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
80
Report of Independent Registered Public Accounting Firm
81
Consolidated Statements of Assets and Liabilities as of September
30, 2021 and 2020
83
Consolidated Statements of Operations for the years ended September
30, 2021, 2020 and 2019
84
Consolidated Statements of Changes in Net Assets for the years ended September 30,
2021, 2020 and 2019
85
Consolidated Statements of Cash Flows for the years ended September
30, 2021, 2020 and 2019
86
Consolidated Schedules of Investments as of September
30, 2021 and 2020
87
Notes to Consolidated Financial Statements
100
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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, 2021, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework (2013) . Based on its assessment, management has concluded that
our internal control over financial reporting was effective as of September 30, 2021.
November 15, 2021
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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,
2021 and 2020, and the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended September 30, 2021, including the related notes and financial statement
schedule 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, 2021 and 2020, and the results of its operations, changes in its net assets and its cash flows for each of the three years in the period ended September 30, 2021
in conformity with accounting principles generally accepted in the United States of America.
We have also previously audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of assets and liabilities, including the consolidated schedules of investments, of the Company as of September 30, 2019, 2018, 2017, 2016,
2015, 2014, 2013, and 2012, and the related consolidated statements of operations, changes in net assets and cash flows for the years ended September 30, 2018, 2017, 2016, 2015, 2014, 2013, and 2012 (none of which are presented herein), and we
expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the Senior Securities table of the Company for each of the ten years in the period ended September 30, 2021, appearing on
pages 57-58 under Item 5 of this Form 10-K, is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been
derived.
Basis for Opinion
These
consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities owned as of September 30, 2021 and 2020 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.
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Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated
or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Level 3 Investments
As described in Notes 2 and 3 to the consolidated financial statements, the Company held $551.0 million of total level 3 investments at fair value as of
September 30, 2021. Management uses significant unobservable inputs in estimating the fair value of its level 3 investments, including (i) with respect to investments valued using a total enterprise value, portfolio company earnings before
interest, taxes, depreciation and amortization (EBITDA) and EBITDA multiples, revenue and revenue multiples, or a discounted cash flow analysis using estimated risk-adjusted discount rates; (ii) with respect to investments valued
using a yield analysis, a modified discount rate; and (iii) with respect to investments valued using market quotations for which a limited market exists, the lower indicative bid price in the bid-to-ask price range.
The principal considerations for our determination that performing procedures relating
to the valuation of level 3 investments is a critical audit matter are (i) the significant judgment by management to determine the fair value of these level 3 investments using a total enterprise value or yield analysis due to the use of
significant unobservable inputs, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the EBITDA and EBITDA multiples and revenue and revenue multiples used
in a total enterprise value and the modified discount rate used in a yield analysis, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included, among others, either (i) testing managements process for determining the fair value estimate, including testing the completeness and accuracy of data provided by management, evaluating the
appropriateness of managements valuation methods, and evaluating the reasonableness of the EBITDA and EBITDA multiples and revenue and revenue multiples used in a total enterprise value and the modified discount rate used in a yield analysis
by considering current and past performance of the investment, consistency of the unobservable inputs with external market data and evidence obtained in other areas of the audit, and managements historical forecasting accuracy, or
(ii) the involvement of professionals with specialized skill and knowledge to assist in developing an independent fair value estimate for certain level 3 investments and comparison of managements estimate to the independently developed
estimate. Developing an independent fair value estimate involved testing the completeness and accuracy of data provided by management and independently developing significant unobservable inputs related to the modified discount rate for those
investments valued using a yield analysis.
/s/ PricewaterhouseCoopers LLP
Washington, DC
November 15, 2021
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,
2021
2020
ASSETS
Investments, at fair value:
Non-Control/Non-Affiliate
investments (Cost of $447,566 and $427,798 respectively)
$
454,601
$
401,047
Affiliate investments (Cost of $70,682 and $38,322, respectively)
82,281
33,179
Control investments (Cost of $28,264 and $28,527, respectively)
20,730
16,174
Cash and cash equivalents
671
2,420
Restricted cash and cash equivalents
175
49
Interest receivable, net
2,361
3,001
Due from administrative agent
2,951
2,103
Deferred financing costs, net
1,033
372
Other assets, net
1,697
832
TOTAL ASSETS
$
566,500
$
459,177
LIABILITIES
Borrowings, at fair value (Cost of $50,500 and $128,000, respectively)
$
50,500
$
127,650
Notes payable, net of unamortized deferred financing costs of $2,202 and $2,428,
respectively
186,611
93,885
Accounts payable and accrued expenses
490
377
Interest payable
1,797
1,181
Fees due to Adviser (A)
2,255
1,686
Fee due to Administrator (A)
382
329
Other liabilities
6,026
326
TOTAL LIABILITIES
$
248,061
$
225,434
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 34,304,371 and 31,566,850 shares issued and outstanding, respectively
$
34
$
32
Capital in excess of par value (C)
392,494
367,125
Cumulative net unrealized appreciation (depreciation) of investments
11,100
(44,247
)
Cumulative net unrealized appreciation of other
350
Under (over) distributed net investment
income (C)
149
(39
)
Accumulated net realized losses
(85,338
)
(89,478
)
Total distributable loss
(74,089
)
(133,414
)
TOTAL NET ASSETS
$
318,439
$
233,743
NET ASSET VALUE PER COMMON SHARE
$
9.28
$
7.40
(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,
2021
2020
2019
INVESTMENT INCOME
Interest income
Non-Control/Non-Affiliate
investments
$
40,953
$
37,469
$
37,879
Affiliate investments
4,815
4,296
4,302
Control investments
1,646
1,661
2,146
Cash and cash equivalents
17
54
Total interest income (excluding PIK interest income)
47,414
43,443
44,381
PIK interest income
Non-Control/Non-Affiliate
investments
2,545
2,578
1,262
Affiliate investments
49
Control investments
76
Total PIK interest income
2,545
2,578
1,387
Total interest income
49,959
46,021
45,768
Success fee income
Non-Control/Non-Affiliate
investments
202
350
1,935
Total success fee income
202
350
1,935
Dividend income
Non-Control/Non-Affiliate
investments
1,645
166
497
Control investments
611
559
598
Total dividend income
2,256
725
1,095
Other income
1,377
863
1,237
Total investment income
53,794
47,959
50,035
EXPENSES
Base management fee (A)
8,674
7,568
7,230
Loan servicing fee (A)
5,579
5,819
5,072
Incentive fee (A)
5,746
5,251
5,776
Administration fee (A)
1,438
1,430
1,325
Interest expense on borrowings
11,513
9,991
8,037
Dividend expense on mandatorily redeemable preferred stock
9
3,105
Amortization of deferred financing costs
1,347
1,484
1,348
Professional fees
806
877
833
Other general and administrative expenses
1,101
1,219
1,187
Expenses, before credits from Adviser
36,204
33,648
33,913
Credit to base management fee - loan servicing
fee (A)
(5,579
)
(5,819
)
(5,072
)
Credit to fees from Adviser -
other (A)
(2,953
)
(5,033
)
(3,386
)
Total expenses, net of credits
27,672
22,796
25,455
NET INVESTMENT INCOME
26,122
25,163
24,580
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss):
Non-Control/Non-Affiliate
investments
4,179
(7,413
)
(16,404
)
Affiliate investments
(63
)
25
Control investments
(9
)
Other
(999
)
(1,407
)
Total net realized gain (loss)
3,180
(8,883
)
(16,388
)
Net unrealized appreciation (depreciation):
Non-Control/Non-Affiliate
investments
33,786
(11,355
)
18,341
Affiliate investments
16,742
(1,643
)
2,311
Control investments
4,819
(5,672
)
(8,808
)
Other
(350
)
517
(167
)
Total net unrealized appreciation (depreciation)
54,997
(18,153
)
11,677
Net realized and unrealized gain (loss)
58,177
(27,036
)
(4,711
)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
$
84,299
$
(1,873
)
$
19,869
BASIC AND DILUTED PER COMMON SHARE:
Net investment income
$
0.79
$
0.81
$
0.84
Net increase (decrease) in net assets resulting from operations
$
2.54
$
(0.06
)
$
0.68
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic and Diluted
33,234,482
31,040,852
29,269,466
(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,
2021
2020
2019
OPERATIONS
Net investment income
$
26,122
$
25,163
$
24,580
Net realized gain (loss) on investments
4,179
(7,476
)
(16,388
)
Net realized loss on other
(999
)
(1,407
)
Net unrealized appreciation (depreciation) of investments
55,347
(18,670
)
11,844
Net unrealized appreciation (depreciation) of other
(350
)
517
(167
)
Net increase (decrease) in net assets from operations
84,299
(1,873
)
19,869
DISTRIBUTIONS
Distributions to common stockholders from net investment income ( $0.75 , $0.80, and $0.82
per share, respectively) (A)
(24,987
)
(24,752
)
(23,861
)
Distributions to common stockholders from return of capital ( $0.03 , $0.01, and $0.02 per
share, respectively) (A)
(985
)
(411
)
(719
)
Net decrease in net assets from distributions
(25,972
)
(25,163
)
(24,580
)
CAPITAL TRANSACTIONS
Issuance of common stock
26,850
11,664
17,248
Offering costs for issuance of common stock
(481
)
(215
)
(299
)
Net increase (decrease) in net assets from capital transactions
26,369
11,449
16,949
NET INCREASE (DECREASE) IN NET ASSETS
84,696
(15,587
)
12,238
NET ASSETS, BEGINNING OF YEAR
233,743
249,330
237,092
NET ASSETS, END OF YEAR
$
318,439
$
233,743
$
249,330
(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,
2021
2020
2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in net assets resulting from operations
$
84,299
$
(1,873
)
$
19,869
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net
cash provided by (used in) operating activities:
Purchase of investments
(181,841
)
(149,906
)
(147,067
)
Principal repayments on investments
126,816
75,992
118,381
Proceeds from sale of investments
15,848
2,763
12,680
Increase in investments due to
paid-in-kind interest or other
(5,994
)
(2,400
)
(1,752
)
Net change in premiums, discounts and amortization
876
(329
)
358
Net realized loss (gain) on investments
(4,179
)
7,685
16,414
Net unrealized depreciation (appreciation) of investments
(55,347
)
18,670
(11,844
)
Net realized loss (gain) on other
999
1,407
Net unrealized depreciation (appreciation) of other
350
(517
)
167
Amortization of deferred financing costs
1,347
1,484
1,348
Changes in assets and liabilities:
Decrease (increase) in interest receivable, net
640
(376
)
(24
)
Decrease (increase) in funds due from administrative agent
(848
)
723
(19
)
Decrease (increase) in other assets, net
(941
)
255
(485
)
Increase (decrease) in accounts payable and accrued expenses
113
(199
)
286
Increase (decrease) in interest payable
616
339
512
Increase (decrease) in fees due to
Adviser (A)
569
234
368
Increase (decrease) in fee due to
Administrator (A)
53
(37
)
49
Increase (decrease) in other liabilities
2,562
(6
)
14
Net cash provided by (used in) operating activities
(14,062
)
(46,091
)
9,255
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
238,800
204,500
170,700
Repayments on borrowings
(316,300
)
(143,400
)
(213,800
)
Redemption of mandatorily redeemable preferred stock
(51,750
)
Proceeds from issuance of notes payable
150,000
38,813
57,500
Redemption of notes payable
(57,500
)
Deferred financing costs
(3,036
)
(1,677
)
(2,322
)
Proceeds from issuance of common stock
26,850
11,664
17,248
Offering costs for issuance of common stock
(403
)
(175
)
(257
)
Distributions paid to common stockholders
(25,972
)
(25,163
)
(24,580
)
Net cash provided by (used in) financing activities
12,439
32,812
4,489
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS RESTRICTED CASH, AND RESTRICTED CASH
EQUIVALENTS
(1,623
)
(13,279
)
13,744
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF
YEAR
2,469
15,748
2,004
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, END OF
YEAR
$
846
$
2,469
$
15,748
CASH PAID DURING YEAR FOR INTEREST
$
10,897
$
9,652
$
7,525
NON-CASH ACTIVITIES (B)
6,633
(A)
Refer to Note 4 Related Party Transactions for additional information.
