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ARES CAPITAL CORP - Quarter Report: 2013 March (Form 10-Q)

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2013

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period           to         

 

Commission File No. 814-00663

 

ARES CAPITAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

Maryland

 

33-1089684

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

245 Park Avenue, 44th Floor, New York, NY 10167

(Address of principal executive office)   (Zip Code)

 

(212) 750-7300

(Registrant’s telephone number, including area code)

 


 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes  x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at May 6, 2013

Common stock, $0.001 par value

 

268,043,157

 

 

 



Table of Contents

 

ARES CAPITAL CORPORATION

 

INDEX

 

Part I.

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheet as of March 31, 2013 (unaudited) and December 31, 2012

2

 

 

 

 

Consolidated Statement of Operations for the three months ended March 31, 2013 (unaudited) and March 31, 2012 (unaudited)

3

 

 

 

 

Consolidated Schedule of Investments as of March 31, 2013 (unaudited) and December 31, 2012

4

 

 

 

 

Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2013 (unaudited)

34

 

 

 

 

Consolidated Statement of Cash Flows for the three months ended March 31, 2013 (unaudited) and March 31, 2012 (unaudited)

35

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

36

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

59

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

78

 

 

 

Item 4.

Controls and Procedures

79

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

80

 

 

 

Item 1A.

Risk Factors

80

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

80

 

 

 

Item 3.

Defaults Upon Senior Securities

80

 

 

 

Item 4.

Mine Safety Disclosures

80

 

 

 

Item 5.

Other Information

80

 

 

 

Item 6.

Exhibits

80

 



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in thousands, except per share data)

 

 

 

As of

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Investments at fair value

 

 

 

 

 

Non-controlled/non-affiliate investments

 

$

3,982,686

 

$

3,822,715

 

Non-controlled affiliate company investments

 

290,932

 

323,059

 

Controlled affiliate company investments

 

1,756,841

 

1,778,781

 

Total investments at fair value (amortized cost of $5,959,788 and $5,823,451, respectively)

 

6,030,459

 

5,924,555

 

Cash and cash equivalents

 

102,451

 

269,043

 

Receivable for open trades

 

50

 

131

 

Interest receivable

 

115,991

 

108,998

 

Other assets

 

104,111

 

98,497

 

Total assets

 

$

6,353,062

 

$

6,401,224

 

LIABILITIES

 

 

 

 

 

Debt

 

$

2,179,127

 

$

2,195,872

 

Management and incentive fees payable

 

112,600

 

131,585

 

Accounts payable and other liabilities

 

49,262

 

53,178

 

Interest and facility fees payable

 

27,976

 

30,603

 

Payable for open trades

 

5,500

 

1,640

 

Total liabilities

 

2,374,465

 

2,412,878

 

Commitments and contingencies (Note 6)

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common stock, par value $.001 per share, 500,000 common shares authorized 248,896 and 248,653 common shares issued and outstanding, respectively

 

249

 

249

 

Capital in excess of par value

 

4,121,914

 

4,117,517

 

Accumulated overdistributed net investment income

 

(23,301

)

(27,910

)

Accumulated net realized loss on investments, foreign currency transactions, extinguishment of debt and other assets

 

(190,936

)

(202,614

)

Net unrealized gain on investments

 

70,671

 

101,104

 

Total stockholders’ equity

 

3,978,597

 

3,988,346

 

Total liabilities and stockholders’ equity

 

$

6,353,062

 

$

6,401,224

 

NET ASSETS PER SHARE

 

$

15.98

 

$

16.04

 

 

See accompanying notes to consolidated financial statements.

 

2



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share data)

 

 

 

For the three months ended

 

 

 

March 31, 2013

 

March 31, 2012

 

 

 

(unaudited)

 

(unaudited)

 

INVESTMENT INCOME:

 

 

 

 

 

From non-controlled/non-affiliate company investments:

 

 

 

 

 

Interest income from investments

 

$

85,122

 

$

72,168

 

Capital structuring service fees

 

4,104

 

7,877

 

Dividend income

 

4,024

 

3,802

 

Management and other fees

 

4,498

 

328

 

Other income

 

2,011

 

2,748

 

Total investment income from non-controlled/non-affiliate company investments

 

99,759

 

86,923

 

 

 

 

 

 

 

From non-controlled affiliate company investments:

 

 

 

 

 

Interest income from investments

 

6,016

 

4,592

 

Dividend income

 

603

 

316

 

Management and other fees

 

 

63

 

Other income

 

91

 

25

 

Total investment income from non-controlled affiliate company investments

 

6,710

 

4,996

 

 

 

 

 

 

 

From controlled affiliate company investments:

 

 

 

 

 

Interest income from investments

 

53,039

 

56,125

 

Capital structuring service fees

 

1,887

 

9,783

 

Dividend income

 

27,462

 

5,101

 

Management and other fees

 

 

4,541

 

Other income

 

6,198

 

269

 

Total investment income from controlled affiliate company investments

 

88,586

 

75,819

 

 

 

 

 

 

 

Total investment income

 

195,055

 

167,738

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Interest and credit facility fees

 

39,347

 

32,776

 

Base management fees

 

23,218

 

19,986

 

Incentive fees

 

20,085

 

26,386

 

Professional fees

 

3,144

 

3,686

 

Administrative fees

 

2,592

 

2,320

 

Other general and administrative

 

3,768

 

2,801

 

Total expenses

 

92,154

 

87,955

 

 

 

 

 

 

 

NET INVESTMENT INCOME BEFORE INCOME TAXES

 

102,901

 

79,783

 

 

 

 

 

 

 

Income tax expense, including excise tax

 

3,804

 

2,745

 

 

 

 

 

 

 

NET INVESTMENT INCOME

 

99,097

 

77,038

 

 

 

 

 

 

 

REALIZED AND UNREALIZED NET GAINS (LOSSES) ON INVESTMENTS:

 

 

 

 

 

Net realized gains (losses):

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

10,651

 

462

 

Non-controlled affiliate company investments

 

17

 

3

 

Controlled affiliate company investments

 

1,010

 

(8,136

)

Net realized gains (losses)

 

11,678

 

(7,671

)

 

 

 

 

 

 

Net unrealized gains (losses):

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

5,949

 

6,017

 

Non-controlled affiliate company investments

 

(1,353

)

10,093

 

Controlled affiliate company investments

 

(35,029

)

20,070

 

Net unrealized gains (losses)

 

(30,433

)

36,180

 

 

 

 

 

 

 

Net realized and unrealized gains (losses) on investments

 

(18,755

)

28,509

 

NET INCREASE IN STOCKHOLDERS’ EQUITY RESULTING FROM OPERATIONS

 

$

80,342

 

$

105,547

 

BASIC AND DILUTED EARNINGS PER COMMON SHARE (see Note 9)

 

$

0.32

 

$

0.49

 

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING — BASIC AND DILUTED (see Note 9)

 

248,658

 

217,044

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Investment Funds and Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AGILE Fund I, LLC (9)

 

Investment partnership

 

Member interest (0.50% interest)

 

 

 

4/1/2010

 

$

 122

 

$

 27

(2)

 

 

CIC Flex, LP (9)

 

Investment partnership

 

Limited partnership units (0.94 unit)

 

 

 

9/7/2007

 

1,050

 

2,120

(2)

 

 

Covestia Capital Partners, LP (9)

 

Investment partnership

 

Limited partnership interest (47.00% interest)

 

 

 

6/17/2008

 

1,059

 

1,170

(2)

 

 

Dynamic India Fund IV, LLC (9)

 

Investment company

 

Member interest (5.44% interest)

 

 

 

4/1/2010

 

4,822

 

2,962

 

 

 

HCI Equity, LLC (7)(8)(9)

 

Investment company

 

Member interest (100.00% interest)

 

 

 

4/1/2010

 

452

 

426

 

 

 

Imperial Capital Private Opportunities, LP (9)

 

Investment partnership

 

Limited partnership interest (80.00% interest)

 

 

 

5/10/2007

 

5,971

 

10,037

(2)

 

 

Partnership Capital Growth Fund I, L.P. (9)

 

Investment partnership

 

Limited partnership interest (25.00% interest)

 

 

 

6/16/2006

 

1,596

 

4,059

(2)

 

 

Partnership Capital Growth Fund III, L.P. (9)

 

Investment partnership

 

Limited partnership interest (2.50% interest)

 

 

 

10/5/2011

 

2,379

 

2,341

(2)

 

 

Piper Jaffray Merchant Banking Fund I, L.P. (9)

 

Investment partnership

 

Limited partnership interest (2.00% interest)

 

 

 

8/16/2012

 

389

 

341

(2)

 

 

Senior Secured Loan Fund LLC (7)(10)

 

Co-investment vehicle

 

Subordinated certificates ($1,250,904 par due 12/2022)

 

8.31% (Libor + 8.00%/Q)(22)

 

10/30/2009

 

1,244,833

 

1,269,667

 

 

 

VSC Investors LLC (9)

 

Investment company

 

Membership interest (1.95% interest)

 

 

 

1/24/2008

 

661

 

1,197

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,263,332

 

1,294,347

 

32.53

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare-Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

California Forensic Medical Group, Incorporated

 

Correctional facility healthcare operator

 

Senior secured loan ($54,047 par due 11/2018)

 

9.25% (Libor + 8.00%/Q)

 

11/16/2012

 

54,047

 

54,047

(3)(21)

 

 

CCS Group Holdings, LLC

 

Correctional facility healthcare operator

 

Class A units (601,937 units)

 

 

 

8/19/2010

 

602

 

1,293

(2)

 

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings LLC (6)

 

Healthcare analysis services

 

Senior secured loan ($7,546 par due 3/2017)

 

7.75% (Libor + 6.50%/Q)

 

3/15/2011

 

7,546

 

7,471

(2)(21)

 

 

 

 

 

 

Senior secured loan ($7,154 par due 3/2017)

 

7.75% (Libor + 6.50%/Q)

 

3/15/2011

 

7,154

 

7,082

(3)(21)

 

 

 

 

 

 

Class A common stock (9,679 shares)

 

 

 

6/15/2007

 

4,000

 

4,931

(2)

 

 

 

 

 

 

Class C common stock (1,546 shares)

 

 

 

6/15/2007

 

 

1,359

(2)

 

 

 

 

 

 

 

 

 

 

 

 

18,700

 

20,843

 

 

 

INC Research, Inc.

 

Pharmaceutical and biotechnology consulting services

 

Common stock (1,410,000 shares)

 

 

 

9/27/2010

 

1,512

 

996

(2)

 

 

Intermedix Corporation

 

Revenue cycle management provider to the emergency healthcare industry

 

Junior secured loan ($112,000 par due 6/2019)

 

10.25% (Libor + 9.00%/Q)

 

12/27/2012

 

112,000

 

112,000

(2)(21)

 

 

JHP Group Holdings, Inc.

 

Manufacturer of specialty pharmaceutical products

 

Series A preferred stock (1,000,000 shares)

 

6.00% PIK

 

2/19/2013

 

1,000

 

1,000

(2)

 

 

Magnacare Holdings, Inc., Magnacare Administrative Services, LLC, and Magnacare, LLC

 

Healthcare professional provider

 

Senior secured loan ($69,971 par due 3/2018)

 

9.75% (Libor + 8.75%/Q)

 

9/15/2010

 

69,971

 

69,971

(2)(21)

 

 

 

 

 

 

Senior secured loan ($57,900 par due 3/2018)

 

9.75% (Libor + 8.75%/Q)

 

9/15/2010

 

57,900

 

57,900

(3)(21)

 

 

 

 

 

 

Senior secured loan ($4,825 par due 3/2018)

 

9.75% (Libor + 8.75%/Q)

 

3/16/2012

 

4,825

 

4,825

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

132,696

 

132,696

 

 

 

MW Dental Holding Corp.

 

Dental services

 

Senior secured revolving loan ($3,500 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

3,500

 

3,500

(2)(21)

 

 

 

 

 

 

Senior secured loan ($54,885 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

54,885

 

54,885

(2)(21)

 

 

 

 

 

 

Senior secured loan ($49,129 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

49,129

 

49,129

(3)(21)

 

 

 

 

 

 

Senior secured loan ($9,875 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

9,875

 

9,875

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

117,389

 

117,389

 

 

 

Napa Management Services

 

Anesthesia management

 

Senior secured loan

 

6.50% (Libor +

 

4/15/2011

 

23,674

 

23,674

(2)(21)

 

 

 

4



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Corporation

 

services provider

 

($23,674 par due 4/2018)

 

5.25%/Q)

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured loan ($33,518 par due 4/2018)

 

6.50% (Libor + 5.25%/Q)

 

4/15/2011

 

33,445

 

33,518

(3)(21)

 

 

 

 

 

 

Common units (5,000 units)

 

 

 

4/15/2011

 

5,000

 

6,324

(2)

 

 

 

 

 

 

 

 

 

 

 

 

62,119

 

63,516

 

 

 

Netsmart Technologies, Inc. and NS Holdings, Inc.

 

Healthcare technology provider

 

Senior secured loan ($39,844 par due 12/2017)

 

7.25% (Libor + 6.00%/Q)

 

12/18/2012

 

39,844

 

39,844

(2)(18)(21)

 

 

 

 

 

 

Senior secured loan ($18 par due 12/2017)

 

8.25% (Base Rate + 5.00%/Q)

 

12/18/2012

 

18

 

18

(2)(18)(21)

 

 

 

 

 

 

Senior secured loan ($232 par due 12/2017)

 

8.25% (Base Rate + 5.00%/Q)

 

12/18/2012

 

232

 

232

(2)(18)(21)

 

 

 

 

 

 

Common stock (2,500,000 shares)

 

 

 

6/21/2010

 

2,500

 

3,106

(2)

 

 

 

 

 

 

 

 

 

 

 

 

42,594

 

43,200

 

 

 

OnCURE Medical Corp.

 

Radiation oncology care provider

 

Common stock (857,143 shares)

 

 

 

8/18/2006

 

3,000

 

(2)

 

 

Passport Health Communications, Inc., Passport Holding Corp. and Prism Holding Corp.

 

Healthcare technology provider

 

Series A preferred stock (1,594,457 shares)

 

 

 

7/30/2008

 

11,156

 

12,388

(2)

 

 

 

 

 

 

Common stock (16,106 shares)

 

 

 

7/30/2008

 

100

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

11,256

 

12,388

 

 

 

PG Mergersub, Inc. and PGA Holdings, Inc.

 

Provider of patient surveys, management reports and national databases for the integrated healthcare delivery system

 

Junior secured loan ($45,000 par due 10/2018)

 

8.25% (Libor + 7.00%/Q)

 

4/19/2012

 

45,000

 

45,000

(2)(21)

 

 

 

 

 

 

Preferred stock (333 shares)

 

 

 

3/12/2008

 

125

 

14

(2)

 

 

 

 

 

 

Common stock (16,667 shares)

 

 

 

3/12/2008

 

167

 

703

(2)

 

 

 

 

 

 

 

 

 

 

 

 

45,292

 

45,717

 

 

 

RCHP, Inc.

 

Operator of general acute care hospitals

 

Senior secured loan ($9,975 par due 11/2018)

 

7.00% (Libor + 5.75%/Q)

 

11/4/2011

 

9,950

 

9,975

(2)(21)

 

 

 

 

 

 

Junior secured loan ($65,000 par due 5/2019)

 

11.50% (Libor + 10.00%/S)

 

11/4/2011

 

65,000

 

65,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

74,950

 

74,975

 

 

 

Reed Group, Ltd.

 

Medical disability management services provider

 

Equity interests

 

 

 

4/1/2010

 

 

(2)

 

 

Respicardia, Inc.

 

Developer of implantable therapies to improve cardiovascular health

 

Senior secured loan ($5,600 par due 7/2015)

 

11.00%

 

6/28/2012

 

5,574

 

5,600

(2)

 

 

 

 

 

 

Warrants to purchase up to 99,094 shares of Series C preferred stock

 

 

 

6/26/2012

 

38

 

30

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,612

 

5,630

 

 

 

Sage Products Holdings III, LLC

 

Patient infection control and preventive care solutions provider

 

Junior secured loan ($75,000 par due 6/2020)

 

9.25% (Libor + 8.00%/Q)

 

12/13/2012

 

75,000

 

75,000

(2)(21)

 

 

Soteria Imaging Services, LLC (6)

 

Outpatient medical imaging provider

 

Junior secured loan ($2,521 par due 11/2010)

 

 

 

4/1/2010

 

2,051

 

671

(2)(20)

 

 

 

 

 

 

Preferred member units (1,823,179 units)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,051

 

671

 

 

 

SurgiQuest, Inc.

 

Medical device company

 

Senior secured loan ($7,000 par due 10/2016)

 

10.00%

 

9/28/2012

 

6,812

 

7,000

(2)

 

 

 

 

 

 

Warrants to purchase up to 54,672 shares of Series D-4 convertible preferred stock

 

 

 

9/28/2012

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,812

 

7,000

 

 

 

U.S. Anesthesia Partners, Inc.

 

Anesthesiology service provider

 

Senior secured loan ($14,962 par due 12/2018)

 

6.50% (Libor + 5.50%/Q)

 

12/27/2012

 

14,962

 

14,962

(2)(21)

 

 

Vantage Oncology, Inc.

 

Radiation oncology care provider

 

Common stock (62,157 shares)

 

 

 

2/3/2011

 

4,670

 

2,252

(2)

 

 

Young Innovations, Inc.

 

Dental equipment manufacturer

 

Senior secured loan ($15,000 par due 1/2019)

 

6.25% (Libor + 5.00%/M)

 

1/31/2013

 

15,000

 

15,000

(2)(21)

 

 

 

 

 

 

Senior secured loan ($22,143 par due 1/2019)

 

6.25% (Libor + 5.00%/M)

 

1/31/2013

 

22,143

 

22,143

(3)(21)

 

 

 

 

 

 

 

 

 

 

 

 

37,143

 

37,143

 

 

 

 

 

 

 

 

 

 

 

 

 

823,407

 

822,718

 

20.68

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Academy Holdings,

 

Provider of education,

 

Senior secured revolving

 

7.25% (Base

 

3/18/2011

 

4,850

 

4,850

(2)(21)

 

 

 

5



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

LLC

 

training, certification, networking, and consulting services to medical coders and other healthcare professionals

 

loan ($4,850 par due 3/2019)

 

Rate + 4.00%/Q)

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured loan ($7,800 par due 3/2019)

 

6.00% (Libor + 5.00%/Q)

 

3/18/2011

 

7,800

 

7,800

(2)(21)

 

 

 

 

 

 

Senior secured loan ($5,985 par due 3/2019)

 

6.00% (Libor + 5.00%/Q)

 

3/18/2011

 

5,985

 

5,985

(2)(21)

 

 

 

 

 

 

Senior secured loan ($10,331 par due 3/2019)

 

6.00% (Libor + 5.00%/Q)

 

3/18/2011

 

10,331

 

10,331

(2)(21)

 

 

 

 

 

 

Senior secured loan ($60,752 par due 3/2019)

 

6.00% (Libor + 5.00%/Q)

 

3/18/2011

 

60,752

 

60,752

(3)(21)

 

 

 

 

 

 

Senior secured loan ($4,770 par due 3/2019)

 

6.00% (Libor + 5.00%/Q)

 

3/18/2011

 

4,770

 

4,770

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

94,488

 

94,488

 

 

 

Campus Management Corp. and Campus Management Acquisition Corp. (6)

 

Education software developer

 

Preferred stock (485,159 shares)

 

 

 

2/8/2008

 

10,520

 

5,461

(2)

 

 

Community Education Centers, Inc.

 

Offender re-entry and in-prison treatment services provider

 

Senior secured loan ($15,000 par due 12/2014)

 

6.25% (Libor + 5.25%/Q)

 

12/10/2010

 

15,000

 

15,000

(2)(15)(21)

 

 

 

 

 

 

Senior secured loan ($714 par due 12/2014)

 

7.50% (Base Rate + 4.25%/Q)

 

12/10/2010

 

714

 

714

(2)(15)(21)

 

 

 

 

 

 

Junior secured loan ($33,599 par due 12/2015)

 

15.30% (Libor + 15.00%/Q)

 

12/10/2010

 

33,599

 

30,912

(2)

 

 

 

 

 

 

Junior secured loan ($10,139 par due 12/2015)

 

15.29% (Libor + 15.00%/Q)

 

12/10/2010

 

10,139

 

9,329

(2)

 

 

 

 

 

 

Warrants to purchase up to 654,618 shares

 

 

 

12/10/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

59,452

 

55,955

 

 

 

eInstruction Corporation

 

Developer, manufacturer and retailer of educational products

 

Senior secured loan ($17,000 par due 7/2014)

 

 

 

4/1/2010

 

15,258

 

(2)(20)

 

 

 

 

 

 

Senior subordinated loan ($33,305 par due 1/2015)

 

 

 

4/1/2010

 

24,152

 

(2)(20)

 

 

 

 

 

 

Common stock (2,406 shares)

 

 

 

4/1/2010

 

926

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

40,336

 

 

 

 

ELC Acquisition Corp., ELC Holdings Corporation, and Excelligence Learning Corporation (6)

 

Developer, manufacturer and retailer of educational products

 

Preferred stock (99,492 shares)

 

12.00% PIK

 

8/1/2011

 

10,845

 

12,119

(2)

 

 

 

 

 

 

Common stock (50,800 shares)

 

 

 

8/1/2011

 

51

 

3,290

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,896

 

15,409

 

 

 

Infilaw Holding, LLC

 

Operator of three for-profit law schools

 

Senior secured loan ($1 par due 8/2016)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

1

 

1

(2)(21)

 

 

 

 

 

 

Senior secured loan ($19,086 par due 8/2016)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

19,086

 

19,086

(3)(21)

 

 

 

 

 

 

Series A preferred units (124,890 units)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

124,890

 

124,890

(2)(21)

 

 

 

 

 

 

Series B preferred stock (3.91 units)

 

 

 

10/19/2012

 

9,245

 

9,884

(2)

 

 

 

 

 

 

 

 

 

 

 

 

153,222

 

153,861

 

 

 

Instituto de Banca y Comercio, Inc. & Leeds IV Advisors, Inc.

 

Private school operator

 

Series B preferred stock (1,750,000 shares)

 

 

 

8/5/2010

 

5,000

 

7,412

(2)

 

 

 

 

 

 

Series C preferred stock (2,512,586 shares)

 

 

 

6/7/2010

 

689

 

34

(2)

 

 

 

 

 

 

Common stock (20 shares)

 

 

 

6/7/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,689

 

7,446

 

 

 

Lakeland Tours, LLC

 

Educational travel provider

 

Senior secured loan ($58,826 par due 12/2016)

 

9.25% (Libor + 8.25%/Q)

 

10/4/2011

 

58,678

 

58,826

(2)(14)(21)

 

 

 

 

 

 

Senior secured loan ($1,760 par due 12/2016)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

1,756

 

1,760

(2)(21)

 

 

 

 

 

 

Senior secured loan ($40,362 par due 12/2016)

 

9.25% (Libor + 8.25%/Q)

 

10/4/2011

 

40,259

 

40,362

(3)(14)(21)

 

 

 

 

 

 

Senior secured loan ($8,800 par due 12/2016)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

8,777

 

8,800

(3)(21)

 

 

 

 

 

 

Common stock (5,000 shares)

 

 

 

10/4/2011

 

5,000

 

4,892

(2)

 

 

 

 

 

 

 

 

 

 

 

 

114,470

 

114,640

 

 

 

R3 Education, Inc. and EIC Acquisitions Corp.

 

Medical school operator

 

Preferred stock (8,800 shares)

 

 

 

7/30/2008

 

2,200

 

1,936

(2)

 

 

 

 

 

 

Common membership

 

 

 

9/21/2007

 

15,800

 

29,443

(2)

 

 

 

6



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

interest (26.27% interest) Warrants to purchase up to 27,890 shares

 

 

 

12/8/2009

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

18,000

 

31,379

 

 

 

 

 

 

 

 

 

 

 

 

 

507,073

 

478,639

 

12.03

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurants and Food Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADF Capital, Inc. & ADF Restaurant Group, LLC

 

Restaurant owner and operator

 

Senior secured revolving loan ($1,468 par due 11/2014)

 

6.50% (Libor + 3.50%/Q)

 

11/27/2006

 

1,468

 

1,468

(2)(21)

 

 

 

 

 

 

Senior secured revolving loan ($50 par due 11/2014)

 

6.50% (Base Rate + 2.50%/Q)

 

11/27/2006

 

50

 

50

(2)(21)

 

 

 

 

 

 

Senior secured loan ($9,168 par due 11/2015)

 

12.50% (Libor + 9.50%/Q)

 

11/27/2006

 

9,168

 

9,168

(2)(21)

 

 

 

 

 

 

Senior secured loan ($10,995 par due 11/2015)

 

12.50% (Libor + 9.50%/Q)

 

11/27/2006

 

10,998

 

10,995

(3)(21)

 

 

 

 

 

 

Promissory note ($20,020,806 par due 11/2016)

 

12.00% PIK

 

11/27/2006

 

16,584

 

19,978

(2)

 

 

 

 

 

 

Warrants to purchase up to 0.61 shares

 

 

 

6/1/2006

 

 

2,352

(2)

 

 

 

 

 

 

 

 

 

 

 

 

38,268

 

44,011

 

 

 

Benihana, Inc.

 

Restaurant owner and operator

 

Senior secured loan ($11,715 par due 2/2018)

 

9.25% (Libor + 8.00%/Q)

 

8/21/2012

 

11,715

 

11,715

(2)(21)

 

 

 

 

 

 

Senior secured loan ($10,000 par due 2/2018)

 

9.25% (Libor + 8.00%/Q)

 

8/21/2012

 

10,000

 

10,000

(3)(21)

 

 

 

 

 

 

Senior secured loan ($9,975 par due 2/2018)

 

9.25% (Libor + 8.00%/Q)

 

8/21/2012

 

9,975

 

9,975

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

31,690

 

31,690

 

 

 

Hojeij Branded Foods, Inc.

 

Airport restaurant operator

 

Senior secured revolving loan ($1,900 par due 2/2017)

 

9.00% (Libor + 8.00%/Q)

 

2/15/2012

 

1,900

 

1,900

(2)(21)

 

 

 

 

 

 

Senior secured loan ($25,600 par due 2/2017)

 

9.00% (Libor + 8.00%/Q)

 

2/15/2012

 

25,053

 

25,600

(2)(21)

 

 

 

 

 

 

Warrants to purchase up to 7.5% of membership interest

 

 

 

2/15/2012

 

 

164

(2)

 

 

 

 

 

 

Warrants to purchase up to 324 shares of Class A common stock

 

 

 

2/15/2012

 

669

 

2,362

(2)

 

 

 

 

 

 

 

 

 

 

 

 

27,622

 

30,026

 

 

 

Orion Foods, LLC (7)

 

Convenience food service retailer

 

Senior secured revolving loan ($9,000 par due 9/2014)

 

10.75% (Base Rate + 7.50%/M)

 

4/1/2010

 

9,000

 

9,000

(2)(21)

 

 

 

 

 

 

Senior secured loan ($33,367 par due 9/2014)

 

10.00% (Libor + 8.50%/Q)

 

4/1/2010

 

33,367

 

33,367

(3)(21)

 

 

 

 

 

 

Junior secured loan ($37,552 par due 9/2014)

 

 

 

4/1/2010

 

22,425

 

15,358

(2)(20)

 

 

 

 

 

 

Preferred units (10,000 units)

 

 

 

10/28/2010

 

 

(2)

 

 

 

 

 

 

Class A common units (25,001 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Class B common units (1,122,452 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

64,792

 

57,725

 

 

 

OTG Management, LLC

 

Airport restaurant operator

 

Senior secured loan ($25,000 par due 12/2017)

 

8.75% (Libor + 7.25%/Q)

 

12/11/2012

 

25,000

 

25,000

(2)(21)

 

 

 

 

 

 

Common units (3,000,000 units)

 

 

 

1/5/2011

 

3,000

 

1,955

(2)

 

 

 

 

 

 

Warrants to purchase up to 7.73% of common units

 

 

 

6/19/2008

 

100

 

4,151

(2)

 

 

 

 

 

 

 

 

 

 

 

 

28,100

 

31,106

 

 

 

Performance Food Group, Inc. and Wellspring Distribution Corp.

 

Food service distributor

 

Junior secured loan ($50,000 par due 5/2015)

 

11.00%

 

5/30/2012

 

50,000

 

50,000

(2)

 

 

 

 

 

 

Junior secured loan ($112,250 par due 5/2015)

 

11.00%

 

5/23/2008

 

111,327

 

112,250

(2)

 

 

 

 

 

 

Class A non-voting common stock (1,366,120 shares)

 

 

 

5/3/2008

 

7,500

 

6,823

(2)

 

 

 

 

 

 

 

 

 

 

 

 

168,827

 

169,073

 

 

 

Restaurant Holding Company, LLC

 

Fast food restaurant operator

 

Senior secured loan ($60,667 par due 2/2017)

 

9.00% (Libor + 7.50%/M)

 

2/17/2012

 

59,676

 

60,667

(3)(21)

 

 

 

 

 

 

Senior secured loan ($9,333 par due 2/2017)

 

9.00% (Libor + 7.50%/M)

 

2/17/2012

 

9,180

 

9,333

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

68,856

 

70,000

 

 

 

S.B. Restaurant Company

 

Restaurant owner and

 

Preferred stock (46,690

 

 

 

4/1/2010

 

 

(2)

 

 

 

7



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

operator

 

shares) Warrants to purchase up to 257,429 shares of common stock

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

428,155

 

433,631

 

10.90

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllBridge Financial, LLC (7)

 

Asset management services

 

Equity interests

 

 

 

4/1/2010

 

5,675

 

7,422

 

 

 

Callidus Capital Corporation (7)

 

Asset management services

 

Common stock (100 shares)

 

 

 

4/1/2010

 

3,000

 

1,735

 

 

 

Ciena Capital LLC (7)

 

Real estate and small business loan servicer

 

Senior secured revolving loan ($14,000 par due 12/2014)

 

6.00%

 

11/29/2010

 

14,000

 

14,000

(2)

 

 

 

 

 

 

Senior secured loan ($32,000 par due 12/2016)

 

12.00%

 

11/29/2010

 

32,000

 

32,000

(2)

 

 

 

 

 

 

Equity interests

 

 

 

11/29/2010

 

53,374

 

14,533

(2)

 

 

 

 

 

 

 

 

 

 

 

 

99,374

 

60,533

 

 

 

Commercial Credit Group, Inc.

 

Commercial equipment finance and leasing company

 

Senior subordinated loan ($28,000 par due 5/2018)

 

12.75%

 

5/10/2012

 

28,000

 

28,000

(2)

 

 

Cook Inlet Alternative Risk, LLC

 

Risk management services

 

Senior subordinated loan ($2,500 par due 9/2015)

 

9.00%

 

9/30/2011

 

2,500

 

2,500

(2)

 

 

Financial Pacific Company

 

Commercial finance leasing

 

Preferred stock (6,500 shares)

 

8.00% PIK

 

10/13/2010

 

3,807

 

14,065

 

 

 

 

 

 

 

Common stock (650,000 shares)

 

 

 

10/13/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,807

 

14,065

 

 

 

Gordian Acquisition Corp.

 

Financial services firm

 

Common stock (526 shares)

 

 

 

11/30/2012

 

 

(2)

 

 

Imperial Capital Group LLC

 

Investment services

 

2006 Class B common units (2,526 units)

 

 

 

5/10/2007

 

3

 

4

(2)

 

 

 

 

 

 

2007 Class B common units (315 units)

 

 

 

5/10/2007

 

 

1

(2)

 

 

 

 

 

 

Class A common units (7,710 units)

 

 

 

5/10/2007

 

14,997

 

18,949

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

18,954

 

 

 

Ivy Hill Asset Management, L.P. (7)(9)

 

Asset management services

 

Member interest (100.00% interest)

 

 

 

6/15/2009

 

170,961

 

267,839

 

 

 

 

 

 

 

 

 

 

 

 

 

328,317

 

401,048

 

10.08

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Access CIG, LLC

 

Records and information management services provider

 

Senior secured loan ($1,000 par due 10/2017)

 

7.00% (Libor + 5.75%/Q)

 

10/5/2012

 

1,000

 

1,000

(2)(21)

 

 

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C. (6)

 

Payroll and accounting services provider to the entertainment industry

 

Senior secured loan ($19,750 par due 12/2017)

 

7.50% (Libor + 6.50%/Q)

 

12/24/2012

 

19,750

 

19,750

(2)(16)(21)

 

 

 

 

 

 

Senior secured loan ($49,375 par due 12/2017)

 

7.50% (Libor + 6.50%/Q)

 

12/24/2012

 

49,375

 

49,375

(3)(21)

 

 

 

 

 

 

Class A membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

2,500

(2)

 

 

 

 

 

 

Class B membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

2,500

(2)

 

 

 

 

 

 

 

 

 

 

 

 

74,125

 

74,125

 

 

 

CIBT Investment Holdings, LLC

 

Expedited travel document processing services

 

Class A shares (2,500 shares)

 

 

 

12/15/2011

 

2,500

 

3,477

(2)

 

 

CitiPostal Inc. (7)

 

Document storage and management services

 

Senior secured revolving loan ($1,000 par due 12/2013)

 

6.50% (Base Rate + 3.25%/Q)

 

4/1/2010

 

1,000

 

1,000

(2)(21)

 

 

 

 

 

 

Senior secured loan ($525 par due 12/2013)

 

8.50% Cash, 5.50% PIK

 

4/1/2010

 

525

 

489

(2)

 

 

 

 

 

 

Senior secured loan ($53,817 par due 12/2013)

 

8.50% Cash, 5.50% PIK

 

4/1/2010

 

53,817

 

50,066

(2)

 

 

 

 

 

 

Senior subordinated loan ($17,936 par due 12/2015)

 

 

 

4/1/2010

 

13,038

 

(2)(20)

 

 

 

 

 

 

Common stock (37,024 shares)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68,380

 

51,555

 

 

 

Command Alkon, Inc.

 

Software solutions provider to the ready-mix concrete industry

 

Junior secured loan ($39,130 par due 3/2018)

 

9.75% (Libor + 8.50%/Q)

 

9/28/2012

 

39,130

 

39,130

(2)(21)

 

 

Cornerstone Records Management, LLC

 

Physical records storage and management service provider

 

Senior secured loan ($18,403 par due 8/2016)

 

12.25% (Base Rate + 9.00%/Q)

 

8/12/2011

 

18,403

 

17,667

(2)(21)

 

 

HCPro, Inc. and HCP

 

Healthcare compliance

 

Senior subordinated loan

 

 

 

3/5/2013

 

5,500

 

5,500

(2)(20)

 

 

 

8



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Acquisition Holdings, LLC (7)

 

advisory services

 

($17,103 par due 8/2014)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A units (15,043,110 units)

 

 

 

6/26/2008

 

13,543

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

19,043

 

5,500

 

 

 

IfByPhone Inc.

 

Voice-based marketing automation software provider

 

Senior secured loan ($2,000 par due 11/2015)

 

11.00%

 

10/15/2012

 

1,924

 

2,000

(2)

 

 

 

 

 

 

Senior secured loan ($1,000 par due 1/2016)

 

11.00%

 

10/15/2012

 

1,000

 

1,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 124,300 shares of Series C preferred stock

 

 

 

10/15/2012

 

88

 

88

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,012

 

3,088

 

 

 

Impact Innovations Group, LLC

 

IT consulting and outsourcing services

 

Member interest (50.00% interest)

 

 

 

4/1/2010

 

 

200

 

 

 

Investor Group Services, LLC (6)

 

Business consulting for private equity and corporate clients

 

Limited liability company membership interest (10.00% interest)

 

 

 

6/22/2006

 

 

805

 

 

 

Itel Laboratories, Inc.

 

Data services provider for building materials to property insurance industry

 

Senior secured loan ($22,182 par due 6/2018)

 

6.00% (Libor + 4.75%/M)

 

6/29/2012

 

22,182

 

22,182

(2)(21)

 

 

 

 

 

 

Preferred units (1,798,391 units)

 

 

 

6/29/2012

 

1,000

 

1,118

(2)

 

 

 

 

 

 

 

 

 

 

 

 

23,182

 

23,300

 

 

 

Multi-Ad Services, Inc. (6)

 

Marketing services and software provider

 

Preferred units (1,725,280 units)

 

 

 

4/1/2010

 

788

 

2,043

 

 

 

 

 

 

 

Common units (1,725,280 units)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

788

 

2,043

 

 

 

MVL Group, Inc. (7)

 

Marketing research provider

 

Senior secured revolving loan ($806 par due 6/2012)

 

4.80% (Libor + 4.50%/Q)

 

6/28/2012

 

806

 

806

(2)

 

 

 

 

 

 

Senior subordinated loan ($37,003 par due 7/2012)

 

 

 

4/1/2010

 

34,636

 

7,216

(2)(20)

 

 

 

 

 

 

Junior subordinated loan ($185 par due 7/2012)

 

 

 

4/1/2010

 

 

(2)(20)

 

 

 

 

 

 

Common stock (560,716 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

35,442

 

8,022

 

 

 

NComputing, Inc.

