Item 8. Financial Statements and Supplementary Data
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Managements Annual Report on Internal Control over Financial Reporting
87
Report of Independent Registered Public Accounting Firm
88
Consolidated Statements of Assets and Liabilities as of September
30, 2020 and 2019
89
Consolidated Statements of Operations for the years ended September
30, 2020, 2019 and 2018
90
Consolidated Statements of Changes in Net Assets for the years ended September 30,
2020, 2019 and 2018
91
Consolidated Statements of Cash Flows for the years ended September
30, 2020, 2019 and 2018
92
Consolidated Schedules of Investments as of September
30, 2020 and 2019
93
Notes to Consolidated Financial Statements
105
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Managements Annual Report on Internal
Control over Financial Reporting
To the Stockholders and Board of Directors of Gladstone Capital 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, we assessed the effectiveness of our internal control over financial reporting as of
September 30, 2020, 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 September 30, 2020.
November 10, 2020
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Gladstone Capital 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 Capital Corporation and its subsidiaries (the Company) as of September 30,
2020 and 2019, and the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended September 30, 2020, including the related notes and financial
statement schedules listed in the index appearing under Item 15(a)(2) (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 September 30, 2020 and 2019, 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
September 30, 2020 in conformity with accounting principles generally accepted in the United States of America.
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 September 30, 2020 and 2019 by correspondence with the custodian, 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.
/s/PricewaterhouseCoopers LLP
McLean, VA
November 10, 2020
We have served as the Companys
auditor since 2002.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
September 30,
September 30,
2020
2019
ASSETS
Investments, at fair value:
Non-Control/Non-Affiliate
investments (Cost of $427,798 and $361,272 respectively)
$
401,047
$
345,876
Affiliate investments (Cost of $38,322 and $38,921, respectively)
33,179
35,421
Control investments (Cost of $28,527 and $28,259, respectively)
16,174
21,578
Cash and cash equivalents
2,420
15,707
Restricted cash and cash equivalents
49
41
Interest receivable, net
3,001
2,625
Due from administrative agent
2,103
2,826
Deferred financing costs, net
372
866
Other assets, net
832
1,129
TOTAL ASSETS
$
459,177
$
426,069
LIABILITIES
Borrowings, at fair value (Cost of $128,000 and $66,900, respectively)
$
127,650
$
67,067
Notes payable, net of unamortized deferred financing costs of $2,428 and $1,750,
respectively
93,885
55,750
Mandatorily redeemable preferred stock, $0.001 par value per share, $25 liquidation preference per
share; 5,440,000 and 5,440,000 shares authorized, respectively, and 0 and 2,070,000 shares issued and outstanding, respectively, net
50,354
Accounts payable and accrued expenses
377
576
Interest payable
1,181
842
Fees due to Adviser (A)
1,686
1,452
Fee due to Administrator (A)
329
366
Other liabilities
326
332
TOTAL LIABILITIES
$
225,434
$
176,739
Commitments and contingencies (B)
NET ASSETS
Common stock, $0.001 par value per share, 44,560,000 and 44,560,000 shares authorized,
respectively, and 31,566,850 and 30,345,923 shares issued and outstanding, respectively
$
32
$
30
Capital in excess of par value (C)
367,125
358,113
Cumulative net unrealized depreciation of investments
(44,247
)
(25,577
)
Cumulative net unrealized appreciation of other
350
(167
)
Under (over) distributed net investment
income (C)
(39
)
136
Accumulated net realized losses
(89,478
)
(83,205
)
Total distributable loss
(133,414
)
(108,813
)
TOTAL NET ASSETS
$
233,743
$
249,330
NET ASSET VALUE PER COMMON SHARE
$
7.40
$
8.22
(A)
Refer to Note 4 Related Party Transactions for additional information.
(B)
Refer to Note 11 Commitments and Contingencies for additional information.
(C)
Refer to Note 9 Distributions to Common Stockholders for additional information.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year ended September 30,
2020
2019
2018
INVESTMENT INCOME
Interest income
Non-Control/Non-Affiliate
investments
$
37,469
$
37,879
$
33,497
Affiliate investments
4,296
4,302
4,800
Control investments
1,661
2,146
1,817
Cash and cash equivalents
17
54
39
Total interest income (excluding PIK interest income)
43,443
44,381
40,153
PIK interest income
Non-Control/Non-Affiliate
investments
2,578
1,262
3,524
Affiliate investments
49
281
Control investments
76
Total PIK interest income
2,578
1,387
3,805
Total interest income
46,021
45,768
43,958
Success fee income
Non-Control/Non-Affiliate
investments
350
1,935
430
Total success fee income
350
1,935
430
Dividend income
Non-Control/Non-Affiliate
investments
166
497
251
Control investments
559
598
262
Total dividend income
725
1,095
513
Other income
863
1,237
680
Total investment income
47,959
50,035
45,581
EXPENSES
Base management fee (A)
7,568
7,230
7,033
Loan servicing fee (A)
5,819
5,072
5,042
Incentive fee (A)
5,251
5,776
5,348
Administration fee (A)
1,430
1,325
1,250
Interest expense on borrowings
9,991
8,037
5,858
Dividend expense on mandatorily redeemable preferred stock
9
3,105
3,105
Amortization of deferred financing costs
1,484
1,348
1,014
Professional fees
877
833
880
Other general and administrative expenses
1,219
1,187
1,086
Expenses, before credits from Adviser
33,648
33,913
30,616
Credit to base management fee - loan servicing
fee (A)
(5,819
)
(5,072
)
(5,042
)
Credit to fees from Adviser -
other (A)
(5,033
)
(3,386
)
(3,081
)
Total expenses, net of credits
22,796
25,455
22,493
NET INVESTMENT INCOME
25,163
24,580
23,088
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss):
Non-Control/Non-Affiliate
investments
(7,413
)
(16,404
)
1,812
Affiliate investments
(63
)
25
325
Control investments
(9
)
(28,200
)
Other
(1,407
)
(133
)
Total net realized gain (loss)
(8,883
)
(16,388
)
(26,196
)
Net unrealized appreciation (depreciation):
Non-Control/Non-Affiliate
investments
(11,355
)
18,341
(5,645
)
Affiliate investments
(1,643
)
2,311
1,409
Control investments
(5,672
)
(8,808
)
25,877
Other
517
(167
)
115
Total net unrealized appreciation (depreciation)
(18,153
)
11,677
21,756
Net realized and unrealized gain (loss)
(27,036
)
(4,711
)
(4,440
)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
$
(1,873
)
$
19,869
$
18,648
BASIC AND DILUTED PER COMMON SHARE:
Net investment income
$
0.81
$
0.84
$
0.85
Net increase (decrease) in net assets resulting from operations
$
(0.06
)
$
0.68
$
0.69
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic and Diluted
31,040,852
29,269,466
27,104,077
(A)
Refer to Note 4 Related Party Transactions for additional information.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(DOLLAR AMOUNTS IN THOUSANDS)
Year ended September 30,
2020
2019
2018
OPERATIONS
Net investment income
$
25,163
$
24,580
$
23,088
Net realized gain (loss) on investments
(7,476
)
(16,388
)
(26,063
)
Net realized loss on other
(1,407
)
(133
)
Net unrealized appreciation (depreciation) of investments
(18,670
)
11,844
21,641
Net unrealized appreciation (depreciation) of other
517
(167
)
115
Net increase (decrease) in net assets from operations
(1,873
)
19,869
18,648
DISTRIBUTIONS
Distributions to common stockholders from net investment income ( $0.80 , $0.82, and $0.84
per share, respectively) (A)
(24,752
)
(23,861
)
(22,801
)
Distributions to common stockholders from return of capital ( $0.01 , $0.02, and $0.00 per
share, respectively) (A)
(411
)
(719
)
Net decrease in net assets from distributions
(25,163
)
(24,580
)
(22,801
)
CAPITAL TRANSACTIONS
Issuance of common stock
11,664
17,248
21,991
Offering costs for issuance of common stock
(215
)
(299
)
(396
)
Net increase (decrease) in net assets from capital transactions
11,449
16,949
21,595
NET INCREASE (DECREASE) IN NET ASSETS
(15,587
)
12,238
17,442
NET ASSETS, BEGINNING OF YEAR
249,330
237,092
219,650
NET ASSETS, END OF YEAR
$
233,743
$
249,330
$
237,092
(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 CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
Year ended September 30,
2020
2019
2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in net assets resulting from operations
$
(1,873
)
$
19,869
$
18,648
Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided by (used in) operating activities:
Purchase of investments
(149,906
)
(147,067
)
(106,115
)
Principal repayments on investments
75,992
118,381
64,896
Net proceeds from sale of investments
2,763
12,680
2,892
Increase in investments due to
paid-in-kind interest or other
(2,400
)
(1,752
)
(4,060
)
Net change in premiums, discounts and amortization
(329
)
358
(119
)
Net realized loss (gain) on investments
7,685
16,414
26,063
Net unrealized depreciation (appreciation) of investments
18,670
(11,844
)
(21,641
)
Net realized loss (gain) on other
1,407
Net unrealized appreciation (depreciation) of other
(517
)
167
(115
)
Amortization of deferred financing costs
1,484
1,348
1,014
Changes in assets and liabilities:
Decrease (increase) in interest receivable, net
(376
)
(24
)
(902
)
Decrease (increase) in funds due from administrative agent
723
(19
)
279
Decrease (increase) in other assets, net
255
(485
)
1,857
Increase (decrease) in accounts payable and accrued expenses
(199
)
286
(232
)
Increase (decrease) in interest payable
339
512
66
Increase (decrease) in fees due to
Adviser (A)
234
368
(208
)
Increase (decrease) in fee due to
Administrator (A)
(37
)
49
73
Increase (decrease) in other liabilities
(6
)
14
(192
)
Net cash provided by (used in) operating activities
(46,091
)
9,255
(17,796
)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
204,500
170,700
118,900
Repayments on borrowings
(143,400
)
(213,800
)
(101,900
)
Redemption of mandatorily redeemable preferred stock
(51,750
)
Proceeds from issuance of notes payable
38,813
57,500
Deferred financing costs
(1,677
)
(2,322
)
(1,329
)
Proceeds from issuance of notes payable
11,664
17,248
21,991
Offering costs for issuance of common stock
(175
)
(257
)
(331
)
Distributions paid to common stockholders
(25,163
)
(24,580
)
(22,801
)
Net cash provided by (used in) financing activities
32,812
4,489
14,530
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS RESTRICTED CASH, AND RESTRICTED CASH
EQUIVALENTS
(13,279
)
13,744
(3,266
)
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF
YEAR
15,748
2,004
5,270
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, END OF
YEAR
$
2,469
$
15,748
$
2,004
CASH PAID DURING YEAR FOR INTEREST
$
9,652
$
7,525
$
5,792
NON-CASH ACTIVITIES
500
(A)
Refer to Note 4 Related Party Transactions for additional information.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(Y)
Principal/
Shares/
Units (J)(X)
Cost
Fair
Value
NON-CONTROL/NON-AFFILIATE
INVESTMENTS (M) 171.6%
Secured First Lien Debt85.5%
Aerospace and Defense14.3%
Aerospace Engineering, LLCLine of Credit, $2,350 available (L + 7.3%, 8.3% Cash, Due 8/2025) (C)
$
650
$
650
$
650
Aerospace Engineering, LLCTerm Debt (L + 7.3%, 8.3% Cash, Due 8/2025) (C)
20,000
20,000
20,000
Antenna Research Associates, Inc.Term Debt (L + 10.0%, 12.0% Cash, 4.0% PIK, Due 11/2023) (E)
12,672
12,672
12,672
33,322
33,322
Beverage, Food, and Tobacco10.9%
Café ZupasLine of Credit, $4,000 available (L + 7.4%, 8.9% Cash, Due 12/2024) (C)
Café ZupasDelayed Draw Term Loan, $3,030 available (L + 7.4%, 8.9% Cash, Due 12/2024) (C)
1,970
1,970
1,931
Café ZupasTerm Debt (L + 7.4%, 8.9% Cash, Due 12/2024) (C)
24,000
24,000
23,520
25,970
25,451
Buildings and Real Estate0.7%
GFRC 360, LLCLine of Credit, $500 available (L + 8.0%, 9.0% Cash, Due 9/2021) (C)
