9.07
Total investment return (F)
70.65
%
(26.23
)%
24.95
%
21.82
%
41.58
%
Common stock outstanding at end of
year (A)
33,205,023
33,049,463
32,822,459
32,653,635
30,270,958
Statement of Assets and Liabilities Data:
Net assets at end of year
$
382,364
$
369,031
$
407,110
$
354,200
$
301,082
Average net assets (G)
365,568
404,336
391,786
328,533
294,030
Senior Securities Data:
Total borrowings, at cost
$
155,434
$
54,296
$
58,096
$
112,096
$
74,796
Mandatorily redeemable preferred
stock (H)
94,371
132,250
132,250
139,150
139,150
Ratios/Supplemental Data:
Ratio of net expenses to average net
assets (I)
10.58
%
6.32
%
13.30
%
11.08
%
10.02
%
Ratio of net investment income to average net
assets (J)
4.91
8.99
1.92
6.68
7.63
(A)
Based on actual shares of common stock outstanding at the beginning or end of the corresponding year, as
appropriate.
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(B)
Based on weighted-average basic common share data for the corresponding year.
(C)
The tax character of distributions is determined based on taxable income calculated in accordance with income
tax regulations, which may differ from amounts determined under GAAP. For further information on the estimated character of our distributions to common stockholders, including changes in estimates, as applicable, refer to Note 9
Distributions to Common Stockholders .
(D)
During the year ended March 31, 2020, the accretive effect is the result of issuing common shares at a
price above the then current NAV per share. During the year ended March 31, 2018, the net dilutive effect is the result of issuing common shares at a price below the then current NAV per share.
(E)
Represents the impact of the different share amounts (weighted-average basic common shares outstanding for the
corresponding year and actual common shares outstanding at the end of the year) in the Per Common Share Data calculations and rounding impacts.
(F)
Total return equals the change in the market value of our common stock from the beginning of the year, taking
into account dividends reinvested in accordance with the terms of our dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital. For further information on the estimated
character of our distributions to common stockholders, including changes in estimates, as applicable, refer to Note 9 Distributions to Common Stockholders .
(G)
Calculated using the average balance of net assets at the end of each month of the reporting year.
(H)
Represents the aggregate liquidation preference of our mandatorily redeemable preferred stock.
(I)
Ratio of net expenses to average net assets is computed using total expenses, net of any non-contractual, unconditional, and irrevocable credits of fees from the Adviser. Had we not received any non-contractual, unconditional, and irrevocable credits of fees from
the Adviser, the ratio of expenses to average net assets would have been 13.33%, 9.12%, 16.45%, 14.11%, and 13.46%, for the fiscal years ended March 31, 2021, 2020, 2019, 2018, and 2017, respectively.
Had we included Virginia state taxes incurred on the deemed distributions of retained capital gains for the fiscal year ended March 31,
2020 and 2019, the ratio of net expenses to average net assets would have been 6.89% and 14.07%, respectively.
(J)
Had we not received any non-contractual, unconditional, and irrevocable
credits of fees from the Adviser, the ratio of net investment income (loss) to average net assets would have been 2.16%,6.20%, (1.22)%, 3.66%, and 4.19%, for the fiscal years ended March 31, 2021, 2020, 2019, 2018, and 2017, respectively.
NOTE 13. UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES
In accordance with the SECs Regulation S-X, we do not consolidate portfolio company investments. Further, in
accordance with ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to
the investment company or its consolidated subsidiaries.
We did not have any unconsolidated subsidiaries that met any of the significance conditions
under Rule 1-02(w)(2) of the SECs Regulation S-X as of or during at least one of the years ended March 31, 2021, 2020 and 2019.
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NOTE 14. SUBSEQUENT EVENTS
Distributions and Dividends
In April 2021, our Board of
Directors declared the following monthly and supplemental cash distributions to common stockholders and monthly dividends to holders of our Series E Term Preferred Stock:
Record Date
Payment Date
Distribution per
Common Share
Dividend per
Share of
Series E Term
Preferred Stock
April 23, 2021
April 30, 2021
$
0.07
$
0.13281250
May 19, 2021
May 28, 2021
0.07
0.13281250
June 8, 2021
June 17, 2021
0.06
(A)
June 18, 2021
June 30, 2021
0.07
0.13281250
Total for the Quarter:
$
0.27
$
0.39843750
(A)
Represents a supplemental distribution to common stockholders.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.