 

Desktop virtualization hardware and software technology service provider

 

Senior secured loan ($6,500 par due 7/2016)

 

10.50%

 

3/20/2013

 

6,500

 

6,500

(2)

 

 

 

 

 

 

Warrant to purchase up to 462,726 shares of Series C preferred stock

 

 

 

3/20/2013

 

 

41

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,500

 

6,541

 

 

 

Pillar Processing LLC and PHL Holding Co. (6)

 

Mortgage services

 

Senior secured loan ($6,659 par due 11/2018)

 

 

 

7/31/2008

 

6,248

 

6,659

(2)(20)

 

 

 

 

 

 

Senior secured loan ($7,375 par due 5/2019)

 

 

 

11/20/2007

 

6,406

 

494

(2)(20)

 

 

 

 

 

 

Class A common stock (576 shares)

 

 

 

7/31/2012

 

3,768

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

16,422

 

7,153

 

 

 

Powersport Auctioneer Holdings, LLC

 

Powersport vehicle auction operator

 

Common units (1,972 units)

 

 

 

3/2/2012

 

1,000

 

746

(2)

 

 

Prommis Holdings, LLC

 

Bankruptcy and foreclosure processing services

 

Class B common units (1,727 units)

 

 

 

6/12/2012

 

 

(2)

 

 

Promo Works, LLC

 

Marketing services

 

Senior secured loan ($8,655 par due 12/2013)

 

 

 

4/1/2010

 

3,016

 

1,888

(2)(20)

 

 

R2 Acquisition Corp.

 

Marketing services

 

Common stock (250,000 shares)

 

 

 

5/29/2007

 

250

 

147

(2)

 

 

Rainstor, Inc.

 

Database solution provider designed to manage Big Data for large enterprises at the lowest total cost

 

Senior secured loan ($3,000 par due 4/2016)

 

11.25%

 

3/28/2013

 

2,913

 

3,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 142,210 shares of Series C preferred stock

 

 

 

3/28/2013

 

88

 

89

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,001

 

3,089

 

 

 

Strident Holding, Inc.

 

Recovery audit services provider to commercial and governmental healthcare payors

 

Senior secured loan ($7,915 par due 7/2018)

 

6.50% (Libor + 5.25%/M)

 

7/26/2012

 

7,915

 

7,915

(2)(21)

 

 

 

9



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Senior secured loan ($9,950 par due 7/2018)

 

6.50% (Libor + 5.25%/M)

 

7/26/2012

 

9,950

 

9,950

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

17,865

 

17,865

 

 

 

Summit Business Media Parent Holding Company LLC

 

Business media consulting services

 

Limited liability company membership interest (45.98% interest)

 

 

 

5/20/2011

 

 

1,405

(2)

 

 

TOA Technologies, Inc.

 

Cloud based, mobile workforce management applications provider

 

Senior secured loan ($13,000 par due 11/2016)

 

10.25%

 

10/31/2012

 

12,445

 

12,610

(2)

 

 

 

 

 

 

Warrant to purchase up to 2,509,770 shares of Series D preferred stock

 

 

 

10/31/2012

 

605

 

677

(2)

 

 

 

 

 

 

 

 

 

 

 

 

13,050

 

13,287

 

 

 

Tradesmen International, Inc.

 

Construction labor support

 

Warrants to purchase up to 771,036 shares

 

 

 

4/1/2010

 

 

9,878

 

 

 

Tripwire, Inc.

 

IT security software provider

 

Senior secured loan ($19,950 par due 5/2018)

 

6.00% (Libor + 4.75%/Q)

 

5/23/2011

 

19,950

 

19,950

(2)(21)

 

 

 

 

 

 

Senior secured loan ($49,875 par due 5/2018)

 

6.00% (Libor + 4.75%/Q)

 

5/23/2011

 

49,875

 

49,875

(3)(21)

 

 

 

 

 

 

Senior secured loan ($9,975 par due 5/2018)

 

6.00% (Libor + 4.75%/Q)

 

5/23/2011

 

9,975

 

9,975

(4)(21)

 

 

 

 

 

 

Class B common stock (2,655,638 shares)

 

 

 

5/23/2011

 

30

 

72

(2)

 

 

 

 

 

 

Class A common stock (2,970 shares)

 

 

 

5/23/2011

 

2,970

 

7,103

(2)

 

 

 

 

 

 

 

 

 

 

 

 

82,800

 

86,975

 

 

 

Venturehouse-Cibernet Investors, LLC

 

Financial settlement services for intercarrier wireless roaming

 

Equity interest

 

 

 

4/1/2010

 

 

(2)

 

 

VSS-Tranzact Holdings, LLC (6)

 

Management consulting services

 

Common membership interest (5.98% interest)

 

 

 

10/26/2007

 

10,204

 

3,306

 

 

 

 

 

 

 

 

 

 

 

 

 

439,113

 

382,192

 

9.61

%

Services-Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Investments and Ventures Corp.

 

SCUBA diver training and certification provider

 

Senior secured loan ($1,692 par due 8/2018)

 

9.50% (Base Rate + 6.25%/Q)

 

8/9/2012

 

1,692

 

1,692

(2)(21)

 

 

 

 

 

 

Senior secured loan ($53,009 par due 8/2018)

 

8.50% (Libor + 7.25%/Q)

 

8/9/2012

 

53,009

 

53,009

(2)(21)

 

 

 

 

 

 

Senior secured loan ($308 par due 8/2018)

 

9.50% (Base Rate + 6.25%/Q)

 

8/9/2012

 

308

 

308

(3)(21)

 

 

 

 

 

 

Senior secured loan ($9,666 par due 8/2018)

 

8.50% (Libor + 7.25%/Q)

 

8/9/2012

 

9,666

 

9,666

(3)(21)

 

 

 

 

 

 

Senior secured loan ($308 par due 8/2018)

 

9.50% (Base Rate + 6.25%/Q)

 

8/9/2012

 

308

 

308

(4)(21)

 

 

 

 

 

 

Senior secured loan ($9,642 par due 8/2018)

 

8.50% (Libor + 7.25%/Q)

 

8/9/2012

 

9,642

 

9,642

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

74,625

 

74,625

 

 

 

Competitor Group, Inc. and Calera XVI, LLC

 

Endurance sports media and event operator

 

Senior secured revolving loan ($2,350 par due 11/2018)

 

10.00% (Base Rate + 6.75%/Q)

 

11/30/2012

 

2,350

 

2,350

(2)(21)

 

 

 

 

 

 

Senior secured revolving loan ($900 par due 11/2018)

 

9.00% (Libor + 7.75%/Q)

 

11/30/2012

 

900

 

900

(2)(21)

 

 

 

 

 

 

Senior secured loan ($24,439 par due 11/2018)

 

9.00% (Libor + 7.75%/Q)

 

11/30/2012

 

24,439

 

24,439

(2)(21)

 

 

 

 

 

 

Senior secured loan ($29,925 par due 11/2018)

 

9.00% (Libor + 7.75%/Q)

 

11/30/2012

 

29,925

 

29,925

(3)(21)

 

 

 

 

 

 

Membership units (2,500,000 units)

 

 

 

11/30/2012

 

2,500

 

2,500

(2)(9)

 

 

 

 

 

 

 

 

 

 

 

 

60,114

 

60,114

 

 

 

Massage Envy, LLC

 

Franchiser in the massage industry

 

Senior secured loan ($53,157 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

53,157

 

53,157

(2)(21)

 

 

 

 

 

 

Senior secured loan ($26,830 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

26,830

 

26,830

(3)(21)

 

 

 

 

 

 

Common stock (3,000,000 shares)

 

 

 

9/27/2012

 

3,000

 

3,322

(2)

 

 

 

 

 

 

 

 

 

 

 

 

82,987

 

83,309

 

 

 

McKenzie Sports Products, LLC

 

Designer, manufacturer and distributor of taxidermy forms and supplies

 

Senior secured loan ($422 par due 3/2017)

 

7.75% (Base Rate + 4.50%/Q)

 

3/30/2012

 

422

 

422

(2)(21)

 

 

 

 

 

 

Senior secured loan ($10,895 par due 3/2017)

 

7.00% (Libor + 5.50%/Q)

 

3/30/2012

 

10,895

 

10,895

(2)(21)

 

 

 

 

 

 

Senior secured loan ($354 par due 3/2017)

 

7.75% (Base Rate + 4.50%/Q)

 

3/30/2012

 

354

 

354

(4)(21)

 

 

 

 

 

 

Senior secured loan ($9,118 par due 3/2017)

 

7.00% (Libor + 5.50%/Q)

 

3/30/2012

 

9,118

 

9,118

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

20,789

 

20,789

 

 

 

 

10



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

The Dwyer Group (6)

 

Operator of multiple franchise concepts primarily related to home maintenance or repairs

 

Senior subordinated loan ($25,497 par due 6/2018)

 

12.00% Cash, 1.50% PIK

 

12/22/2010

 

25,497

 

25,497

(2)

 

 

 

 

 

 

Series A preferred units (13,292,377 units)

 

8.00% PIK

 

12/22/2010

 

6,462

 

15,245

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,959

 

40,742

 

 

 

Wash Multifamily Laundry Systems, LLC (fka Web Services Company, LLC)

 

Laundry service and equipment provider

 

Junior secured loan ($78,000 par due 2/2020)

 

9.75% (Libor + 8.50%/Q)

 

2/21/2013

 

78,000

 

78,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

348,474

 

357,579

 

8.99

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Products- Non-durable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gilchrist & Soames, Inc.

 

Personal care manufacturer

 

Senior secured revolving loan ($9,200 par due 10/2013)

 

6.25% (Libor + 5.00%/M)

 

4/1/2010

 

9,200

 

9,200

(2)(21)

 

 

 

 

 

 

Senior secured loan ($22,171 par due 10/2013)

 

13.44% Cash, 2.00% PIK

 

4/1/2010

 

22,009

 

20,619

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,209

 

29,819

 

 

 

Implus Footcare, LLC

 

Provider of footwear and other accessories

 

Preferred stock (455 shares)

 

6.00% PIK

 

10/31/2011

 

4,945

 

4,945

(2)

 

 

 

 

 

 

Common stock (455 shares)

 

 

 

10/31/2011

 

455

 

24

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,400

 

4,969

 

 

 

Insight Pharmaceuticals Corporation (6)

 

OTC drug products manufacture

 

Junior secured loan ($19,310 par due 8/2017)

 

13.25% (Libor + 11.75%/Q)

 

8/26/2011

 

19,142

 

19,310

(2)(21)

 

 

 

 

 

 

Class A common stock (155,000 shares)

 

 

 

8/26/2011

 

6,035

 

8,368

(2)

 

 

 

 

 

 

Class B common stock (155,000 shares)

 

 

 

8/26/2011

 

6,035

 

8,368

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,212

 

36,046

 

 

 

Matrixx Initiatives, Inc. and Wonder Holdings Acquisition Corp.

 

Developer and marketer of over-the-counter healthcare products

 

Senior secured revolving loan ($2,000 par due 6/2016)

 

13.00% (Libor + 12.00%/Q)

 

6/30/2011

 

2,000

 

1,900

(2)(21)

 

 

 

 

 

 

Senior secured loan ($37,984 par due 6/2016)

 

13.00% (Libor + 12.00%/Q)

 

6/30/2011

 

37,799

 

36,085

(2)(21)

 

 

 

 

 

 

Warrants to purchase up to 1,654,678 shares of common stock

 

 

 

7/27/2011

 

 

(2)

 

 

 

 

 

 

Warrants to purchase up to 1,489 shares of preferred stock

 

 

 

7/27/2011

 

 

891

(2)

 

 

 

 

 

 

 

 

 

 

 

 

39,799

 

38,876

 

 

 

Oak Parent, Inc.

 

Manufacturer of athletic apparel

 

Senior secured loan ($5,896 par due 4/2018)

 

8.00% (Libor + 7.00%/Q)

 

4/2/2012

 

5,873

 

5,896

(2)(21)

 

 

 

 

 

 

Senior secured loan ($35,000 par due 4/2018)

 

8.00% (Libor + 7.00%/Q)

 

4/2/2012

 

34,859

 

35,000

(3)(21)

 

 

 

 

 

 

Senior secured loan ($9,335 par due 4/2018)

 

8.00% (Libor + 7.00%/Q)

 

4/2/2012

 

9,297

 

9,335

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

50,029

 

50,231

 

 

 

PG-ACP Co-Invest, LLC

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

Class A membership units (1,000,0000 units)

 

 

 

8/29/2012

 

1,000

 

1,665

(2)

 

 

The Step2 Company, LLC

 

Toy manufacturer

 

Junior secured loan ($25,600 par due 4/2015)

 

10.00%

 

4/1/2010

 

24,823

 

25,600

(2)

 

 

 

 

 

 

Junior secured loan ($31,621 par due 4/2015)

 

10.00% Cash, 5.00% PIK

 

4/1/2010

 

30,802

 

27,194

(2)

 

 

 

 

 

 

Common units (1,116,879 units)

 

 

 

4/1/2010

 

24

 

7

 

 

 

 

 

 

 

Warrants to purchase up to 3,157,895 units

 

 

 

4/1/2010

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

55,649

 

52,820

 

 

 

The Thymes, LLC (7)

 

Cosmetic products manufacturer

 

Preferred units (6,283 units)

 

8.00% PIK

 

6/21/2007

 

5,001

 

4,638

 

 

 

 

 

 

 

Common units (5,400 units)

 

 

 

6/21/2007

 

 

4,473

 

 

 

 

 

 

 

 

 

 

 

 

 

5,001

 

9,111

 

 

 

Woodstream Corporation

 

Pet products manufacturer

 

Senior secured loan ($3,000 par due 8/2016)

 

6.00% (Libor + 5.00%/Q)

 

4/18/2012

 

3,000

 

3,000

(2)(21)

 

 

 

 

 

 

Senior secured loan ($15,000 par due 8/2016)

 

6.00% (Libor + 5.00%/Q)

 

4/18/2012

 

15,000

 

15,000

(4)(21)

 

 

 

 

 

 

Senior subordinated loan ($80,000 par due 2/2017)

 

11.00%

 

1/22/2010

 

76,964

 

80,000

(2)

 

 

 

 

 

 

Common stock (4,254 shares)

 

 

 

1/22/2010

 

1,222

 

2,633

(2)

 

 

 

11



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

96,186

 

100,633

 

 

 

 

 

 

 

 

 

 

 

 

 

315,485

 

324,170

 

8.15

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Containers-Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ICSH, Inc.

 

Industrial container manufacturer, reconditioner and servicer

 

Senior secured loan ($26,191 par due 8/2016)

 

8.00% (Libor + 7.00%/Q)

 

8/31/2011

 

26,191

 

26,191

(2)(21)

 

 

 

 

 

 

Senior secured loan ($24,217 par due 8/2016)

 

8.04% (Libor + 7.00%/Q)

 

8/31/2011

 

24,217

 

24,217

(2)(21)

 

 

 

 

 

 

Senior secured loan ($176 par due 8/2016)

 

8.00% (Libor + 7.00%/Q)

 

8/31/2011

 

176

 

176

(3)(21)

 

 

 

 

 

 

Senior secured loan ($67,961 par due 8/2016)

 

8.04% (Libor + 7.00%/Q)

 

8/31/2011

 

67,961

 

67,961

(3)(21)

 

 

 

 

 

 

Senior secured loan ($38 par due 8/2016)

 

8.00% (Libor + 7.00%/Q)

 

8/31/2011

 

38

 

38

(4)(21)

 

 

 

 

 

 

Senior secured loan ($14,795 par due 8/2016)

 

8.04% (Libor + 7.00%/Q)

 

8/31/2011

 

14,795

 

14,795

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

133,378

 

133,378

 

 

 

Microstar Logistics LLC, Microstar Global Asset Management LLC and MStar Holding Corporation

 

Keg management solutions provider

 

Junior secured loan ($165,000 par due 12/2018)

 

8.50% (Libor + 7.50%/Q)

 

12/14/2012

 

165,000

 

165,000

(2)(21)

 

 

 

 

 

 

Common Stock (50,000 shares)

 

 

 

12/14/2012

 

5,000

 

5,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

170,000

 

170,000

 

 

 

Pregis Corporation, Pregis Intellipack Corp. and Pregis Innovative Packaging Inc.

 

Provider of highly-customized, tailored protective packaging solutions

 

Senior secured loan ($992 par due 3/2017)

 

7.75% (Libor + 6.25%/M)

 

4/25/2012

 

992

 

992

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

992

 

992

 

 

 

 

 

 

 

 

 

 

 

 

 

304,370

 

304,370

 

7.65

%

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Centinela Funding, LLC

 

Solar power generation facility developer and operator

 

Senior secured loan ($56,000 par due 11/2020)

 

10.00% (Libor + 8.75%/Q)

 

11/14/2012

 

56,000

 

56,000

(2)(21)

 

 

EquiPower Resources Holdings, LLC

 

Gas-fired power generation facilities operator

 

Junior secured loan ($22,500 par due 6/2019)

 

10.00% (Libor + 8.50%/Q)

 

6/27/2012

 

22,084

 

22,500

(2)(21)

 

 

La Paloma Generating Company, LLC

 

Natural gas fired, combined cycle plant operator

 

Junior secured loan ($68,000 par due 8/2018)

 

10.25% (Libor + 8.75%/Q)

 

8/9/2011

 

66,947

 

68,000

(2)(21)

 

 

Panda Sherman Power, LLC

 

Developer and operator of a gas turbine power plant

 

Senior secured loan ($32,500 par due 9/2018)

 

9.00% (Libor + 7.50%/Q)

 

9/14/2012

 

32,500

 

32,500

(2)(21)

 

 

Panda Temple Power, LLC

 

Developer and operator of a gas turbine power plant

 

Senior secured loan ($60,000 par due 7/2018)

 

11.50% (Libor + 10.00%/Q)

 

7/17/2012

 

58,215

 

60,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

235,746

 

239,000

 

6.01

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Automotive Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Driven Holdings, LLC

 

Automotive aftermarket car care franchisor

 

Preferred stock (247,500 units)

 

 

 

12/16/2011

 

2,475

 

2,742

(2)

 

 

 

 

 

 

Common stock (25,000 units)

 

 

 

12/16/2011

 

25

 

114

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

2,856

 

 

 

Eckler Industries, Inc.

 

Restoration parts and accessories provider for classic automobiles

 

Senior secured loan ($51,302 par due 7/2017)

 

7.25% (Libor + 6.00%/M)

 

7/12/2012

 

51,302

 

51,302

(2)(21)

 

 

 

 

 

 

Senior secured loan ($505 par due 7/2017)

 

8.25% (Base Rate + 5.00%/Q)

 

7/12/2012

 

505

 

505

(2)(21)

 

 

 

 

 

 

Series A preferred stock (1,800 shares)

 

 

 

7/12/2012

 

1,800

 

1,909

(2)

 

 

 

 

 

 

Common stock (20,000 shares)

 

 

 

7/12/2012

 

200

 

64

(2)

 

 

 

 

 

 

 

 

 

 

 

 

53,807

 

53,780

 

 

 

EcoMotors, Inc.

 

Engine developer

 

Senior secured loan ($5,000 par due 7/2016)

 

10.13%

 

12/28/2012

 

4,859

 

5,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 321,888 shares of Series C Preferred Stock

 

 

 

12/28/2012

 

 

84

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,859

 

5,084

 

 

 

Service King Paint & Body, LLC

 

Collision repair site operators

 

Senior secured loan ($116,500 par due 8/2017)

 

7.25% (Libor + 6.25%/Q)

 

8/20/2012

 

116,500

 

116,500

(2)(17)(21)

 

 

 

 

 

 

Senior secured loan

 

7.25% (Libor +

 

8/20/2012

 

11,350

 

11,350

(2)(17)(21)

 

 

 

 

 

 

($11,350 par due 8/2017)

 

6.25%/Q)

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured loan ($4,925 par due 8/2017)

 

4.50% (Libor + 3.50%/Q)

 

8/20/2012

 

4,925

 

4,925

(2)(21)

 

 

 

12



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Senior secured loan ($9,850 par due 8/2017)

 

4.50% (Libor + 3.50%/Q)

 

8/20/2012

 

9,850

 

9,850

(4)(21)

 

 

 

 

 

 

Membership interest

 

 

 

8/20/2012

 

5,000

 

6,819

(2)

 

 

 

 

 

 

 

 

 

 

 

 

147,625

 

149,444

 

 

 

 

 

 

 

 

 

 

 

 

 

208,791

 

211,164

 

5.31

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Manufacturing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambrios Technologies Corporation

 

Developer and manufacturer of nanotechnology-based solutions for electronic devices and computers

 

Senior secured loan ($4,394 par due 8/2015)

 

12.00%

 

8/7/2012

 

4,394

 

4,394

(2)

 

 

 

 

 

 

Warrants to purchase up to 400,000 shares of Series D-4 convertible preferred stock

 

 

 

8/2/2012

 

 

8

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,394

 

4,402

 

 

 

Component Hardware Group, Inc.

 

Commercial equipment

 

Junior secured loan ($3,226 par due 12/2014)

 

7.00% Cash, 3.00% PIK

 

8/4/2010

 

3,226

 

3,226

(2)

 

 

 

 

 

 

Senior subordinated loan ($11,284 par due 12/2014)

 

7.50% Cash, 5.00% PIK

 

4/1/2010

 

8,748

 

11,284

(2)

 

 

 

 

 

 

Warrants to purchase up to 1,462,500 shares of common stock

 

 

 

8/4/2010

 

 

8,804

(2)

 

 

 

 

 

 

 

 

 

 

 

 

11,974

 

23,314

 

 

 

MWI Holdings, Inc.

 

Provider of engineered springs, fasteners, and other precision components

 

Senior secured loan ($38,274 par due 3/2019)

 

9.38% (Libor + 8.13%/Q)

 

6/15/2011

 

38,274

 

38,274

(2)(21)

 

 

 

 

 

 

Senior secured loan ($10,000 par due 6/2017)

 

9.38% (Libor + 8.13%/Q)

 

6/15/2011

 

10,000

 

10,000

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

48,274

 

48,274

 

 

 

NetShape Technologies, Inc.

 

Metal precision engineered components

 

Senior secured revolving loan ($454 par due 12/2014)

 

7.50% (Libor + 6.50%/M)

 

4/1/2010

 

454

 

454

(2)

 

 

 

 

 

 

Senior secured revolving loan ($78 par due 12/2014)

 

8.75% (Base Rate + 7.50%/Q)

 

4/1/2010

 

78

 

78

(2)

 

 

 

 

 

 

 

 

 

 

 

 

532

 

532

 

 

 

Pelican Products, Inc.

 

Flashlights

 

Senior secured loan ($7,940 par due 7/2018)

 

7.00% (Libor + 5.50%/Q)

 

7/13/2012

 

7,940

 

7,940

(4)(21)

 

 

 

 

 

 

Junior secured loan ($32,000 par due 6/2019)

 

11.50% (Libor + 10.00%/Q)

 

7/13/2012

 

32,000

 

32,000

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

39,940

 

39,940

 

 

 

Protective Industries, Inc. dba Caplugs

 

Plastic protection products

 

Senior secured revolving loan ($817 par due 5/2016)

 

6.25% (Base Rate + 3.00%/M)

 

5/23/2011

 

817

 

817

(2)(21)

 

 

 

 

 

 

Senior secured revolving loan ($467 par due 5/2016)

 

5.75% (Libor + 4.25%/M)

 

5/23/2011

 

467

 

467

(2)(21)

 

 

 

 

 

 

Senior secured loan ($1,481 par due 5/2017)

 

5.75% (Libor + 4.25%/M)

 

11/30/2012

 

1,481

 

1,481

(2)(21)

 

 

 

 

 

 

Senior subordinated loan ($707 par due 5/2018)

 

8.00% Cash, 7.25% PIK

 

5/23/2011

 

707

 

707

(2)

 

 

 

 

 

 

Preferred stock (2,379,361 shares)

 

 

 

5/23/2011

 

2,307

 

5,203

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,779

 

8,675

 

 

 

Saw Mill PCG Partners LLC

 

Metal precision engineered components manufacturer

 

Common units (1,000 units)

 

 

 

1/30/2007

 

1,000

 

(2)

 

 

SSH Environmental Industries, Inc. and SSH Non-Destructive Testing, Inc.

 

Magnetic sensors and supporting sensor products

 

Senior secured loan ($11,504 par due 12/2016)

 

9.00% (Libor + 7.50%/Q)

 

3/23/2012

 

11,315

 

11,504

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

123,208

 

136,641

 

3.43

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace and Defense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ILC Industries, LLC

 

Designer and manufacturer of protective cases and technically advanced lighting systems

 

Senior secured loan ($4,913 par due 7/2018)

 

7.50% (Libor + 6.00%/Q)

 

7/13/2012

 

4,828

 

4,913

(2)(21)

 

 

 

 

 

 

Senior secured loan ($19,900 par due 7/2018)

 

7.50% (Libor + 6.00%/Q)

 

7/13/2012

 

19,539

 

19,900

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

24,367

 

24,813

 

 

 

PRV Aerospace, LLC

 

Aerospace precision components manufacturer

 

Senior secured loan ($1,136 par due 5/2018)

 

6.50% (Libor + 5.25%/Q)

 

5/15/2012

 

1,130

 

1,136

(2)(21)

 

 

 

 

 

 

Senior secured loan ($8,460 par due 5/2018)

 

6.50% (Libor + 5.25%/Q)

 

5/15/2012

 

8,386

 

8,460

(4)(21)

 

 

 

 

 

 

Junior secured loan ($68,000 par due 5/2019)

 

10.50% (Libor + 9.25%/Q)

 

5/10/2012

 

68,000

 

68,000

(2)(21)

 

 

 

 

 

 

Junior secured loan ($11,657 par due 5/2019)

 

11.50% (Base Rate + 8.25%/Q)

 

5/10/2012

 

11,657

 

11,657

(2)(21)

 

 

 

13



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

89,173

 

89,253

 

 

 

TurboCombuster Technology, Inc.

 

Manufacturer of complex fabrications for the commercial aerospace, military aerospace and industrial gas turbine markets

 

Senior secured loan ($10,000 par due 12/2017)

 

6.00% (Base Rate + 5.00%/Q)

 

1/31/2013

 

9,951

 

10,000

(2)(21)

 

 

Wyle Laboratories, Inc. and Wyle Holdings, Inc.

 

Provider of specialized engineering, scientific and technical services

 

Senior preferred stock (775 shares)

 

8.00% PIK

 

1/17/2008

 

105

 

105

(2)

 

 

 

 

 

 

Common stock (1,885,195 shares)

 

 

 

1/17/2008

 

2,291

 

2,256

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,396

 

2,361

 

 

 

 

 

 

 

 

 

 

 

 

 

125,887

 

126,427

 

3.18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Products- Durable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bushnell Inc.

 

Sports optics manufacturer

 

Junior secured loan ($48,825 par due 2/2016)

 

9.00% (Libor + 7.50%/Q)

 

4/1/2010

 

44,301

 

48,825

(2)(21)

 

 

 

 

 

 

Junior secured loan ($43,675 par due 2/2016)

 

9.50% (Libor + 8.00%/Q)

 

4/30/2012

 

43,675

 

43,675

(2)(21)

 

 

 

 

 

 

 

 

 

 

 

 

87,976

 

92,500

 

 

 

 

 

 

 

 

 

 

 

 

 

87,976

 

92,500

 

2.32

%

Telecommunications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Broadband Communications, LLC, American Broadband Holding Company and Cameron Holdings of NC, Inc.

 

Broadband communication services

 

Senior secured loan ($6,945 par due 9/2013)

 

7.50% (Libor + 5.50%/Q)

 

9/1/2010

 

6,945

 

6,945

(2)(21)

 

 

 

 

 

 

Senior subordinated loan ($34,492 par due 11/2014)

 

12.00% Cash, 2.00% PIK

 

11/7/2007

 

34,492

 

33,112

(2)

 

 

 

 

 

 

Senior subordinated loan ($10,793 par due 11/2014)

 

12.00% Cash, 2.00% PIK

 

9/1/2010

 

10,793

 

10,361

(2)

 

 

 

 

 

 

Senior subordinated loan ($23,850 par due 11/2014)

 

10.00% Cash, 4.00% PIK

 

11/7/2007

 

23,850

 

22,896

(2)

 

 

 

 

 

 

Warrants to purchase up to 378 shares

 

 

 

11/7/2007

 

 

3,981

 

 

 

 

 

 

 

Warrants to purchase up to 200 shares

 

 

 

9/1/2010

 

 

2,106

(2)

 

 

 

 

 

 

 

 

 

 

 

 

76,080

 

79,401

 

 

 

Startec Equity, LLC (7)

 

Communication services

 

Member interest

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76,080

 

79,401

 

2.00

%

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulton Holdings Corp.

 

Airport restaurant operator

 

Senior secured loan ($40,000 par due 5/2016)

 

12.50%

 

5/28/2010

 

40,000

 

40,000

(3)(12)

 

 

 

 

 

 

Common stock (19,672 shares)

 

 

 

5/28/2010

 

1,967

 

1,985

 

 

 

 

 

 

 

 

 

 

 

 

 

41,967

 

41,985

 

 

 

Things Remembered Inc. and TRM Holdings Corporation

 

Personalized gifts retailer

 

Senior secured loan ($14,925 par due 5/2018)

 

8.00% (Libor + 6.50%/M)

 

5/24/2012

 

14,925

 

14,925

(4)(21)

 

 

 

 

 

 

 

 

 

 

 

 

56,892

 

56,910

 

1.43

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and Gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geotrace Technologies, Inc.

 

Reservoir processing and development

 

Warrants to purchase up to 69,978 shares of common stock

 

 

 

4/1/2010

 

88

 

 (2)

 

 

 

 

 

 

Warrants to purchase up to 210,453 shares of preferred stock

 

 

 

4/1/2010

 

2,805

 

1,892

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,893

 

1,892

 

 

 

UL Holding Co., LLC and Universal Lubricants, LLC (6)

 

Petroleum product manufacturer

 

Junior secured loan ($2,912 par due 12/2014)

 

9.17% (Libor + 7.17% Cash, 2.00% PIK /Q)

 

4/30/2012

 

2,912

 

2,620

(2)

 

 

 

 

 

 

Junior secured loan ($4,931 par due 12/2014)

 

12.00% Cash, 2.00% PIK

 

4/30/2012

 

4,931

 

4,438

(2)

 

 

 

 

 

 

Junior secured loan ($2,020 par due 12/2014)

 

9.16% (Libor + 7.16% Cash, 2.00% PIK /Q)

 

4/30/2012

 

2,020

 

1,818

(2)

 

 

 

 

 

 

Junior secured loan ($5,102 par due 12/2014)

 

12.00% Cash, 3.00% PIK

 

4/30/2012

 

5,102

 

4,847

(2)

 

 

 

 

 

 

Junior secured loan ($14,672 par due 12/2014)

 

9.18% (Libor + 7.18% Cash, 2.00% PIK /Q)

 

4/30/2012

 

14,672

 

13,205

(3)

 

 

 

 

 

 

Junior secured loan ($10,576 par due 12/2014)

 

9.17% (Libor + 7.17% Cash,

 

4/30/2012

 

10,576

 

9,518

(3)

 

 

 

14



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

2.00% PIK /Q)

 

 

 

 

 

 

 

 

 

 

 

 

 

Junior secured loan ($18,760 par due 12/2014)

 

12.00% Cash, 2.00% PIK

 

4/30/2012

 

18,760

 

16,884

(3)

 

 

 

 

 

 

Class A common units (10,782 units)

 

 

 

6/17/2011

 

1,512

 

2

(2)

 

 

 

 

 

 

Class B-5 common units (599,200 units)

 

 

 

4/25/2008

 

5,472

 

8

(2)

 

 

 

 

 

 

Class B-4 common units (50,000 units)

 

 

 

6/17/2011

 

500

 

1

(2)

 

 

 

 

 

 

Class C common units (618,091 units)

 

 

 

4/25/2008

 

 

11

(2)

 

 

 

 

 

 

 

 

 

 

 

 

66,457

 

53,352

 

 

 

 

 

 

 

 

 

 

 

 

 

69,350

 

55,244

 

1.39

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Printing, Publishing and Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Batanga, Inc.

 

Independent digital media company

 

Senior secured revolving loan ($1,500 par due 10/2013)

 

8.50%

 

10/31/2012

 

1,500

 

1,500

(2)

 

 

 

 

 

 

Senior secured loan ($5,500 par due 11/2016)

 

9.60%

 

10/31/2012

 

5,500

 

5,594

(2)(19)

 

 

 

 

 

 

 

 

 

 

 

 

7,000

 

7,094

 

 

 

Earthcolor Group, LLC

 

Printing management services

 

Limited liability company interests (9.30%)

 

 

 

5/18/2012

 

 

 

 

 

National Print Group, Inc.

 

Printing management services

 

Senior secured revolving loan ($913 par due 10/2013)

 

9.00% (Libor + 6.00%/Q)

 

3/2/2006

 

913

 

913

(2)(21)

 

 

 

 

 

 

Senior secured revolving loan ($26 par due 10/2013)

 

9.00% (Base Rate + 5.00%/M)

 

3/2/2006

 

26

 

26

(2)(21)

 

 

 

 

 

 

Senior secured loan ($6,903 par due 10/2013)

 

10.00% (Libor + 9.00% Cash, 1.00% PIK /Q)

 

3/2/2006

 

6,632

 

6,903

(2)(21)

 

 

 

 

 

 

Senior secured loan ($349 par due 10/2013)

 

10.00% (Base Rate + 9.00% Cash, 1.00% PIK /Q)

 

3/2/2006

 

335

 

349

(2)(21)

 

 

 

 

 

 

Preferred stock (9,344 shares)

 

 

 

3/2/2006

 

2,000

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,906

 

8,191

 

 

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.

 

Education publications provider

 

Senior secured loan ($21,211 par due 3/2017)

 

9.00% (Libor + 7.50%/Q)

 

9/29/2006

 

21,211

 

21,211

(2)(21)

 

 

 

 

 

 

Senior secured loan ($9,851 par due 3/2017)

 

9.00% (Libor + 7.50%/Q)

 

9/29/2006

 

9,851

 

9,851

(4)(21)

 

 

 

 

 

 

Preferred stock (10,663 shares)

 

 

 

9/29/2006

 

1,066

 

3,341

(2)

 

 

 

 

 

 

Common stock (15,393 shares)

 

 

 

9/29/2006

 

3

 

8

(2)

 

 

 

 

 

 

 

 

 

 

 

 

32,131

 

34,411

 

 

 

 

 

 

 

 

 

 

 

 

 

49,037

 

49,696

 

1.25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Environmental Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AWTP, LLC (7)

 

Water treatment services

 

Junior secured loan ($4,212 par due 6/2015)

 

10.00%

 

4/18/2011

 

4,212

 

4,212

(2)

 

 

 

 

 

 

Junior secured loan ($6,121 par due 6/2015)

 

15.00% PIK

 

4/18/2011

 

6,121

 

6,121

(2)

 

 

 

 

 

 

Membership interests (90% interest)

 

 

 

4/18/2011

 

 

5,646

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,333

 

15,979

 

 

 

Genomatica, Inc.

 

Chemical company that is developing a biotechnology platform for the production of basic and intermediate chemical products through a proprietary fermentation-based manufacturing process

 

Senior secured loan ($1,500 par due 10/2016)

 

9.26%

 

3/28/2013

 

1,425

 

1,500

(2)

 

 

 

 

 

 

Warrant to purchase 322,422 shares of Series D preferred stock

 

 

 

3/28/2013

 

 

45

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,425

 

1,545

 

 

 

RE Community Holdings II, Inc.and Pegasus Community Energy, LLC.

 

Operator of municipal recycling facilities

 

Preferred stock (1,000 shares)

 

 

 

3/1/2011

 

8,839

 

1,946

(2)

 

 

Waste Pro USA, Inc

 

Waste management

 

Preferred Class A common

 

 

 

11/9/2006

 

12,263

 

25,139

(2)

 

 

 

15



Table of Contents

 

As of March 31, 2013

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

services

 

equity (611,615 shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,860

 

44,609

 

1.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PODS Funding Corp.

 

Storage and warehousing

 

Junior subordinated loan ($40,499 par due 5/2017)

 

12.75% Cash, 2.75% PIK

 

11/29/2011

 

40,499

 

40,499

(2)

 

 

United Road Towing, Inc.

 

Towing company

 

Warrants to purchase up to 607 shares

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,499

 

40,499

 

1.02

%

Health Clubs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Athletic Club Holdings, Inc.

 

Premier health club operator

 

Senior secured loan ($34,000 par due 10/2013)

 

7.25% (Libor + 6.00%/M)

 

10/11/2007

 

34,000

 

34,000

(2)(13)(21)

 

 

CFW Co-Invest, L.P. and NCP Curves, L.P.

 

Health club franchisor

 

Limited partnership interest (4,152,165 shares)

 

 

 

7/31/2012

 

4,152

 

4,328

(2)

 

 

 

 

 

 

Limited partnership interest (1,847,835 shares)

 

 

 

7/31/2012

 

1,848

 

1,926

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,000

 

6,254

 

 

 

 

 

 

 

 

 

 

 

 

 

40,000

 

40,254

 

1.01

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate Finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10th Street, LLC (6)

 

Real estate holding company

 

Senior subordinated loan ($25,468 par due 11/2014)

 

8.93% Cash, 4.07% PIK

 

4/1/2010

 

25,468

 

25,468

(2)

 

 

 

 

 

 

Member interest (10.00% interest)

 

 

 

4/1/2010

 

594

 

 

 

 

 

 

 

 

Option (25,000 units)

 

 

 

4/1/2010

 

25

 

482

 

 

 

 

 

 

 

 

 

 

 

 

 

26,087

 

25,950

 

 

 

American Commercial Coatings, Inc.

 

Real estate property

 

Commercial mortgage loan ($2,505 par due 12/2025)

 

8.75% (Base Rate + 1.50%/Q)

 

4/1/2010

 

879

 

2,061

 

 

 

Cleveland East Equity, LLC

 

Hotel operator

 

Real estate equity interests

 

 

 

4/1/2010

 

1,026

 

4,036

 

 

 

Commons R-3, LLC

 

Real estate developer

 

Real estate equity interests

 

 

 

4/1/2010

 

 

 

 

 

Crescent Hotels & Resorts, LLC and affiliates (7)

 

Hotel operator

 

Senior subordinated loan ($2,236 par due 9/2011)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Senior subordinated loan ($2,092 par due 6/2017)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Common equity interest

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

Limited liability company membership interest (100% interest)

 

 

 

6/19/2012

 

 

194

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

194

 

 

 

Hot Light Brands, Inc. (7)

 

Real estate holding company

 

Senior secured loan ($32,957 par due 2/2011)

 

 

 

4/1/2010

 

1,665

 

1,132

(2)(20)

 

 

 

 

 

 

Common stock (93,500 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,665

 

1,132

 

 

 

NPH, Inc.