(B)
Significant non-cash operating activities consisted principally of the following transactions:
In June 2021, our investment in NetFortris Corp. was restructured. As part of the transaction, approximately $3.5
million of fees and accrued interest were capitalized to the term loan.
Approximately $3.1 million of non-cash activities consists of estimated tax liabilities for portfolio company
exits that occurred during the year ended September 30, 2021.
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, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(K)
Principal/
Shares/
Units (J)(I)
Cost
Fair
Value
NON-CONTROL/NON-AFFILIATE
INVESTMENTS (M) 142.8%
Secured First Lien Debt 95.5%
Aerospace and Defense 20.3%
Antenna Research Associates, Inc. Term Debt (L + 10.0%, 12.0% Cash, 4.0% PIK, Due 11/2023) (E)
$
11,763
$
11,763
$
11,763
Ohio Armor Holdings, LLC Term Debt (L + 8.0%, 9.0% Cash, Due 2/2026) (C)
19,500
19,500
19,549
SpaceCo Holdings, LLC Line of Credit, $1,300 available (L + 6.8%, 7.8% Cash, Due 12/2025) (C)
700
700
700
SpaceCo Holdings, LLC Term Debt (L + 6.8%, 7.8% Cash, Due 12/2025) (C)
32,544
32,044
32,544
64,007
64,556
Beverage, Food, and Tobacco 13.5%
Café Zupas Line of Credit, $4,000 available (L + 7.4%, 8.9% Cash, Due 12/2024) (C)
Café Zupas Delayed Draw Term Loan, $3,030 available (L + 7.4%, 8.9% Cash, Due
12/2024) (C)
1,970
1,970
1,987
Café Zupas Term Debt (L + 7.4%, 8.9% Cash, Due 12/2024) (C)
24,000
24,000
24,210
Eegees LLC Line of Credit, $1,000 available (L + 7.3%, 8.3% Cash, Due 6/2026) (C)
Eegees LLC Delayed Draw Term Loan, $7,500 available (L + 7.3%, 8.3% Cash, Due 6/2026) (C)
Eegees LLC Term Debt (L + 7.3%, 8.3% Cash, Due 6/2026) (C)
17,000
17,000
16,936
42,970
43,133
Buildings and Real Estate 0.5%
GFRC 360, LLC Line of Credit, $500 available (L + 8.0%, 9.0% Cash, Due 9/2022) (C)
700
700
699
GFRC 360, LLC Term Debt (L + 8.0%, 9.0% Cash, Due 9/2022) (C)
1,000
1,000
999
1,700
1,698
Diversified/Conglomerate Manufacturing 3.8%
Unirac, Inc. Line of Credit, $1,003 available (L + 7.0%, 8.0% Cash, Due 6/2026) (C)(U)
251
251
250
Unirac, Inc. Delayed Draw Term Loan, $1,254 available (L + 7.0%, 8.0% Cash, Due 6/2026) (C)(U)
Unirac, Inc. Term Debt (L + 7.0%, 8.0% Cash, Due 6/2026) (C)(U)
11,921
11,652
11,891
11,903
12,141
Diversified/Conglomerate Service 21.3%
DKI Ventures, LLC Line of Credit, $2,500 available (L + 8.3%, 9.3% Cash, 2.0% PIK, Due
12/2021) (C)
DKI Ventures, LLC Term Debt (L + 8.3%, 9.3% Cash, 2.0% PIK, Due 12/2023) (C)
5,739
5,724
5,008
ENET Holdings, LLC Term Debt (L + 8.8%, 10.2% Cash, Due 12/2022) (C)
1,000
1,000
785
ENET Holdings, LLC Term Debt (L + 8.8%, 10.2% Cash, Due 4/2025) (C)
29,000
29,000
22,765
MCG Energy Solutions, LLC Line of Credit, $3,000 available (L + 7.5%, 8.5% Cash, Due 3/2026) (C)
MCG Energy Solutions, LLC Term Debt (L + 7.5%, 8.5% Cash, 1.5% PIK, Due 3/2026) (C)
20,129
20,129
19,927
MCG Energy Solutions, LLC Delayed Draw Term Loan, $3,000 available (L + 7.5%, 8.5% Cash,
1.5% PIK, Due 3/2026) (C)
R2i Holdings, LLC Line of Credit, $1,171 available (8.0% Cash, Due 12/2021) (C)(F)
829
829
803
R2i Holdings, LLC Term Debt (8.0% Cash, Due 12/2023) (C)(F)
19,000
19,000
18,406
75,682
67,694
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, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(K)
Principal/
Shares/
Units (J)(I)
Cost
Fair
Value
Healthcare, Education, and Childcare 24.9%
ALS Education, LLC Line of Credit, $3,000 available (L + 7.0%, 8.5% Cash, Due 5/2025) (C)
ALS Education, LLC Term Debt (L + 7.0%, 8.5% Cash, Due 5/2025) (C)
20,680
20,680
20,809
Effective School Solutions LLC Line of Credit, $2,000 available (L + 7.3%, 8.3% Cash, Due
12/2025) (C)
Effective School Solutions LLC Term Debt (L + 7.3%, 8.3% Cash, Due 12/2025) (C)
19,000
19,000
19,095
Effective School Solutions LLC Delayed Draw Term Loan, $3,200 available (L + 7.3%, 8.3%
Cash, Due 12/2025) (C)
EL Academies, Inc. Delayed Draw Term Loan, $0 available (L + 8.0%, 9.0% Cash, Due 8/2022) (C)
16,000
16,000
16,000
EL Academies, Inc. Term Debt (L + 8.0%, 9.0% Cash, Due 8/2022) (C)
12,000
12,000
12,000
Turn Key Health Clinics, LLC Line of Credit, $1,500 available (L + 7.3%, 8.3% Cash, Due
6/2026) (C)
500
500
499
Turn Key Health Clinics, LLC Term Debt (L + 7.3%, 8.3% Cash, Due 6/2026) (C)
11,000
11,000
10,986
79,180
79,389
Machinery 1.8%
Arc Drilling Holdings LLC Line of Credit, $875 available (L + 8.0%, 9.3% Cash, Due 11/2022) (C)
125
125
122
Arc Drilling Holdings LLC Term Debt (L + 9.5%, 10.8% Cash, 3.0% PIK, Due 11/2022) (C)
5,824
5,824
5,577
5,949
5,699
Printing and Publishing 0.0%
Chinese Yellow Pages Company Line of Credit, $0 available (PRIME + 4.0%, 7.3% Cash, Due
2/2015) (E)(V)(Q)
$
107
107
Telecommunications 9.4%
B+T Group Acquisition, Inc. (S) Line of
Credit, $0 available (L + 11.0%, 13.0% Cash,
Due 12/2021) (C)
1,200
1,200
1,158
B+T Group Acquisition, Inc. (S) Term
Debt (L + 11.0%, 13.0% Cash, Due 12/2021) (C)
6,000
6,000
5,790
NetFortris Corp. Term Debt (L + 11.0%, 4.0% Cash, 7.5% PIK, Due 5/2021) (C)(Q)
27,350
26,946
22,837
34,146
29,785
Total Secured First Lien Debt
$
315,644
$
304,095
Secured Second Lien Debt 30.6%
Automobile 3.3%
Sea Link International IRB, Inc. Term Debt (11.3% Cash, 2.0% PIK, Due 3/2023) (C)(F)
$
10,893
$
10,893
$
10,376
Beverage, Food, and Tobacco 1.1%
8 th Avenue Food & Provisions, Inc.