700
700
681
GFRC 360, LLCTerm Debt (L + 8.0%, 9.0% Cash, Due 9/2021) (C)
1,000
1,000
973
1,700
1,654
Diversified/Conglomerate Service24.9%
DKI Ventures, LLCLine of Credit, $2,500 available (L + 8.3%, 9.3% Cash, 2.0% PIK, Due
12/2021) (C)
DKI Ventures, LLCTerm Debt (L + 8.3%, 9.3% Cash, 2.0% PIK, Due 12/2023) (C)
5,971
5,971
4,523
ENET Holdings, LLCTerm Debt (10.2% Cash, Due 12/2022) (C)(F)
1,000
1,000
807
ENET Holdings, LLCTerm Debt (10.2% Cash, Due 4/2025) (C)(F)
29,000
29,000
23,417
R2i Holdings, LLCLine of Credit, $1,171 available (8.0% Cash, Due 12/2021) (C)(F)
829
829
790
R2i Holdings, LLCTerm Debt (8.0% Cash, Due 12/2023) (C)(F)
19,625
19,625
18,693
Vision Government Solutions, Inc.Line of Credit, $2,500 available (L + 8.8%, 9.8% Cash, Due
12/2022) (C)
Vision Government Solutions, Inc.Term Debt (L + 8.8%, 9.8% Cash, Due 12/2022) (C)
10,100
10,066
10,036
66,491
58,266
Healthcare, Education, and Childcare20.9%
ALS Education, LLCLine of Credit, $4,000 available (L + 7.5%, 9.0% Cash, Due 5/2025) (C)
ALS Education, LLCTerm Debt (L + 7.5%, 9.0% Cash, Due 5/2025) (C)
21,670
21,670
21,562
EL Academies, Inc.Delayed Draw Term Loan, $0 available (L + 8.0%, 9.0% Cash, Due 8/2022) (C)
16,000
15,986
15,640
EL Academies, Inc.Term Debt (L + 8.0%, 9.0% Cash, Due 8/2022) (C)
12,000
11,983
11,730
49,639
48,932
Machinery2.6%
Arc Drilling Holdings LLCLine of Credit, $875 available (L + 8.0%, 9.3% Cash, Due 11/2020) (C)
125
125
121
Arc Drilling Holdings LLCTerm Debt (L + 9.5%, 10.8% Cash, 3.0% PIK, Due 11/2022) (C)
5,871
5,871
5,689
Precision International, LLCLine of Credit, $500 available (L + 7.5%, 8.5% Cash, Due 9/2021) (C)
Precision International, LLCTerm Debt (10.0% Cash, Due 9/2021) (C)(F)
286
286
277
6,282
6,087
Printing and Publishing0.0%
Chinese Yellow Pages CompanyLine of Credit, $0 available (PRIME + 4.0%, 7.3% Cash, Due
2/2015) (E)(V)
107
107
Telecommunications11.2%
B+T Group Acquisition, Inc. (S) Line of
Credit, $0 available (L + 11.0%, 13.0% Cash, Due 12/2021) (C)(H)
1,200
1,200
1,086
B+T Group Acquisition, Inc. (S) Term Debt
(L + 11.0%, 13.0% Cash, Due 12/2021) (C)(H)
6,000
6,000
5,430
NetFortris Corp.Term Debt (L + 9.0%, 9.5% Cash, Due 2/2021) (C)
23,302
23,302
19,632
30,502
26,148
Total Secured First Lien Debt
$
214,013
$
199,860
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(Y)
Principal/
Shares/
Units (J)(X)
Cost
Fair
Value
Secured Second Lien Debt72.2%
Automobile4.1%
Sea Link International IRB, Inc.Term Debt (13.3% PIK, Due 3/2023) (C)(F)
$
10,576
$
10,576
$
9,518
Beverage, Food, and Tobacco 1.6%
8 th Avenue Food & Provisions,
Inc.Term Debt (L + 7.8%, 7.9% Cash, Due 10/2026) (D)
3,683
3,704
3,637
Cargo Transportation13.1%
AG Transportation Holdings, LLCTerm Debt (L + 10.0%, 13.3% Cash, Due 12/2021) (C)
13,000
12,973
12,805
American Trailer Rental Group LLCTerm Debt (L + 8.9%, 10.4% Cash, Due 8/2025) (C)
18,000
18,000
17,820
30,973
30,625
Chemicals, Plastics, and Rubber4.7%
Phoenix Aromas & Essential Oils, LLCTerm Debt (L + 11.5%, 12.5% Cash, Due 5/2024) (C)
10,012
10,012
9,911
Vertellus Holdings LLCTerm Debt (L + 12.0%, 13.0% Cash, Due 7/2022) (C)
1,099
1,099
1,099
11,111
11,010
Diversified/Conglomerate Manufacturing13.7%
Magpul Industries Corp.Term Debt (L + 11.5%, 12.5% Cash, Due 5/2026) (C)
28,000
28,000
28,000
Tailwind Smith Cooper Intermediate CorporationTerm Debt (L + 9.0%, 9.1% Cash, Due 5/2027) (D)
5,000
4,776
3,887
32,776
31,887
Diversified/Conglomerate Service14.9%
CHA Holdings, Inc.Term Debt (L + 8.8%, 9.8% Cash, Due 4/2026) (D)(U)
3,000
2,953
2,700
Drive Chassis Holdco, LLCTerm Debt (L + 8.3%, 8.5% Cash, Due 4/2026) (D((U)
5,000
4,786
4,787
Gray Matter Systems, LLCTerm Debt (12.0% Cash, Due 11/2023) (C)(F)
11,100
11,100
10,906
Keystone Acquisition Corp.Term Debt (L + 9.3%, 10.3% Cash, Due 5/2025) (D)(U)
4,000
3,945
3,300
Prophet Brand StrategyDelayed Draw Term Loan, $5,000 available (L + 8.5%, 10.5% Cash, Due
2/2025) (C)
Prophet Brand StrategyTerm Debt (L + 8.5%, 10.5% Cash, Due 2/2025) (C)
13,000
13,000
12,984
35,784
34,677
Healthcare, Education, and Childcare2.3%
Medical Solutions Holdings, Inc.Term Debt (L + 8.4%, 9.4% Cash, Due 6/2025) (D)
3,000
2,969
2,700
Medical Solutions Holdings, Inc.Term Debt (L + 8.8%, 9.8% Cash, Due 6/2025) (D)
3,000
2,948
2,760
5,917
5,460
Home and Office Furnishings, Housewares and Durable Consumer Products4.1%
Belnick, Inc.Term Debt (11.0% Cash, Due
8/2023) (C)(F)
10,000
10,000
9,675
Hotels, Motels, Inns, and Gaming3.4%
Vacation Rental Pros Property Management, LLCTerm Debt (L + 10.0%, 11.0% Cash, 3.0% PIK, Due
6/2023) (C)
8,052
8,052
8,052
Machinery0.4%
CPM Holdings, Inc.Term Debt (L + 8.3%, 8.4% Cash, Due 11/2026) (D)
1,000
1,000
910
Oil and Gas 9.9%
Imperative Holdings CorporationTerm Debt (L + 10.3%, 12.3% Cash, 1.8% PIK, Due 9/2022) (C)
27,583
27,583
23,170
Total Secured Second Lien Debt
$
177,476
$
168,621
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(Y)
Principal/
Shares/
Units (J)(X)
Cost
Fair
Value
Unsecured Debt1.8%
Diversified/Conglomerate Service0.0%
Frontier Financial Group Inc.Convertible Debt (6.0%, Due 6/2022) (E)(F)
$
198
$
198
$
17
Healthcare, education, and childcare1.8%
Edmentum Ultimate Holdings, LLCTerm Debt (10.0% PIK, Due 12/2021) (C)(F)
4,415
4,415
4,282
Total Unsecured Debt
$
4,613
$
4,299
Preferred Equity2.0%
Beverage, Food, and Tobacco0.0%
Triple H Food Processors, LLCPreferred
Stock (E)(G)
75
75
83
Buildings and Real Estate0.6%
GFRC 360, LLCPreferred
Stock (E)(G)
1,000
1,025
1,456
Diversified/Conglomerate Service0.0%
Frontier Financial Group Inc.Preferred
Stock (E)(G)
766
500
Frontier Financial Group Inc.Preferred Stock Warrant (E)(G)
168
500
Oil and Gas0.6%
FES Resources Holdings LLCPreferred Equity
Units (E)(G)
6,350
6,350
Imperative Holdings CorporationPreferred Equity Units (E)(G)
13,740
632
1,292
6,982
1,292
Telecommunications0.8%
B+T Group Acquisition, Inc. (S) Preferred
Stock (E)(G)
6,130
2,024
NetFortris Corp.Preferred
Stock (E)(G)
7,890,860
789
1,846
2,813
1,846
Total Preferred Equity
$
11,395
$
4,677
Common Equity10.1%
Aerospace and Defense1.8%
Antenna Research Associates, Inc.Common Equity Units (E)(G)
4,283
$
4,283
$
4,138
Automobile0.1%
Sea Link International IRB, Inc.Common Equity Units (E)(G)
823,333
823
208
Beverage, Food, and Tobacco0.0%
Triple H Food Processors, LLCCommon
Stock (E)(G)
250,000
250
Buildings and Real Estate0.0%
GFRC 360, LLCCommon Stock
Warrants (E)(G)
45.0
%
Cargo Transportation1.7%
AG Transportation Holdings, LLCMember Profit Participation (E)(G)
27.0
%
1,350
2,345
AG Transportation Holdings, LLCProfit Participation Warrants (E)(G)
5.0
%
244
563
American Trailer Rental Group LLCCommon
Stock (E)(G)
6,667
1,000
1,009
2,594
3,917
Chemicals, Plastics, and Rubber1.2%
Vertellus Holdings LLCCommon Stock
Units ((E)(G)
879,121
3,018
2,705
Healthcare, Education, and Childcare2.3%
Edmentum Ultimate Holdings, LLCCommon
Stock (E)(G)
21,429
2,637
GSM MidCo LLCCommon Stock (E)(G)
767
767
763
Leeds Novamark Capital I, L.P.Limited Partnership Interest ($843 uncalled capital commitment) (G)(L)(R)
3.5
%
1,808
4,718
5,212
5,481
Machinery0.4%
Arc Drilling Holdings LLCCommon
Stock (E)(G)
15,000
1,500
400
Precision International, LLCMembership Unit Warrant (E)(G)
33.3
%
525
1,500
925
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(Y)
Principal/
Shares/
Units (J)(X)
Cost
Fair
Value
Oil and Gas0.1%
FES Resources Holdings LLCCommon Equity
Units (E)(G)
6,233
Total Safety Holdings, LLCCommon
Equity (E)(G)
435
499
263
499
263
Personal and Non-Durable Consumer Products
(Manufacturing Only)0.0%
Funko Acquisition Holdings, LLC (S) Common
Units (G)(T)
12,180
59
48
Telecommunications 0.0%
B+T Group Acquisition, Inc. (S) Common
Stock Warrant (E)(G)
1.5
%
NetFortris Corp.Common Stock
Warrant (E)(G)
1
1
1
Textiles and Leather2.5%
Targus Cayman HoldCo, Ltd.Common
Stock (E)(G)
3,076,414
2,062
5,905
Total Common Equity
$
20,301
$
23,590
Total
Non-Control/Non-Affiliate Investments
$
427,798
$
401,047
AFFILIATE INVESTMENTS (N)
14.2%
Secured First Lien Debt3.7%
Diversified/Conglomerate Manufacturing3.7%
Edge Adhesives Holdings, Inc. (S) Line of
Credit, $0 available (L + 8.0%, 10.0% Cash, Due 12/2020) (C)
$
680
$
680
$
663
Edge Adhesives Holdings, Inc. (S) Term
Debt (L + 10.5%, 12.5% Cash, Due 2/2022) (C)
6,200
6,200
6,045
Edge Adhesives Holdings, Inc. (S) Term
Debt (L + 11.8%, 13.8% Cash, Due 2/2022) (C)
2,000
2,000
1,950
8,880
8,658
Total Secured First Lien Debt
$
8,880
$
8,658
Secured Second Lien Debt8.7%
Diversified Natural Resources, Precious Metals and Minerals 8.7%
Lignetics, Inc.Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025) (C)
$
6,000
$
6,000
$
6,000
Lignetics, Inc.Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025) (C)
8,000
8,000
8,000
Lignetics, Inc.Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025) (C)
3,300
3,300
3,300
Lignetics, Inc.Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025) (C)
3,000
3,000
3,000
20,300
20,300
Total Secured Second Lien Debt
$
20,300
$
20,300
Preferred Equity0.9%
Diversified/Conglomerate Manufacturing0.0%
Edge Adhesives Holdings, Inc.
(S) Preferred Stock (E)(G)
5,466
$
5,466
$
Diversified Natural Resources, Precious Metals and Minerals0.7%
Lignetics, Inc.Preferred
Stock (E)(G)
68,880
1,321
1,562
Personal and Non-Durable Consumer Products
(Manufacturing Only)0.2%
Canopy Safety Brands, LLCPreferred
Stock (E)(G)
500,000
500
507
Total Preferred Equity
$
7,287
$
2,069
Common Equity0.9%
Diversified Natural Resources, Precious Metals and Minerals 0.9%
Lignetics, Inc.Common
Stock (E)(G)
152,603
$
1,855
$
2,152
Personal and Non-Durable Consumer Products
(Manufacturing Only)0.0%
Canopy Safety Brands, LLCCommon
Stock (E)(G)
500,000
Total Common Equity
$
1,855
$
2,152
Total Affiliate Investments
$
38,322
$
33,179
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(Y)
Principal/
Shares/
Units (J)(X)
Cost
Fair
Value
CONTROL
INVESTMENTS (O) 6.9%
Secured First Lien Debt2.1%
Diversified/Conglomerate Manufacturing1.5%
LWO Acquisitions Company LLCTerm Debt (L + 7.5%, 10.0% Cash, Due 6/2021) (E)
$
6,000
$
6,000
$
3,450
LWO Acquisitions Company LLCTerm Debt (Due 6/2021) (E)(P)
10,632
10,632
16,632
3,450
Printing and Publishing0.6%
TNCP Intermediate HoldCo, LLCLine of Credit, $500 available (8.0% Cash, Due 9/2021) (E)(F)
1,500
1,483
1,500
Total Secured First Lien Debt
$
18,115
$
4,950
Secured Second Lien Debt3.5%
Automobile3.5%
Defiance Integrated Technologies, Inc.Term Debt (L + 9.5%, 11.0% Cash, Due 5/2026) (E)
$
8,065
$
8,065
$
8,065
Unsecured Debt0.0%
Diversified/Conglomerate Manufacturing0.0%
LWO Acquisitions Company LLCTerm Debt (Due 6/2023) (E)(P)
$
95
$
95
$
Preferred Equity0.1%
Automobile0.1%
Defiance Integrated Technologies, Inc.Preferred Stock (E)(G)
6,043
$
250
$
254
Common Equity1.2%
Automobile0.0%
Defiance Integrated Technologies, Inc.Common Stock (E)(G)
33,321
$
580
$
104
Diversified/Conglomerate Manufacturing0.0%
LWO Acquisitions Company LLCCommon
Units (E)(G)
921,000
921
Machinery1.0%
PIC 360, LLCCommon Equity
Units (E)(G)
750
1
2,342
Printing and Publishing0.2%
TNCP Intermediate HoldCo, LLCCommon Equity Units (E)(G)
790,000
500
459
Total Common Equity
$
2,002
$
2,905
Total Control Investments
$
28,527
$
16,174
TOTAL
INVESTMENTS (Z) 192.7%
$
494,647
$
450,400
(A)
Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio
company. The majority of the securities listed, totaling $412.5 million at fair value, are pledged as collateral under our revolving line of credit, as described further in Note 5 Borrowings in the accompanying Notes to
Consolidated Financial Statements. Under 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 September 30, 2020, our investments in Leeds Novamark Capital I, L.P. (Leeds) and Funko Acquisition Holdings, LLC (Funko) are considered non-qualifying assets under Section 55 of the 1940 Act. Such non-qualifying assets represent 1.1% of total investments, at fair value, as of September 30, 2020.