 

Hotel property

 

Real estate equity interests

 

 

 

4/1/2010

 

5,291

 

6,817

 

 

 

 

 

 

 

 

 

 

 

 

 

34,948

 

40,190

 

1.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and Beverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apple & Eve, LLC and US Juice Partners, LLC (6)

 

Juice manufacturer

 

Senior units (50,000 units)

 

 

 

10/5/2007

 

5,000

 

5,027

 

 

 

Charter Baking Company, Inc.

 

Baked goods manufacturer

 

Senior subordinated loan ($9,741 par due 9/2013)

 

17.50% PIK

 

2/6/2008

 

9,741

 

9,741

(2)

 

 

 

 

 

 

Preferred stock (6,258 shares)

 

 

 

9/1/2006

 

2,567

 

1,979

(2)

 

 

 

 

 

 

 

 

 

 

 

 

12,308

 

11,720

 

 

 

Distant Lands Trading Co.

 

Coffee manufacturer

 

Class A common stock (1,294 shares)

 

 

 

4/1/2010

 

980

 

(2)

 

 

 

 

 

 

Class A-1 common stock (2,157 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,288

 

16,747

 

0.42

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BECO Holding Company, Inc.

 

Wholesale distributor of first response fire protection equipment and related parts

 

Common stock (25,000 shares)

 

 

 

7/30/2010

 

2,500

 

2,483

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

2,483

 

0.06

%

 

 

 

 

 

 

 

 

 

 

$

5,959,788

 

$

6,030,459

 

151.57

%

 


(1)                                 Other than the Company’s investments listed in footnote 7 below (subject to the limitations set forth therein), the Company does not “Control” any of its portfolio companies, for the purposes of the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In general, under the Investment Company Act, the Company would “Control” a portfolio company if the Company owned more than 25% of its outstanding voting securities (i.e., securities with the right to elect directors) and/or had the power to exercise control over the management or policies of such portfolio company. All of the Company’s portfolio company investments, which as of March 31, 2013 represented 152% of the Company’s net assets or 95% of the Company’s total assets, are subject to legal restrictions on sales.

 

16



Table of Contents

 

(2)                                 These assets are pledged as collateral for the Revolving Credit Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Revolving Credit Facility (see Note 5 to the consolidated financial statements).

 

(3)                                 These assets are owned by the Company’s consolidated subsidiary Ares Capital CP Funding LLC (“Ares Capital CP”), are pledged as collateral for the Revolving Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than Ares Capital CP’s obligations under the Revolving Funding Facility (see Note 5 to the consolidated financial statements).

 

(4)                                 These assets are owned by the Company’s consolidated subsidiary Ares Capital JB Funding LLC (“ACJB”), are pledged as collateral for the SMBC Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than ACJB’s obligations under the SMBC Funding Facility (see Note 5 to the consolidated financial statements).

 

(5)                                 Investments without an interest rate are non-income producing.

 

(6)                                 As defined in the Investment Company Act, the Company is deemed to be an “Affiliated Person” of a portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the year ended March 31, 2013 in which the issuer was an Affiliated company (but not a portfolio company that the Company (“Controls”) are as follows:

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

Redemptions

 

Sales

 

Interest

 

structuring

 

Dividend

 

Other

 

Net realized

 

Net unrealized

 

Company

 

(cost)

 

(cost)

 

(cost)

 

income

 

service fees

 

income

 

income

 

gains (losses)

 

gains (losses)

 

10th Street, LLC

 

$

 

$

 

$

 

$

827

 

$

 

$

 

$

 

$

 

$

(18

)

Apple & Eve, LLC and US Juice Partners, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

3,629

 

Campus Management Corp. and Campus Management Acquisition Corp

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(1,128

)

Cast & Crew Payroll, LLC and Centerstage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Co-Investors, L.L.C.

 

$

 

$

875

 

$

30,000

 

$

1,706

 

$

 

$

 

$

79

 

$

 

$

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings, LLC

 

$

 

$

38

 

$

 

$

286

 

$

 

$

 

$

 

$

 

$

645

 

The Dwyer Group

 

$

 

$

 

$

 

$

849

 

$

 

$

125

 

$

 

$

 

$

1,158

 

ELC Acquisition Corp. and ELC Holdings Corporation

 

$

 

$

 

$

 

$

 

$

 

$

353

 

$

 

$

 

$

501

 

Insight Pharmaceuticals Corporation

 

$

 

$

 

$

 

$

646

 

$

 

$

 

$

 

$

 

$

176

 

Investor Group Services, LLC

 

$

 

$

 

$

 

$

 

$

 

$

125

 

$

 

$

 

$

94

 

Multi-Ad Services, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

5

 

Pillar Processing LLC and PHL Holding Co.

 

$

 

$

715

 

$

 

$

 

$

 

$

 

$

 

$

17

 

$

313

 

Soteria Imaging Services, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(171

)

VSS-Tranzact Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(347

)

UL Holding Co., LLC

 

$

 

$

147

 

$

 

$

1,702

 

$

 

$

 

$

12

 

$

 

$

(6,210

)

 

17



Table of Contents

 

(7)                                 As defined in the Investment Company Act, the Company is deemed to be both an “Affiliated Person” and “Control” this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the period for the year ended March 31, 2013 in which the issuer was both an Affiliated company and a portfolio company that the Company is deemed to Control are as follows:

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

Redemptions

 

Sales

 

Interest

 

structuring

 

Dividend

 

Other

 

Net realized

 

Net unrealized

 

Company

 

Purchases

 

(cost)

 

(cost)

 

income

 

service fees

 

income

 

income

 

gains (losses)

 

gains (losses)

 

AllBridge Financial, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(392

)

AWTP, LLC

 

$

 

$

 

$

 

$

330

 

$

 

$

 

$

25

 

$

 

$

1,066

 

Callidus Capital Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

17

 

Ciena Capital LLC

 

$

 

$

 

$

 

$

1,170

 

$

 

$

 

$

 

$

 

$

(4,083

)

Citipostal, Inc.

 

$

 

$

510

 

$

 

$

1,918

 

$

 

$

 

$

7

 

$

 

$

(5,344

)

Crescent Hotels & Resorts, LLC and affiliates

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

194

 

HCI Equity, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(20

)

HCP Acquisition Holdings, LLC

 

$

6,696

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(1,196

)

Hot Light Brands, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

4

 

Ivy Hill Asset Management, L.P.

 

$

 

$

 

$

 

$

 

$

 

$

27,363

 

$

 

$

 

$

(26,418

)

MVL Group, Inc.

 

$

 

$

 

$

 

$

10

 

$

 

$

 

$

 

$

 

$

1,886

 

Orion Foods, LLC

 

$

1,200

 

$

1,381

 

$

 

$

1,049

 

$

 

$

 

$

203

 

$

 

$

(1,178

)

Senior Secured Loan Fund LLC*

 

$

21,045

 

$

14,100

 

$

 

$

48,562

 

$

1,887

 

$

 

$

5,963

 

$

1,010

 

$

(921

)

The Thymes, LLC

 

$

 

$

 

$

 

$

 

$

 

$

99

 

$

 

$

 

$

1,356

 

 

*                                         Together with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”), the Company co-invests through the Senior Secured Loan Fund LLC d/b/a the “Senior Secured Loan Program” (the “SSLP”). The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required); therefore, although the Company owns more than 25% of the voting securities of the SSLP, the Company does not believe that it has control over the SSLP (for purposes of the Investment Company Act or otherwise) because, among other things, these “voting securities” do not afford the Company the right to elect directors of the SSLP or any other special rights (see Note 4 to the consolidated financial statements).

 

(8)                                 Non-U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(9)                                 Excepted from the definition of investment company under Section 3(c) of the Investment Company Act and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(10)                          In the first quarter of 2011, the staff of the Securities and Exchange Commission (the “Staff”) informally communicated to certain business development companies the Staff’s belief that certain entities, which would be classified as an “investment company” under the Investment Company Act but for the exception from the definition of “investment company” set forth in Rule 3a-7 promulgated under the Investment Company Act, could not be treated as eligible portfolio companies (as defined in Section 2(a)(46) of the Investment Company Act). Subsequently, in August 2011 the Securities and Exchange Commission issued a concept release (the “Concept Release”) which states that “[a]s a general matter, the Commission presently does not believe that Rule 3a-7 issuers are the type of small, developing and financially troubled businesses in which Congress intended BDCs primarily to invest” and requested comment on whether or not a 3a-7 issuer should be considered an “eligible portfolio company”. Ares Capital provided a comment letter in respect of the Concept Release and continues to believe that the language of Section 2(a)(46) of the Investment Company Act permits a business development company to treat as “eligible portfolio companies” entities that rely on the 3a-7 exception. However, given the current uncertainty in this area (including the language in the Concept Release) and subsequent discussions with the Staff, Ares Capital has, solely for purposes of calculating the composition of its portfolio pursuant to Section 55(a) of the Investment Company Act, identified these entities in the Company’s schedule of investments as “non-qualifying assets” should the Staff ultimately disagree with Ares Capital’s position.

 

(11)                          Variable rate loans to the Company’s portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). For each such loan, the Company has provided the interest rate in effect on the date presented.

 

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Table of Contents

 

(12)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 5.00% on $15 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(13)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on $20 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(14)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of  4.00% on $64 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(15)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 1.13% on $19 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(16)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on $30 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(17)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.75% on $72 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(18)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.13% on $56 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(19)                          The Company is entitled to receive a fixed fee upon the occurrence of certain events as defined in the credit agreement governing the Company’s debt investment in the portfolio company. The fair value of such fee is included in the fair value of the debt investment.

 

(20)                          Loan was on non-accrual status as of March 31, 2013.

 

(21)                          Loan includes interest rate floor feature.

 

(22)                          In addition to the interest earned based on the stated contractual interest rate of this security, the certificates entitle the holders thereof to receive a portion of the excess cash flow from the SSLP’s loan portfolio, which may result in a return to the Company greater than the contractual stated interest rate.

 

19



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Investment Funds and Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AGILE Fund I, LLC(9)

 

Investment partnership

 

Member interest (0.50% interest)

 

 

 

4/1/2010

 

$

124

 

$

29

(2)

 

 

CIC Flex, LP(9)

 

Investment partnership

 

Limited partnership units (0.94 unit)

 

 

 

9/7/2007

 

2,302

 

3,570

(2)

 

 

Covestia Capital Partners, LP(9)

 

Investment partnership

 

Limited partnership interest (47.00% interest)

 

 

 

6/17/2008

 

1,059

 

1,135

(2)

 

 

Dynamic India Fund IV, LLC(9)

 

Investment company

 

Member interest (5.44% interest)

 

 

 

4/1/2010

 

4,822

 

3,104

 

 

 

HCI Equity, LLC(7)(8)(9)

 

Investment company

 

Member interest (100.00% interest)

 

 

 

4/1/2010

 

452

 

447

 

 

 

Imperial Capital Private Opportunities, LP(9)

 

Investment partnership

 

Limited partnership interest (80.00% interest)

 

 

 

5/10/2007

 

6,051

 

8,341

(2)

 

 

Partnership Capital Growth Fund I, L.P.(9)

 

Investment partnership

 

Limited partnership interest (25.00% interest)

 

 

 

6/16/2006

 

1,596

 

4,197

(2)

 

 

Partnership Capital Growth Fund III, L.P.(9)

 

Investment partnership

 

Limited partnership interest (2.50% interest)

 

 

 

10/5/2011

 

1,964

 

1,819

(2)

 

 

Piper Jaffray Merchant Banking Fund I, L.P.(9)

 

Investment partnership

 

Limited partnership interest (2.00% interest)

 

 

 

8/16/2012

 

286

 

259

(2)

 

 

Senior Secured Loan Fund LLC(7)(10)

 

Co-investment vehicle

 

Subordinated certificates ($1,244,969 par due 12/2022)

 

8.31%
(Libor + 8.00%/Q)(21)

 

10/30/2009

 

1,237,887

 

1,263,644

 

 

 

VSC Investors LLC(9)

 

Investment company

 

Membership interest (1.95% interest)

 

 

 

1/24/2008

 

387

 

854

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,256,930

 

1,287,399

 

32.28

%

Healthcare—Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

California Forensic Medical Group, Incorporated

 

Correctional facility healthcare operator

 

Senior secured revolving loan ($2,000 par due 11/2018)

 

10.25% (Base Rate + 7.00%/Q)

 

11/16/2012

 

2,000

 

2,000

(2)(20)

 

 

 

 

 

 

Senior secured loan ($54,182 par due 11/2018)

 

9.25%
(Libor + 8.00%/Q)

 

11/16/2012

 

54,182

 

54,182

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

56,182

 

56,182

 

 

 

CCS Group Holdings, LLC

 

Correctional facility healthcare operator

 

Class A units (601,937 units)

 

 

 

8/19/2010

 

602

 

1,205

(2)

 

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings LLC(6)

 

Healthcare analysis services

 

Senior secured loan ($7,565 par due 3/2017)

 

7.75%
(Libor + 6.50%/Q)

 

3/15/2011

 

7,565

 

7,263

(2)(20)

 

 

 

 

 

 

Senior secured loan ($7,172 par due 3/2017)

 

7.75%
(Libor + 6.50%/Q)

 

3/15/2011

 

7,172

 

6,885

(3)(20)

 

 

 

 

 

 

Class A common stock (9,679 shares)

 

 

 

6/15/2007

 

4,000

 

4,772

(2)

 

 

 

 

 

 

Class C common stock (1,546 shares)

 

 

 

6/15/2007

 

 

1,316

(2)

 

 

 

 

 

 

 

 

 

 

 

 

18,737

 

20,236

 

 

 

INC Research, Inc.

 

Pharmaceutical and biotechnology consulting services

 

Common stock (1,410,000 shares)

 

 

 

9/27/2010

 

1,512

 

929

(2)

 

 

Intermedix Corporation

 

Revenue cycle management provider to the emergency healthcare industry

 

Junior secured loan ($112,000 par due 6/2019)

 

10.25%
(Libor + 9.00%/Q)

 

12/27/2012

 

112,000

 

112,000

(2)(20)

 

 

Magnacare Holdings, Inc., Magnacare Administrative Services, LLC, and Magnacare, LLC

 

Healthcare professional provider

 

Senior secured loan ($15,298 par due 3/2018)

 

9.75%
(Libor + 8.75%/Q)

 

9/15/2010

 

15,298

 

15,298

(2)(20)

 

 

 

 

 

 

Senior secured loan ($42,846 par due 3/2018)

 

9.75%
(Libor + 8.75%/Q)

 

9/15/2010

 

42,846

 

42,846

(3)(20)

 

 

 

 

 

 

Senior secured loan ($4,869 par due 3/2018)

 

9.75%
(Libor + 8.75%/Q)

 

9/15/2010

 

4,869

 

4,869

(4)(20)

 

 

 

 

 

 

Senior secured loan ($55,307 par due 3/2018)

 

9.75%
(Libor + 8.75%/Q)

 

3/16/2012

 

55,307

 

55,307

(2)(20)

 

 

 

 

 

 

Senior secured loan ($15,579 par due 3/2018)

 

9.75%
(Libor + 8.75%/Q)

 

3/16/2012

 

15,579

 

15,579

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

133,899

 

133,899

 

 

 

MW Dental Holding Corp.

 

Dental services

 

Senior secured revolving loan ($3,000 par due 4/2017)

 

8.50%
(Libor + 7.00%/M)

 

4/12/2011

 

3,000

 

3,000

(2)(20)

 

 

 

 

 

 

Senior secured loan ($55,034 par due 4/2017)

 

8.50%
(Libor + 7.00%/M)

 

4/12/2011

 

55,034

 

55,034

(2)(20)

 

 

 

 

 

 

Senior secured loan ($49,253 par due 4/2017)

 

8.50%
(Libor + 7.00%/M)

 

4/12/2011

 

49,253

 

49,253

(3)(20)

 

 

 

 

 

 

Senior secured loan ($9,900 par due 4/2017)

 

8.50%
(Libor + 7.00%/M)

 

4/12/2011

 

9,900

 

9,900

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

117,187

 

117,187

 

 

 

 

20



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Napa Management Services Corporation

 

Anesthesia management services provider

 

Senior secured revolving loan ($5,250 par due 4/2016)

 

7.50%
(Libor + 6.00%/M)

 

4/15/2011

 

5,250

 

5,250

(2)(20)

 

 

 

 

 

 

Senior secured loan ($9,062 par due 4/2016)

 

7.50%
(Libor + 6.00%/Q)

 

4/15/2011

 

8,984

 

9,062

(2)(20)

 

 

 

 

 

 

Senior secured loan ($28,125 par due 4/2016)

 

7.50%
(Libor + 6.00%/Q)

 

4/15/2011

 

28,125

 

28,125

(3)(20)

 

 

 

 

 

 

Common units (5,000 units)

 

 

 

4/15/2011

 

5,000

 

6,169

(2)

 

 

 

 

 

 

 

 

 

 

 

 

47,359

 

48,606

 

 

 

Netsmart Technologies, Inc. and NS Holdings, Inc.

 

Healthcare technology provider

 

Senior secured loan ($40,095 par due 12/2017)

 

7.25%
(Libor + 6.00%/Q)

 

12/18/2012

 

40,095

 

40,095

(2)(17)(20)

 

 

 

 

 

 

Common stock (2,500,000 shares)

 

 

 

6/21/2010

 

2,500

 

2,611

(2)

 

 

 

 

 

 

 

 

 

 

 

 

42,595

 

42,706

 

 

 

OnCURE Medical Corp.

 

Radiation oncology care provider

 

Common stock (857,143 shares)

 

 

 

8/18/2006

 

3,000

 

(2)

 

 

Passport Health Communications, Inc., Passport Holding Corp. and Prism Holding Corp.

 

Healthcare technology provider

 

Series A preferred stock (1,594,457 shares)

 

 

 

7/30/2008

 

11,156

 

11,448

(2)

 

 

 

 

 

 

Common stock (16,106 shares)

 

 

 

7/30/2008

 

100

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

11,256

 

11,448

 

 

 

PG Mergersub, Inc. and PGA Holdings, Inc.

 

Provider of patient surveys, management reports and national databases for the integrated healthcare delivery system

 

Junior secured loan ($45,000 par due 10/2018)

 

8.25%
(Libor + 7.00%/Q)

 

4/19/2012

 

45,000

 

45,000

(2)(20)

 

 

 

 

 

 

Preferred stock (333 shares)

 

 

 

3/12/2008

 

125

 

14

(2)

 

 

 

 

 

 

Common stock (16,667 shares)

 

 

 

3/12/2008

 

167

 

697

(2)

 

 

 

 

 

 

 

 

 

 

 

 

45,292

 

45,711

 

 

 

RCHP, Inc.

 

Operator of general acute care hospitals

 

Junior secured loan ($15,000 par due 5/2019)

 

11.50%
(Libor + 10.00%/S)

 

11/4/2011

 

15,000

 

15,000

(2)(20)

 

 

 

 

 

 

Junior secured loan ($50,000 par due 5/2019)

 

11.50%
(Libor + 10.00%/S)

 

11/4/2011

 

50,000

 

50,000

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

65,000

 

65,000

 

 

 

Reed Group, Ltd.

 

Medical disability management services provider

 

Equity interests

 

 

 

4/1/2010

 

 

435

(2)

 

 

Respicardia, Inc.

 

Developer of implantable therapies to improve cardiovascular health

 

Senior secured loan ($6,000 par due 7/2015)

 

11.00%

 

6/28/2012

 

5,968

 

6,000

(2)

 

 

 

 

 

 

Warrants to purchase up to 99,094 shares of Series C preferred stock

 

 

 

6/28/2012

 

38

 

29

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,006

 

6,029

 

 

 

Sage Products Holdings III, LLC

 

Patient infection control and preventive care solutions provider

 

Junior secured loan ($75,000 par due 6/2020)

 

9.25%
(Libor + 8.00%/Q)

 

12/13/2012

 

75,000

 

75,000

(2)(20)

 

 

Soteria Imaging Services, LLC(6)

 

Outpatient medical imaging provider

 

Junior secured loan ($2,521 par due 11/2010)

 

 

 

4/1/2010

 

2,050

 

843

(2)(19)

 

 

 

 

 

 

Preferred member units (1,823,179 units)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,050

 

843

 

 

 

SurgiQuest, Inc.

 

Medical device manufacturer

 

Senior secured loan ($7,000 par due 10/2016)

 

10.00%

 

9/28/2012

 

6,801

 

7,000

(2)

 

 

 

 

 

 

Warrants to purchase up to 54,672 shares of Series D-4 convertible preferred stock

 

 

 

9/28/2012

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,801

 

7,000

 

 

 

U.S. Anesthesia Partners, Inc.

 

Anesthesiology service provider

 

Senior secured loan ($15,000 par due 12/2018)

 

6.50%
(Libor + 5.50%/Q)

 

12/27/2012

 

15,000

 

15,000

(2)(20)

 

 

Vantage Oncology, Inc.

 

Radiation oncology care provider

 

Common stock (62,157 shares)

 

 

 

2/3/2011

 

4,670

 

2,616

(2)

 

 

 

 

 

 

 

 

 

 

 

 

764,148

 

762,032

 

19.11

%

Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Academy Holdings, LLC

 

Provider of education, training, certification, networking, and consulting services to medical coders and other healthcare professionals

 

Senior secured loan ($541 par due 3/2016)

 

9.50%
(Libor + 8.50%/Q)

 

3/18/2011

 

541

 

541

(2)(20)

 

 

 

 

 

 

Senior secured loan ($10,357 par due 3/2016)

 

9.50%
(Libor + 8.50%/Q)

 

3/18/2011

 

10,357

 

10,357

(2)(20)

 

 

 

 

 

 

Senior secured loan ($60,904 par due 3/2016)

 

9.50%
(Libor + 8.50%/Q)

 

3/18/2011

 

60,904

 

60,904

(3)(20)

 

 

 

 

 

 

Senior secured loan ($4,782 par due 3/2016)

 

9.50%
(Libor + 8.50%/Q)

 

3/18/2011

 

4,782

 

4,782

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

76,584

 

76,584

 

 

 

 

21



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Campus Management Corp. and Campus Management Acquisition Corp.(6)

 

Education software developer

 

Preferred stock (485,159 shares)

 

 

 

2/8/2008

 

10,520

 

6,589

(2)

 

 

Community Education Centers, Inc.

 

Offender re-entry and in-prison treatment services provider

 

Senior secured loan ($15,000 par due 12/2014)

 

6.25%
(Libor + 5.25%/Q)

 

12/10/2010

 

15,000

 

15,000

(2)(15)(20)

 

 

 

 

 

 

Senior secured loan ($714 par due 12/2014)

 

7.50% (Base Rate + 4.25%/Q)

 

12/10/2010

 

714

 

714

(2)(15)(20)

 

 

 

 

 

 

Junior secured loan ($33,150 par due 12/2015)

 

15.33%
(Li bor + 8.50% Cash, 6.50% PIK/Q)

 

12/10/2010

 

33,150

 

29,837

(2)

 

 

 

 

 

 

Junior secured loan ($9,978 par due 12/2015)

 

15.31%
(Li bor + 8.50% Cash, 6.50% PIK/Q)

 

12/10/2010

 

9,978

 

8,980

(2)

 

 

 

 

 

 

Warrants to purchase up to 654,618 shares

 

 

 

12/13/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

58,842

 

54,531

 

 

 

eInstruction Corporation

 

Developer, manufacturer and retailer of educational products

 

Junior secured loan ($17,000 par due 7/2014)

 

 

 

4/1/2010

 

15,257

 

(2)(19)

 

 

 

 

 

 

Senior subordinated loan ($31,997 par due 1/2015)

 

 

 

4/1/2010

 

24,151

 

(2)(19)

 

 

 

 

 

 

Common stock (2,406 shares)

 

 

 

4/1/2010

 

926

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

40,334

 

 

 

 

ELC Acquisition Corp., ELC Holdings Corporation, and Excelligence Learning Corporation(6)

 

Developer, manufacturer and retailer of educational products

 

Preferred stock (99,492 shares)

 

12.00% PIK

 

8/1/2011

 

10,492

 

11,766

(2)

 

 

 

 

 

 

Common stock (50,800 shares)

 

 

 

8/1/2011

 

51

 

2,789

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,543

 

14,555

 

 

 

Infilaw Holding, LLC

 

Operator of three for-profit law schools

 

Senior secured loan ($1 par due 8/2016)

 

9.50%
(Libor + 8.50%/Q)

 

8/25/2011

 

1

 

1

(2)(20)

 

 

 

 

 

 

Senior secured loan ($19,157 par due 8/2016)

 

9.50%
(Libor + 8.50%/Q)

 

8/25/2011

 

19,157

 

19,157

(3)(20)

 

 

 

 

 

 

Series A preferred units (124,890 units)

 

9.50%
(Libor + 8.50%/Q)

 

8/25/2011

 

124,890

 

124,890

(2)(20)

 

 

 

 

 

 

Series B preferred stock (3.91 units)

 

 

 

10/19/2012

 

9,245

 

9,524

(2)

 

 

 

 

 

 

 

 

 

 

 

 

153,293

 

153,572

 

 

 

Instituto de Banca y Comercio, Inc. & Leeds IV Advisors, Inc.

 

Private school operator

 

Series B preferred stock (1,750,000 shares)

 

 

 

8/5/2010

 

5,000

 

7,143

(2)

 

 

 

 

 

 

Series C preferred stock (2,512,586 shares)

 

 

 

6/7/2010

 

689

 

159

(2)

 

 

 

 

 

 

Common stock (20 shares)

 

 

 

6/7/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,689

 

7,302

 

 

 

Lakeland Tours, LLC

 

Educational travel provider

 

Senior secured loan ($58,826 par due 12/2016)

 

9.25%
(Libor + 8.25%/Q)

 

10/4/2011

 

58,670

 

58,826

(14)(20)

 

 

 

 

 

 

Senior secured loan ($1,793 par due 12/2016)

 

5.25%
(Libor + 4.25%/Q)

 

10/4/2011

 

1,789

 

1,793

(2)(20)

 

 

 

 

 

 

Senior secured loan ($40,362 par due 12/2016)

 

9.25%
(Libor + 8.25%/Q)

 

10/4/2011

 

40,255

 

40,362

(3)(14)(20)

 

 

 

 

 

 

Senior secured loan ($8,967 par due 12/2016)

 

5.25%
(Libor + 4.25%/Q)

 

10/4/2011

 

8,943

 

8,967

(3)(20)

 

 

 

 

 

 

Common stock (5,000 shares)

 

 

 

10/4/2011

 

5,000

 

4,555

(2)

 

 

 

 

 

 

 

 

 

 

 

 

114,657

 

114,503

 

 

 

R3 Education, Inc. and EIC Acquisitions Corp.

 

Medical school operator

 

Preferred stock (8,800 shares)

 

 

 

7/30/2008

 

2,200

 

1,936

(2)

 

 

 

 

 

 

Common membership interest (26.27% interest)

 

 

 

9/21/2007

 

15,800

 

29,829

(2)

 

 

 

 

 

 

Warrants to purchase up to 27,890 shares

 

 

 

12/8/2009

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

18,000

 

31,765

 

 

 

 

 

 

 

 

 

 

 

 

 

488,462

 

459,401

 

11.52

%

Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllBridge Financial, LLC(7)

 

Asset management services

 

Equity interests

 

 

 

4/1/2010

 

5,675

 

7,814

 

 

 

Callidus Capital Corporation(7)

 

Asset management services

 

Common stock (100 shares)

 

 

 

4/1/2010

 

3,000

 

1,718

 

 

 

Ciena Capital LLC(7)

 

Real estate and small business loan servicer

 

Senior secured revolving loan ($14,000 par due 12/2014)

 

6.00%

 

11/29/2010

 

14,000

 

14,000

(2)

 

 

 

 

 

 

Senior secured loan ($32,000 par due 12/2016)

 

12.00%

 

11/29/2010

 

32,000

 

32,000

(2)

 

 

 

 

 

 

Equity interests

 

 

 

11/29/2010

 

53,374

 

18,616

(2)

 

 

 

 

 

 

 

 

 

 

 

 

99,374

 

64,616

 

 

 

Commercial Credit Group, Inc.

 

Commercial equipment finance and leasing company

 

Senior subordinated loan ($28,000 par due 5/2018)

 

12.75%

 

5/10/2012

 

28,000

 

28,000

(2)

 

 

 

22



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Cook Inlet Alternative Risk, LLC

 

Risk management services

 

Senior subordinated loan ($2,750 par due 9/2015)

 

9.00%

 

9/30/2011

 

2,750

 

2,750

(2)

 

 

Financial Pacific Company

 

Commercial finance leasing

 

Preferred stock (6,500 shares)

 

8.00% PIK

 

10/13/2010

 

3,733

 

13,687

 

 

 

 

 

 

 

Common stock (650,000 shares)

 

 

 

10/13/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,733

 

13,687

 

 

 

Gordian Acquisition Corporation

 

Financial services firm

 

Common stock (526 shares)

 

 

 

11/30/2012

 

 

 

 

 

Imperial Capital Group LLC

 

Investment services

 

Class A common units (7,710 units)

 

 

 

5/10/2007

 

14,997

 

18,954

(2)

 

 

 

 

 

 

2006 Class B common units (2,526 units)

 

 

 

5/10/2007

 

3

 

4

(2)

 

 

 

 

 

 

2007 Class B common units (315 units)

 

 

 

5/10/2007

 

 

1

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

18,959

 

 

 

Ivy Hill Asset Management, L.P.(7)(9)

 

Asset management services

 

Member interest (100.00% interest)

 

 

 

6/15/2009

 

170,961

 

294,258

 

 

 

 

 

 

 

 

 

 

 

 

 

328,493

 

431,802

 

10.83

%

Restaurants and Food Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADF Capital, Inc. & ADF Restaurant Group, LLC

 

Restaurant owner and operator

 

Senior secured revolving loan ($1,468 par due 11/2013)

 

6.50%
(Libor + 3.50%/Q)

 

11/27/2006

 

1,468

 

1,468

(2)(20)

 

 

 

 

 

 

Senior secured revolving loan ($200 par due 11/2013)

 

6.50% (Base Rate + 2.50%/Q)

 

11/27/2006

 

200

 

200

(2)(20)

 

 

 

 

 

 

Senior secured loan ($9,200 par due 11/2014)

 

12.50%
(Libor + 9.50%/Q)

 

11/27/2006

 

9,200

 

9,200

(2)(20)

 

 

 

 

 

 

Senior secured loan ($11,034 par due 11/2014)

 

12.50%
(Libor + 9.50%/Q)

 

11/27/2006

 

11,037

 

11,034

(3)(20)

 

 

 

 

 

 

Promissory note ($14,897,360 par due 11/2016)

 

12.00% PIK

 

11/27/2006

 

16,001

 

18,719

(2)

 

 

 

 

 

 

Warrants to purchase up to 0.61 shares

 

 

 

6/1/2006

 

 

5,496

(2)

 

 

 

 

 

 

 

 

 

 

 

 

37,906

 

46,117

 

 

 

Benihana, Inc.

 

Restaurant owner and operator

 

Senior secured revolving loan ($431 par due 8/2017)

 

9.25%
(Libor + 8.00%/M)

 

8/21/2012

 

431

 

431

(2)(20)

 

 

 

 

 

 

Senior secured loan ($21,769 par due 2/2018)

 

9.25%
(Libor + 8.00%/Q)

 

8/21/2012

 

21,769

 

21,769

(2)(20)

 

 

 

 

 

 

Senior secured loan ($10,000 par due 2/2018)

 

9.25%
(Libor + 8.00%/Q)

 

8/21/2012

 

10,000

 

10,000

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

32,200

 

32,200

 

 

 

Hojeij Branded Foods, Inc.

 

Airport restaurant operator

 

Senior secured revolving loan ($1,900 par due 2/2017)

 

9.00%
(Libor + 8.00%/Q)

 

2/15/2012

 

1,900

 

1,900

(2)(20)

 

 

 

 

 

 

Senior secured loan ($22,600 par due 2/2017)

 

9.00%
(Libor + 8.00%/Q)

 

2/15/2012

 

22,025

 

22,600

(2)(20)

 

 

 

 

 

 

Warrants to purchase up to 7.5% of membership interest

 

 

 

2/15/2012

 

 

132

(2)

 

 

 

 

 

 

Warrants to purchase up to 324 shares of Class A common stock

 

 

 

2/15/2012

 

669

 

1,899

(2)

 

 

 

 

 

 

 

 

 

 

 

 

24,594

 

26,531

 

 

 

Orion Foods, LLC (fka Hot Stuff Foods, LLC)(7)

 

Convenience food service retailer

 

Senior secured revolving loan ($7,800 par due 9/2014)

 

10.75% (Base Rate + 7.50%/M)

 

4/1/2010

 

7,800

 

7,800

(2)(20)

 

 

 

 

 

 

Senior secured loan ($33,477 par due 9/2014)

 

10.00%
(Libor + 8.50%/Q)

 

4/1/2010

 

33,477

 

33,477

(3)(20)

 

 

 

 

 

 

Junior secured loan ($37,552 par due 9/2014)

 

 

 

4/1/2010

 

23,695

 

17,807

(2)(19)

 

 

 

 

 

 

Preferred units (10,000 units)

 

 

 

10/28/2010

 

 

(2)

 

 

 

 

 

 

Class A common units (25,001 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Class B common units (1,122,452 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

64,972

 

59,084

 

 

 

OTG Management, LLC

 

Airport restaurant operator

 

Senior secured loan ($25,000 par due 12/2017)

 

8.75%
(Libor + 7.25%/Q)

 

12/11/2012

 

25,000

 

25,000

(2)(20)

 

 

 

 

 

 

Common units (3,000,000 units)

 

 

 

1/5/2011

 

3,000

 

2,042

(2)

 

 

 

 

 

 

Warrants to purchase up to 7.73% of common units

 

 

 

6/19/2008

 

100

 

4,334

(2)

 

 

 

 

 

 

 

 

 

 

 

 

28,100

 

31,376

 

 

 

Performance Food Group, Inc. and Wellspring Distribution Corp.

 

Food service distributor

 

Junior secured loan ($50,000 par due 5/2015)

 

11.00%

 

5/30/2012

 

50,000

 

50,000

(2)

 

 

 

 

 

 

Junior secured loan ($50,250 par due 5/2015)

 

11.00%

 

5/23/2008

 

49,529

 

50,250

(2)

 

 

 

 

 

 

Junior secured loan ($50,000 par due 5/2015)

 

11.00%

 

5/23/2008

 

49,705

 

50,000

(3)

 

 

 

 

 

 

Class A non-voting common

 

 

 

5/3/2008

 

7,500

 

6,732

(2)

 

 

 

23



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

stock (1,366,120 shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

156,734

 

156,982

 

 

 

Restaurant Holding Company, LLC

 

Fast food restaurant operator

 

Senior secured loan ($61,333 par due 2/2017)

 

9.00%
(Libor + 7.50%/M)

 

2/17/2012

 

60,280

 

61,333

(3)(20)

 

 

 

 

 

 

Senior secured loan ($9,436 par due 2/2017)

 

9.00%
(Libor + 7.50%/M)

 

2/17/2012

 

9,272

 

9,436

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

69,552

 

70,769

 

 

 

S.B. Restaurant Company

 

Restaurant owner and operator

 

Preferred stock (46,690 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Warrants to purchase up to 257,429 shares of common stock

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

414,058

 

423,059

 

10.61

%

Services—Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Investments and Ventures Corp.