Term Debt (L + 7.8%, 7.8% Cash, Due 10/2026) (D)
3,682
3,702
3,646
Chemicals, Plastics, and Rubber 3.2%
Phoenix Aromas & Essential Oils, LLC Term Debt (L + 9.3%, 10.3% Cash, Due 5/2024) (C)
10,012
9,986
10,062
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)(K)
Principal/
Shares/
Units (J)(I)
Cost
Fair Value
Diversified/Conglomerate Manufacturing 1.5%
Tailwind Smith Cooper Intermediate Corporation Term Debt (L + 9.0%, 9.1% Cash, Due 5/2027) (D)
5,000
4,801
4,701
Diversified/Conglomerate Service 8.7%
CHA Holdings, Inc. Term Debt (L + 8.8%, 9.8% Cash, Due 4/2026) (D)(U)
3,000
2,960
2,700
Gray Matter Systems, LLC Term Debt (12.0% Cash, Due 12/2026) (C)(F)
8,100
8,064
8,130
Keystone Acquisition Corp. Term Debt (L + 9.3%, 10.3% Cash, Due 5/2025) (D)(U)
4,000
3,954
3,790
Prophet Brand Strategy Delayed Draw Term Loan, $5,000 available (L + 8.5%, 10.5% Cash, Due
2/2025) (Y)(Z)
Prophet Brand Strategy Term Debt (L + 8.5%, 10.5% Cash, Due 2/2025) (Y)(Z)
13,000
13,000
13,130
27,978
27,750
Healthcare, Education, and Childcare 1.8%
Medical Solutions Holdings, Inc. Term Debt (L + 8.4%, 9.4% Cash, Due 6/2025) (C)
3,000
2,974
2,940
Medical Solutions Holdings, Inc. Term Debt (L + 8.8%, 9.8% Cash, Due 6/2025) (C)
3,000
2,957
2,940
5,931
5,880
Home and Office Furnishings, Housewares and Durable Consumer Products 3.2%
Belnick, Inc. Term Debt (11.0% Cash, Due 8/2023) (C)(F)
10,000
10,000
10,025
Machinery 0.2%
CPM Holdings, Inc. Term Debt (L + 8.3%, 8.3% Cash, Due 11/2026) (D)
798
798
790
Oil and Gas 7.6%
Imperative Holdings Corporation Term Debt (L + 10.3%, 12.3% Cash, 1.8% PIK, Due 9/2022) (C)
26,569
26,569
24,178
Total Secured Second Lien Debt
$
100,658
$
97,408
Unsecured Debt 0.0%
Diversified/Conglomerate Service 0.0%
Frontier Financial Group Inc. Convertible Debt (6.0%, Due 6/2022) (E)(F)
$
198
$
198
$
10
Preferred Equity 5.7%
Automobile 0.0%
Sea Link International IRB, Inc. Preferred Stock (E)(G)
98,039
98
127
Beverage, Food, and Tobacco 0.0%
Triple H Food Processors, LLC Preferred
Stock (E)(G)
75
75
102
Buildings and Real Estate 0.3%
GFRC 360, LLC Preferred
Stock (E)(G)
1,000
1,025
864
Diversified/Conglomerate Service 2.8%
Frontier Financial Group Inc. Preferred
Stock (E)(G)
766
500
Frontier Financial Group Inc. Preferred Stock Warrant (E)(G)
168
MCG Energy Solutions, LLC Preferred
Stock (E)
7,000,000
7,000
8,861
7,500
8,861
Oil and Gas 0.5%
FES Resources Holdings LLC Preferred Equity Units (E)(G)
6,350
6,350
Imperative Holdings Corporation Preferred Equity Units (E)(G)
13,740
632
1,551
6,982
1,551
Telecommunications 2.1%
B+T Group Acquisition, Inc. (S)
Preferred Stock (E)(G)
6,130
2,024
5,691
NetFortris Corp. Preferred
Stock (E)(G)
7,890,860
789
914
2,813
6,605
Total Preferred Equity
$
18,493
$
18,110
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
89
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(K)
Principal/
Shares/
Units (J)(I)
Cost
Fair
Value
Common Equity 11.0%
Aerospace and Defense 4.8%
Antenna Research Associates, Inc. Common Equity Units (E)(G)
4,283
$
4,283
$
13,444
Ohio Armor Holdings, LLC Common
Equity (E)(G)
1,000
1,000
1,749
5,283
15,193
Automobile 0.1%
Sea Link International IRB, Inc. Common Equity Units (E)(G)
823,333
823
300
Beverage, Food, and Tobacco 0.5%
Triple H Food Processors, LLC Common
Stock (E)(G)
250,000
250
1,504
Buildings and Real Estate 0.0%
GFRC 360, LLC Common Stock
Warrants (E)(G)
45.0
%
Healthcare, Education, and Childcare 2.3%
GSM MidCo LLC Common
Stock (E)(G)
767
767
924
Leeds Novamark Capital I, L.P. Limited Partnership Interest ($843 uncalled capital
commitment) (G)(L)(R)
3.5
%
1,358
6,487
2,125
7,411
Machinery 0.0%
Arc Drilling Holdings LLC Common
Stock (E)(G)
15,000
1,500
Oil and Gas 0.0%
FES Resources Holdings LLC Common Equity
Units (E)(G)
6,233
Total Safety Holdings, LLC Common
Equity (E)(G)
435
499
132
499
132
Personal and Non-Durable Consumer Products
(Manufacturing Only) 0.0%
Funko Acquisition Holdings, LLC (S)
Common Units (G)(T)
6,290
30
78
Telecommunications 0.1%
B+T Group Acquisition, Inc. (S) Common
Stock Warrant (E)(G)
1.5
%
330
NetFortris Corp. Common Stock
Warrant (E)(G)
1
1
1
330
Textiles and Leather 3.2%
Targus Cayman HoldCo, Ltd. Common
Stock (E)(G)
3,076,414
2,062
10,030
Total Common Equity
$
12,573
$
34,978
Total
Non-Control/Non-Affiliate Investments
$
447,566
$
454,601
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
90
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(K)
Principal/
Shares/
Units (J)(I)
Cost
Fair Value
AFFILIATE INVESTMENTS (N)
25.8%
Secured First Lien Debt 9.1%
Diversified/Conglomerate Manufacturing 1.7%
Edge Adhesives Holdings, Inc. (S) Term
Debt (L + 10.5%, 12.5% Cash, Due 2/2022) (C)
$
5,540
$
5,540
$
5,540
Diversified/Conglomerate Service 7.4%
Encore Dredging Holdings, LLC Line of Credit, $3,000 available (L + 8.0%, 9.0% Cash, Due
12/2025) (C)
Encore Dredging Holdings, LLC Term Debt (L + 8.0%, 9.0% Cash, Due 12/2025) (C)
23,500
23,500
23,618
Encore Dredging Holdings, LLC Delayed Draw Term Loan, $5,000 available (L + 8.0%, 9.0% Cash,
Due 12/2025) (C)
23,500
23,618
Total Secured First Lien Debt
$
29,040
$
29,158
Secured Second Lien Debt 9.6%
Diversified Natural Resources, Precious Metals and Minerals 9.6%
Lignetics, Inc. Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026) (Y)(Z)
$
6,000
$
6,000
$
6,540
Lignetics, Inc. Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026) (Y)(Z)
8,000
8,000
8,633
Lignetics, Inc. Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026) (Y)(Z)
3,300
3,300
3,491
Lignetics, Inc. Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026) (Y)(Z)
3,000
3,000
3,199
Lignetics, Inc. Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026) (Y)(Z)
2,500
2,500
2,500
Lignetics, Inc. Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026) (Y)(Z)
6,200
6,200
6,200
29,000
30,563
Total Secured Second Lien Debt
$
29,000
$
30,563
Preferred Equity 3.4%
Diversified/Conglomerate Manufacturing 0.0%
Edge Adhesives Holdings, Inc. (S)
Preferred Stock (E)(G)
5,466
$
5,466
$
Diversified/Conglomerate Service 1.4%
Encore Dredging Holdings, LLC (S)
Preferred Stock (E)(G)
3,200,000
3,200
$
4,525
Diversified Natural Resources, Precious Metals and Minerals 1.8%
Lignetics, Inc. Preferred
Stock (G)(Y)(Z)
78,097
1,321
5,602
Personal and Non-Durable Consumer Products
(Manufacturing Only) 0.2%
Canopy Safety Brands, LLC Preferred
Stock (E)(G)
500,000
500
739
Total Preferred Equity
$
10,487
$
10,866
Common Equity 3.7%
Diversified Natural Resources, Precious Metals and Minerals 3.5%
Lignetics, Inc. Common
Stock (G)(Y)(Z)
152,603
$
1,855
$
10,969
Personal and Non-Durable Consumer Products
(Manufacturing Only) 0.2%
Canopy Safety Brands, LLC Common
Stock (E)(G)
800,000
300
725
Total Common Equity
$
2,155
$
11,694
Total Affiliate Investments
$
70,682
$
82,281
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, 2021
(DOLLAR AMOUNTS IN THOUSANDS)
Company and
Investment (A)(B)(W)(K)
Principal/
Shares/
Units (J)(I)
Cost
Fair
Value
CONTROL INVESTMENTS (O)
6.5%
Secured First Lien Debt 1.3%
Diversified/Conglomerate Manufacturing 0.9%
LWO Acquisitions Company LLC Term Debt (L + 7.5%, 10.0% Cash, Due 6/2021) (E)(Q)
$
6,000
$
6,000
$
2,841
LWO Acquisitions Company LLC Term Debt (Due 6/2021) (E)(P)(Q)
10,632
10,632
16,632
2,841
Printing and Publishing 0.4%
TNCP Intermediate HoldCo, LLC Line of Credit, $700 available (8.0% Cash, Due
10/2024) (E)(F)
1,300
1,300
1,300
Total Secured First Lien Debt
$
17,932
$
4,141
Secured Second Lien Debt 2.5%
Automobile 2.5%
Defiance Integrated Technologies, Inc. Term Debt (L + 9.5%, 11.0% Cash, Due 5/2026) (E)
$
7,985
$
7,985
$
7,985
Unsecured Debt 0.0%
Diversified/Conglomerate Manufacturing 0.0%
LWO Acquisitions Company LLC Term Debt (Due 6/2023) (E)(P)
$
95
$
95
$
Preferred Equity 0.1%
Automobile 0.1%
Defiance Integrated Technologies, Inc. Preferred Stock (E)(G)
6,043
$
250
$
270
Common Equity 2.6%
Automobile 0.8%
Defiance Integrated Technologies, Inc. Common Stock (E)(G)
33,321
$
580
$
2,623
Diversified/Conglomerate Manufacturing 0.0%
LWO Acquisitions Company LLC Common
Units (E)(G)
921,000
921
Machinery 1.3%
PIC 360, LLC Common Equity
Units (E)(G)
750
1
3,983
Printing and Publishing 0.5%
TNCP Intermediate HoldCo, LLC Common Equity Units (E)(G)
790,000
500
1,728
Total Common Equity
$
2,002
$
8,334
Total Control Investments
$
28,264
$
20,730
TOTAL INVESTMENTS 175.1%
$
546,512
$
557,612
(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 $512.0 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, 2021, 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 1.2% of total investments, at fair value, as of September 30, 2021.
(B)
Unless indicated otherwise, all cash interest rates are indexed to
30-day London Interbank Offered Rate (LIBOR or L), which was 0.08% as of September 30, 2021. 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, 2021, 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.
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Table of Contents
(F)
Debt security has a fixed interest rate.
(G)
Security is non-income producing.
(H)
Reserved.
(I)
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.
(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)
Category percentages represent the fair value of each category and subcategory as a percentage of net assets as
of September 30, 2021.