(B)
Unless indicated otherwise, all cash interest rates are indexed to
30-day London Interbank Offered Rate (LIBOR or L), which was 0.15% as of September 30, 2020. If applicable,
paid-in-kind (PIK) 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 LIBOR plus a spread. Due dates represent the contractual maturity date.
(C)
Fair value was based on an internal yield analysis or on estimates of value submitted by ICE Data Pricing and
Reference Data, LLC (ICE).
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(D)
Fair value was based on the indicative bid price on or near September 30, 2020, offered by the respective
syndication agents trading desk.
(E)
Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the
portfolio companys securities in order of their relative priority in the capital structure.
(F)
Debt security has a fixed interest rate.
(G)
Security is non-income producing.
(H)
Debt security is on non-accrual status.
(I)
Reserved.
(J)
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.
(K)
Reserved.
(L)
There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the
entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured.
(M)
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.
(N)
Affiliate investments, as defined by the 1940 Act, are those 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.
(O)
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.
(P)
Debt security does not have a stated interest rate that is payable thereon.
(Q)
Reserved.
(R)
Fair value was based on net asset value provided by the fund as a practical expedient.
(S)
One of our affiliated funds, Gladstone Investment Corporation,
co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.
(T)
Our investment in Funko was valued using Level 2 inputs within the Financial Accounting Standards Board
(FASB) Accounting Standard Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820) fair value hierarchy. Our common units in Funko are convertible to 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.
(U)
The cash interest rate on this investment was indexed to 90-day LIBOR,
which was 0.23% as of September 30, 2020.
(V)
The cash interest rate on this investment was indexed to the U.S. Prime Rate (PRIME), which was
3.25% as of September 30, 2020.
(W)
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.
(X)
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.
(Y)
Category percentages represent the fair value of each category and subcategory as a percentage of net assets
as of September 30, 2020.
(Z)
Cumulative gross unrealized depreciation for federal income tax purposes is $68.3 million; cumulative
gross unrealized appreciation for federal income tax purposes is $13.9 million. Cumulative net unrealized depreciation is $54.5 million, based on a tax cost of $504.9 million.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2019
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(Y)
Principal/
Shares/
Units (J)(X)
Cost
Fair
Value
NON-CONTROL/NON-AFFILIATE
INVESTMENTS (M) 138.7%
Secured First Lien Debt65.6%
Aerospace and Defense4.8%
Antenna Research Associates, Inc.Term Debt (L + 10.0%, 12.0% Cash, 4.0% PIK, Due 11/2023) (C)
$
12,124
$
12,124
$
12,033
Automobile0.0%
Meridian Rack & Pinion, Inc.
(S) Term Debt (L + 11.5%, 13.5% Cash, Due 12/2019) (E)(H)
4,140
4,140
112
Buildings and Real Estate0.9%
GFRC 360, LLCLine of Credit, $50 available (L + 8.0%, 10.0% Cash, Due 9/2020) (C)
1,150
1,150
1,143
GFRC 360, LLCTerm Debt (L + 8.0%, 10.0% Cash, Due 9/2020) (C)
1,000
1,000
994
2,150
2,137
Diversified/Conglomerate Service28.4%
DKI Ventures, LLCLine of Credit, $2,500 available (L + 8.3%, 10.3% Cash, Due 12/2021) (C)
DKI Ventures, LLCDelayed Draw Term Loan, $5,000 available (L + 8.3%, 10.3% Cash, Due 12/2023) (C)
DKI Ventures, LLCTerm Debt (L + 8.3%, 10.3% Cash, Due 12/2023) (C)
6,054
6,054
5,827
ENET Holdings, LLCLine of Credit, $1,000 available (L + 7.3%, 9.3% Cash, Due 4/2022) (C)
ENET Holdings, LLCTerm Debt (L + 7.3%, 9.3% Cash, Due 4/2025) (C)
29,000
29,000
28,420
R2i Holdings, LLCLine of Credit, $2,000 available (L + 8.0%, 10.0% Cash, Due 12/2021) (C)
R2i Holdings, LLCTerm Debt (L + 8.0%, 10.0% Cash, Due 12/2023) (C)
19,625
19,625
18,987
Travel Sentry, Inc.Term Debt (L + 8.0%, 10.1% Cash, Due 12/2021) (C)(U)
6,939
6,939
6,930
Vision Government Solutions, Inc.Line of Credit, $2,500 available (L + 8.8%, 10.8% Cash, Due
12/2022) (C)
Vision Government Solutions, Inc.Term Debt (L + 8.8%, 10.8% Cash, Due 12/2022) (C)
10,600
10,558
10,547
72,176
70,711
Healthcare, Education, and Childcare11.2%
EL Academies, Inc.Line of Credit, $2,000 available (L + 8.8%, 10.8% Cash, Due 8/2020) (C)
EL Academies, Inc.Delayed Draw Term Loan, $0 available (L + 8.8%, 10.8% Cash, Due 8/2022) (C)
16,000
15,980
15,940
EL Academies, Inc.Term Debt (L + 8.8%, 10.8% Cash, Due 8/2022) (C)
12,000
11,975
11,955
27,955
27,895
Machinery2.5%
Arc Drilling Holdings LLCLine of Credit, $875 available (L + 8.0%, 10.0% Cash, Due 11/2020) (C)
125
125
125
Arc Drilling Holdings LLCTerm Debt (L + 9.5%, 11.5% Cash, 3.0% PIK, Due 11/2022) (C)
5,916
5,916
5,663
Precision International, LLCLine of Credit, $500 available (L + 7.5%, 9.5% Cash, Due 9/2021) (C)
Precision International, LLCTerm Debt (10.0% Cash, Due 9/2021) (C)(F)
436
436
437
6,477
6,225
Printing and Publishing0.0%
Chinese Yellow Pages CompanyLine of Credit, $0 available (PRIME + 4.0%, 9.0% Cash, Due
2/2015) (E)(V)
107
107
Telecommunications17.8%
B+T Group Acquisition, Inc. (S) Line of
Credit, $435 available (L + 11.0%, 13.0% Cash, Due 12/2021) (C)
765
765
759
B+T Group Acquisition, Inc. (S) Term Debt
(L + 11.0%, 13.0% Cash, Due 12/2021) (C)
6,000
6,000
5,955
NetFortris Corp.Term Debt (L + 9.0%, 11.0% Cash, Due 2/2021) (C)
23,302
23,269
22,137
XMedius America, Inc.Term Debt (L + 9.3%, 11.3% Cash, Due 10/2022) (Q)
8,690
8,690
8,777
XMedius Solutions Inc.Term Debt (L + 9.3%, 11.3% Cash, Due 10/2022) (Q)
6,683
6,683
6,749
45,407
44,377
Total Secured First Lien Debt
$
170,536
$
163,490
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
99
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2019
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(Y)
Principal/
Shares/
Units (J)(X)
Cost
Fair
Value
Secured Second Lien Debt59.6%
Automobile4.0%
Sea Link International IRB, Inc.Term Debt (11.3% Cash, Due 3/2023) (C)(F)
$
10,000
$
9,986
$
9,913
Beverage, Food, and Tobacco4.2%
8 th Avenue Food & Provisions,
Inc.Term Debt (L + 7.8%, 9.8% Cash, Due 10/2026) (D)
3,683
3,707
3,628
The Mochi Ice Cream CompanyTerm Debt (L + 10.5%, 12.5% Cash, Due 12/2023) (C)
6,750
6,729
6,843
10,436
10,471
Cargo Transportation5.2%
AG Transportation Holdings, LLC.Term Debt (L + 10.0%, 13.3% Cash, Due 12/2020) (C)
13,000
13,000
12,967
Chemicals, Plastics, and Rubber4.4%
Phoenix Aromas & Essential Oils, LLCTerm Debt (L + 9.5%, 11.5% Cash, Due
5/2024) (C)
10,000
10,000
9,838
Vertellus Holdings LLCTerm Debt (L + 12.0%, 14.0% Cash, Due 10/2021) (C)
1,099
1,099
1,085
11,099
10,923
Diversified/Conglomerate Manufacturing1.9%
Tailwind Smith Cooper Intermediate CorporationTerm Debt (L + 9.0%, 11.0% Cash, Due
5/2027) (D)
5,000
4,756
4,700
Diversified/Conglomerate Service18.5%
CHA Holdings, Inc.Term Debt (L + 8.8%, 10.8% Cash, Due 4/2026) (D)(U)
3,000
2,947
3,030
DigiCert Holdings, Inc.Term Debt (L + 8.0%, 10.0% Cash, Due 10/2025) (D)(AA)
2,400
2,379
2,388
DiscoverOrg, LLCTerm Debt (L + 8.5%, 10.5% Cash, Due 2/2027) (D)
3,303
3,275
3,287
Drive Chassis Holdco, LLCTerm Debt (L + 8.3%, 10.3% Cash, Due 4/2026) (D)
5,000
4,760
4,700
Gray Matter Systems, LLCTerm Debt (12.0% Cash, Due 11/2023) (C)(F)
11,100
11,100
10,989
Keystone Acquisition Corp.Term Debt (L + 9.3%, 11.3% Cash, Due 5/2025) (D)(U)
4,000
3,936
3,880
LDiscovery, LLCTerm Debt (L + 10.0%, 12.0% Cash, Due 12/2023) (D)
5,000
4,858
4,938
Prophet Brand StrategyDelayed Draw Term Loan, $5,000 available (L + 9.5%, 11.5% Cash,
Due 2/2025) (C)
Prophet Brand StrategyTerm Debt (L + 9.5%, 11.5% Cash, Due 2/2025) (C)
13,000
13,000
13,000
46,255
46,212
Healthcare, Education, and Childcare1.1%
Medical Solutions Holdings, Inc.Term Debt (L + 8.3%, 10.3% Cash, Due 6/2025) (D)
3,000
2,964
2,850
New Trident Holdcorp, Inc.Term Debt (L + 10.0%, 12.1% Cash, Due 7/2020) (E)(H)(K)(U)
4,409
4,409
7,373
2,850
Home and Office Furnishings, Housewares and Durable Consumer Products3.9%
Belnick, Inc.Term Debt (11.0% Cash, Due 8/2023) (C)(F)
10,000
10,000
9,800
Hotels, Motels, Inns, and Gaming2.9%
Vacation Rental Pros Property Management, LLCTerm Debt (L + 10.0%, 12.0% Cash, 3.0% PIK,
Due 6/2023) (C)
7,593
7,593
7,209
Machinery0.4%
CPM Holdings, Inc.Term Debt (L + 8.3%, 10.3% Cash, Due 11/2026) (D)
1,000
1,000
990
Oil and Gas11.9%
Imperative Holdings CorporationTerm Debt (L + 10.3%, 12.3% Cash, Due 9/2022) (C)
30,000
30,000
29,625
Retail Stores1.2%
United PF Holdings, LLCTerm Debt (L + 8.5%, 10.5% Cash, Due 6/2027) (D)
3,000
2,956
2,970
Total Secured Second Lien Debt
$
154,454
$
148,630
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2019
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(Y)
Principal/
Shares/
Units (J)(X)
Cost
Fair
Value
Unsecured Debt1.6%
Healthcare, education, and childcare1.6%
Edmentum Ultimate Holdings, LLCTerm Debt (10.0% PIK, Due 6/2020) (C)(F)
$
3,993
$
3,993
$
3,933
Preferred Equity3.3%
Automobile0.0%
Meridian Rack & Pinion,
Inc. (S) Preferred Stock (E)(G)
1,449
$
1,449
$
Buildings and Real Estate0.5%
GFRC 360, LLCPreferred
Stock (E)(G)
1,000
1,025
1,273
Diversified/Conglomerate Service0.0%
Frontier Financial Group Inc.Preferred
Stock (E)(G)
766
500
Frontier Financial Group Inc.Preferred Stock Warrant (E)(G)
169
500
Oil and Gas2.1%
FES Resources Holdings LLCPreferred Equity Units (E)(G)
6,350
6,350
3,236
Imperative Holdings CorporationPreferred Equity Units (E)(G)
13,740
632
2,030
6,982
5,266
Telecommunications0.7%
B+T Group Acquisition,
Inc. (S) Preferred Stock (E)(G)
5,503
1,799
NetFortris Corp.Preferred
Stock (E)(G)
7,890,860
789
1,734
2,588
1,734
Total Preferred Equity
$
12,544
$
8,273
Common Equity8.6%
Aerospace and Defense1.3%
Antenna Research Associates, Inc.Common Equity Units (E)(G)
4,283
$
4,283
$
3,131
Automobile0.5%
Sea Link International IRB, Inc.Common Equity Units (E)(G)
823,333
824
1,152
Beverage, Food, and Tobacco0.8%
The Mochi Ice Cream CompanyCommon
Stock (E)(G)
450
450
1,365
Triple H Food Processors, LLCCommon
Stock (E)(G)
250,000
250
650
700
2,015
Buildings and Real Estate0.0%
GFRC 360, LLCCommon Stock
Warrants (E)(G)
45.0
%
Cargo Transportation0.9%
AG Transportation Holdings, LLCMember Profit Participation (E)(G)
18.0
%
1,000
1,511
AG Transportation Holdings, LLCProfit Participation Warrants (E)(G)
12.0
%
244
747
1,244
2,258
Chemicals, Plastics, and Rubber0.2%
Vertellus Holdings LLCCommon Stock
Units (E)(G)
879,121
3,018
525
Healthcare, Education, and Childcare1.8%
Edmentum Ultimate Holdings, LLCCommon
Stock (E)(G)
21,429
2,636
GSM MidCo LLCCommon
Stock (E)(G)
767
767
777
Leeds Novamark Capital I, L.P.Limited Partnership Interest ($843 uncalled capital
commitment) (G)(L)(R)
3.5
%
2,152
4,060
5,555
4,837
Machinery0.5%
Arc Drilling Holdings LLCCommon
Stock (E)(G)
15,000
1,500
415
Precision International, LLCMembership Unit Warrant (E)(G)
33.3
%
783
1,500
1,198
Oil and Gas0.1%
FES Resources Holdings LLCCommon Equity
Units (E)(G)
6,233
Total Safety Holdings, LLCCommon
Equity (E)(G)
435
499
160
499
160
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2019
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(Y)
Principal/
Shares/
Units (J)(X)
Cost
Fair
Value
Personal and Non-Durable Consumer Products
(Manufacturing Only)0.1%
Funko Acquisition Holdings,
LLC (S) Common Units (G)(T)
12,180
59
170
Telecommunications0.0%
B+T Group Acquisition,
Inc. (S) Common Stock Warrant (E)(G)
1.5
%
NetFortris Corp.Common Stock
Warrant (E)(G)
1
1
1
Textiles and Leather2.4%
Targus Cayman HoldCo, Ltd.Common
Stock (E)(G)
3,076,414
2,062
6,104
Total Common Equity
$
19,745
$
21,550
Total
Non-Control/Non-Affiliate Investments
$
361,272
$
345,876
AFFILIATE
INVESTMENTS (N) 14.2%
Secured First Lien Debt3.2%
Diversified/Conglomerate Manufacturing3.2%
Edge Adhesives Holdings, Inc.