 

SCUBA diver training and certification provider

 

Senior secured loan ($64,837 par due 8/2018)

 

8.50%
(Libor + 7.25%/Q)

 

8/9/2012

 

64,837

 

64,837

(2)(20)

 

 

 

 

 

 

Senior secured loan ($9,975 par due 8/2018)

 

8.50%
(Libor + 7.25%/Q)

 

8/9/2012

 

9,975

 

9,975

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

74,812

 

74,812

 

 

 

Competitor Group, Inc. and Calera XVI, LLC

 

Endurance sports media and event operator

 

Senior secured revolving loan ($2,850 par due 11/2018)

 

10.00% (Base Rate + 6.75%/Q)

 

11/30/2012

 

2,850

 

2,850

(2)(20)

 

 

 

 

 

 

Senior secured revolving loan ($900 par due 11/2018)

 

9.00%
(Libor + 7.75%/Q)

 

11/30/2012

 

900

 

900

(2)(20)

 

 

 

 

 

 

Senior secured loan ($54,500 par due 11/2018)

 

9.00%
(Libor + 7.75%/Q)

 

11/30/2012

 

54,500

 

54,500

(2)(20)

 

 

 

 

 

 

Membership units (2,500,000 units)

 

 

 

11/30/2012

 

2,500

 

2,500

(2)(9)

 

 

 

 

 

 

 

 

 

 

 

 

60,750

 

60,750

 

 

 

Massage Envy, LLC

 

Franchiser in the massage industry

 

Senior secured loan ($80,494 par due 9/2018)

 

8.50%
(Libor + 7.25%/Q)

 

9/27/2012

 

80,494

 

80,494

(2)(20)

 

 

 

 

 

 

Common stock (3,000,000 shares)

 

 

 

9/27/2012

 

3,000

 

3,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

83,494

 

83,494

 

 

 

McKenzie Sports Products, LLC

 

Designer, manufacturer and distributor of taxidermy forms and supplies

 

Senior secured loan ($11,833 par due 3/2017)

 

7.00%
(Libor + 5.50%/M)

 

3/30/2012

 

11,833

 

11,833

(2)(20)

 

 

 

 

 

 

Senior secured loan ($28 par due 3/2017)

 

7.75% (Base Rate + 4.50%/M)

 

3/30/2012

 

28

 

28

(2)(20)

 

 

 

 

 

 

Senior secured loan ($9,902 par due 3/2017)

 

7.00%
(Libor + 5.50%/M)

 

3/30/2012

 

9,902

 

9,902

(4)(20)

 

 

 

 

 

 

Senior secured loan ($23 par due 3/2017)

 

7.75% (Base Rate + 4.50%/M)

 

3/30/2012

 

23

 

23

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

21,786

 

21,786

 

 

 

The Dwyer Group(6)

 

Operator of multiple franchise concepts primarily related to home maintenance or repairs

 

Senior subordinated loan ($25,400 par due 6/2018)

 

12.00% Cash, 1.50% PIK

 

12/22/2010

 

25,400

 

25,400

(2)

 

 

 

 

 

 

Series A preferred units (13,292,377 units)

 

8.00% PIK

 

12/22/2010

 

6,337

 

13,962

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,737

 

39,362

 

 

 

Wash Multifamily Laundry Systems, LLC (fka Web Services Company, LLC)

 

Laundry service and equipment provider

 

Senior secured loan ($27,172 par due 8/2014)

 

7.00% (Base Rate + 3.75%/Q)

 

6/26/2012

 

27,091

 

27,172

(2)(20)

 

 

 

 

 

 

Junior secured loan ($40,000 par due 8/2015)

 

10.88%
(Libor + 9.38%/Q)

 

1/25/2011

 

40,000

 

40,000

(2)(20)

 

 

 

 

 

 

Junior secured loan ($50,000 par due 8/2015)

 

10.88%
(Libor + 9.38%/Q)

 

1/25/2011

 

50,000

 

50,000

(3)(20)

 

 

 

 

 

 

 

 

 

 

 

 

117,091

 

117,172

 

 

 

 

 

 

 

 

 

 

 

 

 

389,670

 

397,376

 

9.96

%

Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Access CIG, LLC

 

Records and information management services provider

 

Senior secured loan ($1,000 par due 10/2017)

 

7.00%
(Libor + 5.75%/Q)

 

10/5/2012

 

1,000

 

1,000

(2)(20)

 

 

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C.(6)

 

Payroll and accounting services provider to the entertainment industry

 

Senior secured loan ($100,000 par due 12/2017)

 

7.50%
(Libor + 6.50%/Q)

 

12/24/2012

 

100,000

 

100,000

(2)(20)

 

 

 

 

 

 

Class A membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

2,500

(2)

 

 

 

 

 

 

Class B membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

2,500

(2)

 

 

 

 

 

 

 

 

 

 

 

 

105,000

 

105,000

 

 

 

CIBT Investment Holdings, LLC

 

Expedited travel document processing services

 

Class A shares (2,500 shares)

 

 

 

12/15/2011

 

2,500

 

3,543

(2)

 

 

CitiPostal Inc.(7)

 

Document storage and management services

 

Senior secured revolving loan ($1,000 par due 12/2013)

 

6.75% (Base Rate + 3.25%/Q)

 

4/1/2010

 

1,000

 

1,000

(2)(20)

 

 

 

 

 

 

Senior secured loan ($523 par due 12/2013)

 

8.50% Cash, 5.50% PIK

 

4/1/2010

 

523

 

523

(2)

 

 

 

 

 

 

Senior secured loan ($53,561

 

8.50% Cash, 5.50% PIK

 

4/1/2010

 

53,561

 

53,561

(3)

 

 

 

24



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

par due 12/2013)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior subordinated loan ($17,224 par due 12/2015)

 

 

 

4/1/2010

 

13,038

 

1,556

(2)(19)

 

 

 

 

 

 

Common stock (37,024 shares)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68,122

 

56,640

 

 

 

Command Alkon, Inc.

 

Software solutions provider to the ready-mix concrete industry

 

Junior secured loan ($39,130 par due 3/2018)

 

9.75%
(Libor + 8.50%/Q)

 

9/28/2012

 

39,130

 

39,130

(2)(20)

 

 

Cornerstone Records Management, LLC

 

Physical records storage and management service provider

 

Senior secured loan ($18,460 par due 8/2016)

 

10.50%
(Libor + 9.00%/Q)

 

8/12/2011

 

18,460

 

17,722

(2)(20)

 

 

HCP Acquisition Holdings, LLC(7)

 

Healthcare compliance advisory services

 

Class A units (12,287,082 units)

 

 

 

6/26/2008

 

12,347

 

(2)

 

 

IfByPhone Inc.

 

Voice-based marketing automation software provider

 

Senior secured loan ($2,000 par due 11/2015)

 

11.00%

 

10/15/2012

 

1,917

 

2,000

(2)

 

 

 

 

 

 

Senior secured loan ($1,000 par due 1/2016)

 

11.00%

 

10/15/2012

 

1,000

 

1,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 124,300 shares of Series C preferred stock

 

 

 

10/15/2012

 

88

 

88

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,005

 

3,088

 

 

 

Impact Innovations Group, LLC

 

IT consulting and outsourcing services

 

Member interest (50.00% interest)

 

 

 

4/1/2010

 

 

200

 

 

 

Investor Group Services, LLC(6)

 

Business consulting for private equity and corporate clients

 

Limited liability company membership interest (10.00% interest)

 

 

 

6/22/2006

 

 

711

 

 

 

Itel Laboratories, Inc.

 

Data services provider for building materials to property insurance industry

 

Senior secured loan ($12,263 par due 6/2018)

 

6.25%
(Libor + 5.00%/Q)

 

6/29/2012

 

12,263

 

12,263

(2)(20)

 

 

 

 

 

 

Preferred units (1,798,391 units)

 

 

 

6/29/2012

 

1,000

 

1,093

(2)

 

 

 

 

 

 

 

 

 

 

 

 

13,263

 

13,356

 

 

 

Multi-Ad Services, Inc.(6)

 

Marketing services and software provider

 

Preferred units (1,725,280 units)

 

 

 

4/1/2010

 

788

 

2,037

 

 

 

 

 

 

 

Common units (1,725,280 units)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

788

 

2,037

 

 

 

MVL Group, Inc.(7)

 

Marketing research provider

 

Senior secured revolving loan ($806 par due 6/2012)

 

4.94%
(Libor + 4.50%/Q)

 

6/28/2012

 

806

 

806

(2)

 

 

 

 

 

 

Senior subordinated loan ($36,766 par due 7/2012)

 

 

 

4/1/2010

 

34,636

 

5,330

(2)(19)

 

 

 

 

 

 

Junior subordinated loan ($185 par due 7/2012)

 

 

 

4/1/2010

 

 

(2)(19)

 

 

 

 

 

 

Common stock (560,716 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

35,442

 

6,136

 

 

 

Performant Financial Corporation

 

Collections services

 

Common stock (772,130 shares)

 

 

 

4/1/2010

 

1,191

 

7,799

(2)

 

 

 

 

 

 

Common stock (207,912 shares)

 

 

 

2/5/2005

 

241

 

2,100

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,432

 

9,899

 

 

 

Pillar Processing LLC and PHL Holding Co.(6)

 

Mortgage services

 

Senior secured loan ($7,033 par due 11/2018)

 

 

 

7/31/2008

 

6,709

 

7,033

(2)(19)

 

 

 

 

 

 

Senior secured loan ($7,375 par due 5/2019)

 

 

 

11/20/2007

 

6,661

 

522

(2)(19)

 

 

 

 

 

 

Class A common stock (576 shares)

 

 

 

7/31/2012

 

3,768

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

17,138

 

7,555

 

 

 

Powersport Auctioneer Holdings, LLC

 

Powersport vehicle auction operator

 

Common units (1,972 units)

 

 

 

3/2/2012

 

1,000

 

736

(2)

 

 

Prommis Holdings, LLC

 

Bankruptcy and foreclosure processing services

 

Class B common units (1,727 units)

 

 

 

6/12/2012

 

 

(2)

 

 

Promo Works, LLC

 

Marketing services

 

Senior secured loan ($8,655 par due 12/2013)

 

 

 

4/1/2010

 

3,249

 

2,042

(2)(19)

 

 

R2 Acquisition Corp.

 

Marketing services

 

Common stock (250,000 shares)

 

 

 

5/29/2007

 

250

 

137

(2)

 

 

Strident Holding, Inc.

 

Recovery audit services provider to commercial and governmental healthcare payors

 

Senior secured loan ($7,935 par due 7/2018)

 

6.50%
(Libor + 5.25%/Q)

 

7/26/2012

 

7,935

 

7,935

(2)(20)

 

 

 

 

 

 

Senior secured loan ($9,975 par due 7/2018)

 

6.50%
(Libor + 5.25%/Q)

 

7/26/2012

 

9,975

 

9,975

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

17,910

 

17,910

 

 

 

Summit Business Media Parent Holding Company LLC

 

Business media consulting services

 

Limited liability company membership interest (45.98% interest)

 

 

 

5/20/2011

 

 

873

(2)

 

 

TOA Technologies, Inc.

 

Cloud based, mobile workforce management applications provider

 

Senior secured loan ($13,000 par due 10/2016)

 

10.25%

 

10/31/2012

 

12,415

 

12,480

(2)

 

 

 

25



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Warrant to purchase up to 2,509,770 shares of Series D preferred stock

 

 

 

10/31/2012

 

605

 

617

(2)

 

 

 

 

 

 

 

 

 

 

 

 

13,020

 

13,097

 

 

 

Tradesmen International, Inc.

 

Construction labor support

 

Warrants to purchase up to 771,036 shares

 

 

 

4/1/2010

 

 

10,150

 

 

 

Tripwire, Inc.

 

IT security software provider

 

Senior secured loan ($50,000 par due 5/2018)

 

6.00%
(Libor + 4.75%/Q)

 

5/23/2011

 

50,000

 

50,000

(3)(20)

 

 

 

 

 

 

Senior secured loan ($10,000 par due 5/2018)

 

6.00%
(Libor + 4.75%/Q)

 

5/23/2011

 

10,000

 

10,000

(4)(20)

 

 

 

 

 

 

Class A common stock (2,970 shares)

 

 

 

5/23/2011

 

2,970

 

6,941

(2)

 

 

 

 

 

 

Class B common stock (2,655,638 shares)

 

 

 

5/23/2011

 

30

 

70

(2)

 

 

 

 

 

 

 

 

 

 

 

 

63,000

 

67,011

 

 

 

Venturehouse-Cibernet Investors, LLC

 

Financial settlement services for intercarrier wireless roaming

 

Equity interest

 

 

 

4/1/2010

 

 

(2)

 

 

VSS-Tranzact Holdings, LLC(6)

 

Management consulting services

 

Common membership interest (5.98% interest)

 

 

 

10/26/2007

 

10,204

 

3,652

 

 

 

 

 

 

 

 

 

 

 

 

 

426,260

 

381,625

 

9.57

%

Containers—Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ICSH, Inc.

 

Industrial container manufacturer, reconditioner and servicer

 

Senior secured loan ($22,569 par due 8/2016)

 

8.00%
(Libor + 7.00%/Q)

 

8/31/2011

 

22,569

 

22,569

(2)(20)

 

 

 

 

 

 

Senior secured loan ($3,750 par due 8/2016)

 

9.25% (Base Rate + 6.00%/Q)

 

8/31/2011

 

3,750

 

3,750

(2)(20)

 

 

 

 

 

 

Senior secured loan ($24,217 par due 8/2016)

 

8.04%
(Libor + 7.00%/Q)

 

8/31/2011

 

24,217

 

24,217

(2)(20)

 

 

 

 

 

 

Senior secured loan ($67,961 par due 8/2016)

 

8.04%
(Libor + 7.00%/Q)

 

8/31/2011

 

67,961

 

67,961

(3)(20)

 

 

 

 

 

 

Senior secured loan ($353 par due 8/2016)

 

8.00%
(Libor + 7.00%/Q)

 

8/31/2011

 

353

 

353

(3)(20)

 

 

 

 

 

 

Senior secured loan ($14,795 par due 8/2016)

 

8.04%
(Libor + 7.00%/Q)

 

8/31/2011

 

14,795

 

14,795

(4)(20)

 

 

 

 

 

 

Senior secured loan ($77 par due 8/2016)

 

8.00%
(Libor + 7.00%/Q)

 

8/31/2011

 

77

 

77

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

133,722

 

133,722

 

 

 

Microstar Logistics LLC, Microstar Global Asset Management LLC and MStar Holding Corporation

 

Keg management solutions provider

 

Junior secured loan ($165,000 par due 12/2018)

 

8.50%
(Libor + 7.50%/Q)

 

12/14/2012

 

165,000

 

165,000

(2)(20)

 

 

 

 

 

 

Common Stock (50,000 shares)

 

 

 

12/14/2012

 

5,000

 

5,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

170,000

 

170,000

 

 

 

Pregis Corporation, Pregis Intellipack Corp. and Pregis Innovative Packaging Inc.

 

Provider of highly-customized, tailored protective packaging solutions

 

Senior secured loan ($3 par due 3/2017)

 

8.50% (Base Rate + 5.25%/Q)

 

4/25/2012

 

3

 

3

(2)(20)

 

 

 

 

 

 

Senior secured loan ($992 par due 3/2017)

 

7.75%
(Libor + 6.25%/Q)

 

4/25/2012

 

992

 

992

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

995

 

995

 

 

 

 

 

 

 

 

 

 

 

 

 

304,717

 

304,717

 

7.64

%

Consumer Products—Non-durable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gilchrist & Soames, Inc.

 

Personal care manufacturer

 

Senior secured revolving loan ($9,200 par due 10/2013)

 

6.25%
(Libor + 5.00%/M)

 

4/1/2010

 

9,200

 

9,200

(2)(20)

 

 

 

 

 

 

Senior secured loan ($21,941 par due 10/2013)

 

13.44%

 

4/1/2010

 

21,710

 

20,847

(2)

 

 

 

 

 

 

 

 

 

 

 

 

30,910

 

30,047

 

 

 

Implus Footcare, LLC

 

Provider of footwear and other accessories

 

Preferred stock (455 shares)

 

6.00% PIK

 

10/31/2011

 

4,873

 

4,873

(2)

 

 

 

 

 

 

Common stock (455 shares)

 

 

 

10/31/2011

 

455

 

196

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,328

 

5,069

 

 

 

Insight Pharmaceuticals Corporation(6)

 

OTC drug products manufactuer

 

Junior secured loan ($19,310 par due 8/2017)

 

13.25%
(Libor + 11.75%/Q)

 

8/26/2011

 

19,136

 

19,310

(3)(20)

 

 

 

 

 

 

Class A common stock (155,000 shares)

 

 

 

8/26/2011

 

6,035

 

8,277

(2)

 

 

 

 

 

 

Class B common stock (155,000 shares)

 

 

 

8/26/2011

 

6,035

 

8,277

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,206

 

35,864

 

 

 

Matrixx Initiatives, Inc. and Wonder Holdings Acquisition Corp.

 

Developer and marketer of over-the-counter healthcare products

 

Senior secured revolving loan ($9,500 par due 6/2016)

 

13.00%
(Libor + 12.00%/M)

 

6/30/2011

 

9,500

 

8,550

(2)(20)

 

 

 

 

 

 

Senior secured loan ($38,781 par due 6/2016)

 

13.00%
(Libor + 12.00%/Q)

 

6/30/2011

 

38,581

 

34,903

(3)(20)

 

 

 

 

 

 

Warrants to purchase up to 1,654,678 shares of common

 

 

 

7/27/2011

 

 

(2)

 

 

 

26



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants to purchase up to 1,489 shares of preferred stock

 

 

 

7/27/2011

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

48,081

 

43,453

 

 

 

Oak Parent, Inc.

 

Manufacturer of athletic apparel

 

Senior secured loan ($41,299 par due 4/2018)

 

8.00%
(Libor + 7.00%/Q)

 

4/2/2012

 

41,125

 

41,299

(2)(20)

 

 

 

 

 

 

Senior secured loan ($9,428 par due 4/2018)

 

8.00%
(Libor + 7.00%/Q)

 

4/2/2012

 

9,388

 

9,428

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

50,513

 

50,727

 

 

 

PG-ACP Co-Invest, LLC

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

Class A membership units (1,000,0000 units)

 

 

 

8/29/2012

 

1,000

 

1,293

(2)

 

 

The Step2 Company, LLC

 

Toy manufacturer

 

Junior secured loan ($27,000 par due 4/2015)

 

10.00%

 

4/1/2010

 

26,092

 

27,000

(2)

 

 

 

 

 

 

Junior secured loan ($32,814 par due 4/2015)

 

10.00% Cash, 6.00% PIK

 

4/1/2010

 

31,859

 

28,876

(2)

 

 

 

 

 

 

Common units (1,116,879 units)

 

 

 

4/1/2010

 

24

 

94

 

 

 

 

 

 

 

Warrants to purchase up to 3,157,895 units

 

 

 

4/1/2010

 

 

269

 

 

 

 

 

 

 

 

 

 

 

 

 

57,975

 

56,239

 

 

 

The Thymes, LLC(7)

 

Cosmetic products manufacturer

 

Preferred units (6,283 units)

 

8.00% PIK

 

6/21/2007

 

5,631

 

5,244

 

 

 

 

 

 

 

Common units (5,400 units)

 

 

 

6/21/2007

 

 

3,138

 

 

 

 

 

 

 

 

 

 

 

 

 

5,631

 

8,382

 

 

 

Woodstream Corporation

 

Pet products manufacturer

 

Senior secured loan ($3,000 par due 8/2014)

 

6.50%
(Libor + 5.00%/Q)

 

4/18/2012

 

3,000

 

3,000

(2)(20)

 

 

 

 

 

 

Senior secured loan ($15,000 par due 8/2014)

 

6.50%
(Libor + 5.00%/Q)

 

4/18/2012

 

15,000

 

15,000

(4)(20)

 

 

 

 

 

 

Senior subordinated loan ($45,000 par due 2/2015)

 

12.00%

 

1/22/2010

 

41,637

 

45,000

(2)

 

 

 

 

 

 

Common stock (4,254 shares)

 

 

 

1/22/2010

 

1,222

 

2,999

(2)

 

 

 

 

 

 

 

 

 

 

 

 

60,859

 

65,999

 

 

 

 

 

 

 

 

 

 

 

 

 

291,503

 

297,073

 

7.45

%

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Centinela Funding, LLC

 

Solar power generation facility developer and operator

 

Senior secured loan ($45,000 par due 11/2020)

 

10.00%
(Libor + 8.75%/Q)

 

11/14/2012

 

45,000

 

45,000

(2)(20)

 

 

EquiPower Resources Holdings, LLC

 

Gas-fired power generation facilities operator

 

Junior secured loan ($22,500 par due 6/2019)

 

10.00%
(Libor + 8.50%/Q)

 

6/27/2012

 

22,073

 

22,500

(2)(20)

 

 

La Paloma Generating Company, LLC

 

Natural gas fired, combined cycle plant operator

 

Junior secured loan ($59,000 par due 8/2018)

 

10.25%
(Libor + 8.75%/Q)

 

8/9/2011

 

57,908

 

56,640

(2)(20)

 

 

Panda Sherman Power, LLC

 

Developer and operator of a gas turbine power plant

 

Senior secured loan ($32,500 par due 9/2018)

 

9.00%
(Libor + 7.50%/Q)

 

9/14/2012

 

32,500

 

32,500

(2)(20)

 

 

Panda Temple Power, LLC

 

Developer and operator of a gas turbine power plant

 

Senior secured loan ($60,000 par due 7/2018)

 

11.50%
(Libor + 10.00%/Q)

 

7/17/2012

 

58,157

 

60,000

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

215,638

 

216,640

 

5.43

%

Automotive Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Driven Holdings, LLC

 

Automotive aftermarket car care franchisor

 

Preferred stock (247,500 units)

 

 

 

12/16/2011

 

2,475

 

2,688

(2)

 

 

 

 

 

 

Common stock (25,000 units)

 

 

 

12/16/2011

 

25

 

137

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

2,825

 

 

 

Eckler Industries, Inc.

 

Restoration parts and accessories provider for classic automobiles

 

Senior secured revolving loan ($1,300 par due 7/2017)

 

8.25% (Base Rate + 5.00%/M)

 

7/12/2012

 

1,300

 

1,300

(2)(20)

 

 

 

 

 

 

Senior secured loan ($52,071 par due 7/2017)

 

7.25%
(Libor + 6.00%/M)

 

7/12/2012

 

52,071

 

52,071

(2)(20)

 

 

 

 

 

 

Series A preferred stock (1,800 shares)

 

 

 

7/12/2012

 

1,800

 

1,871

(2)

 

 

 

 

 

 

Common stock (20,000 shares)

 

 

 

7/12/2012

 

200

 

200

(2)

 

 

 

 

 

 

 

 

 

 

 

 

55,371

 

55,442

 

 

 

EcoMotors, Inc.

 

Engine developer

 

Senior secured loan ($5,000 par due 7/2016)

 

10.13%

 

12/28/2012

 

4,850

 

5,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 321,888 shares of Series C Preferred Stock

 

 

 

12/28/2012

 

 

84

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,850

 

5,084

 

 

 

Service King Paint & Body, LLC

 

Collision repair site operators

 

Senior secured loan ($122,850 par due 8/2017)

 

8.50%
(Libor + 7.25%/Q)

 

8/20/2012

 

122,850

 

122,850

(2)(16)(20)

 

 

 

 

 

 

Senior secured loan ($9,925 par due 8/2017)

 

5.50%
(Libor + 4.25%/Q)

 

8/20/2012

 

9,925

 

9,925

(2)(20)

 

 

 

 

 

 

Membership interest

 

 

 

8/20/2012

 

5,000

 

6,684

(2)

 

 

 

 

 

 

 

 

 

 

 

 

137,775

 

139,459

 

 

 

 

 

 

 

 

 

 

 

 

 

200,496

 

202,810

 

5.09

%

Manufacturing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambrios Technologies Corporation

 

Nanotechnology-based solutions for electronic

 

Senior secured loan ($4,848 par due 8/2015)

 

12.00%

 

8/7/2012

 

4,848

 

4,848

(2)

 

 

 

27



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

devices and computers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants to purchase up to 400,000 shares of Series D-4 convertible preferred stock

 

 

 

8/2/2012

 

 

8

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,848

 

4,856

 

 

 

Component Hardware Group, Inc.

 

Commercial equipment

 

Junior secured loan ($3,202 par due 12/2014)

 

7.00% Cash, 3.00% PIK

 

8/4/2010

 

3,202

 

3,202

(2)

 

 

 

 

 

 

Senior subordinated loan ($11,142 par due 12/2014)

 

7.50% Cash, 5.00% PIK

 

4/1/2010

 

8,343

 

11,142

(2)

 

 

 

 

 

 

Warrants to purchase up to 1,462,500 shares of common stock

 

 

 

8/4/2010

 

 

7,322

(2)

 

 

 

 

 

 

 

 

 

 

 

 

11,545

 

21,666

 

 

 

MWI Holdings, Inc.

 

Provider of engineered springs, fasteners, and other precision components

 

Senior secured loan ($38,274 par due 6/2017)

 

10.00%
(Libor + 8.00%/Q)

 

6/15/2011

 

38,274

 

38,274

(2)(20)

 

 

 

 

 

 

Senior secured loan ($10,000 par due 6/2017)

 

10.00%
(Libor + 8.00%/Q)

 

6/15/2011

 

10,000

 

10,000

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

48,274

 

48,274

 

 

 

NetShape Technologies, Inc.

 

Metal precision engineered components

 

Senior secured revolving loan ($415 par due 2/2013)

 

3.96%
(Libor + 3.75%/M)

 

4/1/2010

 

415

 

373

(2)

 

 

Pelican Products, Inc.

 

Flashlights

 

Senior secured loan ($7,960 par due 7/2018)

 

7.00%
(Libor + 5.50%/Q)

 

7/13/2012

 

7,960

 

7,960

(4)(20)

 

 

 

 

 

 

Junior secured loan ($32,000 par due 6/2019)

 

11.50%
(Libor + 10.00%/Q)

 

7/13/2012

 

32,000

 

32,000

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

39,960

 

39,960

 

 

 

Protective Industries, Inc. dba Caplugs

 

Plastic protection products

 

Senior secured revolving loan ($1,633 par due 5/2016)

 

5.75%
(Libor + 4.25%/M)

 

5/23/2011

 

1,633

 

1,633

(2)(20)

 

 

 

 

 

 

Senior secured loan ($1,500 par due 5/2017)

 

5.75%
(Libor + 4.25%/M)

 

11/30/2012

 

1,500

 

1,500

(2)(20)

 

 

 

 

 

 

Senior subordinated loan ($695 par due 5/2018)

 

8.00% Cash, 7.25% PIK

 

5/23/2011

 

695

 

695

(2)

 

 

 

 

 

 

Preferred stock (2,379,361 shares)

 

 

 

5/23/2011

 

2,307

 

4,644

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,135

 

8,472

 

 

 

Saw Mill PCG Partners LLC

 

Metal precision engineered components

 

Common units (1,000 units)

 

 

 

1/30/2007

 

1,000

 

(2)

 

 

Sigma International Group, Inc.

 

Water treatment parts

 

Junior secured loan ($4,195 par due 4/2014)

 

10.00%
(Libor + 5.00% Cash, 5.00% PIK/Q)

 

7/8/2011

 

4,195

 

4,195

(2)(20)

 

 

SSH Environmental Industries, Inc. and SSH Non-Destructive Testing, Inc.

 

Magnetic sensors and supporting sensor products

 

Senior secured loan ($11,625 par due 12/2016)

 

9.00%
(Libor + 7.50%/Q)

 

3/23/2012

 

11,424

 

11,625

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

127,796

 

139,421

 

3.50

%

Aerospace and Defense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ILC Industries, LLC

 

Designer and manufacturer of protective cases and technically advanced lighting systems

 

Senior secured loan ($4,925 par due 7/2018)

 

7.50%
(Libor + 6.00%/Q)

 

7/13/2012

 

4,838

 

4,925

(2)(20)

 

 

 

 

 

 

Senior secured loan ($19,950 par due 7/2018)

 

7.50%
(Libor + 6.00%/Q)

 

7/13/2012

 

19,574

 

19,950

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

24,412

 

24,875

 

 

 

PRV Aerospace, LLC

 

Aerospace precision components manufacturer

 

Senior secured loan ($1,136 par due 5/2018)

 

6.50%
(Libor + 5.25%/Q)

 

5/15/2012

 

1,130

 

1,136

(2)(20)

 

 

 

 

 

 

Senior secured loan ($8,460 par due 5/2018)

 

6.50%
(Libor + 5.25%/Q)

 

5/15/2012

 

8,383

 

8,460

(4)(20)

 

 

 

 

 

 

Junior secured loan ($80,000 par due 5/2019)

 

10.50%
(Libor + 9.25%/Q)

 

5/10/2012

 

80,000

 

80,000

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

89,513

 

89,596

 

 

 

Wyle Laboratories, Inc. and Wyle Holdings, Inc.

 

Provider of specialized engineering, scientific and technical services

 

Senior preferred stock (775 shares)

 

8.00% PIK

 

1/17/2008

 

103

 

103

(2)

 

 

 

 

 

 

Common stock (1,885,195 shares)

 

 

 

1/17/2008

 

2,291

 

2,346

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,394

 

2,449

 

 

 

 

 

 

 

 

 

 

 

 

 

116,319

 

116,920

 

2.93

%

Telecommunications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Broadband Communications, LLC, American Broadband Holding Company, Cameron Holdings of NC, Inc., and Dialog Telecom LLC

 

Broadband communication services

 

Senior secured loan ($7,666 par due 9/2013)

 

7.50%
(Libor + 5.50%/Q)

 

9/1/2010

 

7,666

 

7,666

(2)(20)

 

 

 

 

 

 

Senior secured loan ($16,476 par due 12/2013)

 

12.00%
(Libor + 11.50%/Q)

 

6/20/2011

 

16,476

 

16,476

(2)(20)

 

 

 

 

 

 

Senior subordinated loan ($10,741 par due 11/2014)

 

12.00% Cash, 2.00% PIK

 

9/1/2010

 

10,741

 

10,312

(2)

 

 

 

 

 

 

Senior subordinated loan

 

12.00% Cash, 2.00%

 

11/7/2007

 

34,104

 

32,740

(3)

 

 

 

28



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

($34,104 par due 11/2014)

 

PIK

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior subordinated loan ($23,513 par due 11/2014)

 

10.00% Cash, 4.00% PIK

 

11/7/2007

 

23,513

 

22,574

(2)

 

 

 

 

 

 

Warrants to purchase up to 378 shares

 

 

 

11/7/2007

 

 

2,533

 

 

 

 

 

 

 

Warrants to purchase up to 200 shares

 

 

 

9/1/2010

 

 

1,340

(2)

 

 

 

 

 

 

 

 

 

 

 

 

92,500

 

93,641

 

 

 

Startec Equity, LLC(7)

 

Communication services

 

Member interest

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

92,500

 

93,641

 

2.35

%

Consumer Products—Durable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bushnell Inc.

 

Sports optics manufacturer

 

Junior secured loan ($48,825 par due 2/2016)

 

9.00%
(Libor + 7.50%/Q)

 

4/1/2010

 

44,000

 

48,338

(2)(20)

 

 

 

 

 

 

Junior secured loan ($43,675 par due 2/2016)

 

9.50%
(Libor + 8.00%/Q)

 

4/30/2012

 

43,675

 

43,675

(2)(20)

 

 

 

 

 

 

 

 

 

 

 

 

87,675

 

92,013

 

2.31

%

Oil and Gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geotrace Technologies, Inc.

 

Reservoir processing and development

 

Warrants to purchase up to 69,978 shares of common stock

 

 

 

4/1/2010

 

88

 

(2)

 

 

 

 

 

 

Warrants to purchase up to 210,453 shares of preferred stock

 

 

 

4/1/2010

 

2,805

 

1,757

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,893

 

1,757

 

 

 

UL Holding Co., LLC and Universal Lubricants, LLC(6)

 

Petroleum product manufacturer

 

Junior secured loan ($4,935 par due 12/2014)

 

9.19%
(Libor + 7.19% Cash, 2.00% PIK/Q)

 

4/30/2012

 

4,935

 

4,935

(2)

 

 

 

 

 

 

Junior secured loan ($25,413 par due 12/2014)

 

9.19%
(Libor + 7.19% Cash, 2.00% PIK/Q)

 

4/30/2012

 

25,413

 

25,413

(3)

 

 

 

 

 

 

Junior secured loan ($4,920 par due 12/2014)

 

12.00% Cash, 2.00% PIK

 

4/30/2012

 

4,920

 

4,920

(2)

 

 

 

 

 

 

Junior secured loan ($5,078 par due 12/2014)

 

12.00% Cash, 3.00% PIK

 

4/30/2012

 

5,078

 

5,078

(2)

 

 

 

 

 

 

Junior secured loan ($18,614 par due 12/2014)

 

12.00% Cash, 2.00% PIK

 

4/30/2012

 

18,614

 

18,614

(3)

 

 

 

 

 

 

Class A common units (10,782 units)

 

 

 

6/17/2011

 

1,512

 

57

(2)

 

 

 

 

 

 

Class B-5 common units (599,200 units)

 

 

 

4/25/2008

 

5,472

 

226

(2)

 

 

 

 

 

 

Class B-4 common units (50,000 units)

 

 

 

6/17/2011

 

500

 

19

(2)

 

 

 

 

 

 

Class C common units (618,091 units)

 

 

 

4/25/2008

 

 

287

(2)

 

 

 

 

 

 

 

 

 

 

 

 

66,444

 

59,549

 

 

 

 

 

 

 

 

 

 

 

 

 

69,337

 

61,306

 

1.54

%

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulton Holdings Corp.

 

Airport restaurant operator

 

Senior secured loan ($40,000 par due 5/2016)

 

12.50%

 

5/28/2010

 

40,000

 

40,000

(3)(12)

 

 

 

 

 

 

Common stock (19,672 shares)

 

 

 

5/28/2010

 

1,967

 

1,873

 

 

 

 

 

 

 

 

 

 

 

 

 

41,967

 

41,873

 

 

 

Things Remembered Inc. and TRM Holdings Corporation

 

Personalized gifts retailer

 

Senior secured loan ($14,962 par due 5/2018)

 

8.00%
(Libor + 6.50%/Q)

 

5/24/2012

 

14,962

 

14,962

(4)(20)

 

 

 

 

 

 

 

 

 

 

 

 

56,929

 

56,835

 

1.43

%

Printing, Publishing and Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Batanga, Inc.

 

Independent digital media company

 

Senior secured loan ($5,500 par due 10/2016)

 

9.60%

 

10/31/2012

 

5,500

 

5,594

(2)(18)

 

 

Earthcolor Group, LLC

 

Printing management services

 

Limited liability company interests (9.30%)

 

 

 

5/18/2012

 

 

 

 

 

National Print Group, Inc.

 

Printing management services

 

Senior secured revolving loan ($913 par due 10/2013)

 

9.00%
(Libor + 6.00%/Q)

 

3/2/2006

 

913

 

895

(2)(20)

 

 

 

 

 

 

Senior secured revolving loan ($1,038 par due 10/2013)

 

9.00% (Base Rate + 5.00%/M)

 

3/2/2006

 

1,038

 

1,017

(2)(20)

 

 

 

 

 

 

Senior secured loan ($6,903 par due 10/2013)

 

10.00%
(Libor + 9.00% Cash, 1.00% PIK/Q)

 

3/2/2006

 

6,631

 

6,834

(2)(20)

 

 

 

 

 

 

Senior secured loan ($331 par due 10/2013)

 

10.00% (Base Rate + 9.00% Cash, 1.00% PIK/Q)

 

3/2/2006

 

318

 

327

(2)(20)

 

 

 

 

 

 

Preferred stock (9,344 shares)

 

 

 

3/2/2006

 

2,000

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,900

 

9,073

 

 

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.

 

Education publications provider

 

Senior secured loan ($21,319 par due 3/2017)

 

9.00%
(Libor + 7.50%/Q)

 

9/29/2006

 

21,319

 

21,319

(2)(20)

 

 

 

 

 

 

Senior secured loan ($9,902 par due 3/2017)

 

9.00%
(Libor + 7.50%/Q)

 

9/29/2006

 

9,902

 

9,902

(4)(20)

 

 

 

29



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Preferred stock (10,663 shares)

 

 

 

9/29/2006

 

1,066

 

3,225

(2)

 

 

 

 

 

 

Common stock (15,393 shares)

 

 

 

9/29/2006

 

3

 

8

(2)

 

 

 

 

 

 

 

 

 

 

 

 

32,290

 

34,454

 

 

 

 

 

 

 

 

 

 

 

 

 

48,690

 

49,121

 

1.23

%

Environmental Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AWTP, LLC(7)

 

Water treatment services

 

Junior secured loan ($4,212 par due 6/2015)

 

10.00%

 

4/18/2011

 

4,212

 

4,212

(2)

 

 

 

 

 

 

Junior secured loan ($6,121 par due 6/2015)

 

15.00% PIK

 

4/18/2011

 

6,121

 

6,121

(2)

 

 

 

 

 

 

Membership interests (90% interest)

 

 

 

4/18/2011

 

 

4,580

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,333

 

14,913

 

 

 

RE Community Holdings II, Inc. and Pegasus Community Energy, LLC.

 

Operator of municipal recycling facilities

 

Preferred stock (1,000 shares)

 

 

 

3/1/2011

 

8,839

 

1,487

(2)

 

 

Waste Pro USA, Inc

 

Waste management services

 

Preferred Class A common equity (611,615 shares)

 

 

 

11/9/2006

 

12,263

 

24,219

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,435

 

40,619

 

1.02

%

Transportation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PODS Funding Corp.

 

Storage and warehousing

 

Junior subordinated loan ($40,228 par due 5/2017)

 

12.75% Cash, 2.75% PIK

 

11/29/2011

 

40,228

 

40,228

(2)

 

 

United Road Towing, Inc.

 

Towing company

 

Warrants to purchase up to 607 shares

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,228

 

40,228

 

1.01

%

Commercial Real Estate Finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10th Street, LLC(6)

 

Real estate holding company

 

Senior subordinated loan ($25,208 par due 11/2014)

 

8.93% Cash, 4.07% PIK

 

4/1/2010

 

25,208

 

25,208

(2)

 

 

 

 

 

 

Member interest (10.00% interest)

 

 

 

4/1/2010

 

594

 

 

 

 

 

 

 

 

Option (25,000 units)

 

 

 

4/1/2010

 

25

 

501

 

 

 

 

 

 

 

 

 

 

 

 

 

25,827

 

25,709

 

 

 

American Commercial Coatings, Inc.

 

Real estate property

 

Commercial mortgage loan ($2,505 par due 12/2025)

 

 

 

4/1/2010

 

926

 

2,061

(19)

 

 

Cleveland East Equity, LLC

 

Hotel operator

 

Real estate equity interests

 

 

 

4/1/2010

 

1,026

 

3,639

 

 

 

Commons R-3, LLC

 

Real estate developer

 

Real estate equity interests

 

 

 

4/1/2010

 

 

 

 

 

Crescent Hotels & Resorts, LLC and affiliates(7)

 

Hotel operator

 

Senior subordinated loan ($2,236 par due 9/2011)

 

 

 

4/1/2010

 

 

(2)(19)

 

 

 

 

 

 

Senior subordinated loan ($2,092 par due 6/2017)

 

 

 

4/1/2010

 

 

(2)(19)

 

 

 

 

 

 

Common equity interest

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

Limited liability company membership interest (100% interest)

 

 

 

6/19/2012

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hot Light Brands, Inc.(7)

 

Real estate holding company

 

Senior secured loan ($32,957 par due 2/2011)

 

 

 

4/1/2010

 

1,664

 

1,128

(2)(19)

 

 

 

 

 

 

Common stock (93,500 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,664

 

1,128

 

 

 

NPH, Inc.