(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)
Investment maturity date has passed. Investment continues to make applicable interest payments.
(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 0.13% as of September 30, 2021.
(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, 2021.
(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)
Cumulative gross unrealized depreciation for federal income tax purposes is $59.4 million; cumulative gross
unrealized appreciation for federal income tax purposes is $57.7 million. Cumulative net unrealized depreciation is $1.7 million, based on a tax cost of $559.3 million.
(Y)
Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to
occur imminently.
(Z)
Investment was exited subsequent to September 30, 2021. Refer to Note 15 Subsequent Events in
the accompanying Notes to the 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 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 Debt 85.5%
Aerospace and Defense 14.3%
Aerospace Engineering, LLC Line of Credit, $2,350 available (L + 7.3%, 8.3% Cash, Due
8/2025) (C)
$
650
$
650
$
650
Aerospace Engineering, LLC Term 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 Tobacco 10.9%
Café Zupas Line of Credit, $4,000 available (L + 7.4%, 8.9% Cash, Due 12/2024) (C)
Café Zupas Delayed Draw Term Loan, $3,030 available (L + 7.4%, 8.9% Cash,
Due
12/2024) (C)
1,970
1,970
1,931
Café Zupas Term Debt (L + 7.4%, 8.9% Cash, Due 12/2024) (C)
24,000
24,000
23,520
25,970
25,451
Buildings and Real Estate 0.7%
GFRC 360, LLC Line of Credit, $500 available (L + 8.0%, 9.0% Cash, Due 9/2021) (C)
700
700
681
GFRC 360, LLC Term Debt (L + 8.0%, 9.0% Cash, Due 9/2021) (C)
1,000
1,000
973
1,700
1,654
Diversified/Conglomerate Service 24.9%
DKI Ventures, LLC Line of Credit, $2,500 available (L + 8.3%, 9.3% Cash, 2.0% PIK, Due
12/2021) (C)
DKI Ventures, LLC Term Debt (L + 8.3%, 9.3% Cash, 2.0% PIK, Due 12/2023) (C)
5,971
5,971
4,523
ENET Holdings, LLC Term Debt (10.2% Cash, Due 12/2022) (C)(F)
1,000
1,000
807
ENET Holdings, LLC Term Debt (10.2% Cash, Due 4/2025) (C)(F)
29,000
29,000
23,417
R2i Holdings, LLC Line of Credit, $1,171 available (8.0% Cash, Due 12/2021) (C)(F)
829
829
790
R2i Holdings, LLC Term 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 Childcare 20.9%
ALS Education, LLC Line of Credit, $4,000 available (L + 7.5%, 9.0% Cash, Due 5/2025) (C)
ALS Education, LLC Term 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
Machinery 2.6%
Arc Drilling Holdings LLC Line of Credit, $875 available (L + 8.0%, 9.3% Cash,
Due
11/2020) (C)
125
125
121
Arc Drilling Holdings LLC Term Debt (L + 9.5%, 10.8% Cash, 3.0% PIK, Due 11/2022) (C)
5,871
5,871
5,689
Precision International, LLC Line of Credit, $500 available (L + 7.5%, 8.5% Cash,
Due
9/2021) (C)
Precision International, LLC Term Debt (10.0% Cash, Due 9/2021) (C)(F)
286
286
277
6,282
6,087
Printing and Publishing 0.0%
Chinese Yellow Pages Company Line of Credit, $0 available (PRIME + 4.0%, 7.3% Cash, Due
2/2015) (E)(V)
107
107
Telecommunications 11.2%
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 Debt 72.2%
Automobile 4.1%
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 Transportation 13.1%
AG Transportation Holdings, LLC Term Debt (L + 10.0%, 13.3% Cash, Due 12/2021) (C)
13,000
12,973
12,805
American Trailer Rental Group LLC Term Debt (L + 8.9%, 10.4% Cash, Due 8/2025) (C)
18,000
18,000
17,820
30,973
30,625
Chemicals, Plastics, and Rubber 4.7%
Phoenix Aromas & Essential Oils, LLC Term Debt (L + 11.5%, 12.5% Cash, Due 5/2024) (C)
10,012
10,012
9,911
Vertellus Holdings LLC Term Debt (L + 12.0%, 13.0% Cash, Due 7/2022) (C)
1,099
1,099
1,099
11,111
11,010
Diversified/Conglomerate Manufacturing 13.7%
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 Corporation Term Debt (L + 9.0%, 9.1% Cash, Due 5/2027) (D)
5,000
4,776
3,887
32,776
31,887
Diversified/Conglomerate Service 14.9%
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, LLC Term Debt (L + 8.3%, 8.5% Cash, Due 4/2026) (D)(U)
5,000
4,786
4,787
Gray Matter Systems, LLC Term 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 Strategy Delayed Draw Term Loan, $5,000 available (L + 8.5%, 10.5% Cash, Due
2/2025) (C)
Prophet Brand Strategy Term Debt (L + 8.5%, 10.5% Cash, Due 2/2025) (C)
13,000
13,000
12,984
35,784
34,677
Healthcare, Education, and Childcare 2.3%
Medical Solutions Holdings, Inc. Term Debt (L + 8.4%, 9.4% Cash, Due 6/2025) (D)(Z)
3,000
2,969
2,700
Medical Solutions Holdings, Inc. Term Debt (L + 8.8%, 9.8% Cash, Due 6/2025) (D)(Z)
3,000
2,948
2,760
5,917
5,460
Home and Office Furnishings, Housewares and Durable Consumer Products 4.1%
Belnick, Inc. Term Debt (11.0% Cash, Due 8/2023) (C)(F)
10,000
10,000
9,675
Hotels, Motels, Inns, and Gaming 3.4%
Vacation Rental Pros Property Management, LLC Term Debt (L + 10.0%, 11.0% Cash, 3.0% PIK,
Due 6/2023) (C)
8,052
8,052
8,052
Machinery 0.4%
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 Corporation Term 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 Debt 1.8%
Diversified/Conglomerate Service 0.0%
Frontier Financial Group Inc. Convertible Debt (6.0%, Due 6/2022) (E)(F)
$
198
$
198
$
17
Healthcare, education, and childcare 1.8%
Edmentum Ultimate Holdings, LLC Term Debt (10.0% PIK, Due 12/2021) (C)(F)
4,415
4,415
4,282
Total Unsecured Debt
$
4,613
$
4,299
Preferred Equity 2.0%
Beverage, Food, and Tobacco 0.0%
Triple H Food Processors, LLC Preferred
Stock (E)(G)
75
75
83
Buildings and Real Estate 0.6%
GFRC 360, LLC Preferred
Stock (E)(G)
1,000
1,025
1,456
Diversified/Conglomerate Service 0.0%
Frontier Financial Group Inc. Preferred
Stock (E)(G)
766
500
Frontier Financial Group Inc. Preferred Stock Warrant (E)(G)
168
500
Oil and Gas 0.6%
FES Resources Holdings LLC Preferred Equity Units (E)(G)
6,350
6,350
Imperative Holdings Corporation Preferred Equity Units (E)(G)
13,740
632
1,292
6,982
1,292
Telecommunications 0.8%
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 Equity 10.1%
Aerospace and Defense 1.8%
Antenna Research Associates, Inc. Common Equity Units (E)(G)
4,283
$
4,283
$
4,138
Automobile 0.1%
Sea Link International IRB, Inc. Common Equity Units (E)(G)
823,333
823
208
Beverage, Food, and Tobacco 0.0%
Triple H Food Processors, LLC Common
Stock (E)(G)
250,000
250
Buildings and Real Estate 0.0%
GFRC 360, LLC Common Stock
Warrants (E)(G)
45.0
%
Cargo Transportation 1.7%
AG Transportation Holdings, LLC Member Profit Participation (E)(G)
27.0
%
1,350
2,345
AG Transportation Holdings, LLC Profit Participation Warrants (E)(G)
5.0
%
244
563
American Trailer Rental Group LLC Common
Stock (E)(G)
6,667
1,000
1,009
2,594
3,917
Chemicals, Plastics, and Rubber 1.2%
Vertellus Holdings LLC Common Stock
Units ((E)(G)
879,121
3,018
2,705
Healthcare, Education, and Childcare 2.3%
Edmentum Ultimate Holdings, LLC Common
Stock (E)(G)
21,429
2,637
GSM MidCo LLC Common
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
Machinery 0.4%
Arc Drilling Holdings LLC Common
Stock (E)(G)
15,000
1,500
400
Precision International, LLC Membership 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 Gas 0.1%
FES Resources Holdings LLC Common Equity
Units (E)(G)
6,233
Total Safety Holdings, LLC Common
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 Leather 2.5%
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 Debt 3.7%
Diversified/Conglomerate Manufacturing 3.7%
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 Debt 8.7%
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 Equity 0.9%
Diversified/Conglomerate Manufacturing 0.0%
Edge Adhesives Holdings, Inc. (S)
Preferred Stock (E)(G)
5,466
$
5,466
$
Diversified Natural Resources, Precious Metals and Minerals 0.7%
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, LLC Preferred
Stock (E)(G)
500,000
500
507
Total Preferred Equity
$
7,287
$
2,069
Common Equity 0.9%
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, LLC Common
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 Debt 2.1%
Diversified/Conglomerate Manufacturing 1.5%
LWO Acquisitions Company LLC Term Debt (L + 7.5%, 10.0% Cash, Due 6/2021) (E)
$
6,000
$
6,000
$
3,450
LWO Acquisitions Company LLC Term Debt (Due 6/2021) (E)(P)
10,632
10,632
16,632
3,450
Printing and Publishing 0.6%
TNCP Intermediate HoldCo, LLC Line 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 Debt 3.5%
Automobile 3.5%
Defiance Integrated Technologies, Inc. Term Debt (L + 9.5%, 11.0% Cash, Due 5/2026) (E)
$
8,065
$
8,065
$
8,065
Unsecured Debt 0.0%
Diversified/Conglomerate Manufacturing 0.0%
LWO Acquisitions Company LLC Term Debt (Due 6/2023) (E)(P)
$
95
$
95
$
Preferred Equity 0.1%
Automobile 0.1%
Defiance Integrated Technologies, Inc. Preferred Stock (E)(G)
6,043
$
250
$
254
Common Equity 1.2%
Automobile 0.0%
Defiance Integrated Technologies, Inc. Common Stock (E)(G)
33,321
$
580
$
104
Diversified/Conglomerate Manufacturing 0.0%
LWO Acquisitions Company LLC Common
Units (E)(G)
921,000
921
Machinery 1.0%
PIC 360, LLC Common Equity
Units (E)(G)
750
1
2,342
Printing and Publishing 0.2%
TNCP Intermediate HoldCo, LLC Common 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).