(S) Term Debt (L + 10.5%, 12.5% Cash, Due 2/2022) (C)
$
6,200
$
6,200
$
6,045
Edge Adhesives Holdings, Inc.
(S) Term Debt (L + 11.8%, 13.8% Cash, Due 2/2022) (C)
2,000
2,000
1,960
8,200
8,005
Total Secured First Lien Debt
$
8,200
$
8,005
Secured Second Lien Debt10.0%
Diversified Natural Resources, Precious Metals and Minerals8.5%
Lignetics, Inc.Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)
$
6,000
$
6,000
$
5,940
Lignetics, Inc.Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)
8,000
8,000
7,920
Lignetics, Inc.Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)
3,300
3,300
3,267
Lignetics, Inc.Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)
4,000
4,000
3,960
21,300
21,087
Personal and Non-Durable Consumer Products
(Manufacturing Only)1.5%
Canopy Safety Brands, LLCTerm Debt (L + 10.5%, 12.5% Cash, Due 7/2022) (C)
3,750
3,750
3,759
Total Secured Second Lien Debt
$
25,050
$
24,846
Preferred Equity0.6%
Diversified/Conglomerate Manufacturing0.0%
Edge Adhesives Holdings, Inc.
(S) Preferred Stock (E)(G)
2,516
$
2,516
$
Diversified Natural Resources, Precious Metals and Minerals0.3%
Lignetics, Inc.Preferred
Stock (E)(G)
40,000
800
947
Personal and Non-Durable Consumer Products
(Manufacturing Only)0.3%
Canopy Safety Brands, LLCPreferred
Stock (E)(G)
500,000
500
634
Total Preferred Equity
$
3,816
$
1,581
Common Equity0.4%
Diversified Natural Resources, Precious Metals and Minerals0.3%
Lignetics, Inc.Common
Stock (E)(G)
152,603
$
1,855
$
805
Personal and Non-Durable Consumer Products
(Manufacturing Only)0.1%
Canopy Safety Brands, LLCCommon
Stock (E)(G)
500,000
184
Total Common Equity
$
1,855
$
989
Total Affiliate Investments
$
38,921
$
35,421
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2019
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(Y)
Principal/
Shares/
Units (J)(X)
Cost
Fair
Value
CONTROL
INVESTMENTS (O) 8.7%
Secured First Lien Debt2.8%
Diversified/Conglomerate Manufacturing2.2%
LWO Acquisitions Company LLCTerm Debt (L + 7.5%, 10.0% Cash, Due 6/2021) (E)
$
6,000
$
6,000
$
5,218
LWO Acquisitions Company LLCTerm Debt (Due 6/2021) (E)(P)
10,632
10,632
16,632
5,218
Printing and Publishing0.6%
TNCP Intermediate HoldCo, LLCLine of Credit, $500 available (8.0% Cash, Due 9/2021) (E)(F)
1,500
1,465
1,500
Total Secured First Lien Debt
$
18,097
$
6,718
Secured Second Lien Debt3.2%
Automobile3.2%
Defiance Integrated Technologies, Inc.Term Debt (L + 9.5%, 11.5% Cash, Due 8/2023) (E)
$
8,065
$
8,065
$
8,065
Unsecured Debt0.0%
Diversified/Conglomerate Manufacturing0.0%
LWO Acquisitions Company LLCTerm Debt (Due 6/2020) (E)(P)
$
95
$
95
$
Common Equity2.7%
Automobile1.7%
Defiance Integrated Technologies, Inc.Common Stock (E)(G)
33,321
$
580
$
4,287
Diversified/Conglomerate Manufacturing0.0%
LWO Acquisitions Company LLCCommon
Units (E)(G)
921,000
921
Machinery0.9%
PIC 360, LLCCommon Equity
Units (E)(G)
750
1
2,311
Printing and Publishing0.1%
TNCP Intermediate HoldCo, LLCCommon Equity Units (E)(G)
790,000
500
197
Total Common Equity
$
2,002
$
6,795
Total Control Investments
$
28,259
$
21,578
TOTAL
INVESTMENTS (Z) 161.6%
$
428,452
$
402,875
(A)
Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio
company. The majority of the securities listed, totaling $369.0 million at fair value, are pledged as collateral under our revolving line of credit, as described further in Note 5 Borrowings in the accompanying Notes to
Consolidated Financial Statements. Under 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 September 30, 2019, our investments in Leeds Novamark Capital I, L.P. (Leeds), Funko Acquisition Holdings, LLC (Funko), and XMedius Solutions Inc.
(XMedius) are considered non-qualifying assets under Section 55 of the 1940 Act. Such non-qualifying assets represent 2.7% of total investments, at fair
value, as of September 30, 2019.
(B)
Unless indicated otherwise, all cash interest rates are indexed to
30-day London Interbank Offered Rate (LIBOR or L), which was 2.02% as of September 30, 2019. If applicable,
paid-in-kind (PIK) 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 LIBOR plus a spread. Due dates represent the contractual maturity date.
(C)
Fair value was based on an internal yield analysis or on estimates of value submitted by ICE Data Pricing and
Reference Data, LLC (ICE).
(D)
Fair value was based on the indicative bid price on or near September 30, 2019, offered by the respective
syndication agents trading desk.
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(E)
Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the
portfolio companys securities in order of their relative priority in the capital structure.
(F)
Debt security has a fixed interest rate.
(G)
Security is non-income producing.
(H)
Debt security is on non-accrual status.
(I)
Reserved.
(J)
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.
(K)
In February 2019, New Trident Holdcorp, Inc. filed for Chapter 11 bankruptcy protection.
(L)
There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the
entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured.
(M)
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.
(N)
Affiliate investments, as defined by the 1940 Act, are those 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.
(O)
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.
(P)
Debt security does not have a stated interest rate that is payable thereon.
(Q)
Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to
occur imminently.
(R)
Fair value was based on net asset value provided by the fund as a practical expedient.
(S)
One of our affiliated funds, Gladstone Investment Corporation,
co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.
(T)
Our investment in Funko was valued using Level 2 inputs within the Financial Accounting Standards Board
(FASB) Accounting Standard Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820) fair value hierarchy. Our common units in Funko are convertible to 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 Stock Market under the
trading symbol FNKO. Refer to Note 3 Investments in the accompanying Notes to Consolidated Financial Statements for additional information.
(U)
The cash interest rate on this investment was indexed to 90-day LIBOR,
which was 2.09% as of September 30, 2019.
(V)
The cash interest rate on this investment was indexed to the U.S. Prime Rate (PRIME), which was
5.00% as of September 30, 2019.
(W)
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.
(X)
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.
(Y)
Category percentages represent the fair value of each category and subcategory as a percentage of net assets
as of September 30, 2019.
(Z)
Cumulative gross unrealized depreciation for federal income tax purposes is $55.6 million; cumulative
gross unrealized appreciation for federal income tax purposes is $19.8 million. Cumulative net unrealized depreciation is $35.8 million, based on a tax cost of $438.6 million.
(AA)
Investment was exited subsequent to September 30, 2019. Refer to Note 15 Subsequent Events 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 CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)
NOTE 1. ORGANIZATION
Gladstone Capital Corporation
was incorporated under the Maryland General Corporation Law on May 30, 2001 and completed an initial public offering on August 24, 2001. The terms the Company, we, our and us all refer to
Gladstone Capital Corporation and its consolidated subsidiaries. We are an externally managed, 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 the 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 operating in the United States
(U.S.). Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established lower middle market companies (which we generally define as companies with annual earnings before interest,
taxes, depreciation and amortization (EBITDA) of $3 million to $15 million) in the U.S. 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 (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities, in connection with our debt investments, that we
believe can grow over time to permit us to sell our equity investments for capital gains.
Gladstone Business Loan, LLC (Business Loan), a
wholly-owned subsidiary of ours, was established on February 3, 2003, for the sole purpose of holding certain investments pledged as collateral under our line of credit. The financial statements of Business Loan are consolidated with those of
Gladstone Capital Corporation. We also have significant subsidiaries (as defined under Rule 1-02(w) of the U.S. Securities and Exchange Commissions (SEC) Regulation S-X) whose financial statements are not consolidated with ours. Refer to Note 14 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 (as amended and/or restated from time to time, 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 additional information regarding these
arrangements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
We prepare our Consolidated
Financial Statements and the accompanying notes in accordance with accounting principles generally accepted in the U.S. (GAAP) and conform to 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 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 in consolidation.
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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 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 in net assets
resulting from operations, total assets, total liabilities, or total net assets, or Consolidated Statements of Cash Flows classifications.
Classification of Investments
In accordance with the BDC
regulations in the 1940 Act, we classify portfolio investments on our accompanying Consolidated Financial Statements into the following categories:
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;
Affiliate Investments Affiliate investments are those in which we own, with the power to vote,
between 5.0% and 25.0% of the issued and outstanding voting securities that are not classified as Control Investments; and
Non-Control/Non-Affiliate
Investments Non-Control/Non-Affiliate investments 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.
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 is 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 is cash held in escrow that was generally received as part of an investment exit. Restricted cash is carried at cost, which
approximates fair value.
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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.
Board Responsibility
In accordance with the 1940 Act,
our 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 presented by the chief valuation officer. 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 proprietary 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
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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 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 EBITDA); EBITDA obtained from our indexing methodology whereby the original transaction EBITDA at the time of our closing is indexed to a general subset of comparable disclosed transactions and EBITDA 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; however,
TEV may also be calculated using 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 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 explained 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 (IBP) 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.
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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, 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.
Revenue Recognition
Interest Income Recognition
Interest income, including the amortization of premiums, acquisition costs and amendment fees, the accretion of original issue discounts
(OID), and paid-in-kind (PIK) interest, 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 for financial reporting purposes 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 such that the interest income is deemed to be collectible. As of September 30,
2020, loans to B+T Group Acquisition Inc. (B+T) were on non-accrual status with an aggregate debt cost basis of $7.2 million, or 1.6% of the cost basis of all debt investments in our
portfolio, and an aggregate fair value of approximately $6.5 million, or 1.6% of the fair value of all debt investments in our portfolio. As of September 30, 2019, loans to Meridian Rack & Pinion Inc. and New Trident Holdcorp,
Inc. were on non-accrual status with an aggregate debt cost basis of approximately $8.5 million, or 2.2% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of
approximately $0.1 million, or 0.0% of the fair value of all debt investments in our portfolio.
We currently hold, and we expect to hold in the
future, some loans in our portfolio that contain OID or PIK provisions. We recognize OID for loans originally issued at discounts and recognize the income over the life of the obligation based on an effective yield calculation. PIK interest,
computed at the contractual rate specified in a loan agreement, is added to the principal balance of a loan and recorded as income over the life of the obligation. Thus, the actual collection of PIK income may be deferred until the time of debt
principal repayment. To
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maintain our ability to be taxed as a RIC, we may need to pay out both OID and PIK non-cash income amounts in the form of distributions, even though we
have not yet collected the cash on either.
As of September 30, 2020 and 2019, we held five and ten OID loans, respectively, primarily from the
syndicated loans in our portfolio. We recorded OID income of $0.3 million, $0.1 million, and $0.2 million during the years ended September 30, 2020, 2019, and 2018, respectively. The unamortized balance of OID investments as of
September 30, 2020 and 2019 totaled $0.6 million and $0.8 million, respectively. As of September 30, 2020 and 2019, we had seven and four investments which had a PIK interest component, respectively. We recorded PIK interest
income of $2.6 million, $1.4 million, and $3.8 million during the years ended September 30, 2020, 2019, and 2018, respectively. We collected $0.1 million, $0, and $0.8 million of PIK interest in cash during the years ended
September 30, 2020, 2019, and 2018, respectively.