 

Hotel property

 

Real estate equity interests

 

 

 

4/1/2010

 

5,291

 

6,123

 

 

 

 

 

 

 

 

 

 

 

 

 

34,734

 

38,660

 

0.97

%

Health Clubs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Athletic Club Holdings, Inc.

 

Premier health club operator

 

Senior secured loan ($11,500 par due 10/2013)

 

4.71% (Libor + 4.50%/M)

 

10/11/2007

 

11,500

 

11,500

(2)(13)

 

 

CFW Co-Invest, L.P. and NCP Curves, L.P.

 

Health club franchisor

 

Limited partnership interest (4,152,165 shares)

 

 

 

7/31/2012

 

4,152

 

4,152

(2)

 

 

 

 

 

 

Limited partnership interest (1,847,835 shares)

 

 

 

7/31/2012

 

1,848

 

1,848

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,000

 

6,000

 

 

 

 

 

 

 

 

 

 

 

 

 

17,500

 

17,500

 

0.43

%

Food and Beverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apple & Eve, LLC and US Juice Partners, LLC(6)

 

Juice manufacturer

 

Senior units (50,000 units)

 

 

 

10/5/2007

 

5,000

 

1,398

 

 

 

Charter Baking Company, Inc.

 

Baked goods manufacturer

 

Senior subordinated loan ($8,885 par due 2/2013)

 

16.00% PIK

 

2/6/2008

 

8,885

 

8,885

(2)

 

 

 

 

 

 

Preferred stock (6,258 shares)

 

 

 

9/1/2006

 

2,568

 

1,617

(2)

 

 

 

 

 

 

 

 

 

 

 

 

11,453

 

10,502

 

 

 

Distant Lands Trading Co.

 

Coffee manufacturer

 

Class A common stock (1,294 shares)

 

 

 

4/1/2010

 

980

 

(2)

 

 

 

 

 

 

Class A-1 common stock (2,157 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,433

 

11,900

 

0.29

%

 

30



Table of Contents

 

As of December 31, 2012

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Wholesale Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BECO Holding Company, Inc.

 

Wholesale distributor of first response fire protection equipment and related parts

 

Common stock (25,000 shares)

 

 

 

7/30/2010

 

2,500

 

2,457

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

2,457

 

0.05

%

 

 

 

 

 

 

 

 

 

 

$

5,823,451

 

$

5,924,555

 

148.55

%

 


(1)

 

Other than the Company’s investments listed in footnote 7 below (subject to the limitations set forth therein), the Company does not “Control” any of its portfolio companies, for the purposes of the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In general, under the Investment Company Act, the Company would “Control” a portfolio company if the Company owned more than 25% of its outstanding voting securities (i.e., securities with the right to elect directors) and/or had the power to exercise control over the management or policies of such portfolio company. All of the Company’s portfolio company investments, which as of December 31, 2012 represented 149% of the Company’s net assets or 93% of the Company’s total assets, are subject to legal restrictions on sales.

 

 

 

(2)

 

These assets are pledged as collateral for the Revolving Credit Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Revolving Credit Facility (see Note 5 to the consolidated financial statements).

 

 

 

(3)

 

These assets are owned by the Company’s consolidated subsidiary Ares Capital CP Funding LLC (“Ares Capital CP”), are pledged as collateral for the Revolving Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than Ares Capital CP’s obligations under the Revolving Funding Facility (see Note 5 to the consolidated financial statements).

 

 

 

(4)

 

These assets are owned by the Company’s consolidated subsidiary Ares Capital JB Funding LLC (“ACJB”), are pledged as collateral for the SMBC Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than ACJB’s obligations under the SMBC Funding Facility (see Note 5 to the consolidated financial statements).

 

 

 

(5)

 

Investments without an interest rate are non-income producing.

 

 

 

(6)

 

As defined in the Investment Company Act, the Company is deemed to be an “Affiliated Person” of a portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the year ended December 31, 2012 in which the issuer was an Affiliated company (but not a portfolio company that the Company (“Controls”) are as follows:

 

Company

 

Purchases
(cost)

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net
realized
gains (losses)

 

Net
unrealized
gains (losses)

 

10th Street, LLC

 

$

 

$

 

$

 

$

3,227

 

$

 

$

 

$

 

$

 

$

(54

)

Apple & Eve, LLC and US Juice Partners, LLC

 

$

500

 

$

32,344

 

$

 

$

3,393

 

$

 

$

 

$

44

 

$

 

$

(1,928

)

Campus Management Corp. and Campus Management Acquisition Corp

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(4,508

)

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C.

 

$

105,000

 

$

 

$

 

$

167

 

$

2,788

 

$

36

 

$

2

 

$

 

$

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings, LLC

 

$

 

$

188

 

$

 

$

1,169

 

$

 

$

 

$

 

$

 

$

(3,898

)

Direct Buy Holdings, Inc. and Direct Buy Investors, LP

 

$

 

$

 

$

10,927

 

$

 

$

 

$

 

$

 

$

(10,927

)

$

10,927

 

The Dwyer Group

 

$

 

$

 

$

 

$

2,959

 

$

162

 

$

785

 

$

85

 

$

 

$

5,027

 

ELC Acquisition Corp. and ELC Holdings Corporation

 

$

 

$

 

$

 

$

 

$

 

$

343

 

$

6

 

$

 

$

5,058

 

Firstlight Financial Corporation

 

$

 

$

28,890

 

$

84,153

 

$

1,773

 

$

 

$

 

$

200

 

$

(25,959

)

$

43,321

 

Insight Pharmaceuticals Corporation

 

$

 

$

5,636

 

$

 

$

3,242

 

$

 

$

 

$

171

 

$

54

 

$

(1,649

)

Investor Group Services, LLC

 

$

 

$

 

$

 

$

 

$

 

$

160

 

$

15

 

$

 

$

(148

)

Multi-Ad Services, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

209

 

Pillar Processing LLC and PHL Holding Co.

 

$

 

$

5,479

 

$

 

$

 

$

 

$

 

$

9

 

$

2

 

$

1,110

 

Soteria Imaging Services, LLC

 

$

 

$

441

 

$

 

$

 

$

 

$

 

$

 

$

64

 

$

(584

)

VSS-Tranzact Holdings, LLC

 

$

 

$

 

$

867

 

$

 

$

 

$

 

$

 

$

 

$

3,453

 

UL Holding Co., LLC

 

$

44,532

 

$

13,766

 

$

 

$

5,837

 

$

732

 

$

 

$

197

 

$

 

$

(6,953

)

 


(7)

 

As defined in the Investment Company Act, the Company is deemed to be both an “Affiliated Person” and “Control” this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the period for the year ended December 31, 2012 in which the issuer was both an Affiliated company and a portfolio company that the Company is deemed to Control are as follows:

 

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Table of Contents

 

Company

 

Purchases

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net
realized
gains (losses)

 

Net
unrealized
gains (losses)

 

AGILE Fund I, LLC

 

$

 

$

9

 

$

 

$

 

$

 

$

1

 

$

 

$

 

$

(19

)

Allied Capital REIT, Inc.

 

$

 

$

 

$

375

 

$

 

$

 

$

41

 

$

 

$

147

 

$

(314

)

AllBridge Financial, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

1,801

 

Aviation Properties Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

291

 

$

 

AWTP, LLC

 

$

 

$

 

$

 

$

1,296

 

$

 

$

 

$

50

 

$

 

$

6,229

 

BenefitMall Holdings, Inc.

 

$

 

$

40,326

 

$

53,510

 

$

2,440

 

$

 

$

 

$

167

 

$

12,546

 

$

(6,479

)

Callidus Capital Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

942

 

Ciena Capital LLC

 

$

 

$

 

$

 

$

4,758

 

$

 

$

 

$

 

$

 

$

(1,436

)

Citipostal, Inc.

 

$

 

$

2,710

 

$

 

$

7,715

 

$

 

$

 

$

112

 

$

 

$

(18

)

Crescent Hotels & Resorts, LLC and affiliates

 

$

 

$

 

$

2,843

 

$

20

 

$

 

$

 

$

 

$

(5,473

)

$

5,595

 

HCI Equity, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(108

)

HCP Acquisition Holdings, LLC

 

$

1,254

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(6,177

)

Hot Light Brands, Inc.

 

$

 

$

2,282

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(282

)

Huddle House Inc.

 

$

 

$

20,801

 

$

 

$

678

 

$

 

$

 

$

187

 

$

(2,291

)

$

1,701

 

Ivy Hill Asset Management, L.P.

 

$

58,085

 

$

 

$

 

$

 

$

 

$

19,939

 

$

 

$

 

$

41,576

 

Ivy Hill Middle Market Credit Fund, Ltd.

 

$

 

$

25,000

 

$

30,515

 

$

3,943

 

$

 

$

 

$

 

$

1,655

 

$

1,515

 

LVCG Holdings, LLC

 

$

 

$

 

$

6,600

 

$

 

$

 

$

 

$

 

$

(6,590

)

$

6,600

 

Making Memories Wholesale, Inc.

 

$

 

$

2,229

 

$

 

$

 

$

 

$

 

$

 

$

(12,281

)

$

12,476

 

MVL Group, Inc.

 

$

2,540

 

$

25,607

 

$

 

$

4,394

 

$

 

$

 

$

 

$

 

$

(27,867

)

Orion Foods, LLC

 

$

6,500

 

$

5,142

 

$

 

$

7,200

 

$

 

$

 

$

806

 

$

 

$

(10,260

)

Senior Secured Loan Fund LLC*

 

$

269,967

 

$

66,334

 

$

 

$

184,701

 

$

40,348

 

$

 

$

17,865

 

$

3,641

 

$

833

 

Stag-Parkway, Inc.

 

$

 

$

34,500

 

$

3,090

 

$

4,218

 

$

 

$

733

 

$

251

 

$

29,998

 

$

(16,639

)

The Thymes, LLC

 

$

 

$

560

 

$

 

$

 

$

 

$

481

 

$

 

$

 

$

1,687

 

 


*

 

Together with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”), the Company co-invests through the Senior Secured Loan Fund LLC d/b/a the “Senior Secured Loan Program” (the “SSLP”). The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required); therefore, although the Company owns more than 25% of the voting securities of the SSLP, the Company does not believe that it has control over the SSLP (for purposes of the Investment Company Act or otherwise) because, among other things, these “voting securities” do not afford the Company the right to elect directors of the SSLP or any other special rights (see Note 4 to the consolidated financial statements).

 

(8)

 

Non-U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

 

 

(9)

 

Excepted from the definition of investment company under Section 3(c) of the Investment Company Act and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

 

 

(10)

 

In the first quarter of 2011, the staff of the Securities and Exchange Commission (the “Staff”) informally communicated to certain business development companies the Staff’s belief that certain entities, which would be classified as an “investment company” under the Investment Company Act but for the exception from the definition of “investment company” set forth in Rule 3a-7 promulgated under the Investment Company Act, could not be treated as eligible portfolio companies (as defined in Section 2(a)(46) of the Investment Company Act). Subsequently, in August 2011 the Securities and Exchange Commission issued a concept release (the “Concept Release”) which states that “[a]s a general matter, the Commission presently does not believe that Rule 3a-7 issuers are the type of small, developing and financially troubled businesses in which Congress intended BDCs primarily to invest” and requested comment on whether or not a 3a-7 issuer should be considered an “eligible portfolio company”. Ares Capital provided a comment letter in respect of the Concept Release and continues to believe that the language of Section 2(a)(46) of the Investment Company Act permits a business development company to treat as “eligible portfolio companies” entities that rely on the 3a-7 exception. However, given the current uncertainty in this area (including the language in the Concept Release) and subsequent discussions with the Staff, Ares Capital has, solely for purposes of calculating the composition of its portfolio pursuant to Section 55(a) of the Investment Company Act, identified these entities in the Company’s schedule of investments as “non-qualifying assets” should the Staff ultimately disagree with Ares Capital’s position.

 

 

 

(11)

 

Variable rate loans to the Company’s portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). For each such loan, the Company has provided the interest rate in effect on the date presented.

 

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Table of Contents

 

 

 

 

(12)

 

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 5.00% on $16 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

 

 

(13)

 

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.50% on $12 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

 

 

(14)

 

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 4.00% on $65 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

 

 

(15)

 

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 1.13% on $19 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

 

 

(16)

 

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on $73 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

 

 

(17)

 

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.13% on $56 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

 

 

(18)

 

The Company is entitled to receive a fixed fee upon the occurrence of certain events as defined in the credit agreement governing the Company’s debt investment in the portfolio company. The fair value of such fee is included in the fair value of the debt investment.

 

 

 

(19)

 

Loan was on non-accrual status as of December 31, 2012.

 

 

 

(20)

 

Loan includes interest rate floor feature.

 

 

 

(21)

 

In addition to the interest earned based on the stated contractual interest rate of this security, the certificates entitle the holders thereof to receive a portion of the excess cash flow from the SSLP’s loan portfolio, which may result in a return to the Company greater than the contractual stated interest rate.

 

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Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2013

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Realized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Transactions,

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

Overdistributed

 

Extinguishment of

 

Net Unrealized

 

Total

 

 

 

Common Stock

 

Excess of

 

Net Investment

 

Debt and

 

Gain on

 

Stockholders’

 

 

 

Shares

 

Amount

 

Par Value

 

Income

 

Other Assets

 

Investments

 

Equity

 

Balance at December 31, 2012

 

248,653

 

$

249

 

$

4,117,517

 

$

(27,910

)

$

(202,614

)

$

101,104

 

$

3,988,346

 

Shares issued in connection with dividend reinvestment plan

 

243

 

 

4,397

 

 

 

 

4,397

 

Net increase in stockholders’ equity resulting from operations

 

 

 

 

99,097

 

11,678

 

(30,433

)

80,342

 

Dividends declared ($0.38 per share)

 

 

 

 

(94,488

)

 

 

(94,488

)

Balance at March 31, 2013

 

248,896

 

$

249

 

$

4,121,914

 

$

(23,301

)

$

(190,936

)

$

70,671

 

$

3,978,597

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

 

 

 

For the three months ended

 

 

 

March 31, 2013

 

March 31, 2012

 

 

 

(unaudited)

 

(unaudited)

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net increase in stockholders’ equity resulting from operations

 

$

80,342

 

$

105,547

 

Adjustments to reconcile net increase in stockholders’ equity resulting from operations:

 

 

 

 

 

Net realized (gains) losses on investments

 

(11,678

)

7,671

 

Net unrealized (gains) losses on investments

 

30,433

 

(36,180

)

Net accretion of discount on investments

 

(1,566

)

(3,954

)

Increase in payment-in-kind interest and dividends

 

(6,110

)

(7,115

)

Collections of payment-in-kind interest and dividends

 

1,198

 

401

 

Amortization of debt issuance costs

 

3,497

 

3,454

 

Accretion of discount on notes payable

 

3,256

 

2,570

 

Depreciation

 

205

 

200

 

Proceeds from sales and repayments of investments

 

237,033

 

311,620

 

Purchases of investments

 

(351,275

)

(382,571

)

Changes in operating assets and liabilities:

 

 

 

 

 

Interest receivable

 

(6,993

)

(1,850

)

Other assets

 

(7,706

)

3,600

 

Management and incentive fees payable

 

(18,985

)

2,833

 

Accounts payable and accrued expenses

 

(3,916

)

(8,369

)

Interest and facility fees payable

 

(2,627

)

(3,736

)

Net cash used in operating activities

 

(54,892

)

(5,879

)

FINANCING ACTIVITIES:

 

 

 

 

 

Net proceeds from issuance of common stock

 

 

252,415

 

Borrowings on debt

 

397,000

 

618,901

 

Repayments and repurchases of debt

 

(417,000

)

(671,482

)

Debt issuance costs

 

(1,609

)

(16,064

)

Dividends paid

 

(90,091

)

(82,261

)

Net cash provided by (used in) financing activities

 

(111,700

)

101,509

 

CHANGE IN CASH AND CASH EQUIVALENTS

 

(166,592

)

95,630

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

269,043

 

120,782

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

102,451

 

$

216,412

 

Supplemental Information:

 

 

 

 

 

Interest paid during the period

 

$

32,997

 

$

29,549

 

Taxes, including excise tax, paid during the period

 

$

10,329

 

$

7,768

 

Dividends declared during the period

 

$

94,488

 

$

81,974

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2013

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated;

for example, with the words “million,” “billion” or otherwise)

 

1.                                      ORGANIZATION

 

Ares Capital Corporation (the “Company” or “ARCC”) is a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland. The Company has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). The Company has elected to be treated as a regulated investment company, or a “RIC”, under the Internal Revenue Code of 1986, as amended (the “Code”) and operates in a manner so as to qualify for the tax treatment applicable to RICs.

 

The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. The Company invests primarily in first lien senior secured loans (including “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component. To a lesser extent, the Company also makes equity investments.

 

The Company is externally managed by Ares Capital Management LLC (“Ares Capital Management” or the Company’s “investment adviser”), a wholly owned subsidiary of Ares Management LLC (“Ares Management”), a global alternative asset manager and a Securities and Exchange Commission (“SEC”) registered investment adviser. Ares Operations LLC (“Ares Operations” or the Company’s “administrator”), a wholly owned subsidiary of Ares Management, provides the administrative services necessary for the Company to operate.

 

Interim financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2013.

 

2.                                      SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with GAAP, and include the accounts of the Company and its consolidated subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition as of and for the periods presented. All significant intercompany balances and transactions have been eliminated.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include funds from time to time deposited with financial institutions and short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value.

 

Concentration of Credit Risk

 

The Company places its cash and cash equivalents with financial institutions and, at times, cash held in money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

 

Investments

 

Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized.

 

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Table of Contents

 

Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, the Company looks at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available (i.e., substantially all of the Company’s investments) are valued at fair value as determined in good faith by the Company’s board of directors, based on, among other things, the input of the Company’s investment adviser, audit committee and independent third-party valuation firms that have been engaged at the direction of the Company’s board of directors to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing 12 month period (with certain de minimis exceptions) and under a valuation policy and a consistently applied valuation process. The valuation process is conducted at the end of each fiscal quarter, and a minimum of 50% of the Company’s portfolio at fair value is subject to review by an independent valuation firm each quarter. In addition, the Company’s independent registered public accounting firm reviews the Company’s valuation process as part of their overall integrated audit.

 

As part of the valuation process, the Company may take into account the following types of factors, if relevant, in determining the fair value of the Company’s investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments would trade in their principal markets and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company considers the pricing indicated by the external event to corroborate its valuation.

 

Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by its board of directors, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

 

The Company’s board of directors undertakes a multi-step valuation process each quarter, as described below:

 

·                  The Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the Company’s portfolio management team.

 

·                  Preliminary valuations are reviewed and discussed with the Company’s investment adviser’s management and investment professionals, and then valuation recommendations are presented to the Company’s board of directors.

 

·                  The audit committee of the Company’s board of directors reviews these valuations, as well as the input of third parties, including independent third-party valuation firms, with respect to the valuations of a minimum of 50% of the Company’s portfolio at fair value.

 

·                  The Company’s board of directors discusses valuations and ultimately determines the fair value of each investment in the Company’s portfolio without a readily available market quotation in good faith based on, among other things, the input of the Company’s investment adviser, audit committee and, where applicable, independent third-party valuation firms.

 

See Note 7 for more information on the Company’s valuation process.

 

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Table of Contents

 

Interest and Dividend Income Recognition

 

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this if the loan has sufficient collateral value and is in the process of collection.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

 

Payment-in-Kind Interest

 

The Company has loans in its portfolio that contain payment-in-kind (“PIK”) provisions. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends, even though the Company has not yet collected the cash.

 

Capital Structuring Service Fees and Other Income

 

The Company’s investment adviser seeks to provide assistance to its portfolio companies and in return the Company may receive fees for capital structuring services. These fees are generally only available to the Company as a result of the Company’s underlying investments, are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. The services that the Company’s investment adviser provides vary by investment, but generally include reviewing existing credit facilities, arranging bank financing, arranging equity financing, structuring financing from multiple lenders, structuring financing from multiple equity investors, restructuring existing loans, raising equity and debt capital, and providing general financial advice, which concludes upon closing of the investment. Any services of the above nature subsequent to the closing would generally generate a separate fee payable to the Company. In certain instances where the Company is invited to participate as a co-lender in a transaction and does not provide significant services in connection with the investment, a portion of loan fees paid to the Company in such situations will be deferred and amortized over the estimated life of the loan. The Company’s investment adviser may also take a seat on the board of directors of a portfolio company, or observe the meetings of the board of directors without taking a formal seat.

 

Other income includes fees for management and consulting services, loan guarantees, commitments, amendments and other services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered.

 

Foreign Currency Translation

 

The Company’s books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

 

(1)                                 Fair value of investment securities, other assets and liabilities—at the exchange rates prevailing at the end of the period.

 

(2)                                 Purchases and sales of investment securities, income and expenses—at the exchange rates prevailing on the respective dates of such transactions, income or expenses.

 

Results of operations based on changes in foreign exchange rates are separately disclosed in the statement of operations, if any. Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

 

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Equity Offering Expenses

 

The Company’s offering costs, excluding underwriters’ fees, are charged against the proceeds from equity offerings when received.

 

Debt Issuance Costs

 

Debt issuance costs are amortized over the life of the related debt instrument using the straight line method, which closely approximates the effective yield method.

 

U.S. Federal Income Taxes

 

The Company has elected to be treated as a RIC under the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, timely distribute to its stockholders at least 90% of its investment company taxable income, as defined by the Code, for each year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal income taxes.

 

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year dividend distributions from such income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as such taxable income is earned.

 

Certain of the Company’s consolidated subsidiaries are also subject to U.S. federal and state income taxes.

 

Dividends to Common Stockholders

 

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by the Company’s board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed, although the Company may decide to retain such capital gains for investment.

 

The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions the Company declares in cash on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Company’s board of directors authorizes, and the Company declares, a cash dividend, then the Company’s stockholders who have not “opted out” of the Company’s dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend. The Company intends to use primarily newly issued shares to implement the dividend reinvestment plan (so long as the Company is trading at a premium to net asset value). If the Company’s shares are trading at a significant enough discount to net asset value and the Company is otherwise permitted under applicable law to purchase such shares, the Company intends to purchase shares in the open market in connection with the Company’s obligations under the dividend reinvestment plan. However, the Company reserves the right to issue new shares of the Company’s common stock in connection with the Company’s obligations under the dividend reinvestment plan even if the Company’s shares are trading below net asset value.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of actual and contingent assets and liabilities at the date of the financial statements and the reported amounts of income or loss and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation of investments.

 

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3.                                     AGREEMENTS

 

Investment Advisory and Management Agreement

 

The Company is party to an investment advisory and management agreement (the “investment advisory and management agreement”) with Ares Capital Management. Subject to the overall supervision of the Company’s board of directors, Ares Capital Management provides investment advisory and management services to the Company. For providing these services, Ares Capital Management receives a fee from the Company consisting of two components—a base management fee and an incentive fee.

 

The base management fee is calculated at an annual rate of 1.5% based on the average value of the Company’s total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed calendar quarters. The base management fee is payable quarterly in arrears.

 

The incentive fee has two parts. The first part is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income for the quarter. Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, any expenses payable under the administration agreement, and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities, accrued income that the Company has not yet received in cash. The Company’s investment adviser is not under any obligation to reimburse the Company for any part of the incentive fees it received that was based on accrued interest that the Company never actually received.

 

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses, unrealized capital appreciation, unrealized capital depreciation or income tax expense related to realized gains. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter where the Company incurs a loss. For example, if the Company receives pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, the Company will pay the applicable incentive fee even if the Company has incurred a loss in that quarter due to realized and/or unrealized capital losses.

 

Pre-incentive fee net investment income, expressed as a rate of return on the value of the Company’s net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed “hurdle rate” of 1.75% per quarter. If market credit spreads rise, the Company may be able to invest its funds in debt instruments that provide for a higher return, which may increase the Company’s pre-incentive fee net investment income and make it easier for the Company’s investment adviser to surpass the fixed hurdle rate and receive an incentive fee based on such net investment income. To the extent the Company has retained pre-incentive fee net investment income that has been used to calculate this part of the incentive fee, it is also included in the amount of the Company’s total assets (other than cash and cash equivalents but including assets purchased with borrowed funds) used to calculate the 1.5% base management fee.

 

The Company pays its investment adviser an incentive fee with respect to the Company’s pre-incentive fee net investment income in each calendar quarter as follows:

 

·                  no incentive fee in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the hurdle rate;

 

·                  100% of the Company’s 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% in any calendar quarter. The Company refers to this portion of its pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 2.1875%) as the “catch-up” provision. The “catch-up” is meant to provide the Company’s investment adviser with 20% of the pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeded 2.1875% in any calendar quarter; and

 

·                  20% of the amount of the Company’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter.

 

These calculations are adjusted for any share issuances or repurchases during the quarter.

 

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The second part of the incentive fee (the “Capital Gains Fee”), is determined and payable in arrears as of the end of each calendar year (or, upon termination of the investment advisory and management agreement, as of the termination date) and is calculated at the end of each applicable year by subtracting (a) the sum of the Company’s cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (b) the Company’s cumulative aggregate realized capital gains, in each case calculated from October 8, 2004 (the date the Company completed its initial public offering). Realized capital gains and losses include gains and losses on investments and foreign currencies, as well as gains and losses on extinguishment of debt and other assets. If such amount is positive at the end of such year, then the Capital Gains Fee for such year is equal to 20% of such amount, less the aggregate amount of Capital Gains Fees paid in all prior years. If such amount is negative, then there is no Capital Gains Fee for such year.

 

The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net sales price of each investment in the Company’s portfolio when sold and (b) the accreted or amortized cost basis of such investment.

 

The cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the net sales price of each investment in the Company’s portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.

 

The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the valuation of each investment in the Company’s portfolio as of the applicable Capital Gains Fee calculation date and (b) the accreted or amortized cost basis of such investment.

 

Notwithstanding the foregoing, as a result of an amendment to the capital gains portion of the incentive fee under the investment advisory and management agreement that was adopted on June 6, 2011, if the Company is required by GAAP to record an investment at its fair value as of the time of acquisition instead of at the actual amount paid for such investment by the Company (including, for example, as a result of the application of the acquisition method of accounting), then solely for the purposes of calculating the Capital Gains Fee, the “accreted or amortized cost basis” of an investment shall be an amount (the “Contractual Cost Basis”) equal to (1) (x) the actual amount paid by the Company for such investment plus (y) any amounts recorded in the Company’s financial statements as required by GAAP that are attributable to the accretion of such investment plus (z) any other adjustments made to the cost basis included in the Company’s financial statements, including PIK interest or additional amounts funded (net of repayments) minus (2) any amounts recorded in the Company’s financial statements as required by GAAP that are attributable to the amortization of such investment, whether such calculated Contractual Cost Basis is higher or lower than the fair value of such investment (as determined in accordance with GAAP) at the time of acquisition.

 

The Company defers cash payment of any incentive fee otherwise earned by the Company’s investment adviser if during the most recent four full calendar quarter period ending on or prior to the date such payment is to be made the sum of (a) the aggregate distributions to the Company’s stockholders and (b) the change in net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) is less than 7.0% of the Company’s net assets (defined as total assets less indebtedness) at the beginning of such period. Any deferred incentive fees are carried over for payment in subsequent calculation periods to the extent such payment is payable under the investment advisory and management agreement.

 

The Capital Gains Fee payable to the Company’s investment adviser as calculated under the investment advisory and management agreement (as described above) for the three months ended March 31, 2013 was $0. However, in accordance with GAAP, the Company had an accrued capital gains incentive fee of $65,546 as of March 31, 2013 that is not currently due under the investment advisory and management agreement. GAAP requires that the capital gains incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the investment advisory and management agreement. This GAAP accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the Capital Gains Fee plus the aggregate cumulative unrealized capital appreciation. If such amount is positive at the end of a period, then GAAP requires the Company to record a capital gains fee equal to 20% of such cumulative amount, less the aggregate amount of actual Capital Gains Fees paid or capital gains incentive fees accrued under GAAP in all prior periods. As of March 31, 2013, the Company has paid Capital Gains Fees since inception totaling $15,986, of which $11,523 was paid in the first quarter of 2013. The resulting accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reversal of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. There can be no assurance that such unrealized capital appreciation will be realized in the future.

 

For the three months ended March 31, 2013, base management fees were $23,218, incentive fees related to pre-incentive fee net investment income were $23,836, and the reduction of incentive fees related to capital gains calculated in accordance with GAAP was $(3,751).

 

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As of March 31, 2013, $112,600 was included in “management and incentive fees payable” in the accompanying consolidated balance sheet, of which $47,054 is currently payable to the Company’s investment adviser under the investment advisory and management agreement.

 

For the three months ended March 31, 2012, base management fees were $19,986, incentive fees related to pre-incentive fee net investment income were $20,685 and incentive fees related to capital gains accrued in accordance with GAAP were $5,701.

 

Administration Agreement

 

The Company is party to an administration agreement, referred to herein as the “administration agreement”, with its administrator, Ares Operations. Pursuant to the administration agreement, Ares Operations furnishes the Company with office equipment and clerical, bookkeeping and record keeping services at the Company’s office facilities. Under the administration agreement, Ares Operations also performs, or oversees the performance of, the Company’s required administrative services, which include, among other things, providing assistance in accounting, legal, compliance, operations, technology, and investor relations, being responsible for the financial records that the Company is required to maintain and preparing reports to its stockholders and reports filed with the SEC. In addition, Ares Operations assists the Company in determining and publishing its net asset value, assists the Company in providing managerial assistance to its portfolio companies, oversees the preparation and filing of the Company’s tax returns and the printing and dissemination of reports to its stockholders, and generally oversees the payment of its expenses and the performance of administrative and professional services rendered to the Company by others. Payments under the Company’s administration agreement are equal to an amount based upon its allocable portion of Ares Operations’ overhead and other expenses (including travel expenses) incurred by Ares Operations in performing its obligations under the administration agreement, including the Company’s allocable portion of the compensation of certain of its officers (including the Company’s chief compliance officer, chief financial officer, general counsel, treasurer and assistant treasurer) and their respective staffs. The administration agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

 

For the three months ended March 31, 2013 and 2012, the Company incurred $2,592 and $2,320, respectively, in administrative fees.  As of March 31, 2013, $2,592 of these fees were unpaid and included in “accounts payable and other liabilities” in the accompanying consolidated balance sheet.

 

4.                                      INVESTMENTS

 

As of March 31, 2013 and December 31, 2012, investments consisted of the following:

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Amortized Cost(1)

 

Fair Value

 

Amortized Cost(1)

 

Fair Value

 

Senior term debt

 

$

3,673,069

 

$

3,635,398

 

$

3,587,770

 

$

3,555,144

 

Subordinated Certificates of the SSLP(2)

 

1,244,833

 

1,269,667

 

1,237,887

 

1,263,644

 

Senior subordinated debt

 

364,584

 

302,781

 

321,331

 

259,820

 

Preferred equity securities

 

240,416

 

259,420

 

238,837

 

250,118

 

Other equity securities

 

429,689

 

550,279

 

430,380

 

584,005

 

Commercial real estate

 

7,197

 

12,914

 

7,246

 

11,824

 

Total

 

$

5,959,788

 

$

6,030,459

 

$

5,823,451

 

$

5,924,555

 

 


(1)

 

The amortized cost represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

 

 

(2)

 

The proceeds from these certificates were applied to co-investments with GE Global Sponsor Finance LLC and General Electric Capital Corporation to fund first lien senior secured loans to 37 and 36 different borrowers as of March 31, 2013 and December 31, 2012, respectively.

 

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The industrial and geographic compositions of our portfolio at fair value at March 31, 2013 and December 31, 2012 were as follows:

 

 

 

As of

 

 

 

March 31, 2013

 

December 31, 2012

 

Industry

 

 

 

 

 

Investment Funds and Vehicles(1)

 

21.5

%

21.7

%

Healthcare Services

 

13.6

 

12.9

 

Education

 

7.9

 

7.8

 

Restaurants and Food Services

 

7.2

 

7.1

 

Consumer Products

 

6.9

 

6.6

 

Financial Services

 

6.7

 

7.3

 

Business Services

 

6.3

 

6.4

 

Other Services

 

5.9

 

6.7

 

Containers and Packaging

 

5.1

 

5.1

 

Energy

 

4.0

 

3.7

 

Automotive Services

 

3.5

 

3.4

 

Manufacturing

 

2.3

 

2.4

 

Aerospace and Defense

 

2.1

 

2.0

 

Telecommunications

 

1.3

 

1.6

 

Retail

 

0.9

 

1.0

 

Other

 

4.8

 

4.3

 

Total

 

100.0

%

100.0

%

 


(1)                                 Includes the Company’s investment in the SSLP, which had made first lien senior secured loans to 37 and 36 different borrowers as of March 31, 2013 and December 31, 2012, respectively. The portfolio companies in the SSLP are in industries similar to the companies in the Company’s portfolio.

 

 

 

As of

 

 

 

March 31, 2013

 

December 31, 2012

 

Geographic Region

 

 

 

 

 

West

 

47.6

%

49.1

%

Midwest

 

19.6

 

19.2

 

Southeast

 

14.9

 

14.7

 

Mid Atlantic

 

13.3

 

12.8

 

Northeast

 

2.6

 

2.3

 

International

 

2.0

 

1.9

 

Total

 

100.0

%

100.0

%

 

As of March 31, 2013, 2.3% of total investments at amortized cost (or 0.6% of total investments at fair value) were on non-accrual status. As of December 31, 2012, 2.3% of total investments at amortized cost (or 0.6% of total investments at fair value) were on non-accrual status.

 

Senior Secured Loan Program

 

The Company co-invests in first lien senior secured loans of middle market companies with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”) through an unconsolidated Delaware limited liability company, the Senior Secured Loan Fund LLC (d/b/a the “Senior Secured Loan Program”) or the “SSLP”. The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required). The Company provides capital to the SSLP in the form of subordinated certificates (the “SSLP Certificates”).

 

As of March 31, 2013 and December 31, 2012, the SSLP had available capital of $9.0 billion of which approximately $6.2 billion and $6.3 billion in aggregate principal amount was funded at March 31, 2013 and December 31, 2012, respectively.  As of March 31, 2013 and December 31, 2012, the Company had agreed to make available to the SSLP approximately $1.8 billion of which approximately $1.3 billion and $1.2 billion was funded, respectively.  Investment of any unfunded amount must still be approved by the investment committee of the SSLP described above.

 

As of March 31, 2013 and December 31, 2012, the SSLP had total assets of $6.2 billion and $6.3 billion, respectively. As of March 31, 2013 and December 31, 2012, GE’s investment in the SSLP consisted of senior notes of $4.7 billion and $4.8 billion, respectively, and SSLP Certificates of $179 million and $178 million, respectively. The SSLP Certificates are junior in right of payment to the senior notes held by GE. As of March 31, 2013 and December 31, 2012, the Company and GE owned 87.5% and 12.5%, respectively, of the outstanding SSLP Certificates. The SSLP’s portfolio consisted of first lien senior secured loans to 37 and 36 different borrowers as of March 31, 2013 and December 31, 2012, respectively. As of March 31, 2013 and December 31, 2012, the portfolio was comprised of all first lien senior secured loans to U.S. middle-market companies and none of these loans was on non-accrual status. As of March 31, 2013 and December 31, 2012, the largest loan to a single borrower in the SSLP’s portfolio in aggregate principal amount was $327.9 million and $330.0 million, respectively, and the five largest loans to borrowers in the SSLP each totaled $1.4 billion. The portfolio companies in the SSLP are in industries similar to the companies in the Company’s portfolio.

 

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The amortized cost and fair value of the SSLP Certificates held by the Company was $1.2 billion and $1.3 billion, respectively, as of March 31, 2013 and December 31, 2012.  The SSLP Certificates pay a weighted average coupon of approximately LIBOR plus 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the loan portfolio, which may result in a return to the holders of the SSLP Certificates that is greater than the contractual coupon.  The Company’s yield on its investment in the SSLP at fair value was 15.2% and 15.4% as of March 31, 2013 and December 31, 2012, respectively.  For the three months ended March 31, 2013 and 2012, the Company earned interest income of $48.6 million and $43.3 million, respectively, from its investment in the SSLP Certificates.  The Company is also entitled to certain fees in connection with the SSLP.

 

Effective March 30, 2012, Ares Capital Management assumed from the Company the role of co-manager of the SSLP. However, this change did not impact the Company’s economics in respect of its participation in the SSLP and Ares Capital Management does not receive any remuneration in respect of its co-manager role.

 

5.                                      DEBT

 

In accordance with the Investment Company Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, as calculated in accordance with the Investment Company Act, is at least 200% after such borrowing. As of March 31, 2013 the Company’s asset coverage was 283%.

 

The Company’s outstanding debt as of March 31, 2013 and December 31, 2012 were as follows:

 

 

 

As of

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Total

 

 

 

 

 

Total

 

 

 

 

 

 

 

Aggregate

 

 

 

 

 

Aggregate

 

 

 

 

 

 

 

Principal

 

 

 

 

 

Principal

 

 

 

 

 

 

 

Amount

 

Principal

 

 

 

Amount

 

Principal

 

 

 

 

 

Available/

 

Amount

 

Carrying

 

Available/

 

Amount

 

Carrying

 

 

 

Outstanding(1)

 

Outstanding

 

Value

 

Outstanding(1)

 

Outstanding

 

Value

 

Revolving Credit Facility

 

$

900,000

(2)

$

 

$

 

$

900,000

(2)

$

 

$

 

Revolving Funding Facility

 

620,000

(3)

280,000

 

280,000

 

620,000

(3)

300,000

 

300,000

 

SMBC Funding Facility

 

400,000

 

 

 

400,000

 

 

 

February 2016 Convertible Notes

 

575,000

 

575,000

 

550,450

(4)

575,000

 

575,000

 

548,521

(4)

June 2016 Convertible Notes

 

230,000

 

230,000

 

219,499

(4)

230,000

 

230,000

 

218,761

(4)

2017 Convertible Notes

 

162,500

 

162,500

 

158,534

(4)

162,500

 

162,500

 

158,312

(4)

2018 Convertible Notes

 

270,000

 

270,000

 

263,139

(4)

270,000

 

270,000

 

262,829

(4)

February 2022 Notes

 

143,750

 

143,750

 

143,750

 

143,750

 

143,750

 

143,750

 

October 2022 Notes

 

182,500

 

182,500

 

182,500

 

182,500

 

182,500

 

182,500

 

2040 Notes

 

200,000

 

200,000

 

200,000

 

200,000

 

200,000

 

200,000

 

2047 Notes

 

230,000

 

230,000

 

181,255

(5)

230,000

 

230,000

 

181,199

(5)

 

 

$

3,913,750

 

$

2,273,750

 

$

2,179,127

 

$

3,913,750

 

$

2,293,750

 

$

2,195,872

 

 


(1)

 

Subject to borrowing base and leverage restrictions. Represents the total aggregate amount committed or outstanding, as applicable, under such instrument.