(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.
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(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 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, 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(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 13 Unconsolidated Significant Subsidiaries for additional information regarding our unconsolidated significant
subsidiaries.
We are externally managed by Gladstone Management Corporation (the Adviser), an affiliate of ours and an SEC registered
investment adviser, pursuant to an investment advisory and management agreement (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
provisions of the 1940 Act applicable to BDCs, 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 of such portfolio company;
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, discusses the information provided by the Valuation Team, determines whether the Valuation Team has followed the Policy, determines whether the Valuation Teams recommended
fair value is reasonable in light of the Policy, and reviews other facts and circumstances. 1 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
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above. The Valuation Team evaluates such information for incorporation into our TEV, including review of all inputs provided by the independent valuation firm. The Valuation Team then makes
a recommendation to our Valuation Committee and Board of Directors as to the fair value. Our Board of Directors reviews the recommended fair value, and whether it is reasonable in light of the Policy, and other relevant facts and circumstances
before determining fair value.
Valuation Techniques
In accordance with ASC 820, the Valuation Team uses the following techniques when valuing our investment portfolio:
Total Enterprise Value In determining the fair value using a TEV, the Valuation Team first
calculates the TEV of the portfolio company by incorporating some or all of the following factors: the 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 multiples obtained from our indexing methodology whereby the original transaction EBITDA multiple at the time of our closing is indexed to a general subset of comparable disclosed
transactions and EBITDA multiples from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries, and other pertinent factors. The Valuation Team generally reviews
industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team generally allocates the TEV to the portfolio companys securities based on the facts and
circumstances of the securities, which typically results in the allocation of fair value to securities based on the order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our equity investments
and, in the circumstances where we have the ability to effectuate a sale of a portfolio company, our debt investments.
TEV is primarily calculated using EBITDA and EBITDA multiples; however, TEV may also be calculated using revenue and revenue multiples or a
discounted cash flow (DCF) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate adjustments for
nonperformance and liquidity risks. Generally, the Valuation Team uses a DCF analysis to calculate TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio company or for
debt of credit impaired portfolio companies.
Yield Analysis The Valuation Team generally determines the fair value of our debt investments for
which we do not have the ability to effectuate a sale of the applicable portfolio company using the yield analysis, which includes a DCF calculation and assumptions that the Valuation Team believes market participants would use, including, estimated
remaining life, current market yield, current leverage, and interest rate spreads. This technique develops a modified discount rate that incorporates risk premiums including increased probability of default, increased loss upon default and increased
liquidity risk. Generally, the Valuation Team uses the yield analysis to corroborate both estimates of value provided by ICE and market quotes.
Market Quotes For our investments for which a limited market exists, we generally base fair value
on readily available and reliable market quotations which are corroborated by the Valuation Team (generally by using the yield analysis described above). In addition, the Valuation Team assesses trading activity for similar investments and evaluates
variances in quotations and other market insights to determine if any available quoted prices are reliable. Typically, the Valuation Team uses the lower indicative bid price (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
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generally base fair value on the closing market price of the securities we hold as of the reporting date less a discount for the restriction, which includes consideration of the nature and term
to expiration of the restriction.
Investments in Funds For equity investments in other funds for which we cannot effectuate a sale of
the fund, the Valuation Team generally determines the fair value of our invested capital at the net asset value (NAV) provided by the fund. Any invested capital that is not yet reflected in the NAV provided by the fund is valued at par
value. The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying entity.
In addition to the valuation techniques listed above, the Valuation Team may also consider other factors when determining the fair value of our investments,
including: the nature and realizable value of the collateral, 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,
2021, there were no loans on non-accrual status. As of September 30, 2020, loans to B+T Group Acquisition, Inc. 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.
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, 2021 and 2020, we held six and five OID loans, respectively, primarily from the
syndicated loans as well as some participation interests in our portfolio. We recorded OID income of $0.3 million, $0.3 million, and $0.1 million during the years ended September 30, 2021, 2020, and 2019, respectively. The
unamortized balance of OID investments as of September 30, 2021 and 2020 totaled $1.1 million and $0.6 million, respectively. As of each of September 30, 2021 and 2020, we had seven investments which had a PIK interest component.
We recorded PIK interest income of $2.5 million, $2.6 million, and $1.4 million during the years ended September 30, 2021, 2020, and 2019, respectively. We collected $3.4 million, $0.1 million, and $0 of PIK interest in
cash during the years ended September 30, 2021, 2020, and 2019, 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
Credit Facility (as defined below) are deferred and amortized using the straight-line method, which approximates the effective interest method, over the term of our Credit Facilitys revolving period. 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 revolving credit facility with KeyBank National Association (KeyBank), as administrative agent, lead
arranger and lender (as amend and/or restated from time to time, 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 2018 to 2020 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 August 2021, the FASB issued Accounting Standards Update 2021-06, Presentation of Financial Statements
(Topic 205): Financial Services Depository and Lending (Topic 942), and Financial Services Investment Companies (Topic 946) (ASU 2021-06), which codifies SEC final
rules. ASU 2021-06 is effective immediately. Our adoption of ASU 2021-06 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. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019, and we adopted ASU 2018-13 effective October 1, 2020. Our adoption of ASU 2018-13 did not have a material impact on our financial position, results of operations or cash flows.
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 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.
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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, 2021, 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, 2020, 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, 2021 and 2020, there were no investments transferred into or out of Levels 1, 2 or 3 of the valuation hierarchy.
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As of September 30, 2021 and 2020, our investments, by security type, at fair value were categorized as
follows within the ASC 820 fair value hierarchy:
Fair Value Measurements
Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of September 30, 2021:
Secured first lien debt
$
337,394
$
$
$
337,394
Secured second lien debt
135,956
135,956
Unsecured debt
10
10
Preferred equity
29,246
29,246
Common equity/equivalents
48,519
(A)
78
(B)
48,441
Total Investments as of September 30, 2021
$
551,125
$
$
78
$
551,047
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
(A)
Excludes our investment in Leeds with a fair value of $6.5 million and $4.7 million as of
September 30, 2021 and 2020, 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.
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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, 2021 and 2020 by caption on our accompanying Consolidated Statements of Assets and Liabilities, and by security type:
Total Recurring Fair Value
Measurements Reported in
Consolidated Statements of Assets
and Liabilities
Using
Significant
Unobservable Inputs (Level 3)
September 30,
2021
September 30,
2020
Non-Control/Non-Affiliate
Investments
Secured first lien debt
$
304,095
$
199,860
Secured second lien debt
97,408
168,621
Unsecured debt
10
4,299
Preferred equity
18,110
4,677
Common equity/equivalents
28,413
(A)
18,824
(B)
Total
Non-Control/Non-Affiliate Investments
$
448,036
$
396,281
Affiliate Investments
Secured first lien debt
$
29,158
$
8,658
Secured second lien debt
30,563
20,300
Preferred equity
10,866
2,069
Common equity/equivalents
11,694
2,152
Total Affiliate Investments
$
82,281
$
33,179
Control Investments
Secured first lien debt
$
4,141
$
4,950
Secured second lien debt
7,985
8,065
Preferred equity
270
254
Common equity/equivalents
8,334
2,905
Total Control Investments
$
20,730
$
16,174
Total Investments at Fair Value Using Level 3 Inputs
$
551,047
$
445,634
(A)
Excludes our investments in Leeds and Funko with fair values of $6.5 million and $78 thousand,
respectively, as of September 30, 2021. 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 $4.7 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.
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, 2021 and 2020. The table below is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value 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.
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Quantitative Information about Level 3 Fair Value Measurements
Range / Weighted Average as of
September 30,
2021
September 30,
2020
Valuation
Techniques/
Methodologies
Unobservable
Input
September 30,
2021
September 30,
2020
Secured first lien debt (A)
$
321,490
$
195,846
Yield Analysis
Discount Rate
7.5%31.2% / 12.4%
8.3%24.6% / 13.4%
15,904
17,622
TEV
EBITDA multiple
5.4x5.9x / 5.9x
4.8x4.8x / 4.8x
EBITDA
$620$10,209 / $9,255
$6,492$6,492 / $6,492
Revenue multiple
0.3x0.3x / 0.3x
0.3x0.3x / 0.3x
Revenue
$9,968$9,968 / $9,968
$7,451$11,500 / $11,165
Secured second lien debt
106,464
163,141
Yield Analysis
Discount Rate
10.1%23.7% / 14.7%
10.5%25.1% / 14.5%
21,507
24,681
Market Quote
IBP
90.0%99.0% / 95.7%
77.7%98.8% / 89.2%
7,985
9,164
TEV
EBITDA multiple
6.0x6.0x / 6.0x
5.3x9.0x / 5.7x
EBITDA
$3,125$3,125 / $3,125
$3,020$69,552 / $10,999
Unsecured debt
4,282
Yield Analysis
Discount Rate
12.6%12.6% / 12.6%
10
17
TEV
Revenue multiple
0.3x1.4x / 1.0x
0.3x1.4x / 1.0x
Revenue
$752$9,968 / $3,740
$883$11,500 / $4,325
Preferred and common equity /
equivalents (B)
77,687
30,881
TEV
EBITDA multiple
3.7x9.5x / 7.2x
3.0x9.2x / 6.0x
EBITDA
$620$62,547 / $14,788
$483$88,142 / $16,403
Revenue multiple
0.3x4.0x / 2.0x
0.3x1.4x / 0.8x
Revenue
$752$144,889 / $29,437
$883$161,232 / $48,273
Total Level 3 Investments, at Fair Value
$
551,047
$
445,634
(A)
Fair value as of September 30, 2021 includes two proprietary debt investments totaling $43.7 million,
which were valued using the expected payoff amount as the unobservable input.
(B)
Fair value as of September 30, 2021 includes one proprietary equity investment totaling
$16.6 million, which was valued using the expected payoff amount as the unobservable input. Fair value as of September 30, 2021 excludes our investments in Leeds and Funko with fair values of $6.5 million and $78 thousand,
respectively, as of September 30, 2021. 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. Leeds was
valued using NAV as a practical expedient and Funko was valued using Level 2 inputs as of both September 30, 2021 and 2020.