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.
Deferred Financing and Offering Costs
Deferred financing and offering costs consist of costs incurred to obtain financing, including lender fees 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 are
presented as discounts to the principal amount of the notes payable and are amortized using the straight-line method, which approximates the effective interest method, over the term of the notes. Costs associated with the issuance of our mandatorily
redeemable preferred stock are presented as discounts to the liquidation value of the mandatorily redeemable preferred stock and are amortized using the straight-line method, which approximates the effective interest method, over the term of the
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 our Fifth Amended and Restated Credit Agreement with KeyBank National Association (KeyBank), as
administrative agent, lead arranger and lender (our Credit Facility). These fees are accrued at the end of the quarter when the services are performed and generally paid the following quarter.
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.
Income Taxes
We intend to continue to qualify for
treatment as a RIC under subchapter M of the Code, which generally allows us to avoid paying corporate income taxes on any income or gains that we distribute to our stockholders. We
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intend to continue to distribute sufficient dividends to eliminate taxable income. Refer to Note 10 Federal and State Income Taxes for additional information regarding our RIC
requirements.
ASC 740, Income Taxes 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 tax returns for fiscal years 2017 to 2019 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 pay out at least 90.0% of our Investment Company Taxable Income (as defined below), which is generally our net ordinary income plus the
excess of our net short-term capital gains over net long-term capital losses for each taxable year as a distribution to our stockholders in order to maintain our ability to be taxed as a RIC under Subchapter M of the Code. It is our policy to pay
out as a distribution up to 100.0% of those amounts. The amount to be paid is determined by our Board of Directors each quarter and is based on the annual earnings estimated by our management. Based on that estimate, a distribution is declared each
quarter and is paid out monthly over the course of the respective quarter. Refer to Note 9 Distributions to Common Stockholders for further information.
Our transfer agent, Computershare, Inc., offers a dividend reinvestment plan for our common stockholders. 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 make such election will receive their distributions in cash. Common
stockholders who receive distributions in the form of stock will be subject to the same federal, state and local tax consequences as stockholders who elect to receive their distributions in cash. As plan agent, Computershare, Inc. purchases shares
in the open market in connection with the obligations under the plan.
Recent Accounting Pronouncements
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). ASU 2020-04 provides optional expedients and exceptions
for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 was effective
immediately. The adoption of ASU 2020-04 did not have a material impact on our financial position, results of operations or cash flows.
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. We are currently assessing the
impact of ASU 2018-13 and do not anticipate a material impact on our disclosures. ASU 2018-13 is effective for annual reporting periods beginning after
December 15, 2019, including interim periods within those fiscal years, with early adoption permitted.
NOTE 3. INVESTMENTS
In accordance with ASC 820, the fair value of each investment is determined 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
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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. Investments in funds measured using NAV as a practical expedient are not categorized within the fair value hierarchy.
As of
September 30, 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, and our investment in Leeds Novamark Capital I, L.P. (Leeds), which was valued using NAV as a practical expedient. As of September 30, 2019, all of our investments were valued using Level 3 inputs within the ASC 820
fair value hierarchy, except for our investment in Funko, which was valued using Level 2 inputs, and our investment in Leeds, which was valued using NAV as a practical expedient.
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. During the years ended September 30, 2020 and 2019, there were no investments transferred into or out of Levels 1, 2 or 3 of the valuation hierarchy.
As of September 30, 2020 and 2019, 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 September 30, 2020:
Secured first lien debt
$
213,468
$
$
$
213,468
Secured second lien debt
196,986
196,986
Unsecured debt
4,299
4,299
Preferred equity
7,000
7,000
Common equity/equivalents
23,929
(A)
48
(B)
23,881
Total Investments as of September 30, 2020
$
445,682
$
$
48
$
445,634
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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 September 30, 2019:
Secured first lien debt
$
178,213
$
$
$
178,213
Secured second lien debt
181,541
181,541
Unsecured debt
3,933
3,933
Preferred equity
9,854
9,854
Common equity/equivalents
25,274
(A)
170
(B)
25,104
Total Investments as of September 30, 2019
$
398,815
$
$
170
$
398,645
(A)
Excludes our investment in Leeds with a fair value of $4.7 million and $4.1 million as of
September 30, 2020 and 2019, respectively. Leeds was valued using NAV as a practical expedient.
(B)
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.
The following table presents our portfolio investments, valued using Level 3 inputs within the ASC 820 fair value hierarchy and carried at fair value as
of September 30, 2020 and 2019 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
Using Significant
Unobservable
Inputs (Level 3)
September 30,
2020
September 30,
2019
Non-Control/Non-Affiliate
Investments
Secured first lien debt
$
199,860
$
163,490
Secured second lien debt
168,621
148,630
Unsecured debt
4,299
3,933
Preferred equity
4,677
8,273
Common equity/equivalents
18,824
(A)
17,320
(B)
Total
Non-Control/Non-Affiliate Investments
$
396,281
$
341,646
Affiliate Investments
Secured first lien debt
$
8,658
$
8,005
Secured second lien debt
20,300
24,846
Preferred equity
2,069
1,581
Common equity/equivalents
2,152
989
Total Affiliate Investments
$
33,179
$
35,421
Control Investments
Secured first lien debt
$
4,950
$
6,718
Secured second lien debt
8,065
8,065
Preferred equity
254
Common equity/equivalents
2,905
6,795
Total Control Investments
$
16,174
$
21,578
Total Investments at Fair Value Using Level 3 Inputs
$
445,634
$
398,645
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(A)
Excludes our investments in Leeds and Funko with fair values of $4.7 million and $48 thousand,
respectively, as of September 30, 2020. Leeds was valued using NAV as a practical expedient, and Funko was valued using Level 2 inputs.
(B)
Excludes our investments in Leeds and Funko with fair values of $4.1 million and $0.2 million,
respectively, as of September 30, 2019. Leeds was valued using NAV as a practical expedient, and Funko was valued using Level 2 inputs.
In accordance with ASC 820, the following table provides quantitative information about our Level 3 fair value measurements of our investments as of
September 30, 2020 and 2019. 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 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
Range / Weighted Average as of
September 30,
2020
September 30,
2019
Valuation
Techniques/
Methodologies
Unobservable
Input
September 30,
2020
September 30,
2019
Secured first lien debt (A)
$
195,846
$
171,383
Yield Analysis
Discount Rate
8.3%24.6% / 13.4%
9.8%18.0% / 12.4%
17,622
6,830
TEV
EBITDA multiple
4.8x4.8x /4.8x
6.5x 6.5x /6.5x
EBITDA
$6,492$6,492/$6,492
$830$830 / $830
Revenue multiple
0.3x 0.3x /0.3x
0.3x 0.3x /0.3x
Revenue
$7,451$11,500/$11,165
$6,663$18,978/$17,959
Secured second lien debt
163,141
136,115
Yield Analysis
Discount Rate
10.5%25.1%/14.5%
11.5%16.8%/12.6%
24,681
37,361
Market Quote
IBP
77.7%98.8% / 89.2%
94.0%101.0% / 97.3%
9,164
8,065
TEV
EBITDA multiple
5.3x 9.0x /5.7x
5.4x 6.5x /5.8x
EBITDA
$3,020$69,552/$10,999
$3,571$37,311 / $15,498
Unsecured debt
4,282
3,933
Yield Analysis
Discount Rate
12.6%12.6% / 12.6%
12.2%12.2% / 12.2%
17
TEV
Revenue multiple
0.3x 1.4x / 1.0x
Revenue
$883$11,500 /$4,325
Preferred and common equity /
equivalents (B)
30,881
34,958
TEV
EBITDA multiple
3.0x 9.2x / 6.0x
3.3x 8.9x / 6.4x
EBITDA
$483 -$88,142 /$16,403
$715$48,973 /$14,853
Revenue multiple
0.3x 1.4x / 0.8x
0.3x 1.4x / 0.8x
Revenue
$883 $161,232/$48,273
$1,033$61,584/$25,814
Total Level 3 Investments, at Fair Value
$
445,634
$
398,645
(A)
Fair value as of September 30, 2019 includes two proprietary debt investments totaling $15.5 million,
which were valued using the expected payoff amount as the unobservable input.
(B)
Fair value as of September 30, 2020 excludes our investments in Leeds and Funko with fair values of
$4.7 million and $48 thousand, respectively, as of September 30, 2020. Fair value as of September 30, 2019 excludes our investments in Leeds and Funko with fair values of $4.1 million and $0.2 million, respectively, as
of September 30, 2019. Leeds was valued using NAV as a practical expedient and Funko was valued using Level 2 inputs as of both September 30, 2020 and 2019.
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 market yields, discount rates, or an (decrease)/increase in EBITDA or EBITDA multiples (or revenue or revenue
multiples) may result in a (decrease)/increase, respectively, in the fair value of certain of our investments.
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Changes in Level 3 Fair Value Measurements of Investments
The following tables provide the changes in fair value, broken out by security type, during the years ended September 30, 2020 and 2019 for all
investments for which we determine fair value using unobservable (Level 3) inputs.
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Year Ended September 30, 2020
Secured First
Lien Debt
Secured
Second
Lien Debt
Unsecured
Debt
Preferred
Equity
Common
Equity/
Equivalents
Total
Fair Value as of September 30, 2019
$
178,213
$
181,541
$
3,933
$
9,854
$
25,104
$
398,645
Total gains (losses):
Net realized gain (loss) (A)
(4,232
)
(4,512
)
(1,449
)
2,533
(7,660
)
Net unrealized appreciation
(depreciation) (B)
(13,567
)
(7,572
)
(254
)
(6,875
)
427
(27,841
)
Reversal of prior period net depreciation (appreciation) on realization (B)
4,647
4,745
1,449
(2,550
)
8,291
New investments, repayments and
settlements: (C)
Issuances/originations
89,094
57,220
620
4,021
1,351
152,306
Settlements/repayments
(40,780
)
(34,539
)
(75,319
)
Net proceeds from sales
93
103
(2,984
)
(2,788
)
Fair Value as of September 30, 2020
$
213,468
$
196,986
$
4,299
$
7,000
$
23,881
$
445,634
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Year Ended September 30, 2019
Secured First
Lien Debt
Secured
Second
Lien Debt
Unsecured
Debt
Preferred
Equity
Common
Equity/
Equivalents
Total
Fair Value as of September 30, 2018
$
199,625
$
156,373
$
3,655
$
7,749
$
18,661
$
386,063
Total gains (losses):
Net realized gain (loss) (A)
(90
)
(25,631
)
(1,226
)
10,847
(16,100
)
Net unrealized appreciation
(depreciation) (B)
(11,965
)
(1,136
)
(102
)
(1,154
)
11,691
(2,666
)
Reversal of prior period net depreciation (appreciation) on realization (B)
246
19,009
(118
)
(6,431
)
12,706
New investments, repayments and
settlements: (C)
Issuances/originations
86,933
51,240
380
5,536
4,729
148,818
Settlements/repayments
(66,626
)
(46,961
)
(2,191
)
(2,963
)
(118,741
)
Net proceeds from sales
90
(3
)
(528
)
(10,994
)
(11,435
)
Transfers
(30,000
)
28,650
1,786
(436
)
Fair Value as of September 30, 2019
$
178,213
$
181,541
$
3,933
$
9,854
$
25,104
$
398,645
(A)
Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of
Operations for the corresponding period.
(B)
Included in net unrealized appreciation (depreciation) on investments on our accompanying Consolidated
Statements of Operation s for the corresponding period.
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(C)
Includes increases in the cost basis of investments resulting from new portfolio investments, accretion 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.
Investment Activity
Proprietary Investments
As of September 30, 2020 and
2019, we held 37 and 37 proprietary investments with an aggregate fair value of $411.5 million and $353.7 million, or 91.4% and 87.8% of the total portfolio at fair value, respectively. The following significant proprietary investment
transactions occurred during the year ended September 30, 2020:
In October 2019, we invested $14.0 million in Universal Survey Center, Inc. through secured first lien debt.
In December 2019, we invested $24.0 million in Café Zupas through secured first lien debt.
In January 2020, we invested an additional $5.5 million in Lignetics, Inc., an existing portfolio company,
through a combination of secured second lien debt and preferred equity. In July 2020, we sold $6.0 million of our debt investment in Lignetics, Inc. at par.
In January 2020, we sold our investment in The Mochi Ice Cream Company (Mochi), which resulted in a
realized gain of approximately $2.5 million. In connection with the sale, we received net cash proceeds of approximately $9.7 million, including the repayment of our debt investment of $6.8 million at par.
In January 2020, we exited our investment in Meridian Rack & Pinion, Inc. (Meridian), with a
fair value of $0 as of December 31, 2019 and recorded a realized loss of $5.6 million.
In February 2020, we invested $19.0 million in American Trailer Rental Group LLC through a combination of
secured second lien debt and common equity.
In March 2020, our investments in XMedius America, Inc. and XMedius Solutions Inc. paid off at par for combined
net proceeds of $14.9 million.
In May 2020, we invested $30.0 million in Magpul Industries Corp. through secured second lien debt.
In May 2020, we invested $23.5 million in ALS Education, LLC through secured first lien debt.
In May 2020, we sold our investment in Travel Sentry, Inc. for net proceeds of $6.1 million, which resulted
in a $0.1 million realized loss.
In May 2020, our debt investment in Canopy Safety Brands, LLC paid off at par for net proceeds of
$3.8 million.
In July 2020, our investment in Universal Survey Center, Inc. paid off at par for net proceeds of
$14.1 million. In conjunction with the payoff, we received a prepayment fee of $0.3 million.