 

 

 

(2)

 

Provides for a feature that allows the Company, under certain circumstances, to increase the size of the Revolving Credit Facility to a maximum of $1,350,000 as of March 31, 2013. See Note 15 for subsequent events relating to the Revolving Credit Facility.

 

 

 

(3)

 

Provides for a feature that allows the Company and Ares Capital CP, under certain circumstances, to increase the size of the Revolving Funding Facility to a maximum of $865,000.

 

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(4)

 

Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes (as defined below) less the unaccreted discount initially recorded upon issuance of the Convertible Unsecured Notes. The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes was $24,550, $10,501, $3,966 and $6,861, respectively, as of March 31, 2013. The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes was $26,479, $11,239, $4,188 and $7,171, respectively, as of December 31, 2012.

 

 

 

(5)

 

Represents the aggregate principal amount outstanding less the unaccreted purchased discount initially recorded as a part of the Allied Acquisition (as defined below). The total unaccreted purchased discount on the 2047 Notes was $48,745 and $48,801 as of March 31, 2013 and December 31, 2012, respectively.

 

The weighted average stated interest rate and weighted average maturity, both on aggregate principal amount, of all the Company’s outstanding debt as of March 31, 2013 were 5.5% and 9.6 years, respectively, and as of December 31, 2012 were 5.5% and 9.8 years, respectively.

 

Revolving Credit Facility

 

In December 2005, the Company entered into a senior secured revolving credit facility (as amended and restated, the “Revolving Credit Facility”), which allows the Company to borrow up to $900,000 as of March 31, 2013 at any one time outstanding. As of March 31, 2013, the end of the revolving period and the stated maturity date for the Revolving Credit Facility were May 4, 2015 and May 4, 2016, respectively. The Revolving Credit Facility also includes a feature that as of March 31, 2013 allows, under certain circumstances, for an increase in the size of the facility to a maximum of $1,350,000. See Note 15 for subsequent events relating to the Revolving Credit Facility. The Revolving Credit Facility generally requires payments of interest at the end of each LIBOR interest period, but no less frequently than quarterly, on LIBOR based loans, and monthly payments of interest on other loans. From the end of the revolving period to the stated maturity date, the Company is required to repay outstanding principal amounts under the Revolving Credit Facility on a monthly basis in an amount equal to 1/12th of the outstanding principal amount at the end of the revolving period.

 

Under the Revolving Credit Facility, the Company is required to comply with various covenants, reporting requirements and other customary requirements for similar revolving credit facilities, including, without limitation, covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain investments, (c) limitations on certain restricted payments, (d) maintaining a certain minimum stockholders’ equity, (e) maintaining a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of the Company and its consolidated subsidiaries of not less than 2.0:1.0, (f) limitations on pledging certain unencumbered assets, and (g) limitations on the creation or existence of agreements that prohibit liens on certain properties of the Company and certain of its subsidiaries. These covenants are subject to important limitations and exceptions that are described in the documents governing the Revolving Credit Facility. Borrowings under the Revolving Credit Facility (and the incurrence of certain other permitted debt) are also subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Company’s portfolio that are pledged as collateral. As of March 31, 2013, the Company was in compliance in all material respects with the terms of the Revolving Credit Facility.

 

As of March 31, 2013 and December 31, 2012, there were no amounts outstanding under the Revolving Credit Facility. The Revolving Credit Facility also provides for a sub-limit for the issuance of letters of credit for up to an aggregate amount of $125,000. As of March 31, 2013 and December 31, 2012, the Company had $45,223 and $43,667, respectively, in standby letters of credit issued through the Revolving Credit Facility. The amount available for borrowing under the Revolving Credit Facility is reduced by any standby letters of credit issued. As of March 31, 2013, there was $854,777 available for borrowing (net of standby letters of credit issued) under the Revolving Credit Facility.

 

After May 4, 2012 and as of March 31, 2013, subject to certain exceptions, the interest rate charged on the Revolving Credit Facility is based on LIBOR plus an applicable spread of 2.25% or a “base rate” (as defined in the agreements governing the Revolving Credit Facility) plus an applicable spread of 1.25%. See Note 15 for subsequent events relating to the Revolving Credit Facility. Prior to and including May 4, 2012, the interest rate charged on the Revolving Credit Facility was based on LIBOR plus an applicable spread of between 2.50% and 4.00% or on a “base rate” plus an applicable spread of between 1.50% and 3.00%, in each case, based on a pricing grid depending upon the Company’s credit ratings. As of March 31, 2013, the one, two, three and six month LIBOR was 0.20%, 0.24%, 0.28% and 0.44%, respectively. As of December 31, 2012, the one, two, three and six month LIBOR was 0.21%, 0.25%, 0.31% and 0.51%, respectively. In addition to the stated interest expense on the Revolving Credit Facility, after May 4, 2012, the Company is required to pay a commitment fee of 0.375% per annum on any unused portion of the Revolving Credit Facility and a letter of credit fee of 2.50% per annum on letters of credit issued, both of which are payable quarterly. Prior to and including May 4, 2012, the commitment fee was 0.50%, and the letter of credit fee was 3.25%.

 

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The Revolving Credit Facility is secured by certain assets in the Company’s portfolio and excludes investments held by Ares Capital CP under the Revolving Funding Facility and those held by ACJB under the SMBC Funding Facility, each as discussed below, and certain other investments.

 

The components of interest and credit facility fees expense, cash paid for interest expense, average interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the Revolving Credit Facility were as follows:

 

 

 

For the three months ended March 31,

 

 

 

2013

 

2012

 

Stated interest expense

 

$

 

$

908

 

Facility fees

 

1,090

 

1,232

 

Amortization of debt issuance costs

 

805

 

1,560

 

Total interest and credit facility fees expense

 

$

1,895

 

$

3,700

 

Cash paid for interest expense

 

$

 

$

1,503

 

Average stated interest rate

 

%

3.51

%

Average outstanding balance

 

$

 

$

103,516

 

 

Revolving Funding Facility

 

In October 2004, the Company established through its consolidated subsidiary, Ares Capital CP Funding LLC (“Ares Capital CP”), a revolving funding facility (as amended, the “Revolving Funding Facility”), which allows Ares Capital CP to borrow up to $620,000 at any one time outstanding. The Revolving Funding Facility is secured by all of the assets held by, and the membership interest in, Ares Capital CP. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility are April 18, 2015 and April 18, 2017, respectively. The Revolving Funding Facility also includes a feature that allows, under certain circumstances for an increase in the Revolving Funding Facility to a maximum of $865,000.

 

Amounts available to borrow under the Revolving Funding Facility are subject to a borrowing base that applies different advance rates to different types of assets held by Ares Capital CP. Ares Capital CP is also subject to limitations with respect to the loans securing the Revolving Funding Facility, including restrictions on sector concentrations, loan size, payment frequency and status, collateral interests, loans with fixed rates and loans with certain investment ratings, as well as restrictions on portfolio company leverage, which may also affect the borrowing base and therefore amounts available to borrow. The Company and Ares Capital CP are also required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. These covenants are subject to important limitations and exceptions that are described in the agreements governing the Revolving Funding Facility. As of March 31, 2013, the Company and Ares Capital CP were in compliance in all material respects with the terms of the Revolving Funding Facility.

 

As of March 31, 2013 and December 31, 2012, there was $280,000 and $300,000 outstanding, respectively, under the Revolving Funding Facility. After a January 25, 2013 amendment to the Revolving Funding Facility, the interest charged on the Revolving Funding Facility is based on applicable spreads ranging from 2.25% to 2.50% over LIBOR and ranging from 1.25% to 1.50% over “base rate” (as defined in the agreements governing the Revolving Funding Facility) in each case, determined monthly based on the composition of the borrowing base relative to outstanding borrowings under the Revolving Funding Facility. From January 18, 2012 through January 25, 2013, the interest rate charged on the Revolving Funding Facility was based on LIBOR plus an applicable spread of 2.50% or on a “base rate” plus an applicable spread of 1.50%. Prior to January 18, 2012, the interest rate charged on the Revolving Funding Facility was based on LIBOR plus an applicable spread of between 2.25% and 3.75% or on a “base rate” plus an applicable spread of between 1.25% to 2.75%, in each case, based on a pricing grid depending upon the Company’s credit ratings. As of March 31, 2013 and December 31, 2012, the interest rate in effect was based on one month LIBOR, which was 0.20% and 0.21%, respectively. Ares Capital CP is also required to pay a commitment fee of between 0.50% and 1.75% depending on the size of the unused portion of the Revolving Funding Facility.

 

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The components of interest and credit facility fees expense, cash paid for interest expense, average stated interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the Revolving Funding Facility were as follows:

 

 

 

For the three months ended March 31,

 

 

 

2013

 

2012

 

Stated interest expense

 

$

474

 

$

3,175

 

Facility fees

 

1,607

 

66

 

Amortization of debt issuance costs

 

503

 

374

 

Total interest and credit facility fees expense

 

$

2,584

 

$

3,615

 

Cash paid for interest expense

 

$

2,146

 

$

3,451

 

Average stated interest rate

 

2.51

%

2.84

%

Average outstanding balance

 

$

75,467

 

$

447,154

 

 

SMBC Funding Facility

 

In January 2012, the Company established through its consolidated subsidiary, Ares Capital JB Funding LLC (“ACJB”), a revolving funding facility (as amended, the “SMBC Funding Facility”) with ACJB, as the borrower, Sumitomo Mitsui Banking Corporation (“SMBC”), as the administrative agent, collateral agent, and lender, which allows ACJB to borrow up to $400,000 at any one time outstanding.  The SMBC Funding Facility is secured by all of the assets held by ACJB. The end of the reinvestment period and the stated maturity date for the SMBC Funding Facility are September 14, 2015 and September 14, 2020, respectively. The reinvestment period and the stated maturity date are both subject to two one-year extensions by mutual agreement.

 

Amounts available to borrow under the SMBC Funding Facility are subject to a borrowing base that applies an advance rate to assets held by ACJB. The Company and ACJB are also required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. These covenants are subject to important limitations and exceptions that are described in the documents governing the SMBC Funding Facility. As of March 31, 2013, the Company and ACJB were in compliance in all material respects with the terms of the SMBC Funding Facility.

 

As of March 31, 2013 and December 31, 2012, there were no amounts outstanding under the SMBC Funding Facility. Subject to certain exceptions, the interest rate charged on the SMBC Funding Facility is based on one month LIBOR plus an applicable spread of 2.125% or a “base rate” (as defined in the agreements governing the SMBC Funding Facility) plus an applicable spread of 1.125%. As of March 31, 2013 and December 31, 2012, one month LIBOR was 0.20% and 0.21%, respectively. ACJB is not required to pay a commitment fee until September 15, 2013, at which time ACJB will be required to pay a commitment fee of 0.50% depending on the size of the unused portion of the SMBC Funding Facility.

 

The components of interest and credit facility fees expense, cash paid for interest expense, average interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the SMBC Funding Facility were as follows:

 

 

 

For the three months ended March 31,

 

 

 

2013

 

2012

 

Stated interest expense

 

$

 

$

77

 

Amortization of debt issuance costs

 

235

 

113

 

Total interest and credit facility fees expense

 

$

235

 

$

190

 

Cash paid for interest expense

 

$

15

 

$

37

 

Average stated interest rate

 

%

2.41

%

Average outstanding balance

 

$

 

$

12,829

 

 

Debt Securitization

 

In July 2006, through ARCC Commercial Loan Trust 2006, a vehicle serviced by the Company’s consolidated subsidiary, ARCC CLO 2006 LLC (“ARCC CLO”), the Company completed a $400,000 debt securitization (the “Debt Securitization”) and issued approximately $314,000 aggregate principal amount of asset backed notes to third parties (the “CLO Notes”) that were secured by a pool of middle market loans that were purchased or originated by the Company. In June 2012, the Company repaid in full the $60,049 aggregate principal amount outstanding of the CLO Notes and terminated or discharged the agreements governing the Debt Securitization.

 

The interest charged under the Debt Securitization was based on three month LIBOR and spreads ranged from 0.25% to 0.70% depending on the class of the note.

 

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The components of interest and credit facility fees expense, cash paid for interest expense, average interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the Debt Securitization were as follows:

 

 

 

For the three months

 

 

 

ended March 31, 2012

 

Stated interest expense

 

$

202

 

Amortization of debt issuance costs

 

89

 

Total interest and credit facility fees expense

 

$

291

 

Cash paid for interest expense

 

$

199

 

Average stated interest rate

 

1.07

%

Average outstanding balance

 

$

75,226

 

 

Unsecured Notes

 

Convertible Unsecured Notes

 

In January 2011, the Company issued $575,000 aggregate principal amount of unsecured convertible senior notes that mature on February 1, 2016 (the “February 2016 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In March 2011, the Company issued $230,000 aggregate principal amount of unsecured convertible senior notes that mature on June 1, 2016 (the “June 2016 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In March 2012, the Company issued $162,500 aggregate principal amount of unsecured convertible senior notes that mature on March 15, 2017 (the “2017 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In the fourth quarter of 2012, the Company issued $270,000 aggregate principal amount of unsecured convertible senior notes that mature on January 15, 2018 (the “2018 Convertible Notes” and together with the 2017 Convertible Notes, February 2016 Convertible Notes and the June 2016 Convertible Notes, the “Convertible Unsecured Notes”), unless previously converted or repurchased in accordance with their terms. The Company does not have the right to redeem the Convertible Unsecured Notes prior to maturity. The February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes bear interest at a rate of 5.750%, 5.125%, 4.875% and 4.750%, respectively, per year, payable semi-annually.

 

In certain circumstances, the Convertible Unsecured Notes will be convertible into cash, shares of the Company’s common stock or a combination of cash and shares of its common stock, at the Company’s election, at their respective conversion rates (listed below as of March 31, 2013) subject to customary anti-dilution adjustments and the requirements of their respective indenture (the “Convertible Unsecured Notes Indentures”). Prior to the close of business on the business day immediately preceding their respective conversion date (listed below), holders may convert their Convertible Unsecured Notes only under certain circumstances set forth in the Convertible Unsecured Notes Indentures. On or after their respective conversion dates until the close of business on the scheduled trading day immediately preceding their respective maturity date, holders may convert their Convertible Unsecured Notes at any time. In addition, if the Company engages in certain corporate events as described in their respective Convertible Unsecured Notes Indenture, holders of the Convertible Unsecured Notes may require the Company to repurchase for cash all or part of the Convertible Unsecured Notes at a repurchase price equal to 100% of the principal amount of the Convertible Unsecured Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

 

Certain key terms related to the convertible features for each of the Convertible Unsecured Notes are listed below.

 

 

 

February 2016

 

June 2016

 

2017

 

2018

 

 

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Conversion premium

 

17.5

%

17.5

%

17.5

%

17.5

%

Closing stock price at issuance

 

$

16.28

 

$

16.20

 

$

16.46

 

$

16.91

 

Closing stock price date

 

January 19, 2011

 

March 22, 2011

 

March 8, 2012

 

October 3, 2012

 

Conversion price as of March 31, 2013

 

$

18.86

 

$

18.77

 

$

19.20

 

$

19.81

 

Conversion rate as of March 31, 2013 (shares per one thousand dollar principal amount)

 

53.0167

 

53.2786

 

52.0894

 

50.4731

 

Conversion dates

 

August 15, 2015

 

December 15, 2015

 

September 15, 2016

 

July 15, 2017

 

 

As of March 31, 2013, the principal amounts of each series of the Convertible Unsecured Notes exceeded the value of the underlying shares multiplied by the per share closing price of the Company’s common stock.

 

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The Convertible Unsecured Notes Indentures contain certain covenants, including covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act and to provide financial information to the holders of the Convertible Unsecured Notes under certain circumstances. These covenants are subject to important limitations and exceptions that are described in the Convertible Unsecured Notes Indentures. As of March 31, 2013, the Company was in compliance in all material respects with the terms of the Convertible Unsecured Notes Indentures.

 

The Convertible Unsecured Notes are accounted for in accordance with Accounting Standards Codification (“ASC”) 470-20. Upon conversion of any of the Convertible Unsecured Notes, the Company intends to pay the outstanding principal amount in cash and to the extent that the conversion value exceeds the principal amount, the Company has the option to pay in cash or shares of the Company’s common stock (or a combination of cash and shares) in respect of the excess amount, subject to the requirements of the Convertible Unsecured Notes Indentures. The Company has determined that the embedded conversion options in the Convertible Unsecured Notes are not required to be separately accounted for as a derivative under GAAP. In accounting for the Convertible Unsecured Notes, the Company estimated at the time of issuance that the values of the debt and equity components were approximately 93% and 7%, respectively, for each of the February 2016 Convertible Notes and the June 2016 Convertible Notes, approximately 97% and 3%, respectively, for the 2017 Convertible Notes and approximately 98% and 2%, respectively, for the 2018 Convertible Notes. The original issue discount equal to the equity components of the Convertible Unsecured Notes was recorded in “capital in excess of par value” in the accompanying consolidated balance sheet. As a result, the Company records interest expense comprised of both stated interest expense as well as accretion of the original issue discount. Additionally, the issuance costs associated with the Convertible Unsecured Notes were allocated to the debt and equity components in proportion to the allocation of the proceeds and accounted for as debt issuance costs and equity issuance costs, respectively.

 

At the time of issuance, the debt issuance costs and equity issuance costs for the February 2016 Convertible Notes were $15,778 and $1,188, respectively, for the June 2016 Convertible Notes were $5,913 and $445, respectively, for the 2017 Convertible Notes were $4,813 and $149, respectively, and for the 2018 Convertible Notes were $5,712 and $116, respectively. At the time of issuance and as of March 31, 2013, the equity component, net of issuance costs as recorded in the “capital in excess of par value” in the accompanying consolidated balance sheet for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes was $39,062, $15,654, $4,724 and $5,243, respectively.

 

As of March 31, 2013, the components of the carrying value of the Convertible Unsecured Notes, the stated interest rate and the effective interest rate were as follows:

 

 

 

February 2016

 

June 2016

 

2017

 

2018

 

 

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Principal amount of debt

 

$

575,000

 

$

230,000

 

$

162,500

 

$

270,000

 

Original issue discount, net of accretion

 

(24,550

)

(10,501

)

(3,966

)

(6,861

)

Carrying value of debt

 

$

550,450

 

$

219,499

 

$

158,534

 

$

263,139

 

Stated interest rate

 

5.75

%

5.125

%

4.875

%

4.750

%

Effective interest rate(1)

 

7.1

%

6.4

%

5.4

%

5.2

%

 


(1)  The effective interest rate of the debt component of the Convertible Unsecured Notes is equal to the stated interest rate plus the accretion of original issue discount.

 

For the three months ended March 31, 2013 and 2012, the components of interest expense and cash paid for interest expense for the Convertible Unsecured Notes were as follows:

 

 

 

For the three months ended March 31,

 

 

 

2013

 

2012

 

Stated interest expense

 

$

16,399

 

$

11,587

 

Accretion of original issue discount

 

3,200

 

2,519

 

Amortization of debt issuance costs

 

1,605

 

1,172

 

Total interest expense

 

$

21,204

 

$

15,278

 

Cash paid for interest expense

 

$

20,492

 

$

16,531

 

 

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February 2022 Notes

 

In February 2012, the Company issued $143,750 aggregate principal amount of senior unsecured notes that mature on February 15, 2022 (the “February 2022 Notes”). The February 2022 Notes bear interest at a rate of 7.00% per year, payable quarterly and all principal is due upon maturity. The February 2022 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after February 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest. Total proceeds from the issuance of the February 2022 Notes, net of underwriting discounts and offering costs, were $138,338.

 

October 2022 Notes

 

In September 2012 and October 2012, the Company issued $182,500 aggregate principal amount of senior unsecured notes that mature on October 1, 2022 (the “October 2022 Notes”). The October 2022 Notes bear interest at a rate of 5.875% per year, payable quarterly and all principal is due upon maturity. The October 2022 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after October 1, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest. Total proceeds from the issuance of the October 2022 Notes, net of underwriting discounts and offering costs, were $176,054.

 

2040 Notes

 

In October 2010, the Company issued $200,000 aggregate principal amount of senior unsecured notes that mature on October 15, 2040 (the “2040 Notes”). The 2040 Notes bear interest at a rate of 7.75% per year, payable quarterly and all principal is due upon maturity. The 2040 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after October 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest. Total proceeds from the issuance of the 2040 Notes, net of underwriting discounts and offering costs, were $192,664.

 

2047 Notes

 

As part of the acquisition of Allied Capital Corporation (“Allied Capital”) in April 2010 (the “Allied Acquisition”), the Company assumed $230,000 aggregate principal amount of senior unsecured notes due on April 15, 2047 (the “2047 Notes”). The 2047 Notes bear interest at a rate of 6.875%, payable quarterly and all principal is due upon maturity. The 2047 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option, at a par redemption price of $25.00 per security plus accrued and unpaid interest and upon the occurrence of certain tax events as described in the indenture governing the 2047 Notes. As of March 31, 2013 and December 31, 2012 the outstanding principal was $230,000 and the carrying value was $181,255 and $181,199, respectively.  The carrying value represents the principal amount of the 2047 Notes less the unaccreted purchased discount initially recorded as a part of the Allied Acquisition.

 

The components of interest expense and cash paid for interest expense for the February 2022 Notes, the October 2022 Notes, the 2040 Notes and the 2047 Notes are as follows:

 

 

 

For the three months ended March 31,

 

 

 

2013

 

2012

 

Stated interest expense

 

$

13,024

 

$

9,505

 

Accretion of original issue discount

 

56

 

51

 

Amortization of debt issuance costs

 

349

 

146

 

Total interest expense

 

$

13,429

 

$

9,702

 

Cash paid for interest expense

 

$

10,344

 

$

7,828

 

 

The February 2022 Notes, the October 2022 Notes, the 2040 Notes and the 2047 Notes contain certain covenants, including covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act and to provide financial information to the holders of such notes under certain circumstances. These covenants are subject to important limitations and exceptions set forth in the indentures governing such notes. As of March 31, 2013, the Company was in compliance in all material respects with the terms of the indentures governing the February 2022 Notes, the October 2022 Notes, the 2040 Notes and the 2047 Notes.

 

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The Convertible Unsecured Notes and the Unsecured Notes are the Company’s senior unsecured obligations and rank senior in right of payment to its existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Unsecured Notes and the Unsecured Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not expressly subordinated; effectively junior in right of payment to any of its secured indebtedness (including existing unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.

 

6.                                      COMMITMENTS AND CONTINGENCIES

 

The Company has various commitments to fund investments in its portfolio as described below.

 

As of March 31, 2013 and December 31, 2012, the Company had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to fund which are at (or substantially at) the Company’s discretion:

 

 

 

As of

 

 

 

March 31, 2013

 

December 31, 2012

 

Total revolving and delayed draw commitments

 

$

516,962

 

$

466,630

 

Less: funded commitments

 

(98,499

)

(107,121

)

Total unfunded commitments

 

418,463

 

359,509

 

Less: commitments substantially at discretion of the Company

 

(28,194

)

(6,000

)

Less: unavailable commitments due to borrowing base or other covenant restrictions

 

(2,231

)

(571

)

Total net adjusted unfunded revolving and delayed draw commitments

 

$

388,038

 

$

352,938

 

 

Included within the total revolving and delayed draw commitments as of March 31, 2013 were commitments to issue up to $63,875 in standby letters of credit through a financial intermediary on behalf of certain portfolio companies. Under these arrangements, if the standby letters of credit were to be issued, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. As of March 31, 2013, the Company had $43,058 in standby letters of credit issued and outstanding under these commitments on behalf of the portfolio companies, of which no amounts were recorded as a liability on the Company’s balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company. Of these letters of credit $42,992 expire in 2013 and $66 expire in 2014.

 

As of March 31, 2013 and December 31, 2012, the Company was party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

 

 

 

As of

 

 

 

March 31, 2013

 

December 31, 2012

 

Total private equity commitments

 

$

134,738

 

$

131,042

 

Less: funded private equity commitments

 

(71,021

)

(66,533

)

Total unfunded private equity commitments

 

63,717

 

64,509

 

Less: private equity commitments substantially at discretion of the Company

 

(48,000

)

(53,088

)

Total net adjusted unfunded private equity commitments

 

$

15,717

 

$

11,421

 

 

In addition, as of each of March 31, 2013 and December 31, 2012, the Company had outstanding guarantees or similar obligations on behalf of certain portfolio companies totaling $800.

 

In the ordinary course of business, the Company may sell certain of its investments to third party purchasers. In particular, in connection with the sale of certain controlled portfolio company equity investments (as well as certain other sales) the Company has, and may continue to do so in the future, agreed to indemnify such purchasers for future liabilities arising from the investments and the related sale transaction. Such indemnification provisions may give rise to future liabilities.

 

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As of March 31, 2013, one of the Company’s portfolio companies, Ciena Capital LLC (“Ciena”), had one non-recourse securitization Small Business Administration (“SBA”) loan warehouse facility, which has reached its maturity date but remains outstanding. Ciena is working with the providers of the SBA loan warehouse facility with regard to the repayment of that facility. Allied Capital had previously issued a performance guaranty (which the Company succeeded to as a result of the Allied Acquisition) whereby the Company must indemnify the warehouse providers for any damages, losses, liabilities and related costs and expenses that they may incur as a result of Ciena’s failure to perform any of its obligations as loan originator, loan seller or loan servicer under the warehouse facility. As of March 31, 2013, there are no known issues or claims with respect to this performance guaranty.

 

7.                                      FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company follows ASC 825-10, which provides companies the option to report selected financial assets and liabilities at fair value. ASC 825-10 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect of the company’s choice to use fair value on its earnings. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. The Company has not elected the ASC 825-10 option to report selected financial assets and liabilities at fair value. With the exception of the line items entitled “other assets” and “debt,” which are reported at amortized cost, all assets and liabilities approximate fair value on the balance sheet. The carrying value of the line items entitled “interest receivable,” “receivable for open trades,” “payable for open trades,” “accounts payable and accrued expenses,” “management and incentive fees payable” and “interest and facility fees payable” approximate fair value due to their short maturity.

 

The Company also follows ASC 820-10, which expands the application of fair value accounting. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure of fair value measurements. ASC 820-10 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Company to assume that the portfolio investment is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820-10, the Company has considered its principal market as the market in which the Company exits its portfolio investments with the greatest volume and level of activity. ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below:

 

·                  Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

 

·                  Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

·                  Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

In addition to using the above inputs in investment valuations, the Company continues to employ the net asset valuation policy approved by the Company’s board of directors that is consistent with ASC 820-10 (see Note 2). Consistent with the Company’s valuation policy, it evaluates the source of inputs, including any markets in which the Company’s investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. The Company’s valuation policy considers the fact that because there is not a readily available market value for most of the investments in the Company’s portfolio, the fair value of the investments must typically be determined using unobservable inputs.

 

The Company’s portfolio investments (other than as discussed below in the following paragraph) are typically valued using two different valuation techniques. The first valuation technique is an analysis of the enterprise value (“EV”) of the portfolio company. Enterprise value means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The primary method for determining EV uses a multiple analysis whereby appropriate multiples are applied to the portfolio company’s EBITDA (net income before net interest expense, income tax expense, depreciation and amortization). EBITDA multiples are typically determined based upon review of market comparable transactions and publicly traded comparable companies, if any. The second method for determining EV uses a discounted cash flow analysis whereby future expected cash flows of the portfolio company are discounted to determine a present value using estimated discount rates (typically a weighted average cost of capital based on costs of debt and equity consistent with current market conditions). The EV analysis is performed to determine the value of equity investments, the value of debt investments in portfolio companies where the Company has control or could gain control through an option or warrant security, and to determine if there is credit impairment for debt investments. If debt investments are credit impaired, an EV analysis may be used to value such debt investments; however, in addition to the methods outlined above, other methods such as a liquidation or wind-down analysis may be utilized to estimate enterprise value. The second valuation technique is a yield analysis, which is typically performed for non-credit impaired debt investments in portfolio companies where the Company does not own a controlling equity position. To determine fair value using a yield analysis, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk. In the yield analysis, the Company considers the current contractual interest rate, the maturity and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the enterprise value of the portfolio company. As debt investments held by the Company are substantially illiquid with no active transaction market, the Company depends on primary market data, including newly funded transactions, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.

 

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For other portfolio investments such as investments in collateralized loan obligations and the SSLP Certificates, discounted cash flow analysis is the primary technique utilized to determine fair value. Expected future cash flows associated with the investment are discounted to determine a present value using a discount rate that reflects estimated market return requirements.

 

The following tables summarize the significant unobservable inputs the Company used to value the majority of its investments categorized within Level 3 as of March 31, 2013 and December 31, 2012. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.

 

As of March 31, 2013

 

 

 

 

 

 

 

Unobservable Input

 

 

 

Fair

 

 

 

Unobservable

 

Estimated

 

Weighted

 

Asset Category

 

Value

 

Valuation Techniques

 

Input

 

Range

 

Average

 

Senior term debt

 

$

3,635,398

 

Yield analysis

 

Market yield

 

4.5% - 24.1%

 

9.7

%

Subordinated Certificates of the SSLP

 

1,269,667

 

Discounted cash flow analysis

 

Discount rate

 

11.0% - 14.0%

 

13.0

%

Senior subordinated debt

 

302,781

 

Yield analysis

 

Market yield

 

9.0% - 18.6%

 

14.3

%

Preferred equity securities

 

259,420

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 13.0x

 

8.3x

 

Other equity securities and other

 

563,193

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 12.8x

 

7.5x

 

Total

 

$

6,030,459

 

 

 

 

 

 

 

 

 

 

As of December 31, 2012

 

 

 

 

 

 

 

Unobservable Input

 

 

 

Fair

 

 

 

Unobservable

 

Estimated

 

Weighted

 

Asset Category

 

Value

 

Valuation Techniques

 

Input

 

Range

 

Average

 

Senior term debt

 

$

3,555,144

 

Yield analysis

 

Market yield

 

5.3% - 21.9%

 

9.8

%

Subordinated Certificates of the SSLP

 

1,263,644

 

Discounted cash flow analysis

 

Discount rate

 

11.5% - 14.5%

 

13.5

%

Senior subordinated debt

 

259,820

 

Yield analysis

 

Market yield

 

10.0% - 18.6%

 

14.9

%

Preferred equity securities

 

250,118

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 10.5x

 

8.1x

 

Other equity securities and other

 

585,931

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 12.8x

 

7.4x

 

Total

 

$

5,914,657

 

 

 

 

 

 

 

 

 

 

Changes in market yields, discount rates or EBITDA multiples, each in isolation, may change the fair value of certain of the Company’s investments. Generally, an increase in market yields or discount rates or decrease in EBITDA multiples may result in a decrease in the fair value of certain of the Company’s investments.

 

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it.

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

 

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The following table presents fair value measurements of cash and cash equivalents and investments as of March 31, 2013:

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

102,451

 

$

102,451

 

$

 

$

 

Investments

 

$

6,030,459

 

$

 

$

 

$

6,030,459

 

 

The following table presents fair value measurements of cash and cash equivalents and investments as of December 31, 2012:

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

269,043

 

$

269,043

 

$

 

$

 

Investments

 

$

5,924,555

 

$

9,898

 

$

 

$

5,914,657

 

 

The following table presents changes in investments that use Level 3 inputs as of and for the three months ended March 31, 2013:

 

 

 

As of and for the

 

 

 

three months ended

 

 

 

March 31, 2013

 

Balance as of December 31, 2012

 

$

5,914,657

 

Net realized and unrealized losses

 

(18,851

)

Purchases

 

355,135

 

Sales

 

(45,600

)

Redemptions

 

(182,558

)

Payment-in-kind interest and dividends

 

6,110

 

Accretion of discount on securities

 

1,566

 

Net transfers in and/or out of Level 3

 

 

Balance as of March 31, 2013

 

$

6,030,459

 

 

As of March 31, 2013, the net unrealized appreciation on the investments that use Level 3 inputs was $70,671.

 

The following table presents changes in investments that use Level 3 inputs as of and for the three months ended March 31, 2012:

 

 

 

As of and for the

 

 

 

three months ended

 

 

 

March 31, 2012

 

Balance as of December 31, 2011

 

$

5,094,506

 

Net realized and unrealized gains

 

28,509

 

Purchases

 

382,571

 

Sales

 

(8,051

)

Redemptions

 

(303,805

)

Payment-in-kind interest and dividends

 

6,847

 

Accretion of discount on securities

 

3,954

 

Net transfers in and/or out of Level 3

 

 

Balance as of March 31, 2012

 

$

5,204,531

 

 

As of March 31, 2012, the net unrealized depreciation on the investments that use Level 3 inputs was $22,023.

 

Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur.

 

Following are the carrying and fair values of the Company’s debt obligations as of March 31, 2013 and December 31, 2012. Fair value is estimated by discounting remaining payments using applicable current market rates, which take into account changes in the Company’s marketplace credit ratings, or market quotes, if available.

 

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As of

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Carrying value(1)

 

Fair value

 

Carrying value(1)

 

Fair value

 

Revolving Credit Facility

 

$

 

$

 

$

 

$

 

Revolving Funding Facility

 

280,000

 

280,000

 

300,000

 

303,209

 

SMBC Funding Facility

 

 

 

 

 

February 2016 Convertible Notes (principal amount outstanding of $575,000)

 

550,450

(2)

624,599

 

548,521

(2)

617,550

 

June 2016 Convertible Notes (principal amount outstanding of $230,000)

 

219,499

(2)

246,813

 

218,761

(2)

243,797

 

2017 Convertible Notes (principal amount outstanding of $162,500)

 

158,534

(2)

171,867

 

158,312

(2)

168,495

 

2018 Convertible Notes (principal amount outstanding of $270,000)

 

263,139

(2)

281,116

 

262,829

(2)

272,813

 

February 2022 Notes (principal amount outstanding of outstanding of $143,750)

 

143,750

 

152,987

 

143,750

 

151,549

 

October 2022 Notes (principal amount outstanding of outstanding of $182,500)

 

182,500

 

183,031

 

182,500

 

179,361

 

2040 Notes (principal amount outstanding of $200,000)

 

200,000

 

208,968

 

200,000

 

208,968

 

2047 Notes (principal amount outstanding of $230,000)

 

181,255

(3)

228,594

 

181,199

(3)

225,558

 

 

 

$

2,179,127

(4)

$

2,377,975

 

$

2,195,872

(4)

$

2,371,300

 

 


(1)                                 Except for the Convertible Unsecured Notes and the 2047 Notes, all carrying values are the same as the principal amounts outstanding.

 

(2)                                 Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes less the unaccreted discount initially recorded upon issuance of each respective series of the Convertible Unsecured Notes.

 

(3)                                 Represents the aggregate principal amount outstanding of the 2047 Notes less the unaccreted purchased discount.

 

(4)                                 Total principal amount of debt outstanding totaled $2,273,750 and $2,293,750 as of March 31, 2013 and December 31, 2012, respectively.

 

The following table presents fair value measurements of the Company’s debt obligations as of March 31, 2013 and December 31, 2012:

 

 

 

As of

 

Fair Value Measurements Using

 

March 31, 2013

 

December 31, 2012

 

Level 1

 

$

773,580

 

$

765,436

 

Level 2

 

1,604,395

 

1,605,864

 

Total

 

$

2,377,975

 

$

2,371,300

 

 

8.                                      STOCKHOLDERS’ EQUITY

 

There were no sales of the Company’s equity securities for the three months ended March 31, 2013. See Note 15 for subsequent events relating to an equity offering completed subsequent to March 31, 2013.

 

The following table summarizes the total shares issued and proceeds received in public offerings of the Company’s common stock net of underwriting discounts and offering costs for the three months ended March 31, 2012:

 

 

 

 

 

 

 

Proceeds net of

 

 

 

 

 

Offering price

 

underwriting and

 

 

 

Shares issued

 

per share

 

offering costs

 

January 2012 public offering

 

16,422

 

$

15.41

(1)

$

252,415

 

Total for the three months ended March 31, 2012

 

16,422

 

$

15.41

 

$

252,415

 

 


(1)         The shares were sold to the underwriters for a price of $15.41 per share, which the underwriters were then permitted to sell at variable prices to the public.

 

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The Company used the net proceeds from the above public equity offering to repay outstanding indebtedness and for general corporate purposes, which included funding investments in accordance with its investment objective.