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, 2021 and 2020 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, 2021
Secured First
Lien Debt
Secured
Second
Lien Debt
Unsecured
Debt
Preferred
Equity
Common
Equity/
Equivalents
Total
Fair Value as of September 30, 2020
$
213,468
$
196,986
$
4,299
$
7,000
$
23,881
$
445,634
Total gains (losses):
Net realized gain (loss) (A)
3,849
3,849
Net unrealized appreciation
(depreciation) (B)
2,246
7,931
(7
)
11,948
37,578
59,696
Reversal of prior period net depreciation (appreciation) on realization (B)
72
(763
)
133
(6,069
)
(6,627
)
New investments, repayments and
settlements: (C)
Issuances/originations
166,517
9,607
113
10,298
1,300
187,835
Settlements/repayments
(24,909
)
(97,805
)
(4,528
)
(127,242
)
Net proceeds from sales
(12,098
)
(12,098
)
Transfers
(20,000
)
20,000
Fair Value as of September 30, 2021
$
337,394
$
135,956
$
10
$
29,246
$
48,441
$
551,047
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
(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, 2021 and
2020, we held 38 and 37 proprietary investments with an aggregate fair value of $525.9 million and $411.5 million, or 94.3% and 91.4% of the total portfolio at fair value, respectively. The following significant proprietary investment
transactions occurred during the year ended September 30, 2021:
In December 2020, we invested $19.0 million in Effective School Solutions LLC through secured first lien
debt.
In December 2020, we invested $10.0 million in Encore Dredging Holdings, LLC through a combination of
secured first lien debt and equity. In April 2021, we invested an additional $12.5 million in Encore Dredging Holdings, LLC, through a combination of secured first lien debt and equity. In August 2021, we invested an additional
$5.0 million in Encore Dredging Holdings, LLC through secured first lien debt.
In December 2020, our investment in Aerospace Engineering, LLC paid off at par for net proceeds of
$20.2 million. In conjunction with the payoff, we received a prepayment fee of $0.2 million.
In February 2021, we invested $20.5 million in SpaceCo Holdings, LLC through secured first lien debt. In
September 2021, we invested an additional $13.0 million in SpaceCo Holdings, LLC through secured first lien debt.
In February 2021, we invested $24.5 million in Ohio Armor Holdings, LLC through a combination of secured
first lien debt and equity.
In February 2021, our investment in Vacation Rental Pros Property Management, LLC paid off at par for net
proceeds of $8.2 million.
In March 2021, we invested $27.0 million in MCG Energy Solutions, LLC through a combination of secured first
lien debt and equity.
In March 2021, our investment in Magpul Industries Corp. paid off at par for net proceeds of $28.7 million.
In conjunction with the payoff, we received a prepayment fee of $0.7 million.
In March 2021, our investment in Vision Government Solutions, Inc. paid off at par for net proceeds of
$9.9 million.
In May 2021, AG Transportation Holdings, LLC was sold, which resulted in success fee income of $0.2 million
and a net realized gain on our investment of approximately $5.3 million. In connection with the sale, we received net cash proceeds of approximately $19.5 million, including the repayment of our debt investment of $13.0 million at
par.
In June 2021, we invested $17.0 million in Eegees LLC through secured first lien debt.
In June 2021, we invested $11.0 million in Turn Key Health Clinics, LLC through secured first lien debt.
In June 2021, we invested $10.0 million in Unirac, Inc. through secured first lien debt. In September 2021,
we invested an additional $2.0 million in Unirac, Inc. through secured first lien debt.
In June 2021, American Trailer Rental Group LLC was sold, which resulted in a net realized gain on our investment
of approximately $0.6 million. In connection with the sale, we received net cash proceeds of approximately $19.6 million, including the repayment of our debt investment of $18.0 million at par.
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In July 2021, we invested an additional $6.2 million in Lignetics, Inc., an existing portfolio company,
through secured second lien debt.
In September 2021, Precision International, LLC was sold, which resulted in a realized gain on our investment of
approximately $0.4 million. In connection with the sale, we received net cash proceeds of approximately $1.0 million, including the repayment of our debt investment of $0.3 million at par and a fee of approximately $0.3 million.
Syndicated Investments
As of
September 30, 2021 and 2020, we held eight and 11 syndicated investments with an aggregate fair value of $31.7 million and $38.9 million, or 5.7% and 8.6% of the total portfolio at fair value, respectively. The following significant
syndicated investment transactions occurred during the year ended September 30, 2021:
In December 2020, our investment in Edmentum Ultimate Holdings, LLC was sold, which resulted in a realized loss
of approximately $2.4 million on our equity investment. In connection with the sale, we received net cash proceeds of approximately $4.9 million, including the repayment of our debt investment of $4.6 million at par.
In December 2020, our investment in Vertellus Holdings LLC was sold, which resulted in a realized loss of
approximately $41 thousand. In connection with the sale, we received net cash proceeds of approximately $4.1 million, including the repayment of our debt investment of $1.1 million at par.
In May 2021, our investment in Drive Chassis Holdco, LLC paid off at par for net proceeds of $5.1 million.
In conjunction with the payoff, we received a prepayment fee of $50 thousand.
Investment Concentrations
As of September 30, 2021, our investment portfolio consisted of investments in 46 portfolio companies located in 24 states in 16 different industries,
with an aggregate fair value of $557.6 million. The five largest investments at fair value as of September 30, 2021 totaled $166.2 million, or 29.8% of our total investment portfolio, as compared to the five largest investments at
fair value as of September 30, 2020 totaling $130.3 million, or 28.9% of our total investment portfolio. As of September 30, 2021 and 2020, our average investment by obligor was $11.9 million and $10.3 million at cost,
respectively.
The following table outlines our investments by security type as of September 30, 2021 and 2020:
September 30, 2021
September 30, 2020
Cost
Fair Value
Cost
Fair Value
Secured first lien debt
$
362,616
66.3
%
$
337,394
60.5
%
$
241,008
48.7
%
$
213,468
47.4
%
Secured second lien debt
137,643
25.2
135,956
24.4
205,841
41.6
196,986
43.7
Unsecured debt
293
0.1
10
0.0
4,708
1.0
4,299
1.0
Total debt investments
500,552
91.6
473,360
84.9
451,557
91.3
414,753
92.1
Preferred equity
29,230
5.3
29,246
5.2
18,932
3.8
7,000
1.5
Common equity/equivalents
16,730
3.1
55,006
9.9
24,158
4.9
28,647
6.4
Total equity investments
45,960
8.4
84,252
15.1
43,090
8.7
35,647
7.9
Total Investments
$
546,512
100.0
%
$
557,612
100.0
%
$
494,647
100.0
%
$
450,400
100.0
%
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Our investments at fair value consisted of the following industry classifications as of September 30, 2021
and 2020:
September 30, 2021
September 30, 2020
Industry Classification
Fair Value
Percentage of
Total
Investments
Fair Value
Percentage of
Total
Investments
Diversified/Conglomerate Service
$
132,458
23.8
%
$
92,960
20.6
%
Healthcare, Education, and Childcare
92,680
16.6
64,155
14.3
Aerospace and Defense
79,749
14.3
37,460
8.3
Beverage, Food, and Tobacco
48,385
8.7
29,171
6.5
Diversified Natural Resources, Precious Metals, and Minerals
47,134
8.4
24,014
5.3
Telecommunications
36,720
6.6
27,994
6.2
Oil and Gas
25,861
4.6
24,725
5.5
Diversified/Conglomerate Manufacturing
25,223
4.5
43,995
9.8
Automobile
21,681
3.9
18,149
4.0
Machinery
10,472
1.9
10,264
2.3
Chemicals, Plastics, and Rubber
10,062
1.8
13,715
3.0
Textiles and Leather
10,030
1.8
5,905
1.3
Home and Office Furnishings, Housewares, and Durable Consumer Products
10,025
1.8
9,675
2.2
Cargo Transportation
34,542
7.7
Hotels, Motels, Inns, and Gaming
8,052
1.8
Other, < 2.0%
7,132
1.3
5,624
1.2
Total Investments
$
557,612
100.0
%
$
450,400
100.0
%
Our investments at fair value were included in the following U.S. geographic regions as of September 30, 2021 and 2020:
September 30, 2021
September 30, 2020
Location
Fair Value
Percentage of
Total
Investments
Fair Value
Percentage of
Total Investments
South
$
238,917
42.8
%
$
214,808
47.7
%
West
184,247
33.0
138,746
30.8
Midwest
85,970
15.5
56,106
12.5
Northeast
48,478
8.7
40,740
9.0
Total Investments
$
557,612
100.0
%
$
450,400
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, 2021:
Year Ending September 30,
Amount
2022 (A)
$
118,499
2023
32,544
2024
46,231
2025
96,825
2026
190,456
Thereafter
17,581
Total contractual repayments
$
502,136
Adjustments to cost basis of debt investments
(1,584
)
Investments in equity securities
45,960
Investments held as of September 30, 2021 at Cost:
$
546,512
(A)
Includes debt investments with contractual principal amounts totaling $44.1 million for which the maturity
date has passed as of September 30, 2021.
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, 2021 and 2020, we had gross receivables from portfolio companies of $0.7 million and $0.4 million, respectively. The allowance for uncollectible receivables was $0 and
$11 thousand as of September 30, 2021 and 2020, 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 13, 2021, 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, 2022.
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,
2021
2020
2019
Average total assets subject to base management fee (A)
$
495,657
$
432,457
$
413,143
Multiplied by annual base management fee of 1.75%
1.75
%
1.75
%
1.75
%
Base management fee (B)
8,674
7,568
7,230
Portfolio company fee credit
(2,195
)
(1,589
)
(1,474
)
Syndicated loan fee credit
(307
)
(406
)
(424
)
Net Base Management Fee
$
6,172
$
5,573
$
5,332
Loan servicing fee (B)
$
5,579
$
5,819
$
5,072
Credit to base management fee - loan servicing
fee (B)
(5,579
)
(5,819
)
(5,072
)
Net Loan Servicing Fee
$
$
$
Incentive fee (B)
$
5,746
$
5,251
$
5,776
Incentive fee credit
(451
)
(3,038
)
(1,488
)
Net Incentive Fee
$
5,295
$
2,213
$
4,288
Portfolio company fee credit
$
(2,195
)
$
(1,589
)
$
(1,474
)
Syndicated loan fee credit
(307
)
(406
)
(424
)
Incentive fee credit
(451
)
(3,038
)
(1,488
)
Credit to Fees from
AdviserOther (B)
$
(2,953
)
$
(5,033
)
$
(3,386
)
(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 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
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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, 2021, 2020,
and 2019, was retained by the Adviser in the form of reimbursement, at cost, for tasks completed by personnel of the Adviser primarily 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, 2021 and 2020.