In August 2020, we invested $20.7 million in Aerospace Engineering, LLC through secured first lien debt.
Syndicated Investments
As of
September 30, 2020 and 2019, we held 11 and 16 syndicated investments with an aggregate fair value of $38.9 million and $49.2 million, or 8.6% and 12.2% of the total portfolio at fair value, respectively. The following significant
syndicated investment transactions occurred during the year ended September 30, 2020:
In October 2019, we invested an additional $3.0 million in Medical Solutions Holdings, Inc., an existing
portfolio company, through secured second lien debt.
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In October 2019, our investment in DigiCert Holdings, Inc. paid off at par for net proceeds of $2.4 million.
In December 2019, our investment in LDiscovery, LLC paid off at par for net proceeds of $5.0 million.
In December 2019, our investment in United PF Holdings, LLC paid off at par for net proceeds of
$3.1 million. In conjunction with the payoff, we received a prepayment fee of $0.1 million.
In December 2019, we recorded a net realized loss of $4.4 million related to our investment in New Trident
Holdcorp, Inc. (New Trident) which filed for bankruptcy protection in February 2019.
In June 2020, our investment in DiscoverOrg, LLC paid off at par for net proceeds of $3.3 million. In
conjunction with the payoff, we received a prepayment fee of $33 thousand.
Investment Concentrations
As of September 30, 2020, our investment portfolio consisted of investments in 48 portfolio companies located in 25 states in 18 different industries,
with an aggregate fair value of $450.4 million. The five largest investments at fair value as of September 30, 2020 totaled $130.3 million, or 28.9% of our total investment portfolio, as compared to the five largest investments at
fair value as of September 30, 2019 totaling $135.5 million, or 33.6% of our total investment portfolio. As of September 30, 2020 and 2019, our average investment by obligor was $10.3 million and $8.1 million at cost,
respectively.
The following table outlines our investments by security type as of September 30, 2020 and 2019:
September 30, 2020
September 30, 2019
Cost
Fair Value
Cost
Fair Value
Secured first lien debt
$
241,008
48.7
%
$
213,468
47.4
%
$
196,833
45.9
%
$
178,213
44.2
%
Secured second lien debt
205,841
41.6
196,986
43.7
187,569
43.8
181,541
45.1
Unsecured debt
4,708
1.0
4,299
1.0
4,088
1.0
3,933
1.0
Total debt investments
451,557
91.3
414,753
92.1
388,490
90.7
363,687
90.3
Preferred equity
18,932
3.8
7,000
1.5
16,360
3.8
9,854
2.4
Common equity/equivalents
24,158
4.9
28,647
6.4
23,602
5.5
29,334
7.3
Total equity investments
43,090
8.7
35,647
7.9
39,962
9.3
39,188
9.7
Total Investments
$
494,647
100.0
%
$
450,400
100.0
%
$
428,452
100.0
%
$
402,875
100.0
%
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Our investments at fair value consisted of the following industry classifications as of September 30, 2020
and 2019:
September 30, 2020
September 30, 2019
Industry Classification
Fair Value
Percentage of
Total
Investments
Fair Value
Percentage of
Total
Investments
Diversified/Conglomerate Service
$
92,960
20.6
%
$
116,923
29.0
%
Healthcare, Education, and Childcare
64,155
14.3
39,515
9.8
Diversified/Conglomerate Manufacturing
43,995
9.8
17,923
4.4
Aerospace and Defense
37,460
8.3
15,164
3.8
Cargo Transportation
34,542
7.7
15,225
3.8
Beverage, Food, and Tobacco
29,171
6.5
12,486
3.1
Telecommunications
27,994
6.2
46,111
11.4
Oil and Gas
24,725
5.5
35,051
8.7
Diversified Natural Resources, Precious Metals, and Minerals
24,014
5.3
22,839
5.7
Automobile
18,149
4.0
23,529
5.8
Chemicals, Plastics, and Rubber
13,715
3.0
11,448
2.8
Machinery
10,264
2.3
10,724
2.7
Home and Office Furnishings, Housewares, and Durable Consumer Products
9,675
2.2
9,800
2.4
Hotels, Motels, Inns, and Gaming
8,052
1.8
7,209
1.8
Textiles and Leather
5,905
1.3
6,104
1.5
Buildings and Real Estate
3,110
0.7
3,410
0.9
Personal and Non-Durable Consumer Products
555
0.1
4,747
1.2
Other, < 2.0%
1,959
0.4
4,667
1.2
Total Investments
$
450,400
100.0
%
$
402,875
100.0
%
Our investments at fair value were included in the following U.S. geographic regions and Canada as of September 30, 2020
and 2019:
September 30, 2020
September 30, 2019
Location
Fair Value
Percentage of
Total
Investments
Fair Value
Percentage of
Total
Investments
South
$
214,808
47.7
%
$
171,985
42.7
%
West
138,746
30.8
118,078
29.3
Midwest
56,106
12.5
56,149
13.9
Northeast
40,740
9.0
49,914
12.4
Canada
6,749
1.7
Total Investments
$
450,400
100.0
%
$
402,875
100.0
%
The geographic composition indicates the location of the headquarters for our portfolio companies. A portfolio company may
have additional 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 by fiscal year, assuming no voluntary prepayments,
as of September 30, 2020:
Year Ending September 30,
Amount
2021
$
49,431
2022
93,477
2023
48,106
2024
55,874
2025
153,150
Thereafter
52,228
Total contractual repayments
$
452,266
Adjustments to cost basis of debt investments
(709
)
Investments in equity securities
43,090
Investments held as of September 30, 2020 at Cost:
$
494,647
Receivables from Portfolio Companies
Receivables from portfolio companies represent non-recurring costs incurred on behalf of such portfolio companies and
are included in other assets 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 September 30, 2020 and 2019, we had gross receivables from portfolio companies of $0.4 million and $0.7 million, respectively. The allowance for uncollectible receivables was
$11 thousand and $16 thousand as of September 30, 2020 and 2019, respectively.
NOTE 4. RELATED PARTY TRANSACTIONS
Transactions with the Adviser
We have been externally
managed by the Adviser pursuant to the Advisory Agreement since October 1, 2004 pursuant to which we pay the Adviser a base management fee and an incentive fee for its services. 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 such party, unanimously approved the renewal of the Advisory Agreement through August 31, 2021.
We also pay the Adviser a loan servicing fee for its role of servicer pursuant to our Credit Facility. The entire loan servicing fee paid to the Adviser by
Business Loan is non-contractually, unconditionally and irrevocably credited against the base management fee otherwise payable to the Adviser, since Business Loan is a consolidated subsidiary of ours, and
overall, the base management fee (including any loan servicing fee) cannot exceed 1.75% of total assets (including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings) during any given
fiscal year pursuant to the Advisory Agreement.
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. Robert Marcotte (our president) also serves as executive vice
president of private equity (debt) 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 fee, incentive fee, and loan servicing fee and associated non-contractual, unconditional and irrevocable credits reflected in our accompanying Consolidated Statements of Operations :
Year Ended September 30,
2020
2019
2018
Average total assets subject to base management fee (A)
$
432,457
$
413,143
$
401,886
Multiplied by annual base management fee of 1.75%
1.75
%
1.75
%
1.75
%
Base management fee (B)
7,568
7,230
7,033
Portfolio company fee credit
(1,589
)
(1,474
)
(1,020
)
Syndicated loan fee credit
(406
)
(424
)
(364
)
Net Base Management Fee
$
5,573
$
5,332
$
5,649
Loan servicing fee (B)
$
5,819
$
5,072
$
5,042
Credit to base management fee - loan servicing
fee (B)
(5,819
)
(5,072
)
(5,042
)
Net Loan Servicing Fee
$
$
$
Incentive fee (B)
$
5,251
$
5,776
$
5,348
Incentive fee credit
(3,038
)
(1,488
)
(1,697
)
Net Incentive Fee
$
2,213
$
4,288
$
3,651
Portfolio company fee credit
$
(1,589
)
$
(1,474
)
$
(1,020
)
Syndicated loan fee credit
(406
)
(424
)
(364
)
Incentive fee credit
(3,038
)
(1,488
)
(1,697
)
Credit to Fees from
AdviserOther (B)
$
(5,033
)
$
(3,386
)
$
(3,081
)
(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 two most recently completed quarters within the respective years and adjusted appropriately for
any share issuances or repurchases during the period.
(B)
Reflected as a line item on our accompanying Consolidated Statements of Operations .
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 1.75%, computed on the basis of the value of our average total 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 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
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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 company management team members. The Adviser non-contractually, unconditionally, and irrevocably credits 100% of any fees 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 $0.1 million for the years ended September 30, 2020, 2019, and 2018,
was retained by the Adviser in the form of reimbursement, at cost, for tasks completed by personnel of the Adviser primarily for the valuation of portfolio companies.
Our Board of Directors accepted a non-contractual, unconditional, and irrevocable credit from the Adviser to reduce
the annual base management fee on syndicated loan participations to 0.5%, to the extent that proceeds resulting from borrowings were used to purchase such syndicated loan participations, for each of the years ended September 30, 2020 and 2019.
Loan Servicing Fee
The Adviser also services the
loans held by Business Loan (the borrower under the Credit Facility), in return for which the Adviser receives a 1.5% annual fee payable monthly based on the aggregate outstanding balance of loans pledged under our Credit Facility. As discussed in
the notes to the table above, 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 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% (2.0% during the one year
period from April 1, 2020 through March 31, 2021) 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 generally 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% (2.4375% during the one year period from April 1, 2020 through March 31,
2021) 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% (2.4375% during the one year period from April 1, 2020 through March 31, 2021) of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter.
As reflected above, on April 14, 2020, our Board of Directors approved the amendment of the Advisory Agreement, which temporarily
revised the hurdle rate, for the period beginning April 1, 2020 and ending March 31, 2021, increasing the hurdle rate from 1.75% per quarter (7% annualized) to 2.00% per quarter (8% annualized) and increasing the excess incentive fee
hurdle rate from 2.1875% per quarter (8.75% annualized) to 2.4375% per quarter (9.75% annualized).
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
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date) and equals 20.0% of our net realized capital gains (as defined herein) as of the end of the fiscal year. In determining the capital gains-based incentive fee payable to the
Adviser, we calculate net realized capital gains at the end of each applicable year by subtracting the sum of our cumulative aggregate realized capital losses and our entire portfolios aggregate unrealized capital depreciation from
our cumulative aggregate realized capital gains. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original cost of such
investment since inception. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such investment since inception. The entire
portfolios aggregate unrealized capital depreciation, if any, equals the sum of the difference between the valuation of each investment as of the applicable calculation date and the original cost of such investment. At the end of the
applicable fiscal year, the amount of capital gains that serves as the basis for our calculation of the capital gains-based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less
the entire portfolios aggregate unrealized capital depreciation, if any. If this number is positive at the end of such fiscal year, 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. No capital gains-based incentive fee has been recorded or paid since our inception through September 30, 2020, as cumulative unrealized capital
depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses.
In accordance with GAAP, a capital gains-based
incentive fee accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation and depreciation. If such amount is positive at the end of a period, then GAAP requires us
to record a capital gains-based incentive fee equal to 20.0% of such amount, less the aggregate amount of actual capital gains-based incentive fees paid in all prior years. If such amount is negative, then there is no accrual for such period. GAAP
requires that the capital gains-based incentive fee accrual consider the cumulative 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 such unrealized capital appreciation will be realized in the future. No GAAP accrual for a capital gains-based incentive fee has been recorded from our inception through September 30, 2020.
Our Board of Directors accepted non-contractual, unconditional and irrevocable credits from the Adviser to reduce the
income-based incentive fee to the extent net investment income did not 100.0% cover distributions to common stockholders for the years ended September 30, 2020, 2019, and 2018.
Transactions with the Administrator
We have entered into
the Administration Agreement with the Administrator to provide administrative services. We reimburse the Administrator pursuant to the Administration Agreement for the portion of expenses the Administrator incurs while performing services for us.
The Administrators expenses are primarily rent and the salaries, benefits and expenses of the Administrators employees, including: our chief financial officer and treasurer, chief compliance officer, chief valuation officer, and general
counsel and secretary (who also serves as the Administrators president, 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, Michael
LiCalsi (our general counsel and 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
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to the Administration Agreement or interested persons of either party, approved the renewal of the Administration Agreement through August 31, 2021.
Other Transactions
Gladstone Securities, LLC
(Gladstone Securities), a privately-held broker-dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation, which is 100% indirectly owned and controlled by
Mr. Gladstone, our chairman and chief executive officer, has provided other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which Gladstone Securities 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 or incentive fee.
Gladstone Securities received fees from portfolio companies totaling $0.9 million, $1.3 million, and $0.8 million during the years ended September 30, 2020, 2019, and 2018, respectively.
Related Party Fees Due
Amounts due to related parties on
our accompanying Consolidated Statements of Assets and Liabilities were as follows:
September 30, 2020
September 30, 2019
Base management fee due to (from) Adviser
$
95
$
61
Loan servicing fee due to Adviser
355
305
Incentive fee due to (from) Adviser
1,236
1,086
Total fees due to (from) Adviser
1,686
1,452
Fee due to Administrator
329
366
Total Related Party Fees Due
$
2,015
$
1,818
In addition to the above fees, other operating expenses due to the Adviser as of September 30, 2020 and 2019, totaled
$31 thousand and $32 thousand, respectively. In addition, net expenses payable to Gladstone Investment Corporation (for reimbursement purposes), which includes certain co-investment expenses, totaled
$0 as of each of September 30, 2020 and 2019. These amounts are generally settled in the quarter subsequent to being incurred and are included in other liabilities on the accompanying Consolidated Statements of Assets and Liabilities as
of September 30, 2020 and 2019.