 

9              EARNINGS PER SHARE

 

The following information sets forth the computations of basic and diluted net increase in stockholders’ equity resulting from operations per share for the three months ended March 31, 2013 and 2012:

 

 

 

For the three months ended March 31,

 

 

 

2013

 

2012

 

Net increase in stockholders’ equity resulting from operations available to common stockholders:

 

$

80,342

 

$

105,547

 

Weighted average shares of common stock outstanding—basic and diluted

 

248,658

 

217,044

 

Basic and diluted net increase in stockholders’ equity resulting from operations per share:

 

$

0.32

 

$

0.49

 

 

For the purpose of calculating diluted earnings per share, the average closing price of the Company’s common stock for the three months ended March 31, 2013 and 2012, and for the period from the time of issuance of the 2017 Convertible Notes through March 31, 2012 was each less than the conversion price in effect for such period for each applicable series of the Convertible Unsecured Notes and therefore, the underlying shares for the intrinsic value of the embedded options in the Convertible Unsecured Notes had no impact on this calculation.

 

10.          DIVIDENDS AND DISTRIBUTIONS

 

The following table summarizes the Company’s dividends declared during the three months ended March 31, 2013 and 2012:

 

 

 

 

 

 

 

Per Share

 

Total

 

Date Declared

 

Record Date

 

Payment Date

 

Amount

 

Amount

 

February 27, 2013

 

March 15, 2013

 

March 29, 2013

 

$

0.38

 

$

94,488

 

Total declared for the three months ended March 31, 2013

 

 

 

 

 

$

0.38

 

$

94,488

 

 

 

 

 

 

 

 

 

 

 

February 28, 2012

 

March 15, 2012

 

March 30, 2012

 

$

0.37

 

$

81,974

 

Total declared for the three months ended March 31, 2012

 

 

 

 

 

$

0.37

 

$

81,974

 

 

The Company has a dividend reinvestment plan that was amended effective March 28, 2012, whereby the Company may buy shares of its common stock in the open market or issue new shares in order to satisfy dividend reinvestment requests. Prior to the amendment, if the Company issued new shares to implement the dividend reinvestment plan, the issue price was equal to the closing price of its common stock on the dividend record date. As a result of the amendment, when the Company issues new shares in connection with the dividend reinvestment plan, the issue price is equal to the closing price of its common stock on the dividend payment date. Dividend reinvestment plan activity for the three months ended March 31, 2013 and 2012, was as follows:

 

 

 

For the three months ended March 31,

 

 

 

2013

 

2012

 

Shares issued

 

243

 

323

 

Average price per share

 

$

18.10

 

$

16.35

 

 

11.                               RELATED PARTY TRANSACTIONS

 

In accordance with the investment advisory and management agreement, the Company bears all costs and expenses of the operation of the Company and reimburses its investment adviser for certain of such costs and expenses incurred in the operation of the Company. For the three months ended March 31, 2013 and 2012, the investment adviser incurred such expenses totaling $1,215 and $909, respectively. As of March 31, 2013, $1,159 was unpaid and such payable is included in “accounts payable and accrued expenses” in the accompanying consolidated balance sheet.

 

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The Company has entered into separate subleases with Ares Management and Ivy Hill Asset Management, L.P. (“IHAM”), a wholly owned portfolio company of the Company, pursuant to which Ares Management and IHAM sublease approximately 15% and 20%, respectively, of the Company’s New York office space for a fixed rent equal to 15% and 20%, respectively, of the base annual rent payable by the Company under the Company’s lease for this space, plus certain additional costs and expenses. For the three months ended March 31, 2013 and 2012, such amounts payable to the Company totaled $418 and $368, respectively.

 

In April 2012, the Company entered into an office sublease with Ares Commercial Real Estate Management LLC (“ACREM”), a wholly owned subsidiary of Ares Management and manager of Ares Commercial Real Estate Corporation, pursuant to which the Company is subleasing approximately 12% of ACREM’s Chicago office space for a fixed rent equal to 12% of the basic annual rent payable by ACREM under its office lease, plus certain additional costs and expenses. For the three months ended March 31, 2013, such amounts incurred under this sublease by the Company to ACREM totaled $13.

 

As of March 31, 2013, Ares Investments Holdings LLC, an affiliate of Ares Management, owned approximately 2.9 million shares of the Company’s common stock representing approximately 1.1% of the total shares outstanding as of March 31, 2013.

 

See Notes 3 and 12 for descriptions of other related party transactions.

 

12.                               IVY HILL ASSET MANAGEMENT, L.P.

 

The Company has made investments in its portfolio company, IHAM, which became a SEC registered investment adviser, effective March 30, 2012, as well as in certain vehicles managed by IHAM. As of March 31, 2013, IHAM managed 13 vehicles and served as the sub-manager/sub-servicer for three other vehicles (these vehicles managed or sub-managed/sub-serviced by IHAM are collectively, the “IHAM Vehicles”).

 

As of March 31, 2013, the Company’s total investment in IHAM at fair value was $267,839, including unrealized appreciation of $96,878. As of December 31, 2012, the Company’s total investment in IHAM at fair value was $294,258 including unrealized appreciation of $123,297.  For the three months ended March 31, 2013 and 2012, the Company received distributions consisting entirely of dividend income from IHAM of $27,363 and $4,762, respectively. The dividend income for the three months ended March 31, 2013 included an additional dividend of $17,363 that was paid in addition to the quarterly dividend generally paid by IHAM. IHAM paid the additional dividend out of accumulated earnings that had previously been retained by IHAM.

 

From time to time, IHAM or certain IHAM Vehicles may purchase investments from the Company or sell investments to it. For any such purchases or sales by the IHAM Vehicles from or to the Company, the IHAM Vehicles must obtain approval from third parties unaffiliated with the Company or IHAM, as applicable. During the three months ended March 31, 2013, the Company purchased $91,527 of investments from certain of the IHAM Vehicles. During the three months ended March 31, 2012, IHAM or certain of the IHAM Vehicles purchased investments from the Company for total consideration of $6,162.

 

IHAM is party to an administration agreement, referred to herein as the “IHAM administration agreement,” with Ares Operations. Pursuant to the IHAM administration agreement, Ares Operations provides IHAM with, among other things, office facilities, equipment, clerical, bookkeeping and record keeping services, services relating to the marketing and sale of interests in vehicles managed by IHAM, services of, and oversight of, custodians, depositories, accountants, attorneys, underwriters and such other persons in any other capacity deemed to be necessary. Under the IHAM administration agreement, IHAM reimburses Ares Operations for all of the actual costs associated with such services, including Ares Operations’ allocable portion of overhead and the cost of its officers, employees and respective staff in performing its obligations under the IHAM administration agreement.

 

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13.          FINANCIAL HIGHLIGHTS

 

The following is a schedule of financial highlights as of and for the three months ended March 31, 2013 and 2012:

 

 

 

For the three months ended

 

Per Share Data:

 

March 31, 2013

 

March 31, 2012

 

Net asset value, beginning of period(1)

 

$

16.04

 

$

15.34

 

Issuance of common stock

 

 

 

Issuance of the Convertible Unsecured Notes

 

 

0.02

 

Effect of antidilution

 

 

 

Net investment income for period(2)

 

0.40

 

0.35

 

Net realized and unrealized gains (losses) for period(2)

 

(0.08

)

0.13

 

Net increase in stockholders’ equity

 

0.32

 

0.50

 

Total distributions to stockholders

 

(0.38

)

(0.37

)

Net asset value at end of period(1)

 

$

15.98

 

$

15.47

 

 

 

 

 

 

 

Per share market value at end of period

 

$

18.10

 

$

16.35

 

Total return based on market value(3)

 

5.60

%

8.22

%

Total return based on net asset value(4)

 

2.00

%

3.17

%

Shares outstanding at end of period

 

248,896

 

221,875

 

 

 

 

 

 

 

Ratio/Supplemental Data:

 

 

 

 

 

Net assets at end of period

 

$

3,978,597

 

$

3,433,261

 

Ratio of operating expenses to average net assets(5)(6)

 

9.33

%

10.51

%

Ratio of net investment income to average net assets(5)(7)

 

10.03

%

9.21

%

Portfolio turnover rate(5)

 

15

%

25

%

 


(1) The net assets used equals the total stockholders’ equity on the consolidated balance sheets.

 

(2) Weighted average basic per share data.

 

(3) For the three months ended March 31, 2013, the total return based on market value equaled the increase of the ending market value at March 31, 2013 of $18.10 per share from the ending market value at December 31, 2012 of $17.50 per share plus the declared dividends of $0.38 per share for the three months ended March 31, 2013, divided by the market value at December 31, 2012. For the three months ended March 31, 2012, the total return based on market value equaled the increase of the ending market value at March 31, 2012 of $16.35 per share from the ending market value at December 31, 2011 of $15.45 per share, plus the declared dividends of $0.37 per share for the three months ended March 31, 2012, divided by the market value at December 31, 2011. Total return based on market value is not annualized. The Company’s shares fluctuate in value. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

 

(4) For the three months ended March 31, 2013, the total return based on net asset value equaled the change in net asset value during the period plus the declared dividends of $0.38 per share for the three months ended March 31, 2013, divided by the beginning net asset value at January 1, 2013. For the three months ended March 31, 2012, the total return based on net asset value equaled the change in net asset value during the period plus the declared dividends of $0.37 per share for the three months ended March 31, 2012 divided by the beginning net asset value. These calculations are adjusted for shares issued in connection with the dividend reinvestment plan and the issuance of common stock in connection with any equity offerings. Total return based on net asset value is not annualized. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

 

(5) The ratios reflect an annualized amount.

 

(6) For the three months ended March 31, 2013, the ratio of operating expenses to average net assets consisted of 2.35% of base management fees, 2.03% of incentive fees, 3.99% of the cost of borrowing and 0.96% of other operating expenses. For the three months ended March 31, 2012, the ratio of operating expenses to average net assets consisted of 2.39% of base management fees, 3.15% of incentive fees, 3.92% of the cost of borrowing and other operating expenses of 1.05%. These ratios reflect annualized amounts.

 

(7) The ratio of net investment income to average net assets excludes income taxes related to realized gains.

 

14.                               LITIGATION

 

The Company is party to certain lawsuits in the normal course of business. In addition, Allied Capital was involved in various legal proceedings that the Company assumed in connection with the Allied Acquisition. Furthermore, third parties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. While the outcome of any such legal proceedings cannot at this time be predicted with certainty, the Company does not expect that these legal proceedings will materially affect its business, financial condition or results of operations.

 

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15.                               SUBSEQUENT EVENTS

 

The Company’s management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the Consolidated Financial Statements as of and for the three months ended March 31, 2013, except as disclosed below.

 

In April 2013, the Company completed a public add-on equity offering (the “April 2013 Offering”) pursuant to which the Company sold 19,148 shares of common stock at a price of $17.43 per share to the participating underwriters. Total proceeds from the April 2013 Offering, net of estimated offering expenses payable by the Company, were approximately $333.2 million.

 

In May 2013, the Company entered into an amendment to the Revolving Credit Facility.  The amendment, among other things, (1) extended the end of the revolving period from May 4, 2015 to May 4, 2017, (2) extended the stated maturity date from May 4, 2016 to May 4, 2018, (3) reduced the interest rate charged from LIBOR plus an applicable spread of 2.25% or a “base rate” (as defined in the agreements governing the Revolving Credit Facility) plus an applicable spread of 1.25% to LIBOR plus an applicable spread of 2.00% or a “base rate” plus an applicable spread of 1.00% and (4) increased total commitments to $930,000 as well as provided for a feature that allows the Company, under certain circumstances, to increase the size of the Revolving Credit Facility to a maximum of $1,400,000.

 

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.

 

The information contained in this section should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Quarterly Report. In addition, some of the statements in this report (including in the following discussion) constitute forward- looking statements, which relate to future events or the future performance or financial condition of Ares Capital Corporation (the “Company,” “ARCC,” “Ares Capital,” “we,” “us,” or “our”). The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning:

 

·                  our, or our portfolio companies’, future business, operations, operating results or prospects;

 

·                  the return or impact of current and future investments;

 

·                  the impact of a protracted decline in the liquidity of credit markets on our business;

 

·                  the impact of fluctuations in interest rates on our business;

 

·                  the impact of changes in laws or regulations (including the interpretation thereof) governing our operations or the operations of our portfolio companies;

 

·                  the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

 

·                  our ability to recover unrealized losses;

 

·                  market conditions and our ability to access alternative debt markets and additional debt and equity capital;

 

·                  our contractual arrangements and relationships with third parties;

 

·                  Middle East turmoil and the potential for rising energy prices and its impact on the industries in which we invest;

 

·                  the general economy and its impact on the industries in which we invest;

 

·                  the uncertainty surrounding the strength of the U.S. economic recovery;

 

·                  European sovereign debt issues;

 

·                  the financial condition of and ability of our current and prospective portfolio companies to achieve their objectives;

 

·                  our expected financings and investments;

 

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·                  our ability to successfully complete and integrate any acquisitions;

 

·                  the adequacy of our cash resources and working capital;

 

·                  the timing, form and amount of any dividend distributions;

 

·                  the timing of cash flows, if any, from the operations of our portfolio companies; and

 

·                  the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments.

 

We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward- looking statements, although not all forward looking statements include these words. Our actual results and condition could differ materially from those expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2012.

 

We have based the forward-looking statements included in this Quarterly Report on information available to us on the date of this Quarterly Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.

 

OVERVIEW

 

We are a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”).

 

We are externally managed by Ares Capital Management LLC (“Ares Capital Management” or our “investment adviser”), a wholly owned subsidiary of Ares Management LLC (“Ares Management”), a global alternative asset manager and a SEC registered investment adviser, pursuant to our investment advisory and management agreement. Ares Operations LLC (“Ares Operations” or our “administrator”), a wholly owned subsidiary of Ares Management, provides certain administrative and other services necessary for us to operate.

 

Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in first lien senior secured loans (including unitranche loans), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component like warrants.

 

To a lesser extent, we also make preferred and/or common equity investments, which have generally been non-control equity investments, of less than $20 million (usually in conjunction with a concurrent debt investment). However, we may increase the size or change the nature of these investments.

 

Since our initial public offering on October 8, 2004 through March 31, 2013, our realized gains have exceeded our realized losses by approximately $206 million (excluding the one-time gain on the acquisition of Allied Capital Corporation (the “Allied Acquisition”) and gains/losses from the extinguishment of debt and other assets). For this same time period, our exited investments have resulted in an aggregate cash flow realized internal rate of return to us of approximately 13% (based on original cash invested, net of syndications, of approximately $7.0 billion and total proceeds from such exited investments of approximately $8.5 billion). Approximately 72% of these exited investments resulted in an aggregate cash flow realized internal rate of return to us of 10% or greater. Internal rate of return is the discount rate that makes the net present value of all cash flows related to a particular investment equal to zero. Internal rate of return is gross of expenses related to investments as these expenses are not allocable to specific investments. Investments are considered to be exited when the original investment objective has been achieved through the receipt of cash and/or non-cash consideration upon the repayment of a debt investment or sale of an investment or through the determination that no further consideration was collectible and, thus, a loss may have been realized. These internal rates of return results are historical results relating to our past performance and are not necessarily indicative of future results, the achievement of which cannot be assured.

 

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As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities and indebtedness of private U.S. companies and certain public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. We also may invest up to 30% of our portfolio in non-qualifying assets, as permitted by the Investment Company Act. Specifically, as part of this 30% basket, we may invest in entities that are not considered “eligible portfolio companies” (as defined in the Investment Company Act), including companies located outside of the United States, entities that are operating pursuant to certain exceptions under the Investment Company Act, and publicly traded entities whose public equity market capitalization exceeds the levels provided for under the Investment Company Act.

 

We have elected to be treated as a regulated investment company (“RIC”) under the Code, and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders generally at least 90% of our investment company taxable income, as defined by the Code, for each year. Pursuant to this election, we generally will not have to pay corporate level taxes on any income that we distribute to our stockholders provided that we satisfy those requirements.

 

PORTFOLIO AND INVESTMENT ACTIVITY

 

The Company’s investment activity for the three months ended March 31, 2013 and 2012 is presented below (information presented herein is at amortized cost unless otherwise indicated).

 

 

 

For the three months ended

 

(dollar amounts in millions)

 

March 31, 2013

 

March 31, 2012

 

New investment commitments (1):

 

 

 

 

 

New portfolio companies

 

$

90.5

 

$

235.9

 

Existing portfolio companies(2)

 

319.5

 

148.4

 

Total new investment commitments

 

410.0

 

384.3

 

Less:

 

 

 

 

 

Investment commitments exited

 

221.7

 

331.4

 

Net investment commitments

 

$

188.3

 

$

52.9

 

Principal amount of investments funded:

 

 

 

 

 

Senior term debt

 

$

290.5

 

$

314.1

 

Senior subordinated debt

 

40.5

 

 

Subordinated Certificates of the Senior Secured Loan Fund, LLC (the

 

 

 

 

 

“SSLP”)(3)

 

21.0

 

66.0

 

Preferred equity securities

 

1.0

 

 

Other equity securities

 

2.1

 

2.4

 

Total

 

$

355.1

 

$

382.5

 

Principal amount of investments sold or repaid:

 

 

 

 

 

Senior term debt

 

$

208.6

 

$

289.5

 

Senior subordinated debt

 

0.3

 

20.9

 

Subordinated Certificates of the SSLP(3)

 

14.1

 

 

Preferred equity securities

 

 

1.2

 

Other equity securities

 

2.7

 

6.9

 

Commercial real estate

 

 

0.6

 

Total

 

$

225.7

 

$

319.1

 

Number of new investment commitments (4)

 

17

 

12

 

Average new investment commitment amount

 

$

24.1

 

$

32.0

 

Weighted average term for new investment commitments (in

 

 

 

 

 

months)

 

70

 

69

 

Percentage of new investment commitments at floating rates

 

77

%

99

%

Percentage of new investment commitments at fixed rates

 

21

%

%

Weighted average yield of debt and other income producing securities (5):

 

 

 

 

 

Funded during the period at fair value (6)

 

8.9

%

10.6

%

Funded during the period at amortized cost

 

8.9

%

10.6

%

Exited or repaid during the period at fair value (6)

 

9.9

%

9.1

%

Exited or repaid during the period at amortized cost

 

9.8

%

9.2

%

 


(1)                                 New investment commitments include new agreements to fund revolving credit facilities or delayed draw loans.

 

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(2)                                 Includes investment commitments to the SSLP to make co-investments with General Electric Capital Corporation and GE Global Sponsor Finance LLC (together, “GE”) in first lien senior secured loans of middle market companies of $21.0 million and $66.0 million for the three months ended March 31, 2013 and 2012, respectively.

 

(3)                                 See “Senior Secured Loan Program” below and Note 4 to our consolidated financial statements for the three months ended March 31, 2013 for more detail on the SSLP.

 

(4)                                 Number of new investment commitments represents each commitment to a particular portfolio company.

 

(5)                                 “Weighted average yield of debt and other income producing securities at fair value” is computed as the (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount earned on accruing debt and other income producing securities, divided by (b) total debt and other income producing securities at fair value. “Weighted average yield of debt and other income producing securities at amortized cost” is computed as the (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount earned on accruing debt and other income producing securities, divided by (b) total debt and other income producing securities at amortized cost.

 

(6)                                 Represents fair value for investments in the portfolio as of the most recent prior quarter end, if applicable.

 

As of March 31, 2013 and December 31, 2012, our investments consisted of the following:

 

 

 

As of

 

 

 

March 31, 2013

 

December 31, 2012

 

(in millions)

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

Senior term debt

 

$

3,673.1

 

$

3,635.4

 

$

3,587.8

 

$

3,555.1

 

Subordinated Certificates of the SSLP(1)

 

1,244.8

 

1,269.7

 

1,237.9

 

1,263.6

 

Senior subordinated debt

 

364.6

 

302.8

 

321.3

 

259.8

 

Preferred equity securities

 

240.4

 

259.4

 

238.8

 

250.1

 

Other equity securities

 

429.7

 

550.3

 

430.4

 

584.1

 

Commercial real estate

 

7.2

 

12.9

 

7.3

 

11.9

 

Total

 

$

5,959.8

 

$

6,030.5

 

$

5,823.5

 

$

5,924.6

 

 


(1)                                 The proceeds from these certificates were applied to co-investments with GE to fund first lien senior secured loans to 37 and 36 different borrowers as of March 31, 2013 and December 31, 2012, respectively.

 

The weighted average yields at fair value and amortized cost of the following portions of our portfolio as of March 31, 2013 and December 31, 2012 were as follows:

 

 

 

As of

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

Debt and other income producing securities

 

11.1

%

11.0

%

11.4

%

11.3

%

Total portfolio

 

9.9

%

9.8

%

10.1

%

10.0

%

Senior term debt

 

9.3

%

9.4

%

9.5

%

9.6

%

First lien senior term debt

 

8.7

%

8.7

%

9.0

%

9.0

%

Second lien senior term debt

 

10.4

%

10.6

%

10.5

%

10.7

%

Subordinated Certificates of the SSLP (1)

 

15.5

%

15.2

%

15.8

%

15.4

%

Senior subordinated debt

 

11.3

%

13.6

%

11.7

%

14.5

%

Income producing equity securities (excluding collateralized loan obligations)

 

10.0

%

9.4

%

9.9

%

8.8

%

 


(1)         The proceeds from these certificates were applied to co-investments with GE to fund first lien senior secured loans.

 

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Ares Capital Management, our investment adviser, employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our investment adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. Under this system, investments with a grade of 4 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit. Investments graded 3 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 3. Investments graded 2 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due. An investment grade of 1 indicates that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 1, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 1, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit. For investments graded 1 or 2, our investment adviser enhances its level of scrutiny over the monitoring of such portfolio company. Our investment adviser grades the investments in our portfolio at least each quarter and it is possible that the grade of a portfolio investment may be reduced or increased over time.

 

Set forth below is the grade distribution of our portfolio companies as of March 31, 2013 and December 31, 2012:

 

 

 

As of

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Fair

 

 

 

Number of

 

 

 

Fair

 

 

 

Number of

 

 

 

(dollar amounts in millions)

 

Value

 

%

 

Companies

 

%

 

Value

 

%

 

Companies

 

%

 

Grade 1

 

$

78.6

 

1.3

%

9

 

5.8

%

$

75.1

 

1.3

%

9

 

5.9

%

Grade 2

 

187.5

 

3.1

%

11

 

7.0

%

136.7

 

2.3

%

9

 

5.9

%

Grade 3

 

5,184.8

 

86.0

%

123

 

78.9

%

5,108.8

 

86.2

%

121

 

79.7

%

Grade 4

 

579.6

 

9.6

%

13

 

8.3

%

604.0

 

10.2

%

13

 

8.5

%

 

 

$

6,030.5

 

100.0

%

156

 

100.0

%

$

5,924.6

 

100.0

%

152

 

100.0

%

 

As of March 31, 2013 and December 31, 2012, the weighted average grade of the investments in our portfolio at fair value was 3.0 and 3.1, respectively.

 

As of March 31, 2013, loans on non-accrual status represented 2.3% and 0.6% of the total investments at amortized cost and at fair value, respectively. As of December 31, 2012, loans on non-accrual status represented 2.3% and 0.6% of the total investments at amortized cost and at fair value, respectively.

 

Senior Secured Loan Program

 

The Company co-invests in first lien senior secured loans of middle market companies with GE through an unconsolidated Delaware limited liability company, the Senior Secured Loan Fund LLC (d/b/a “The Senior Secured Loan Program”) or the SSLP. The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required). The Company provides capital to the SSLP in the form of subordinated certificates (the “SSLP Certificates”).

 

As of March 31, 2013 and December 31, 2012, the SSLP had available capital of $9.0 billion of which approximately $6.2 billion and $6.3 billion in aggregate principal amount was funded, respectively. As of March 31, 2013 and December 31, 2012, the Company had agreed to make available to the SSLP approximately $1.8 billion of which approximately $1.3 billion and $1.2 billion was funded, respectively. Investment of any unfunded amount must still be approved by the investment committee of the SSLP as described above.

 

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As of March 31, 2013 and December 31, 2012, the SSLP had total assets of $6.2 billion and $6.3 billion, respectively. As of March 31, 2013 and December 31, 2012, GE’s investment in the SSLP consisted of senior notes of $4.7 billion and $4.8 billion, respectively, and SSLP Certificates of $179 million and $178 million, respectively. The SSLP Certificates are junior in right of payment to the senior notes held by GE. As of March 31, 2013 and December 31, 2012, the Company and GE owned 87.5% and 12.5%, respectively, of the outstanding SSLP Certificates.

 

As of March 31, 2013 and December 31, 2012, the SSLP’s portfolio was comprised of all first lien senior secured loans to U.S. middle-market companies and none of these loans was on non-accrual status. The portfolio companies in the SSLP are in industries similar to the companies in the Company’s portfolio.

 

Below is a summary of the SSLP’s portfolio, followed by a listing of the individual first lien senior secured loans in the SSLP’s portfolio as of March 31, 2013 and December 31, 2012:

 

 

 

As of

 

(dollar amounts in millions)

 

March 31, 2013

 

December 31, 2012

 

Total first lien senior secured loans(1)

 

$

6,129.6

 

$

5,998.1

 

Weighted average yield on first lien senior secured loans(2)

 

7.7

%

8.0

%

Number of borrowers in the SSLP

 

37

 

36

 

Largest loan to a single borrower(1)

 

$

327.9

 

$

330.0

 

Total of five largest loans to borrowers(1)

 

$

1,446.9

 

$

1,441.4

 

 


(1)                                 At principal amount.

 

(2)                                 Computed as the (a) annual stated interest rate on accruing first lien senior secured loans, divided by (b) total first lien senior secured loans at principal amount.

 

SSLP Loan Portfolio as of March 31, 2013

 

(dollar amounts in millions)
Portfolio Company

 

Business Description

 

Maturity
Date

 

Stated
Interest
Rate(1)

 

Principal
Amount

 

Access CIG, LLC (2)

 

Records and information management services provider

 

10/2017

 

7.0

%

$

153.5

 

ADG, LLC

 

Dental services

 

10/2016

 

8.8

%

198.9

 

AMZ Products Merger Corporation

 

Specialty chemicals manufacturer

 

12/2018

 

6.8

%

239.4

 

BECO Holding Company, Inc.(4)

 

Wholesale distributor of first response fire protection equipment and related parts

 

12/2017

 

8.3

%

156.5

 

Cambridge International, Inc.

 

Manufacturer of custom designed and engineered metal products

 

4/2018

 

8.0

%

87.5

 

CCS Group Holdings, LLC(4)

 

Correctional facility healthcare operator

 

4/2016

 

8.0

%

142.8

 

Chariot Acquisition, LLC

 

Distributor and designer of aftermarket golf cart parts and accessories

 

1/2019

 

7.8

%

146.0

 

CIBT Holdings, Inc.(4)

 

Expedited travel document processing services

 

12/2018

 

6.8

%

183.1

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings LLC(2)(4)

 

Healthcare analysis services

 

3/2017

 

7.8

%

284.2

 

CWD, LLC

 

Supplier of automotive aftermarket brake parts

 

3/2014

 

8.8

%

118.8

 

Drayer Physical Therapy Institute, LLC

 

Outpatient physical therapy provider

 

7/2018

 

7.5

%

137.7

 

Driven Holdings, LLC(4)

 

Automotive aftermarket car care franchisor

 

3/2017

 

7.0

%

160.4

 

Excelligence Learning Corporation(4)

 

Developer, manufacturer and retailer of educational products

 

8/2016

 

8.0

%

115.5

 

Fleischmann’s Vinegar Company, Inc.

 

Manufacturer and marketer of industrial vinegar

 

5/2016

 

8.2

%

76.5

 

Fox Hill Holdings, LLC

 

Third party claims administrator on behalf of insurance carriers

 

6/2018

 

6.8

%

292.5

 

III US Holdings, LLC

 

Provider of library automation software and systems

 

3/2018

 

7.6

%

202.4

 

Implus Footcare, LLC(4)

 

Provider of footwear and other accessories

 

10/2016

 

9.0

%

177.6

 

Instituto de Banca y Comercio, Inc. & Leeds IV Advisors, Inc.(4)

 

Private school operator

 

6/2015

 

10.5

%

164.3

 

Intermedix Corporation(3)

 

Revenue cycle management provider to the emergency healthcare industry

 

12/2018

 

6.3

%

327.9

 

JHP Pharmaceuticals, LLC(4)

 

Manufacturer of specialty pharmaceutical products

 

2/2019

 

6.3

%

100.0

 

LJSS Acquisition, Inc.

 

Fluid power distribution company in the industrial and mobile equipment markets

 

10/2017

 

6.8

%

162.8

 

MWI Holdings, Inc.(2)

 

Highly engineered springs, fastners, and other precision components

 

3/2019

 

7.4

%

262.2

 

Nordco, Inc.

 

Designer and manufacturer of railroad maintenance-of-way machinery

 

6/2016

 

6.5

%

113.2

 

Oak Parent, Inc.(2)

 

Manufacturer of athletic apparel

 

4/2018

 

8.0

%

280.1

 

Opinionology, LLC and Survey Sampling International LLC

 

Provider of outsourced data collection to the market research industry

 

7/2017

 

8.5

%

152.3

 

Penn Detroit Diesel Allison, LLC

 

Distributor of new equipment and aftermarket parts to the heavy-duty truck industry

 

12/2016

 

9.1

%

65.3

 

PetroChoice Holdings, LLC

 

Provider of lubrication solutions

 

1/2017

 

10.0

%

162.4

 

Power Buyer, LLC

 

Provider of emergency maintenance services for power transmission, distribution, and substation infrastructure

 

12/2018

 

8.8

%

208.0

 

Powersport Auctioneer Holdings, LLC(4)

 

Powersport vehicle auction operator

 

12/2016

 

8.5

%

40.5

 

Pregis Corporation, Pregis Intellipack Corp. and Pregis Innovative Packaging Inc.(2)

 

Provider of highly-customized and tailored protective packaging solutions

 

3/2017

 

7.8

%

125.6

 

PSSI Holdings, LLC

 

Provider of mission-critical outsourced cleaning and sanitation services to the food processing industry

 

6/2017

 

6.5

%

156.7

 

Selig Sealing Products, Inc.

 

Manufacturer of container sealing products for rigid packaging applications

 

3/2019

 

6.5

%

159.6

 

Singer Sewing Company

 

Manufacturer of consumer sewing machines

 

6/2017

 

7.3

%

199.0

 

Strategic Partners, Inc.

 

Designer, manufacturer and distributor of medical uniforms

 

8/2018

 

7.8

%

233.8

 

Talent Partners G.P. and Print Payroll Services, G.P.

 

Provider of technology-enabled payroll to the advertising industry

 

10/2017

 

8.0

%

65.5

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.(2)(4)

 

Education publications provider

 

3/2017

 

9.0

%

113.3

 

WB Merger Sub, Inc.

 

Importer, distributor and developer of premium wine and spirits

 

12/2016

 

9.0

%

163.8

 

 

 

 

 

 

 

 

 

$

6,129.6

 

 


(1)                                 Represents the weighted average annual stated interest rate as of March 31, 2013. All interest rates are payable in cash.

 

(2)                                 The Company also holds a portion of the first lien senior secured loan in this portfolio company.

 

(3)                                 The Company also holds a second lien senior secured loan in the portfolio company.

 

(4)                                 The Company holds an equity investment in this portfolio company.

 

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Table of Contents

 

SSLP Loan Portfolio as of December 31, 2012

 

(dollar amounts in millions)
Portfolio Company

 

Business Description

 

Maturity
Date

 

Stated
Interest
Rate(1)

 

Principal
Amount

 

Fair
Value(2)

 

Access CIG, LLC(3)

 

Records and information management services provider

 

10/2017

 

7.0

%

$

152.8

 

$

152.8

 

ADG, LLC

 

Dental services

 

10/2016

 

8.8

%

199.4

 

199.4

 

AMZ Products Merger Corporation

 

Specialty chemicals manufacturer

 

12/2018

 

6.8

%

240.0

 

240.0

 

BECO Holding Company, Inc.(5)

 

Wholesale distributor of first response fire protection equipment and related parts

 

12/2017

 

8.3

%

160.0

 

160.0

 

Cambridge International, Inc.

 

Manufacturer of custom designed and engineered metal products

 

4/2018

 

8.0

%

88.3

 

83.9

 

CCS Group Holdings, LLC(5)

 

Correctional facility healthcare operator

 

4/2016

 

8.0

%

142.8

 

142.8

 

Chariot Acquisition, LLC

 

Distributor and designer of aftermarket golf cart parts and accessories

 

1/2018

 

8.8

%

146.8

 

146.8

 

CIBT Holdings, Inc.(5)

 

Expedited travel document processing services

 

12/2017

 

8.5

%

146.4

 

146.4

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings LLC(3)(5)

 

Healthcare analysis services

 

3/2017

 

7.8

%

284.9

 

273.5

 

CWD, LLC

 

Supplier of automotive aftermarket brake parts

 

3/2014

 

8.8

%

119.8

 

110.2

 

Drayer Physical Therapy Institute, LLC

 

Outpatient physical therapy provider

 

7/2018

 

7.5

%

138.1

 

138.1

 

Driven Holdings, LLC(5)

 

Automotive aftermarket car care franchisor

 

3/2017

 

7.0

%

160.4

 

160.4

 

Excelligence Learning Corporation(5)

 

Developer, manufacturer and retailer of educational products

 

8/2016

 

8.0

%

115.8

 

115.8

 

Fleischmann’s Vinegar Company, Inc.

 

Manufacturer and marketer of industrial vinegar

 

5/2016

 

8.9

%

59.6

 

59.6

 

Fox Hill Holdings, LLC

 

Third party claims administrator on behalf of insurance carriers

 

12/2017

 

8.0

%

292.5

 

292.5

 

III US Holdings, LLC

 

Provider of library automation software and systems

 

3/2018

 

7.6

%

202.9

 

202.9

 

Implus Footcare, LLC(5)

 

Provider of footwear and other accessories

 

10/2016

 

9.5

%

178.0

 

178.0

 

Instituto de Banca y Comercio, Inc. & Leeds IV Advisors, Inc.(5)

 

Private school operator

 

6/2015

 

10.5

%

165.6

 

165.6

 

Intermedix Corporation(4)

 

Revenue cycle management provider to the emergency healthcare industry

 

12/2018

 

6.3

%

330.0

 

330.0

 

LJSS Acquisition, Inc.

 

Fluid power distribution company in the industrial and mobile equipment markets

 

9/2017

 

6.8

%

163.9

 

163.9

 

MWI Holdings, Inc.(3)

 

Highly engineered springs, fasteners, and other precision components

 

6/2017

 

8.0

%

251.2

 

251.2

 

Nordco, Inc.

 

Designer and manufacturer of railroad maintenance-of-way machinery

 

6/2016

 

7.0

%

113.2

 

113.2

 

Oak Parent, Inc.(3)

 

Manufacturer of athletic apparel

 

4/2018

 

8.0

%

282.8

 

282.8

 

Opinionology, LLC and Survey Sampling International LLC

 

Provider of outsourced data collection to the market research industry

 

7/2017

 

8.5

%

152.3

 

152.3

 

Penn Detroit Diesel Allison, LLC

 

Distributor of new equipment and aftermarket parts to the heavy-duty truck industry

 

12/2016

 

9.0

%

65.3

 

65.3

 

PetroChoice Holdings, LLC

 

Provider of lubrication solutions

 

1/2017

 

10.0

%

162.4

 

162.4

 

Power Buyer, LLC

 

Provider of emergency maintenance services for power transmission, distribution, and substation infrastructure

 

12/2018

 

8.8

%

208.0

 

208.0

 

Powersport Auctioneer Holdings, LLC(5)

 

Powersport vehicle auction operator

 

12/2016

 

8.5

%

40.7

 

40.7

 

Pregis Corporation, Pregis Intellipack Corp. and Pregis Innovative Packaging Inc.(3)

 

Provider of highly-customized and tailored protective packaging solutions

 

3/2017

 

7.8

%

125.9

 

125.9

 

PSSI Holdings, LLC

 

Provider of mission-critical outsourced cleaning and sanitation services to the food processing industry

 

6/2017

 

6.8

%

161.7

 

161.7

 

Selig Sealing Products, Inc.

 

Manufacturer of container sealing products for rigid packaging applications

 

7/2018

 

7.8

%

169.6

 

169.6

 

Singer Sewing Company

 

Manufacturer of consumer sewing machines

 

6/2017

 

7.3

%

199.0

 

199.0

 

Strategic Partners, Inc.

 

Designer, manufacturer and distributor of medical uniforms

 

8/2018

 

7.8

%

234.4

 

234.4

 

Talent Partners G.P. and Print Payroll Services, G.P.

 

Provider of technology-enabled payroll to the advertising industry

 

10/2017

 

8.0

%

65.5

 

65.5

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.(3)(5)

 

Education publications provider

 

3/2017

 

9.0

%

113.9

 

113.9

 

WB Merger Sub, Inc.

 

Importer, distributor and developer of premium wine and spirits

 

12/2016

 

9.0

%

164.2

 

164.2

 

 

 

 

 

 

 

 

 

$

5,998.1

 

$

5,972.7

 

 


(1)                                 Represents the weighted average annual stated interest rate as of December 31, 2012. All interest rates are payable in cash.

 

(2)                                 Represents the fair value in accordance with ASC 820-10. The determination of such fair value is not included in the Company’s board of directors valuation process described elsewhere herein.

 

(3)                                 The Company also holds a portion of the first lien senior secured loan in this portfolio company.

 

(4)                                 The Company also holds a second lien senior secured loan in the portfolio company.

 

(5)                                 The Company holds an equity investment in this portfolio company.

 

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Table of Contents

 

The amortized cost and fair value of the SSLP Certificates held by the Company was $1.2 billion and $1.3 billion, respectively, as of March 31, 2013 and December 31, 2012. The SSLP Certificates pay a weighted average contractual coupon of three month LIBOR plus approximately 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the underlying loan portfolio, which may result in a return to the holders of the SSLP Certificates that is greater than both the contractual coupon on the SSLP Certificates as well as the weighted average yield on the SSLP’s portfolio of 7.7% and 8.0% as of March 31, 2013 and December 31, 2012, respectively. The Company’s yield on its investment in the SSLP at fair value was 15.2% and 15.4% as of March 31, 2013 and December 31, 2012, respectively. For the three months ended March 31, 2013 and 2012, the Company earned interest income of $48.6 million and $43.3 million, respectively, from its investment in the SSLP Certificates.