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 period from
April 1, 2020 through March 31, 2022) 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 period from April 1, 2020 through March 31, 2022) 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 period from April 1, 2020 through March 31, 2022) 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 an 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). On April 13, 2021, our Board of Directors approved an additional amendment of the Advisory Agreement which extended the temporary revision to the
hurdle rate through the period beginning April 1, 2021 and ending March 31, 2022.
The second part of the incentive fee is a capital gains-based
incentive fee that is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date) and equals 20.0% of our net realized capital gains (as defined herein)
as of the end of the fiscal year. In
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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, 2021, 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, 2021.
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, 2021, 2020, and 2019.
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 13, 2021, our Board of Directors, including a majority of the directors who are not parties to the Administration Agreement or interested persons of either party, approved the renewal of the Administration Agreement through August 31,
2022.
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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 $0.8 million,
$0.9 million, and $1.3 million during the years ended September 30, 2021, 2020, and 2019, respectively.
Related Party Fees Due
Amounts due to related parties on our accompanying Consolidated Statements of Assets and Liabilities were as follows:
September 30, 2021
September 30, 2020
Base management fee due to (from) Adviser
$
385
$
95
Loan servicing fee due to Adviser
343
355
Incentive fee due to (from) Adviser
1,527
1,236
Total fees due to (from) Adviser
2,255
1,686
Fee due to Administrator
382
329
Total Related Party Fees Due
$
2,637
$
2,015
In addition to the above fees, other operating expenses due to the Adviser as of September 30, 2021 and 2020, totaled
$35 thousand and $31 thousand, respectively. In addition, net expenses payable to Gladstone Investment Corporation (for reimbursement purposes), which includes certain co-investment expenses, totaled
$38 thousand and $0 as of September 30, 2021 and 2020, respectively. 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, 2021 and 2020.
NOTE 5. BORROWINGS
Revolving Credit Facility
On December 9, 2020, we,
through Business Loan, entered into Amendment No. 8 to our Credit Facility with KeyBank, which increased the commitment amount from $180 million to $205 million. On May 13, 2021, we, through Business Loan, amended and restated
the Credit Facility to, among other things, (i) decrease the commitment amount from $205.0 million to $175.0 million, (ii) extend the revolving period end date to October 31, 2023, (iii) extend the maturity date to
October 31, 2025 (at which time all principal and interest will be due and payable if the Credit Facility is not extended by the revolving period end date), (iv) reduce the interest rate margin to 2.70% during the revolving period and 3.25%
thereafter, with a LIBOR floor of 0.35%, (v) revise the unused fee to include an additional fee tier of 0.35% per annum on the daily undrawn amounts if the average unused amount is equal to or less than 35% during the applicable period,
(vi) provide for certain excess concentration limits, including a reduced second lien limit and a new broadly syndicated loan limit and (vii) add customary LIBOR replacement language. We incurred fees of approximately $1.1 million in
connection with this amendment and restatement, which are being amortized through our Credit Facilitys revolving period end date of October 31, 2023.
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The following tables summarize noteworthy information related to our Credit Facility:
As of September 30,
2021
2020
Commitment amount
$
175,000
$
180,000
Borrowings outstanding, at cost
50,500
128,000
Availability (A)
103,897
17,641
Year Ended September 30,
2021
2020
2019
Weighted average borrowings outstanding, at cost
$
59,382
$
103,504
$
71,526
Weighted average interest
rate (B)
5.0
%
4.3
%
6.8
%
Commitment (unused) fees incurred
$
1,194
$
541
$
1,014
(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, 2021 and 2020.
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.
Additionally, we are required to maintain (i) a minimum net worth (defined in our Credit Facility to include any outstanding mandatorily redeemable
preferred stock) of $325.0 million plus 50.0% of all equity and subordinated debt raised after May 13, 2021 less 50% of any equity and subordinated debt retired or redeemed after May 13, 2021, which equates to $328.8 million as
of September 30, 2021, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61
of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.
As of September 30, 2021, and as defined in our
Credit Facility, we had a net worth of $504.0 million, asset coverage on our senior securities representing indebtedness of 230.7%, 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, 2021. As of September 30, 2021, we were in compliance with all of our Credit Facility covenants.
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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, 2021, the discount rate used to determine the fair value of
our Credit Facility was 30-day LIBOR, plus 2.97% per annum, plus a 1.00% unused commitment fee. 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. 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, 2021 and 2020, 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 .
The following tables present our Credit Facility carried at fair value as of
September 30, 2021 and 2020, 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, 2021 and 2020:
Total Recurring Fair Value
Measurement Reported in
Consolidated Statements of
Assets and Liabilities
Using Significant
Unobservable Inputs (Level 3)
As of September 30,
2021
2020
Credit Facility
$
50,500
$
127,650
Fair Value Measurements Using Significant Unobservable Data Inputs (Level 3)
Year Ended September 30,
2021
2020
Fair value as of September 30, 2020 and 2019, respectively
$
127,650
$
67,067
Borrowings
238,800
204,500
Repayments
(316,300
)
(143,400
)
Net unrealized appreciation (depreciation) (A)
350
(517
)
Fair Value as of September 30, 2021 and 2020, respectively
$
50,500
$
127,650
(A)
Included in net unrealized appreciation (depreciation) of other on our accompanying Consolidated Statements
of Operations for the years ended September 30, 2021 and 2020.
The fair value of the collateral under our Credit Facility
totaled approximately $512.0 million and $412.5 million as of September 30, 2021 and 2020, respectively.
Notes Payable
In December 2020, we completed an offering of $100.0 million aggregate principal amount of 5.125% Notes due 2026 (the 2026 Notes) for net
proceeds of approximately $97.7 million after deducting underwriting discounts, commissions and offering expenses borne by us. In March 2021, we completed an offering of an additional
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$50.0 million aggregate principal amount of the 2026 Notes for net proceeds of approximately $50.6 million after adding premiums and deducting underwriting costs, commissions and
offering expenses borne by us. The 2026 Notes will mature on January 31, 2026 and may be redeemed in whole or in part at any time or from time to time at the Companys option prior to maturity at par plus a make-whole premium,
if applicable. The 2026 Notes bear interest at a rate of 5.125% per year. Interest is payable semi-annually on January 31 and July 31 of each year (which equates to approximately $7.7 million per year).
In October 2019, we completed an 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. As of September 30, 2021, the 2024 Notes were
traded under the ticker symbol GLADL on the Nasdaq Global Select Market. On November 1, 2021, we voluntarily redeemed the 2024 Notes with an aggregate principal amount outstanding of $38.8 million. The 2024 Notes would have
otherwise matured on November 1, 2024.
In November 2018, we completed an 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. On
January 7, 2021, we voluntarily redeemed the 2023 Notes with an aggregate principal amount outstanding of $57.5 million. The redemption amount was $58.1 million inclusive of accrued interest through the date of redemption. In
connection with the voluntary redemption of the 2023 Notes, we incurred a loss on extinguishment of debt of $1.2 million, which is primarily comprised of the unamortized deferred issuance costs at the time of redemption. The 2023 Notes would
have otherwise matured on November 1, 2024.
The indenture relating to the 2026 Notes and the 2024 Notes contains certain covenants, including
(i) an inability to incur additional debt or issue additional debt or preferred securities unless the Companys asset coverage meets the threshold specified in the 1940 Act after such borrowing, (ii) an inability to declare any
dividend or distribution (except a dividend payable in our stock) on a class of our capital stock or to purchase shares of our capital stock unless the Companys asset coverage meets the threshold specified in the 1940 Act at the time of (and
giving effect to) such declaration or purchase, and (iii) if, at any time, we are not subject to the reporting requirements of the Exchange Act, we will provide the holders of the 2026 Notes and the 2024 Notes, as applicable, and the trustee
with audited annual consolidated financial statements and unaudited interim consolidated financial statements.
The 2026 Notes and 2024 Notes are recorded
at the principal amount, plus applicable premiums, less discounts and offering costs, on our Consolidated Statements of Assets and Liabilities .
The fair value, based on the last quoted closing price, of the 2024 Notes as of September 30, 2021 and September 30, 2020 was $39.3 million and
$38.7 million, respectively. We consider the trading price of the 2024 Notes to be a Level 1 input within the ASC 820 hierarchy. The fair value, based on a DCF analysis, of the 2026 Notes as of September 30, 2021 was
$154.1 million. We consider the 2026 Notes to be Level 3 within the ASC 820 fair value 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. The shares of our Series 2024 Term Preferred Stock were traded under the ticker symbol GLADN on Nasdaq as of September 30, 2019.
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
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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.
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, 2021, we had the ability to issue up to an additional $55.5 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 had the ability to issue and sell, from time to time, shares of our common stock with an aggregate offering
price of up to $50.0 million. During the year ended September 30, 2021, we sold 2,082,269 shares of our common stock under the Jefferies Sales Agreement, at a weighted-average price of $9.21 per share and raised $19.2 million of gross
proceeds. Net proceeds, after deducting commissions and offering costs borne by us, were approximately $18.8 million.
In May 2021, we entered
into a new equity distribution agreement with Jefferies LLC (the New Jefferies Sales Agreement) under which we have the ability to issue and sell, from time to time, shares of our common stock with an aggregate offering price of up to
$60.0 million. During the year ended September 30, 2021, we sold 655,252 shares of our common stock under the New Jefferies Sales Agreement, at a weighted-average price of $11.71 per share and raised $7.7 million of gross
proceeds. Net proceeds, after deducting commissions and offering costs borne by us, were approximately $7.5 million. As of September 30, 2021, we had a remaining capacity to sell up to an additional $52.3 million of our
common stock under the New Jefferies Sales Agreement.
NOTE 8. NET INCREASE (DECREASE) 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, 2021, 2020, and 2019:
Year Ended September 30,
2021
2020
2019
Numerator for basic and diluted net increase (decrease) in net assets resulting from operations
per common share
$
84,299
$
(1,873
)
$
19,869
Denominator for basic and diluted weighted average common shares
33,234,482
31,040,852
29,269,466
Basic and diluted net increase (decrease) in net assets resulting from operations per common
share
$
2.54
$
(0.06
)
$
0.68
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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.
Estimates of tax characterization made on a quarterly basis may not be representative of the actual tax characterization of cash distributions for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date.