NOTE 5. BORROWINGS
Revolving Credit Facility
On April 29, 2020, we,
through Business Loan, entered into Amendment No. 6 to our Credit Facility with KeyBank, which extended the revolving period end date to July 15, 2021, included certain LIBOR transition provisions and decreased the commitment amount from
$190 million to $180 million. All principal and interest will continue to be due and payable on April 15, 2022.
On July 10, 2019, we,
through Business Loan, entered into Amendment No. 5 to our Credit Facility with KeyBank, which (i) modified the covenants to reduce our minimum asset coverage with respect to senior securities representing indebtedness from 200% to 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), (ii) amended the excess concentration limits definition to decrease the limit for
non-first lien loans from 60% to 50% under certain circumstances and (iii) amended the
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distributions covenant to allow a distribution to be applied towards the redemption of our 6.00% Series 2024 Term Preferred Stock, par value $0.001 per share (Series 2024 Term Preferred
Stock).
On March 9, 2018, we, through Business Loan, entered into Amendment No. 4 to our Credit Facility with KeyBank, which increased
the commitment amount from $170.0 million to $190.0 million, extended the revolving period end date by approximately two years to January 15, 2021, decreased the marginal interest rate added to
30-day LIBOR from 3.25% to 2.85% per annum, and changed the unused commitment fee from 0.50% of the total unused commitment amount to 0.50% when the average unused commitment amount for the reporting period is
less than or equal to 50%, 0.75% when the average unused commitment amount for the reporting period is greater than 50% but less than or equal to 65%, and 1.00% when the average unused commitment amount for the reporting period is greater than 65%.
All principal and interest will be due and payable on April 15, 2022. Subject to certain terms and conditions, our Credit Facility may be expanded up to a total of $265.0 million through additional commitments of new or existing lenders.
We incurred fees of approximately $1.2 million in connection with this amendment, which are being amortized through our Credit Facilitys revolving period end date of July 15, 2021.
The following tables summarize noteworthy information related to our Credit Facility:
As of September 30,
2020
2019
Commitment amount
$
180,000
$
190,000
Borrowings outstanding, at cost
128,000
66,900
Availability (A)
17,641
101,725
Year Ended September 30,
2020
2019
2018
Weighted average borrowings outstanding, at cost
$
103,504
$
71,526
$
114,716
Weighted average interest
rate (B)
4.3
%
6.8
%
5.1
%
Commitment (unused) fees incurred
$
541
$
1,014
$
338
(A)
Available borrowings are subject to various constraints imposed under our Credit Facility, based on the
aggregate loan balance pledged by Business Loan, which varies as loans are added and repaid, regardless of whether such repayments are prepayments or made as contractually required.
(B)
Includes unused commitment fees and excludes the impact of deferred financing costs.
Our Credit Facility also requires that any interest or 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 each month. Amounts collected in the lockbox account with KeyBank are presented as Due from administrative agent on the accompanying
Consolidated Statement of Assets and Liabilities as of September 30, 2020 and 2019.
Our Credit Facility contains covenants that require
Business Loan to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions), and restrict material changes to our credit and collection policies
without the lenders consent. Our Credit Facility also generally limits distributions to our stockholders on a fiscal year basis to the sum of our net investment income, net capital gains and amounts elected to have been paid during the prior
year in accordance with Section 855(a) of the Code. Business Loan is also subject to certain limitations on the type of loan investments it can apply as collateral towards the borrowing base to receive additional borrowing availability under
our Credit Facility, including restrictions on geographic concentrations, sector concentrations, loan size, payment frequency and status, average life and lien property. Our Credit Facility further requires Business Loan to comply with other
financial and operational covenants, which obligate Business Loan to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of 25 obligors required in the borrowing base.
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Additionally, we are required to maintain (i) a minimum net worth (defined in our Credit Facility to include
our mandatorily redeemable preferred stock) of $205.0 million plus 50.0% of all equity and subordinated debt raised after May 1, 2015 less 50% of any equity and subordinated debt retired or redeemed after May 1, 2015, which equates to
$269.5 million as of September 30, 2020, (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 September 30,
2020, and as defined in our Credit Facility, we had a net worth of $327.3 million, asset coverage on our senior securities representing indebtedness of 202.6%, calculated in accordance with the requirements of Section 18 and 61
of the 1940 Act, and an active status as a BDC and RIC. In addition, we had 31 obligors in our Credit Facilitys borrowing base as of September 30, 2020. As of September 30, 2020, we were in compliance with all of our Credit Facility
covenants.
Fair Value
We elected to apply the fair
value option of ASC 825, Financial Instruments , specifically for the Credit Facility, which was consistent with our application of ASC 820 to our investments. Generally, the fair value of our Credit Facility is determined using a
yield analysis which includes a DCF calculation and the assumptions that 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. As of September 30, 2020, the discount rate used to determine the fair value of our Credit Facility was 30-day LIBOR, plus 3.20% per annum, plus a 0.50%
unused commitment fee. As of September 30, 2019, the discount rate used to determine the fair value of our Credit Facility was 30-day LIBOR, plus 2.65% per annum, plus a 0.75% unused commitment fee.
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 our Credit Facility. As of September 30, 2020 and 2019, our Credit
Facility was valued using Level 3 inputs and any changes in its fair value are recorded in net unrealized depreciation (appreciation) of other on our accompanying Consolidated Statements of Operations .
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The following tables present our Credit Facility carried at fair value as of September 30, 2020 and 2019, on
our accompanying Consolidated Statements of Assets and Liabilities for Level 3 of the hierarchy established by ASC 820 and the changes in fair value of our Credit Facility during the years ended September 30, 2020 and 2019:
Total Recurring Fair Value
Measurement Reported in
Consolidated Statements of
Assets and Liabilities
Using Significant
Unobservable Inputs (Level 3)
As of September 30,
2020
2019
Credit Facility
$
127,650
$
67,067
Fair Value Measurements Using Significant Unobservable Data Inputs (Level 3)
Year Ended September 30,
2020
2019
Fair value as of September 30, 2019 and 2018, respectively
$
67,067
$
110,000
Borrowings
204,500
170,700
Repayments
(143,400
)
(213,800
)
Net unrealized appreciation (depreciation) (A)
(517
)
167
Fair Value as of September 30, 2020 and 2019, respectively
$
127,650
$
67,067
(A)
Included in net unrealized appreciation (depreciation) of other on our accompanying Consolidated Statements
of Operations for the years ended September 30, 2020 and 2019.
The fair value of the collateral under our Credit Facility
totaled approximately $412.5 million and $369.0 million as of September 30, 2020 and 2019, respectively.
Notes Payable
In October 2019, we completed a public debt offering of $38.8 million aggregate principal amount of 5.375% Notes due 2024 (the 2024 Notes),
inclusive of the overallotment option exercised by the underwriters, for net proceeds of approximately $37.5 million after deducting underwriting discounts, commissions and offering expenses borne by us.
In November 2018, we completed a public debt offering of $57.5 million aggregate principal amount of 6.125% Notes due 2023 (the 2023 Notes),
inclusive of the overallotment option exercised by the underwriters, for net proceeds of $55.4 million after deducting underwriting discounts, commissions and offering expenses borne by us.
The 2024 and 2023 Notes are traded under the ticker symbols GLADL and GLADD, respectively, on the Nasdaq Global Select Market
(Nasdaq). The 2024 Notes and 2023 Notes will mature on November 1, 2024 and November 1, 2023, respectively, and may be redeemed in whole or in part at any time or from time to time at the Companys option on or after
November 1, 2021 and November 1, 2020, respectively. The 2024 Notes and 2023 Notes bear interest at a rate of 5.375% and 6.125% per year, respectively, payable quarterly on February 1, May 1, August 1, and November 1 of
each year (which equates to approximately $5.6 million per year). The 2024 Notes and 2023 Notes are recorded at the principal amount, less discounts and offering costs, on our Consolidated Statements of Assets and Liabilities .
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The indenture relating to the 2024 Notes and 2023 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 Securities Exchange Act of 1934, as amended, we will provide the holders of the 2024 Notes and 2023 Notes and the trustee with
audited annual consolidated financial statements and unaudited interim consolidated financial statements.
The fair value, based on the last quoted
closing price, of the 2023 Notes as of September 30, 2020 and 2019 was $57.8 million and $60.1 million, respectively. The fair value, based on the last quoted closing price, of the 2024 Notes as of September 30, 2020 was
$38.7 million. We consider the trading price of the 2024 Notes and 2023 Notes to be a Level 1 input within the ASC 820 hierarchy.
NOTE 6.
MANDATORILY REDEEMABLE PREFERRED STOCK
In September 2017, we completed a public offering of approximately 2.1 million shares of our Series 2024
Term Preferred Stock at a public offering price of $25.00 per share. Gross proceeds totaled $51.8 million and net proceeds, after deducting underwriting discounts, commissions and offering expenses borne by us, were approximately
$49.8 million. We incurred approximately $1.9 million in total underwriting discounts and offering costs related to the issuance of the Series 2024 Term Preferred Stock, which were recorded as discounts to the liquidation value on our
accompanying Consolidated Statements of Assets and Liabilities and were previously amortized from issuance through September 30, 2024, the mandatory redemption date.
The shares of our Series 2024 Term Preferred Stock were traded under the ticker symbol GLADN on Nasdaq as of September 30, 2019. The asset
coverage on our senior securities that are stock as of September 30, 2019 was 238.5%, calculated in accordance with Sections 18 and 61 of the 1940 Act.
On October 2, 2019, we voluntarily redeemed all 2,070,000 outstanding shares of our Series 2024 Term Preferred Stock at a redemption price of $25.00 per
share which represents the liquidation preference per share, plus accrued and unpaid dividends through October 1, 2019 in the amount of $0.004166 per share, for a total payment per share of $25.004166 and an aggregate redemption price of
approximately $51.8 million. In connection with the voluntary redemption of our Series 2024 Term Preferred Stock, we incurred a loss on extinguishment of debt of $1.4 million, which has been reflected in Realized loss on other in our
accompanying Consolidated Statement of Operations and which is primarily comprised of the unamortized deferred issuance costs at the time of redemption.
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We paid the following monthly dividends on our Series 2024 Term Preferred Stock for the year ended
September 30, 2019:
Fiscal Year
Declaration Date
Record Date
Payment Date
Distribution
per Share of
Series 2024
Term
Preferred Stock
2019
October 9, 2018
October 19, 2018
October 31, 2018
$
0.125
October 9, 2018
November 20, 2018
November 30, 2018
0.125
October 9, 2018
December 20, 2018
December 31, 2018
0.125
January 8, 2019
January 18, 2019
January 31, 2019
0.125
January 8, 2019
February 20, 2019
February 28, 2019
0.125
January 8, 2019
March 20, 2019
March 29, 2019
0.125
April 9, 2019
April 22, 2019
April 30, 2019
0.125
April 9, 2019
May 22, 2019
May 31, 2019
0.125
April 9, 2019
June 19, 2019
June 28, 2019
0.125
July 9, 2019
July 22, 2019
July 31, 2019
0.125
July 9, 2019
August 20, 2019
August 30, 2019
0.125
July 9, 2019
September 17, 2019
September 30, 2019
0.125
Year Ended September 30, 2019:
$
1.50
The federal income tax characteristics of dividends paid to our preferred stockholders generally constitute ordinary income to
the extent of our current and accumulated earnings and profits and is 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 years ended December 31, 2019 and 2018 was 100% from ordinary income.
In accordance with ASC 480, Distinguishing Liabilities from
Equity , mandatorily redeemable financial instruments should be classified as liabilities in the balance sheet. Our mandatorily redeemable preferred stock was recorded at the liquidation preference, less discounts, on our accompanying
Consolidated Statements of Assets and Liabilities as of September 30, 2019. The related dividend payments to our mandatorily redeemable preferred stockholders are treated as dividend expense on our Consolidated Statements of
Operations as of the ex-dividend date.
The fair value, based on the last quoted closing price, for our Series
2024 Term Preferred Stock as of September 30, 2019 was $51.8 million. We consider the trading price of our mandatorily redeemable preferred stock to be a Level 1 input within the fair value hierarchy.
NOTE 7. REGISTRATION STATEMENT AND COMMON EQUITY OFFERINGS
Our shelf 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 or preferred stock. As of September 30, 2020, we had the ability to issue up to an additional $232.3 million in securities under the
registration statement.
Common Stock Offerings
In
February 2019, we entered into an equity distribution agreement with Jefferies LLC (the Jefferies Sales Agreement) under which we have the ability to issue and sell, from time to time, up to an aggregate offering price of
$50.0 million shares of our common stock. During the year ended September 30, 2020, we sold 1,220,927 shares of our common stock under the Jefferies Sales Agreement, at a weighted-average price of $9.55
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per share and raised $11.7 million of gross proceeds. Net proceeds, after deducting commissions and offering costs borne by us, were approximately $11.4 million. As of
September 30, 2020, we had a remaining capacity to sell up to an additional $21.1 million of our common stock under the Jefferies Sales Agreement.
NOTE 8. NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER 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 September 30, 2020, 2019, and 2018:
Year Ended September 30,
2020
2019
2018
Numerator for basic and diluted net increase (decrease) in net assets resulting from operations
per common share
$
(1,873
)
$
19,869
$
18,648
Denominator for basic and diluted weighted average common shares
31,040,852
29,269,466
27,104,077
Basic and diluted net increase (decrease) in net assets resulting from operations per common
share
$
(0.06
)
$
0.68
$
0.69
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
taxable ordinary income plus the excess of our net short-term capital gains over net long-term capital losses (Investment Company Taxable Income). The amount to be paid out as distributions to our stockholders is determined by our Board
of Directors quarterly and is based on managements estimate of Investment Company Taxable Income. Based on that estimate, our Board of Directors declares three monthly distributions to common stockholders each quarter.