For the calendar year ended December 31, 2020, 97.3% of distributions to common stockholders were deemed to be paid from ordinary income and 2.7% 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, 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.
We paid
the following monthly distributions to common stockholders for the years ended September 30, 2021 and 2020:
Fiscal Year
Declaration Date
Record Date
Payment Date
Distribution per
Common Share
2021
October 13, 2020
October 23, 2020
October 30, 2020
$
0.065
October 13, 2020
November 20, 2020
November 30, 2020
0.065
October 13, 2020
December 23, 2020
December 31, 2020
0.065
January 12, 2021
January 22, 2021
January 29, 2021
0.065
January 12, 2021
February 17, 2021
February 26, 2021
0.065
January 12, 2021
March 18, 2021
March 31, 2021
0.065
April 13, 2021
April 23, 2021
April 30, 2021
0.065
April 13, 2021
May 19, 2021
May 28, 2021
0.065
April 13, 2021
June 18, 2021
June 30, 2021
0.065
July 13, 2021
July 23, 2021
July 30, 2021
0.065
July 13, 2021
August 23, 2021
August 31, 2021
0.065
July 13, 2021
September 22, 2021
September 30, 2021
0.065
Year Ended September 30, 2021:
$
0.78
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
Aggregate distributions declared and paid to our common stockholders were approximately $26.0 million and
$25.2 million for the years ended September 30, 2021 and 2020, respectively, and were declared based on
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estimates of Investment Company Taxable Income. For the fiscal years ended September 30, 2021, 2020, and 2019, distributions declared and paid exceeded taxable income available for common
distributions resulting in a partial return of capital of approximately $1.0 million, $0.4 million, and $0.7 million, respectively.
The
components of our net assets on a tax basis were as follows:
Year Ended
September 30,
2021
2020
Common stock
$
34
$
32
Capital in excess of par value
392,494
367,125
Cumulative net unrealized appreciation (depreciation) of investments
11,100
(44,247
)
Cumulative net unrealized appreciation of other
350
Capital loss carryforward
(72,251
)
(72,370
)
Post-October tax loss deferral
(6,819
)
Other temporary differences
(12,938
)
(10,328
)
Net Assets
$
318,439
$
233,743
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, 2021, we had $72.3 million of capital loss carryforwards that do not expire.
For the years ended September 30, 2021 and 2020, 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,
2021
2020
Undistributed net investment income
$
39
$
(175
)
Accumulated net realized losses
959
2,610
Capital in excess of par value
(998
)
(2,435
)
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, 2021, 2020, and 2019.
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, 2021, 2020, and 2019.
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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.
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, 2021 and 2020, we had no established reserves for such loss contingencies.
Escrow Holdbacks
From time to time, we enter into
arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used to satisfy potential obligations, as stipulated in the sales agreements. We record escrow amounts in Restricted cash and
cash equivalents, if received in cash but subject to potential obligations or other contractual restrictions, or as escrow receivables in Other assets, net, if not yet received in cash, on our accompanying Consolidated Statements of Assets and
Liabilities. We establish reserves and holdbacks against escrow amounts if we determine that it is probable and estimable that a portion of the escrow amounts will not ultimately be released or received at the end of the escrow period. Reserves and
holdbacks against escrow amounts were $0.3 million and $0 as of September 30, 2021 and September 30, 2020, respectively.
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, 2021 and 2020 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, 2021 and 2020, which are not reflected as liabilities in the accompanying Consolidated
Statements of Assets and Liabilities :
As of September 30,
2021
2020
Unused line of credit
commitments (A)
$
25,549
$
18,896
Delayed draw term loans
27,984
8,030
Uncalled capital commitment
843
843
Total
$
54,376
$
27,769
(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,
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Per Common Share Data:
Net asset value at beginning of period / year
(A)
$
7.40
$
8.22
$
8.32
$
8.40
$
8.62
$
9.06
$
9.51
$
9.81
$
8.98
$
10.16
Income from operations (B)
Net investment income
0.79
0.81
0.84
0.85
0.84
0.84
0.84
0.87
0.88
0.91
Net realized and unrealized gain (loss) on investments
1.79
(0.84
)
(0.15
)
(0.16
)
(0.12
)
(0.35
)
(0.50
)
(0.23
)
0.49
(1.14
)
Net realized and unrealized gain (loss) on other
(0.04
)
(0.03
)
(0.01
)
(0.05
)
0.06
(0.11
)
0.16
(0.15
)
Total from operations
2.54
(0.06
)
0.68
0.69
0.67
0.49
0.40
0.53
1.53
(0.38
)
Distributions to common stockholders
from (B)(C)
Net Investment Income
(0.75
)
(0.80
)
(0.82
)
(0.84
)
(0.84
)
(0.70
)
(0.84
)
(0.12
)
(0.78
)
(0.77
)
Realized gains
(0.14
)
Return of capital
(0.03
)
(0.01
)
(0.02
)
(0.72
)
(0.06
)
(0.07
)
Total distributions
(0.78
)
(0.81
)
(0.84
)
(0.84
)
(0.84
)
(0.84
)
(0.84
)
(0.84
)
(0.84
)
(0.84
)
Capital share transactions (B)
Issuance of common stock
0.06
Discounts, commissions, and offering costs
(0.01
)
(0.01
)
(0.01
)
(0.04
)
(0.05
)
(0.01
)
Repurchase of common stock
0.02
Repayment of principal on employee notes
0.14
0.02
Net anti-dilutive (dilutive) effect of equity
offering (D)
0.15
0.05
0.07
0.08
(0.02
)
(0.05
)
(0.06
)
Total capital share transactions
0.14
0.05
0.06
0.07
(0.06
)
(0.08
)
(0.01
)
0.14
0.02
Other, net (B)(E)
(0.02
)
0.01
(0.01
)
0.01
0.02
Net asset value at end of period /
year (A)
$
9.28
$
7.40
$
8.22
$
8.32
$
8.40
$
8.62
$
9.06
$
9.51
$
9.81
$
8.98
Per common share market value at beginning of year
$
7.41
$
9.75
$
9.50
$
9.50
$
8.13
$
8.13
$
8.77
$
8.73
$
8.75
$
6.86
Per common share market value at end of year
11.30
7.41
9.75
9.50
9.50
8.13
8.13
8.77
8.73
8.75
Total return (F)
64.93
%
(15.75
)%
12.55
%
9.53
%
27.90
%
11.68
%
2.40
%
9.62
%
9.90
%
41.39
%
Common stock outstanding at end of
year (A)
34,304,371
31,566,850
30,345,923
28,501,980
26,160,684
23,344,422
21,131,622
21,000,160
21,000,160
21,000,160
Statement of Assets and Liabilities Data:
Net assets at end of year
$
318,439
$
233,743
$
249,330
$
237,092
$
219,650
$
201,207
$
191,444
$
199,660
$
205,992
$
188,564
Average net assets (G)
275,509
235,266
239,851
234,092
215,421
193,228
198,864
201,009
189,599
201,012
Senior Securities Data:
Borrowings under Credit Facility, at cost
$
50,500
$
128,000
$
66,900
$
110,000
$
93,000
$
71,300
$
127,300
$
36,700
$
46,900
$
58,800
Mandatorily redeemable preferred stock
51,750
51,750
51,750
61,000
61,000
61,000
38,497
38,497
Notes Payable
188,813
96,313
57,500
Ratios/Supplemental Data:
Ratio of net expenses to average net
assets (H)(I)
10.04
%
9.69
%
10.61
%
9.61
%
8.26
%
10.16
%
10.24
%
9.06
%
9.37
%
10.59
%
Ratio of net investment income to average net
assets (J)
9.48
10.70
10.25
9.86
9.95
10.08
8.90
9.14
9.70
9.47
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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, 2021, 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 year ended September 30, 2017, 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 13.17%, 14.36%, 14.18%, 13.12%, 12.14%, 13.40%, 13.65%, 11.88%, 10.18%, and 11.11% for the fiscal years ended September 30, 2021, 2020, 2019,
2018, 2017, 2016, 2015, 2014, 2013, and 2012, 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 6.40%, 6.11%, 6.74%, 6.41%, 6.13%, 6.90%, 5.55%, 6.37%, 8.90%, and 8.96% for the fiscal years ended September 30, 2021, 2020, 2019, 2018,
and 2017, 2016, 2015, 2014, 2013, and 2012, respectively.
NOTE 13. UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES
In accordance with the SECs Regulation S-X, we do not consolidate portfolio company investments. Further, in
accordance with ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to
the investment company or its consolidated subsidiaries.
We did not have any unconsolidated subsidiaries that met any of the significance conditions
under Rule 1-02(w)(2) of the SECs Regulation S-X as of or during at least one of the years ended September 30, 2021, 2020, and 2019.
NOTE 14. SUBSEQUENT EVENTS
Portfolio Activity
In October 2021, we invested $26.3 million in Engineering Manufacturing Technologies, LLC through secured first lien debt and equity.
In November 2021, our investment in Medical Solutions Holdings, Inc. paid off at par for net proceeds of $6.0 million.
In November 2021, our investment in Lignetics, Inc. was sold, which resulted in success fee income of $1.6 million. In connection with the sale, we
received net cash proceeds of approximately $47.2 million, including the repayment of our debt investment of $29.0 million at par.
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In November 2021, our investment in Prophet Brand Strategy paid off at par for net proceeds of
$13.1 million. In conjunction with the payoff, we received a prepayment fee of $0.1 million.
Debt Offering
In November 2021, we completed a private placement of $50.0 million aggregate principal amount of the 2027 Notes for net proceeds of
approximately $48.5 million after adding discounts and deducting underwriting costs, commissions and offering expenses borne by us. The 2027 Notes will mature on May 1, 2027 and may be redeemed in whole or in part at any time or from time
to time at the Companys option prior to maturity at par plus a make-whole premium, if applicable. The 2027 Notes bear interest at a rate of 3.75% per year. Interest is payable semi-annually on May 1 and November 1 of each
year (which equates to approximately $1.9 million per year).
Debt Redemption
On November 1, 2021, we voluntarily redeemed the 2024 Notes with an aggregate principal amount outstanding of $38.8 million.
Distributions
In October 2021, our Board of Directors
declared the following monthly cash distributions to common stockholders:
Record Date
Payment Date
Distribution
per Common
Share
October 22, 2021
October 29, 2021
$
0.065
November 19, 2021
November 30, 2021
0.065
December 23, 2021
December 31, 2021
0.065
Total for the Quarter
$
0.195
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.