The federal income tax characteristics of all distributions will be reported to stockholders on the IRS Form 1099 after the end of each calendar year. For
calendar year ended December 31, 2019, 97.4% of distributions to common stockholders were deemed to be paid from ordinary income and 2.6% of distributions to common stockholders were deemed to be a return of capital for 1099 stockholder
reporting purposes. For the calendar year ended December 31, 2018, 100% of distributions to common stockholders were deemed to be paid from ordinary income for 1099 stockholder reporting purposes.
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We paid the following monthly distributions to common stockholders for the years ended September 30, 2020
and 2019:
Fiscal Year
Declaration Date
Record Date
Payment Date
Distribution per
Common Share
2020
October 8, 2019
October 22, 2019
October 31, 2019
$
0.07
October 8, 2019
November 19, 2019
November 29, 2019
0.07
October 8, 2019
December 19, 2019
December 31, 2019
0.07
January 14, 2020
January 24, 2020
January 31, 2020
0.07
January 14, 2020
February 19, 2020
February 28, 2020
0.07
January 14, 2020
March 20, 2020
March 31, 2020
0.07
April 14, 2020
April 24, 2020
April 30, 2020
0.065
April 14, 2020
May 19, 2020
May 29, 2020
0.065
April 14, 2020
June 19, 2020
June 30, 2020
0.065
July 14, 2020
July 24, 2020
July 31, 2020
0.065
July 14, 2020
August 24, 2020
August 31, 2020
0.065
July 14, 2020
September 23, 2020
September 30, 2020
0.065
Year Ended September 30, 2020:
$
0.81
2019
October 9, 2018
October 19, 2018
October 31, 2018
$
0.07
October 9, 2018
November 20, 2018
November 30, 2018
0.07
October 9, 2018
December 20, 2018
December 31, 2018
0.07
January 8, 2019
January 18, 2019
January 31, 2019
0.07
January 8, 2019
February 20, 2019
February 28, 2019
0.07
January 8, 2019
March 20, 2019
March 29, 2019
0.07
April 9, 2019
April 22, 2019
April 30, 2019
0.07
April 9, 2019
May 22, 2019
May 31, 2019
0.07
April 9, 2019
June 19, 2019
June 28, 2019
0.07
July 9, 2019
July 22, 2019
July 31, 2019
0.07
July 9, 2019
August 20, 2019
August 30, 2019
0.07
July 9, 2019
September 17, 2019
September 30, 2019
0.07
Year Ended September 30, 2019:
$
0.84
Aggregate distributions declared and paid to our common stockholders were approximately $25.2 million and
$24.6 million for the years ended September 30, 2020 and 2019, respectively, and were declared based on estimates of Investment Company Taxable Income. For the fiscal years ended September 30, 2020 and 2019, distributions declared and
paid exceeded taxable income available for common distributions resulting in a partial return of capital of approximately $0.4 million and $0.7 million, respectively. For the fiscal year ended September 30, 2018, our current and
accumulated earnings and profits (after taking into account our mandatorily redeemable preferred stock dividends), exceeded common stock distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat
$0.3 million of the first common distributions paid to common stockholders in the subsequent fiscal year as having been paid in the prior year.
Year Ended
September 30,
2020
2019
Common stock
$
32
$
30
Capital in excess of par value
367,125
358,113
Cumulative net unrealized depreciation of investments
(44,247
)
(25,577
)
Cumulative net unrealized appreciation of other
350
(167
)
Capital loss carryforward
(72,370
)
(57,077
)
Post-October tax loss deferral
(6,819
)
(16,011
)
Other temporary differences
(10,328
)
(9,981
)
Net Assets
$
233,743
$
249,330
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We intend to retain some or all of our realized capital gains first to the extent we have available capital loss
carryforwards and second, through treating the retained amount as a deemed distribution. As of September 30, 2020, we had $72.4 million of capital loss carryforwards that do not expire.
For the years ended September 30, 2020 and 2019, we recorded the following adjustments for permanent book-tax
differences to reflect tax character. Results of operations, total net assets, and cash flows were not affected by these adjustments.
Year Ended
September 30,
2020
2019
Undistributed net investment income
$
(175
)
$
355
Accumulated net realized losses
2,610
1,553
Capital in excess of par value
(2,435
)
(1,908
)
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 are generally 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 meet certain source-of-income and asset
diversification requirements. In addition, to qualify to be taxed as a RIC, we must also meet certain annual stockholder distribution requirements. To satisfy the RIC annual distribution requirement, we must distribute to stockholders at least 90.0%
of our Investment Company Taxable Income. Our policy generally is to make distributions to our stockholders in an amount up to 100.0% of our Investment Company Taxable Income. Because we have distributed more than 90.0% of our Investment Company
Taxable Income, no income tax provisions have been recorded for the years ended September 30, 2020, 2019, and 2018.
In an effort to limit certain
federal excise taxes imposed on RICs, a RIC has to distribute to stockholders, during each calendar year, an amount close to the sum of (1) 98.0% of our ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital
losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during
such years. No excise tax provisions have been recorded for the years ended September 30, 2020, 2019, and 2018.
Under the RIC Modernization Act, we
are permitted to carry forward capital losses that we may incur in taxable years beginning after September 30, 2011 for an unlimited period, and such capital loss carryforwards will retain their character as either short-term or long-term
capital losses. However, any losses incurred during post-enactment taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As
a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either
short-term or long-term capital losses.
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 operations 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 September 30, 2020 and 2019, we had no
established reserves for such loss contingencies.
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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. There were no aggregate reserves recorded against the escrow amounts as of September 30, 2020 and 2019.
Financial Commitments and Obligations
We have lines of
credit, delayed draw term loans, and an uncalled capital commitment with certain of our portfolio companies that have not been fully drawn. Since these commitments have expiration dates and we expect many will never be fully drawn, the total
commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused lines of credit, the unused delayed draw term loans and the uncalled capital commitment as of September 30, 2020 and
2019 to be immaterial.
The following table summarizes the amounts of our unused lines of credit, delayed draw term loans and uncalled capital commitment,
at cost, as of September 30, 2020 and 2019, which are not reflected as liabilities in the accompanying Consolidated Statements of Assets and Liabilities :
As of September 30,
2020
2019
Unused line of credit
commitments (A)
$
18,896
$
12,360
Delayed draw term loans
8,030
10,000
Uncalled capital commitment
843
843
Total
$
27,769
$
23,203
(A)
There may be specific covenant requirements that temporarily limit a portfolio companys availability to
draw on an unused line of credit commitment.
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NOTE 12. FINANCIAL HIGHLIGHTS
As of and for the Year Ended September 30,
2020
2019
2018
2017
2016
Per Common Share Data:
Net asset value at beginning of year
(A)
$
8.22
$
8.32
$
8.40
$
8.62
$
9.06
Income from operations (B)
Net investment income
0.81
0.84
0.85
0.84
0.84
Net realized and unrealized gain (loss) on investments
(0.84
)
(0.15
)
(0.16
)
(0.12
)
(0.35
)
Net realized and unrealized gain (loss) on other
(0.03
)
(0.01
)
(0.05
)
Total from operations
(0.06
)
0.68
0.69
0.67
0.49
Distributions to common stockholders
from (B)(C)
Net Investment Income
(0.80
)
(0.82
)
(0.84
)
(0.84
)
(0.70
)
Realized gains
(0.14
)
Return of capital
(0.01
)
(0.02
)
Total distributions
(0.81
)
(0.84
)
(0.84
)
(0.84
)
(0.84
)
Capital share transactions (B)
Discounts, commissions, and offering costs
(0.01
)
(0.01
)
(0.04
)
(0.05
)
Repurchase of common stock
0.02
Net anti-dilutive (dilutive) effect of equity offering (D)
0.05
0.07
0.08
(0.02
)
(0.05
)
Total capital share transactions
0.05
0.06
0.07
(0.06
)
(0.08
)
Other, net (B)(E)
0.01
(0.01
)
Net asset value at end of year (A)
$
7.40
$
8.22
$
8.32
$
8.40
$
8.62
Per common share market value at beginning of year
$
9.75
$
9.50
$
9.50
$
8.13
$
8.13
Per common share market value at end of year
7.41
9.75
9.50
9.50
8.13
Total return (F)
(15.75
)%
12.55
%
9.53
%
27.90
%
11.68
%
Common stock outstanding at end of
year (A)
31,566,850
30,345,923
28,501,980
26,160,684
23,344,422
Statement of Assets and Liabilities Data:
Net assets at end of year
$
233,743
$
249,330
$
237,092
$
219,650
$
201,207
Average net assets (G)
235,266
239,851
234,092
215,421
193,228
Senior securities Data:
Borrowings under Credit Facility, at cost
$
128,000
$
66,900
$
110,000
$
93,000
$
71,300
Mandatorily redeemable preferred stock
51,750
51,750
51,750
61,000
Notes Payable
96,313
57,500
Ratios/Supplemental Data:
Ratio of net expenses to average net
assets (H)(I)
9.69
10.61
9.61
8.26
10.16
Ratio of net investment income to average net assets (J)
10.70
10.25
9.86
9.95
10.08
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(A)
Based on actual shares outstanding at the end of the corresponding fiscal year.
(B)
Based on weighted average basic per share data.
(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.
(D)
During the fiscal years ended September 30, 2020, 2019, and 2018, the anti-dilution was a result of
issuing common shares during the period at a price above the then-current NAV per share. During the fiscal years ended September 30, 2017 and 2016, the net dilution was a result of issuing common shares during the period at a price below the
then-current NAV per share.
(E)
Represents the impact of the different share amounts (weighted average shares outstanding during the fiscal
year and shares outstanding at the end of the fiscal year) in the per share data calculations and rounding impacts.
(F)
Total return equals the change in the ending market value of our common stock from the beginning of the fiscal
year, taking into account distributions 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 or any sales load paid by a
stockholder. For further information on the estimated character of our distributions to common stockholders, refer to Note 9 Distributions to Common Stockholders .
(G)
Computed using the average of the balance of net assets at the end of each month of the fiscal year.
(H)
Ratio of net expenses to average net assets is computed using total expenses, net of credits from the Adviser,
to the base management, loan servicing, and incentive fees.
(I)
Had we not received any non-contractual, unconditional and irrevocable
credits of fees from the Adviser, the ratio of net expenses to average net assets would have been 14.36%, 14.18%, 13.12%, 12.14%, and 13.40% for the fiscal years ended September 30, 2020, 2019, 2018, 2017, and 2016, respectively.
(J)
Had we not received any non-contractual, unconditional and irrevocable
credits of fees from the Adviser, the ratio of net investment income to average net assets would have been 6.11%, 6.74%, 6.41%, 6.13%, and 6.90% for the fiscal years ended September 30, 2020, 2019, 2018, 2017, and 2016, respectively.
NOTE 13. SELECTED QUARTERLY DATA (UNAUDITED)
Year Ended September 30, 2020
Quarter
Ended
December 31,
2019
Quarter
Ended
March 31,
2020
Quarter
Ended
June 30,
2020
Quarter
Ended
September 30,
2020
Total investment income
$
12,159
$
11,492
$
11,729
$
12,579
Net investment income
6,417
6,547
6,083
6,116
Net increase (decrease) in net assets resulting from operations
698
(27,775
)
14,957
10,247
Net increase (decrease) in net assets resulting from operations per weighted average common share
(basic and diluted)
$
0.02
$
(0.89
)
$
0.48
$
0.33
Year Ended September 30, 2019
Quarter
Ended
December 31,
2018
Quarter
Ended
March 31,
2019
Quarter
Ended
June 30,
2019
Quarter
Ended
September 30,
2019
Total investment income
$
11,909
$
12,522
$
12,886
$
12,718
Net investment income
5,986
6,017
6,213
6,364
Net increase (decrease) in net assets resulting from operations
(3,708
)
9,330
8,856
5,391
Net increase (decrease) in net assets resulting from operations per weighted average common share
(basic and diluted)
$
(0.13
)
$
0.33
$
0.30
$
0.18
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NOTE 14. 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 the year ended September 30, 2020. We had certain unconsolidated subsidiaries which met at
least one of the significance conditions under Rule 1-02(w) of the SECs Regulation S-X as of or during at least one of the years ended September 30, 2019 and
2018. Accordingly, pursuant to Rule 4-08 of Regulation S-X, summarized, comparative financial information is presented below for our unconsolidated significant
subsidiaries as of September 30, 2020 and 2019 and for the years ended September 30, 2020, 2019, and 2018.
As of September 30,
For the Year Ended
September 30,
Portfolio Company
Balance Sheet
2020
2019
Income Statement
2020
2019
2018
Defiance Integrated Technologies, Inc.
Current assets
$
9,720
$
9,604
Net sales
$
24,948
$
30,613
$
28,414
Noncurrent assets
16,594
16,018
Gross profit
2,121
3,518
3,403
Current liabilities
5,652
5,019
Net (loss) income
(1,136
)
(309
)
184
Noncurrent liabilities
14,658
13,775
LWO Acquisitions Company LLC
Current assets
4,869
7,714
Net sales
15,374
19,060
22,368
Noncurrent assets
9,766
10,804
Gross profit
2,690
2,214
3,060
Current liabilities
2,922
5,569
Net (loss) income
(3,620
)
(4,199
)
(2,573
)
Noncurrent liabilities
21,523
16,498
NOTE 15. SUBSEQUENT EVENTS
Distributions
In October 2020, our Board of
Directors declared the following monthly cash distributions to common stockholders:
Record Date
Payment Date
Distribution
per Common
Share
October 23, 2020
October 30, 2020
$
0.065
November 20, 2020
November 30, 2020
0.065
December 23, 2020
December 31, 2020
0.065
Total for the Quarter
$
0.195
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ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.