 

The Company is also entitled to certain fees in connection with the SSLP. For the three months ended March 31, 2013 and 2012, in connection with the SSLP, the Company earned capital structuring service fees and sourcing, management and other fees totaling $7.9 million and $13.9 million, respectively.

 

Effective March 30, 2012, Ares Capital Management assumed from the Company the role of co-manager of the SSLP. However, this change did not impact the Company’s economics in respect of its participation in the SSLP and Ares Capital Management does not receive any remuneration in respect of its co-manager role.

 

Selected financial information for the SSLP as of and for the year ended December 31, 2012 is as follows:

 

 

 

As of and for the Year
Ended

 

(in millions)

 

December 31, 2012

 

Selected Balance Sheet Information:

 

 

 

Investments in loans receivable, net of discount for loan origination fees

 

$

5,952.3

 

Cash and other assets

 

$

369.2

 

Total assets

 

$

6,321.5

 

 

 

 

 

Senior notes

 

$

4,840.4

 

Other liabilities

 

$

46.9

 

Total liabilities

 

$

4,887.3

 

Subordinated certificates and members’ capital

 

$

1,434.2

 

Total liabilities and members’ capital

 

$

6,321.5

 

 

 

 

 

Selected Statement of Operations Information:

 

 

 

Total revenues

 

$

479.4

 

Total expenses

 

$

258.7

 

Net income

 

$

220.7

 

 

RESULTS OF OPERATIONS

 

For the three months ended March 31, 2013 and 2012

 

Operating results for the three months ended March 31, 2013 and 2012 are as follows:

 

 

 

For the three months ended March 31,

 

(in millions)

 

2013

 

2012

 

Total investment income

 

$

195.1

 

$

167.7

 

Total expenses

 

92.2

 

88.0

 

Net investment income before income taxes

 

102.9

 

79.7

 

Income tax expense, including excise tax

 

3.8

 

2.7

 

Net investment income

 

99.1

 

77.0

 

Net realized gains (losses) on investments

 

11.7

 

(7.7

)

Net unrealized gains (losses) on investments

 

(30.4

)

36.2

 

Net increase in stockholders’ equity resulting from operations

 

$

80.4

 

$

105.5

 

 

Net income can vary substantially from period to period due to various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net income may not be meaningful.

 

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Table of Contents

 

Investment Income

 

 

 

For the three months ended March 31,

 

(in millions)

 

2013

 

2012

 

Interest income from investments

 

$

144.2

 

$

132.9

 

Capital structuring service fees

 

6.0

 

17.7

 

Dividend income

 

32.1

 

9.2

 

Management and other fees

 

4.5

 

4.9

 

Other income

 

8.3

 

3.0

 

Total investment income

 

$

195.1

 

$

167.7

 

 

The increase in interest income from investments for the three months ended March 31, 2013 from the comparable period in 2012 was primarily due to the increase in the size of the portfolio, which increased from an average of $5.1 billion at amortized cost for the three months ended March 31, 2012 to an average of $5.9 billion at amortized cost for the comparable period in 2013. Even though new investment commitments increased slightly from $384 million for the three months ended March 31, 2012 to $410 million for the comparable period in 2013, capital structuring service fees decreased for the three months ended March 31, 2013 as compared to the comparable period in 2012 primarily due to the decrease in the average capital structuring service fees received on new investments, which decreased from 4.6% for the three months ended March 31, 2012 to 1.5% for the comparable period in 2013. The decrease in the average capital structuring service fees percentage during the three months ended March 31, 2013 as compared to the comparable period in 2012 was primarily due to a higher amount of refinancing activity in existing portfolio companies as opposed to investments made in new portfolio companies. For the three months ended March 31, 2013, dividend income included $27.4 million from the Company’s investment in Ivy Hill Asset Management, L.P. (“IHAM”) as compared to $4.7 million for the comparable period in 2012. The dividend from IHAM for the three months ended March 31, 2013 included an additional dividend of $17.4 million that was paid in addition to the quarterly dividend generally paid by IHAM. IHAM paid the additional dividend out of accumulated earnings that had previously been retained by IHAM. The increase in other income for the three months ended March 31, 2013 from the comparable period in 2012 was primarily attributable to higher amendment fees.

 

Operating Expenses

 

 

 

For the three months ended March 31,

 

(in millions)

 

2013

 

2012

 

Interest and credit facility fees

 

$

39.4

 

$

32.8

 

Base management fees

 

23.2

 

20.0

 

Incentive fees related to pre-incentive fee net investment income

 

23.8

 

20.7

 

Incentive fees related to capital gains per GAAP

 

(3.8

)

5.7

 

Professional fees

 

3.2

 

3.7

 

Administrative fees

 

2.6

 

2.3

 

Other general and administrative

 

3.8

 

2.8

 

Total operating expenses

 

$

92.2

 

$

88.0

 

 

Interest and credit facility fees for the three months ended March 31, 2013 and 2012, were comprised of the following:

 

 

 

For the three months ended March 31,

 

(in millions)

 

2013

 

2012

 

Stated interest expense

 

$

29.9

 

$

25.5

 

Facility fees

 

2.6

 

1.3

 

Amortization of debt issuance costs

 

3.5

 

3.4

 

Accretion of discount on notes payable

 

3.4

 

2.6

 

Total interest and credit facility fees expense

 

$

39.4

 

$

32.8

 

 

Stated interest expense for the three months ended March 31, 2013 increased from the comparable period in 2012 due to the increase in the average principal amount of debt outstanding and an increase in our weighted average stated interest rate. For the three months ended March 31, 2013, our average principal debt outstanding was $2.1 billion as compared to $2.0 billion for the comparable period in 2012, and the weighted average stated interest rate on our debt was 5.8% for the three months ended March 31, 2013 as compared to 5.1% for the comparable period in 2012. The higher weighted average stated interest rate for 2013 relates to having borrowed, on a relative basis, less from our lower-cost floating rate revolving debt facilities and having more debt outstanding under our fixed rate term debt obligations.

 

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Table of Contents

 

The increase in base management fees and incentive fees related to pre-incentive fee net investment income for the three months ended March 31, 2013 from the comparable period in 2012 were primarily due to the increase in the size of the portfolio and in the case of incentive fees, the related increase in pre-incentive fee net investment income.

 

For the three months ended March 31, 2013, we recorded a reduction of $3.8 million in the capital gains incentive fee expense accrual calculated in accordance with GAAP. For the three months ended March 31, 2012, the capital gains incentive fee expense accrual calculated in accordance with GAAP was $5.7 million. The capital gains incentive fee accrued under GAAP includes an accrual related to unrealized capital appreciation, whereas the capital gains incentive fee actually payable under our investment advisory and management agreement does not. There can be no assurance that such unrealized capital appreciation will be realized in the future. The accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. As of March 31, 2013, the total capital gains incentive fee liability calculated in accordance with GAAP was $65.5 million (included in management and incentive fees payable in the consolidated balance sheet).  However, as of March 31, 2013, there was no capital gains fee actually payable under our investment advisory and management agreement. See Note 3 to the Company’s consolidated financial statements for the three months ended March 31, 2013 for more information on the incentive and base management fees.

 

Professional fees include legal, accounting, valuation and other professional fees incurred related to the management of the Company. Administrative fees represent fees paid to Ares Operations for our allocable portion of overhead and other expenses incurred by Ares Operations in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers and their respective staffs.  Other general and administrative expenses include rent, insurance, depreciation, director’s fees and other costs.

 

Income Tax Expense, Including Excise Tax

 

The Company has elected to be treated as a RIC under the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, timely distribute to its stockholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. In order to maintain its RIC status, the Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders which will generally relieve the Company from U.S. federal income taxes.

 

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, the Company accrues excise tax on estimated excess taxable income as such taxable income is earned. For the three months ended March 31, 2013 and 2012, a net expense of $3.0 million and $2.0 million was recorded for U.S. federal excise tax, respectively.

 

Certain of our consolidated subsidiaries are subject to U.S. federal and state income taxes. For the three months ended March 31, 2013 and 2012, we recorded a tax expense of approximately $0.8 million and $0.7 million, respectively, for these subsidiaries.

 

Net Realized Gains/Losses

 

During the three months ended March 31, 2013, the Company had $235.7 million of sales, repayments or exits of investments resulting in $11.7 million of net realized gains. Net realized gains of $11.7 million on investments were comprised of $11.7 million of gross realized gains and $0.0 million of gross realized losses.

 

The realized gains and losses on investments during the three months ended March 31, 2013 consisted of the following:

 

(in millions)

 

Net Realized

 

Portfolio Company

 

Gains (Losses)

 

Performant Financial Corporation

 

$

8.6

 

Other, net

 

3.1

 

Total

 

$

11.7

 

 

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Table of Contents

 

During the three months ended March 31, 2012, the Company had $311.1 million of sales, repayments or exits of investments resulting in $7.7 million of net realized losses. These sales, repayments or exits included $6.2 million of investments sold to IHAM or certain vehicles managed by IHAM. There were no realized gains or losses on these transactions.  Net realized losses of $7.7 million on investments were comprised of $0.6 million of gross realized gains and $8.3 million of gross realized losses.

 

The realized gains and losses on investments during the three months ended March 31, 2012 consisted of the following:

 

(in millions)

 

Net Realized

 

Portfolio Company

 

Gains (Losses)

 

Huddle House, Inc.

 

$

(1.7

)

LVCG Holdings LLC

 

(6.6

)

Other, net

 

0.6

 

Total

 

$

(7.7

)

 

Net Unrealized Gains/Losses

 

We value our portfolio investments quarterly and the changes in value are recorded as unrealized gains or losses. Net unrealized gains and losses for the Company’s portfolio were comprised of the following:

 

 

 

For the three months ended March 31,

 

(in millions)

 

2013

 

2012

 

Unrealized appreciation

 

$

31.3

 

$

63.2

 

Unrealized depreciation

 

(56.9

)

(35.8

)

Net unrealized (appreciation) depreciation reversed related to net realized gains or losses(1)

 

(4.8

)

8.8

 

Total net unrealized gains (losses) from investments

 

$

(30.4

)

$

36.2

 

 


(1)         The net unrealized (appreciation) depreciation reversed related to net realized gains or losses represents the unrealized appreciation or depreciation recorded on the related asset at the end of the prior period.

 

The changes in unrealized appreciation and depreciation during the three months ended March 31, 2013 consisted of the following:

 

 

 

Net Unrealized

 

(in millions)

 

Appreciation

 

Portfolio Company

 

(Depreciation)

 

Apple & Eve, LLC

 

$

3.6

 

Matrixx Initiatives, Inc.

 

3.0

 

La Paloma Generating Company, LLC

 

2.3

 

American Broadband Communications, LLC

 

2.2

 

Orion Food, LLC

 

(2.4

)

ADF Capital, Inc.

 

(2.5

)

Ciena Capital LLC

 

(4.1

)

CitiPostal Inc.

 

(5.3

)

UL Holding Co., LLC

 

(6.2

)

Ivy Hill Asset Management, L.P.(1)

 

(26.4

)

Other, net

 

10.2

 

Total

 

$

(25.6

)

 


(1)   See “Results of Operations - Investment Income” for discussion of the dividend income from IHAM during the period.

 

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Table of Contents

 

The changes in unrealized appreciation and depreciation during the three months ended March 31, 2012 consisted of the

following:

 

 

 

Net Unrealized

 

(in millions)

 

Appreciation

 

Portfolio Company

 

(Depreciation)

 

Ivy Hill Asset Management, L.P.

 

$

6.6

 

Firstlight Financial Corporation

 

6.2

 

ADF Restaurant Group, LLC

 

4.4

 

Savers, Inc.

 

4.2

 

Ciena Capital LLC

 

3.0

 

ICSH, Inc.

 

2.4

 

The Teaching Company, LLC

 

2.2

 

The Dwyer Group

 

2.1

 

Community Education Centers, Inc.

 

(2.4

)

American Broadband Communications, LLC

 

(2.5

)

RE Community Holdings II, Inc.

 

(2.5

)

Orion Foods, LLC

 

(3.3

)

Prommis Solutions, LLC

 

(4.3

)

eInstruction Corporation

 

(6.3

)

Other, net

 

17.6

 

Total

 

$

27.4

 

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s liquidity and capital resources are generated primarily from the net proceeds of public offerings of equity and debt securities, advances from the Revolving Credit Facility, the Revolving Funding Facility and the SMBC Funding Facility (each as defined below and together, the “Facilities”), net proceeds from the issuance of other securities, including convertible unsecured notes as well as cash flows from operations.

 

As of March 31, 2013, the Company had $102.5 million in cash and cash equivalents and $2.2 billion in total debt outstanding at carrying value ($2.3 billion at principal amount). Subject to leverage and borrowing base restrictions, the Company had approximately $1.6 billion available for additional borrowings under the Facilities as of March 31, 2013.

 

We may from time to time seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. The amounts involved may be material. In addition, we may from time to time enter into additional debt facilities, increase the size of existing facilities or issue additional debt securities, including unsecured debt and/or debt securities convertible into common stock. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the Investment Company Act, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, calculated pursuant to the Investment Company Act, is at least 200% after such borrowing.

 

Equity Issuances

 

There were no sales of our equity securities for the three months ended March 31, 2013. See “Recent Developments” as well as Note 15 to our consolidated financial statements for the three months ended March 31, 2013 for more information on an equity offering completed subsequent to March 31, 2013.

 

As of March 31, 2013, total equity market capitalization for the Company was $4.5 billion compared to $4.4 billion as of December 31, 2012.

 

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Table of Contents

 

Debt Capital Activities

 

Our debt obligations consisted of the following as of March 31, 2013 and December 31, 2012:

 

 

 

As of

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Total

 

 

 

 

 

Total

 

 

 

 

 

 

 

Aggregate

 

 

 

 

 

Aggregate

 

 

 

 

 

 

 

Principal

 

 

 

 

 

Principal

 

 

 

 

 

 

 

Amount

 

 

 

 

 

Amount

 

 

 

 

 

 

 

Available/

 

Principal

 

Carrying

 

Available/

 

Principal

 

Carrying

 

(in millions)

 

Outstanding(1)

 

Amount

 

Value

 

Outstanding(1)

 

Amount

 

Value

 

Revolving Credit Facility

 

$

900.0

(2)

$

 

$

 

$

900.0

(2)

$

 

$

 

Revolving Funding Facility

 

620.0

(3)

280.0

 

280.0

 

620.0

(3)

300.0

 

300.0

 

SMBC Funding Facility

 

400.0

 

 

 

400.0

 

 

 

February 2016 Convertible Notes

 

575.0

 

575.0

 

550.4

(4)

575.0

 

575.0

 

548.5

(4)

June 2016 Convertible Notes

 

230.0

 

230.0

 

219.5

(4)

230.0

 

230.0

 

218.8

(4)

2017 Convertible Notes

 

162.5

 

162.5

 

158.5

(4)

162.5

 

162.5

 

158.3

(4)

2018 Convertible Notes

 

270.0

 

270.0

 

263.1

(4)

270.0

 

270.0

 

262.8

(4)

February 2022 Notes

 

143.8

 

143.8

 

143.8

 

143.8

 

143.8

 

143.8

 

October 2022 Notes

 

182.5

 

182.5

 

182.5

 

182.5

 

182.5

 

182.5

 

2040 Notes

 

200.0

 

200.0

 

200.0

 

200.0

 

200.0

 

200.0

 

2047 Notes

 

230.0

 

230.0

 

181.3

(5)

230.0

 

230.0

 

181.2

(5)

 

 

$

3,913.8

 

$

2,273.8

 

$

2,179.1

 

$

3,913.8

 

$

2,293.8

 

$

2,195.9

 

 


(1)

 

Subject to borrowing base and leverage restrictions. Represents the total aggregate amount committed or outstanding, as applicable, under such instrument.

 

 

 

(2)

 

Provides for a feature that allows the Company, under certain circumstances, to increase the size of the Revolving Credit Facility to a maximum of $1,350.0 million as of March 31, 2013. See Note 15 for subsequent events relating to the Revolving Credit Facility.

 

 

 

(3)

 

Provides for a feature that allows the Company and the Company’s consolidated subsidiary, Ares Capital CP Funding, LLC (“Ares Capital CP”), under certain circumstances, to increase the size of the Revolving Funding Facility to a maximum of $865.0 million.

 

 

 

(4)

 

Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes less the unaccreted discount initially recorded upon issuance of the Convertible Unsecured Notes. The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, and the 2018 Convertible was $24.6 million, $10.5 million, $4.0 million and $6.9 million, respectively, as of March 31, 2013. The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes was $26.5 million, $11.2 million, $4.2 million and $7.2 million, respectively, as of December 31, 2012.

 

 

 

(5)

 

Represents the aggregate principal amount outstanding less the unaccreted purchased discount. The total unaccreted purchased discount on the 2047 Notes was $48.7 million and $48.8 million as of March 31, 2013 and December 31, 2012.

 

The weighted average stated interest rate and weighted average maturity, both on aggregate principal amount, of all our debt outstanding as of March 31, 2013 were 5.5% and 9.6 years, respectively and as of December 31, 2012 were 5.5% and 9.8 years, respectively. The ratio of total carrying value of debt outstanding to stockholders’ equity as of March 31, 2013 and December 31, 2012 was 0.55:1.00.

 

In accordance with the Investment Company Act, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, as calculated in accordance with the Investment Company Act, is at least 200% after such borrowing. As of March 31, 2013, our asset coverage was 283%.

 

Revolving Credit Facility

 

In December 2005, we entered into a senior secured revolving credit facility (as amended and restated, the “Revolving Credit Facility”), which allows us to borrow up to $900 million as of March 31, 2013 at any one time outstanding. As of March 31, 2013, the end of the revolving period and the stated maturity date for the Revolving Credit Facility were May 4, 2015 and May 4, 2016, respectively. The Revolving Credit Facility also provides for a feature that as of March 31, 2013 allows us, under certain circumstances, to increase the size of the facility to a maximum of $1.35 billion. As of March 31, 2013, the interest rate charged on the Revolving Credit Facility was based on LIBOR plus an applicable spread of 2.25% or a “base rate” (as defined in the agreements governing the Revolving Credit Facility) plus an applicable spread of 1.25%. Additionally, we are required to pay a commitment fee of 0.375% per annum on any unused portion of the Revolving Credit Facility. As of March 31, 2013, there were no amounts outstanding under the Revolving Credit Facility and we were in compliance in all material respects with the terms of the Revolving Credit Facility. See “Recent Developments”, as well as Note 15 to our consolidated financial statements for the three months ended March 31, 2013 for more information on a recent amendment to the Revolving Credit Facility.

 

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Revolving Funding Facility

 

In October 2004, we established through Ares Capital CP, a revolving funding facility (as amended, the “Revolving Funding Facility”), which allows Ares Capital CP to borrow up to $620 million at any one time outstanding. The Revolving Funding Facility is secured by all of the assets held by, and its membership interest in, Ares Capital CP. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility are April 18, 2015 and April 18, 2017, respectively. The Revolving Funding Facility also provides for a feature that allows, under certain circumstances, for an increase in the size of the facility to a maximum of $865 million. The interest rate charged on the Revolving Funding Facility is one month LIBOR plus an applicable spread ranging from 2.25% to 2.50% over LIBOR and ranging from 1.25% to 1.50% over “base rate,” (as defined in the agreements governing the Revolving Funding Facility) in each case, determined monthly based on the composition of the borrowing base relative to outstanding borrowings under the facility. Additionally, we are required to pay a commitment fee of between 0.50% and 1.75% depending on the size of the unused portion of the Revolving Funding Facility. As of March 31, 2013, the principal amount outstanding under the Revolving Funding Facility was $280.0 million and we and Ares Capital CP were in compliance in all material respects with the terms of the Revolving Funding Facility.

 

SMBC Funding Facility

 

In January 2012, we established through our consolidated subsidiary, Ares Capital JB Funding LLC, (“ACJB”), a revolving funding facility (as amended, the “SMBC Funding Facility”), which allows ACJB to borrow up to $400 million at any one time outstanding. The SMBC Funding Facility is secured by all of the assets held by ACJB. The end of the reinvestment period and the stated maturity date for the SMBC Funding Facility are September 14, 2015 and September 14, 2020, respectively. The reinvestment period and the stated maturity date are both subject to two one-year extensions by mutual agreement.  The interest rate charged on the SMBC Funding Facility is based on one month LIBOR plus an applicable spread of 2.125% or a “base rate” (as defined in the agreements governing the SMBC Funding Facility) plus an applicable spread of 1.125%. ACJB is not required to pay a commitment fee until September 15, 2013, at which time ACJB is required to pay a commitment fee of 0.50% depending on the size of the unused portion of the SMBC Funding Facility. As of March 31, 2013, there were no amounts outstanding under the SMBC Funding Facility and we and ACJB were in compliance in all material respects with the terms of the SMBC Funding Facility.

 

Convertible Unsecured Notes

 

In January 2011, we issued $575 million aggregate principal amount of unsecured convertible senior notes that mature on February 1, 2016, unless previously converted or repurchased in accordance with their terms (the “February 2016 Convertible Notes”). In March 2011, we issued $230 million aggregate principal amount of unsecured convertible senior notes that mature on June 1, 2016, unless previously converted or repurchased in accordance with their terms (the “June 2016 Convertible Notes”). In March 2012, we issued $162.5 million aggregate principal amount of unsecured convertible senior notes that mature on March 15, 2017, unless previously converted or repurchased in accordance with their terms (the “2017 Convertible Notes”). In the fourth quarter of 2012, we issued $270.0 million aggregate principal amount of unsecured convertible senior notes that mature on January 15, 2018, unless previously converted or repurchased in accordance with their terms (the “2018 Convertible Notes” and together with the February 2016 Convertible Notes, the June 2016 Convertible Notes and the 2017 Convertible Notes, the “Convertible Unsecured Notes”). We do not have the right to redeem the Convertible Unsecured Notes prior to maturity. The February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes bear interest at a rate of 5.750%, 5.125%, 4.875% and 4.750%, respectively, per year, payable semi-annually.

 

In certain circumstances, the Convertible Unsecured Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, at their respective conversion rates (listed below as of March 31, 2013) subject to customary anti-dilution adjustments and the requirements of their respective indenture (the “Convertible Unsecured Notes Indentures”). Prior to the close of business on the business day immediately preceding their respective conversion date (listed below), holders may convert their Convertible Unsecured Notes only under certain circumstances set forth in the respective Convertible Unsecured Notes Indenture. On or after their respective conversion dates until the close of business on the scheduled trading day immediately preceding their respective maturity date, holders may convert their Convertible Unsecured Notes at any time. In addition, if we engage in certain corporate events as described in their respective Convertible Unsecured Notes Indenture, holders of the Convertible Unsecured Notes may require us to repurchase for cash all or part of the Convertible Unsecured Notes at a repurchase price equal to 100% of the principal amount of the Convertible Unsecured Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

 

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Certain key terms related to the convertible features for each of the Convertible Unsecured Notes are listed below.

 

 

 

February 2016

 

June 2016

 

2017

 

2018

 

 

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Convertible Notes

 

Conversion premium

 

17.5

%

17.5

%

17.5

%

17.5

%

Closing stock price at issuance

 

$

16.28

 

$

16.20

 

$

16.46

 

$

16.91

 

Closing stock price date

 

January 19, 2011

 

March 22, 2011

 

March 8, 2012

 

October 3, 2012

 

Conversion price as of March 31, 2013

 

$

18.86

 

$

18.77

 

$

19.20

 

$

19.81

 

Conversion rate as of March 31, 2013 (shares per one thousand dollar principal amount)

 

53.0167

 

53.2786

 

52.0894

 

50.4731

 

Conversion dates

 

August 15, 2015

 

December 15, 2015

 

September 15, 2016

 

July 15, 2017

 

 

Unsecured Notes

 

February 2022 Notes

 

In February 2012, we issued $143.8 million in aggregate principal amount of senior unsecured notes, which bear interest at a rate of 7.00% per year and mature on February 15, 2022 (the “February 2022 Notes”). The February 2022 Notes require payment of interest quarterly, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option on or after February 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

October 2022 Notes

 

In September 2012 and October 2012, we issued $182.5 million in aggregate principal amount of senior unsecured notes, which bear interest at a rate of 5.875% per year and mature on October 1, 2022 (the “October 2022 Notes”). The October 2022 Notes require payment of interest quarterly and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option on or after October 1, 2015, at a par redemption price of $25.00 per security plus accrued interest and unpaid interest.

 

2040 Notes

 

In October 2010, we issued $200.0 million in aggregate principal amount of senior unsecured notes which bear interest at a rate of 7.75% and mature on October 15, 2040 (the “2040 Notes”). The 2040 Notes require payment of interest quarterly, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option on or after October 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

2047 Notes

 

As part of the Allied Acquisition, we assumed $230.0 million aggregate principal amount of senior unsecured notes which bear interest at a rate of 6.875% and mature on April 15, 2047 (the “2047 Notes” and together with the February 2022 Notes, the October 2022 Notes and the 2040 Notes, the “Unsecured Notes”). The 2047 Notes require payment of interest quarterly, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option, at a par redemption price of $25.00 per security plus accrued and unpaid interest and upon the occurrence of certain tax events as described in the indenture governing the 2047 Notes.

 

As of March 31, 2013 we were in compliance in all material respects with the terms of the indentures governing the Unsecured Notes.

 

The Convertible Unsecured Notes and the Unsecured Notes are our senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Unsecured Notes and the Unsecured Notes; equal in right of payment to our existing and future unsecured indebtedness that is not expressly subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.

 

See Note 5 to our consolidated financial statements for the three months ended March 31, 2013 for more detail on the Company’s debt obligations.

 

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OFF BALANCE SHEET ARRANGEMENTS

 

The Company has various commitments to fund investments in its portfolio, as described below.

 

As of March 31, 2013 and December 31, 2012, the Company had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to fund which are at (or substantially at) the Company’s discretion:

 

 

 

As of

 

(in millions)

 

March 31, 2013

 

December 31, 2012

 

Total revolving and delayed draw commitments

 

$

517.0

 

$

466.6

 

Less: funded commitments

 

(98.5

)

(107.1

)

Total unfunded commitments

 

418.5

 

359.5

 

Less: commitments substantially at discretion of the Company

 

(28.2

)

(6.0

)

Less: unavailable commitments due to borrowing base or other covenant restrictions

 

(2.2

)

(0.6

)

Total net adjusted unfunded revolving and delayed draw commitments

 

$

388.1

 

$

352.9

 

 

Included within the total revolving and delayed draw commitments as of March 31, 2013 were commitments to issue up to $63.9 million in standby letters of credit through a financial intermediary on behalf of certain portfolio companies. Under these arrangements, if the standby letters of credit were to be issued, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. As of March 31, 2013, the Company had $43.1 million in standby letters of credit issued and outstanding under these commitments on behalf of the portfolio companies, of which no amounts were recorded as a liability on our balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company. Of these letters of credit, $43.0 million expire in 2013 and $0.1 million expire in 2014.

 

As of March 31, 2013 and December 31, 2012, the Company was party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

 

 

 

As of

 

(in millions)

 

March 31, 2013

 

December 31, 2012

 

Total private equity commitments

 

$

134.7

 

$

131.0

 

Less: funded private equity commitments

 

(71.0

)

(66.5

)

Total unfunded private equity commitments

 

63.7

 

64.5

 

Less: private equity commitments substantially at discretion of the Company

 

(48.0

)

(53.1

)

Total net adjusted unfunded private equity commitments

 

$

15.7

 

$

11.4

 

 

In addition, as of March 31, 2013 and December 31, 2012, the Company had outstanding guarantees or similar obligations on behalf of certain portfolio companies totaling $0.8 million.

 

In the ordinary course of business, we may sell certain of our investments to third party purchasers. In particular, in connection with the sale of certain controlled portfolio company equity investments (as well as certain other sales) we have, and may continue to do so in the future, agreed to indemnify such purchasers for future liabilities arising from the investments and the related sale transaction. Such indemnification provisions may give rise to future liabilities.

 

As of March 31, 2013, one of the Company’s portfolio companies, Ciena Capital LLC (“Ciena”), had one non-recourse securitization Small Business Administration (“SBA”) loan warehouse facility, which has reached its maturity date but remains outstanding. Ciena is working with the providers of the SBA loan warehouse facility with regard to the repayment of that facility. Allied Capital Corporation (“Allied Capital”) had previously issued a performance guaranty (which Ares Capital succeeded to as a result of the Allied Acquisition) whereby Ares Capital must indemnify the warehouse providers for any damages, losses, liabilities and related costs and expenses that they may incur as a result of Ciena’s failure to perform any of its obligations as loan originator, loan seller or loan servicer under the warehouse facility. As of March 31, 2013, there were no known issues or claims with respect to this performance guaranty.

 

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RECENT DEVELOPMENTS

 

In April 2013, we completed a public add-on equity offering (the “April 2013 Offering”) pursuant to which we sold 19.1 million shares of common stock at a price of $17.43 per share to the participating underwriters. Total proceeds from the April 2013 Offering, net of estimated offering expenses payable by us, were approximately $333.2 million.

 

In May 2013, we entered into an amendment to the Revolving Credit Facility.  The amendment, among other things, (1) extended the end of the revolving period from May 4, 2015 to May 4, 2017, (2) extended the stated maturity date from May 4, 2016 to May 4, 2018, (3) reduced the interest rate charged from LIBOR plus an applicable spread of 2.25% or a “base rate” (as defined in the agreements governing the Revolving Credit Facility) plus an applicable spread of 1.25% to LIBOR plus an applicable spread of 2.00% or a “base rate” plus an applicable spread of 1.00% and (4) increased total commitments to $930 million as well as provided for a feature that allows us, under certain circumstances, to increase the size of the Revolving Credit Facility to a maximum of $1,400 million.

 

From April 1, 2013 through May 3, 2013, we made new investment commitments of $388 million, of which $376 million were funded. Of these new commitments, 74% were in first lien senior secured loans, 21% were investments in subordinated certificates of the SSLP, the proceeds of which were applied to co-investments with GE to fund first lien senior secured loans through the SSLP, and 5% were in second lien senior secured loans. Of the $388 million of new investment commitments, 94% were floating rate and 6% were fixed rate. The weighted average yield of debt and other income producing securities funded during the period at amortized cost was 10.1%. We may seek to syndicate a portion of these new investment commitments, although there can be no assurance that we will be able to do so.

 

From April 1, 2013 through May 3, 2013, we exited $27 million of investment commitments. Of these investment commitments, 100% were first lien senior secured loans. Of the $27 million of exited investment commitments, 83% were floating rate, 5% were fixed rate and 12% were on non-accrual status. The weighted average yield of debt and other income producing securities exited or repaid during the period at amortized cost was 7.9%. On the $27 million of investment commitments exited from April 1, 2013 through May 3, 2013, we recognized total net realized losses of approximately $1 million.

 

In addition, as of May 3, 2013, we had an investment backlog and pipeline of approximately $640 million and $690 million, respectively. Investment backlog includes transactions approved by our investment adviser’s investment committee and/or for which a formal mandate, letter of intent or a signed commitment have been issued, and therefore we believe are likely to close. Investment pipeline includes transactions where due diligence and analysis are in process, but no formal mandate, letter of intent or signed commitment have been issued. The consummation of any of the investments in this backlog and pipeline depends upon, among other things, one or more of the following: satisfactory completion of our due diligence investigation of the prospective portfolio company, our acceptance of the terms and structure of such investment and the execution and delivery of satisfactory transaction documentation. In addition, we may syndicate a portion of these investments. We cannot assure you that we will make any of these investments or that we will syndicate any portion of these investments.

 

CRITICAL ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with GAAP, and include the accounts of the Company and its consolidated subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition as of and for the periods presented. All significant intercompany balances and transactions have been eliminated.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include funds from time to time deposited with financial institutions and short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value.

 

Concentration of Credit Risk

 

The Company places its cash and cash equivalents with financial institutions and, at times, cash held in money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

 

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Investments

 

Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, we look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available (i.e., substantially all of our investments) are valued at fair value as determined in good faith by our board of directors, based on, among other things, the input of our investment adviser, audit committee and independent third-party valuation firms that have been engaged at the direction of our board of directors to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing 12 month period, (with certain de minimis exceptions) and under a valuation policy and a consistently applied valuation process. The valuation process is conducted at the end of each fiscal quarter, and a minimum of 50% of our portfolio at fair value is subject to review by an independent valuation firm each quarter. In addition, our independent registered public accounting firm reviews our valuation process as part of their overall integrated audit.

 

As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the fair value of our investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments would trade in their principal markets and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate our valuation.

 

Because there is not a readily available market value for most of the investments in our portfolio, we value substantially all of our portfolio investments at fair value as determined in good faith by our board of directors, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. 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 we have recorded it.

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

 

Our board of directors undertakes a multi-step valuation process each quarter, as described below:

 

·                  Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with our portfolio management team.

 

·                  Preliminary valuations are reviewed and discussed with our investment adviser’s management and investment professionals, and then valuation recommendations are presented to our board of directors.

 

·                  The audit committee of our board of directors reviews these valuations, as well as the input of third parties, including independent third-party valuation firms, with respect to the valuations of a minimum of 50% of our portfolio at fair value.

 

·                  Our board of directors discusses valuations and ultimately determines the fair value of each investment in our portfolio without a readily available market quotation in good faith based on, among other things, the input of our investment adviser, audit committee and, where applicable, independent third-party valuation firms.

 

Interest and Dividend Income Recognition

 

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

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Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this if the loan has sufficient collateral value and is in the process of collection.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

 

Payment-in-Kind Interest

 

The Company has loans in its portfolio that contain PIK provisions. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends even though the Company has not yet collected the cash.

 

Capital Structuring Service Fees and Other Income

 

The Company’s investment adviser seeks to provide assistance to our portfolio companies in connection with the Company’s investments and in return the Company may receive fees for capital structuring services. These fees are generally only available to the Company as a result of the Company’s underlying investments, are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. The services that the Company’s investment adviser provides vary by investment, but generally include reviewing existing credit facilities, arranging bank financing, arranging equity financing, structuring financing from multiple lenders, structuring financing from multiple equity investors, restructuring existing loans, raising equity and debt capital, and providing general financial advice, which concludes upon closing of the investment. Any services of the above nature subsequent to the closing would generally generate a separate fee payable to the Company. In certain instances where the Company is invited to participate as a co-lender in a transaction and does not provide significant services in connection with the investment, a portion of loan fees paid to the Company in such situations will be deferred and amortized over the estimated life of the loan. The Company’s investment adviser may also take a seat on the board of directors of a portfolio company, or observe the meetings of the board of directors without taking a formal seat.

 

Other income includes fees for asset management, management and consulting services, loan guarantees, commitments, amendments and other services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered.

 

Foreign Currency Translation

 

The Company’s books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

 

(1)                                 Fair value of investment securities, other assets and liabilities—at the exchange rates prevailing at the end of the period.

 

(2)                                 Purchases and sales of investment securities, income and expenses—at the exchange rates prevailing on the respective dates of such transactions, income or expenses.

 

Results of operations based on changes in foreign exchange rates are separately disclosed in the statement of operations. Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

 

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Equity Offering Expenses

 

The Company’s offering costs, excluding underwriters’ fees, are charged against the proceeds from equity offerings when received.

 

Debt Issuance Costs

 

Debt issuance costs are amortized over the life of the related debt instrument using the straight line method, which closely approximates the effective yield method.

 

U.S. Federal Income Taxes

 

The Company has elected to be treated as a RIC under the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, timely distribute to its stockholders at least 90% of its investment company taxable income, as defined by the Code, for each year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal income taxes.

 

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions from such income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as such taxable income is earned.

 

Certain of our consolidated subsidiaries are subject to U.S. federal and state income taxes.

 

Dividends to Common Stockholders

 

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by our board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed, although we may decide to retain such capital gains for investment.

 

We have adopted a dividend reinvestment plan that provides for reinvestment of any distributions we declare in cash on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare, a cash dividend, then our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividend. We intend to use primarily newly issued shares to implement the dividend reinvestment plan (so long as we are trading at a premium to net asset value). If our shares are trading at a significant enough discount to net asset value and we are otherwise permitted under applicable law to purchase such shares, we intend to purchase shares in the open market in connection with our obligations under our dividend reinvestment plan. However, we reserve the right to issue new shares of our common stock in connection with our obligations under the dividend reinvestment plan even if our shares are trading below net asset value.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of actual and contingent assets and liabilities at the date of the financial statements and the reported amounts of income or loss and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation of investments.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio.

 

Interest Rate Risk

 

Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

 

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As of March 31, 2013, approximately 14% of the investments at fair value in our portfolio bore interest at fixed rates, approximately 75% bore interest at variable rates, 10% were non-interest earning and 1% were on non-accrual status. Additionally, for the variable rate investments, 70% of these investments contained interest rate floors (representing 53% of total investments at fair value). The Facilities all bear interest at variable rates with no interest rate floors, while the Unsecured Notes and the Convertible Unsecured Notes bear interest at fixed rates.

 

We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.

 

While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio investments. In addition, there can be no assurance that we will be able to effectively hedge our interest rate risk.

 

Based on our March 31, 2013 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

(in millions)

 

Interest

 

Interest

 

Net

 

Basis Point Change

 

Income

 

Expense

 

Income

 

Up 300 basis points

 

$

72.0

 

$

8.4

 

$

63.6

 

Up 200 basis points

 

$

28.8

 

$

5.6

 

$

23.2

 

Up 100 basis points

 

$

(12.4

)

$

2.8

 

$

(15.2

)

Down 100 basis points

 

$

4.8

 

$

(0.6

)

$

5.4

 

Down 200 basis points

 

$

4.7

 

$

(0.6

)

$

5.3

 

Down 300 basis points

 

$

4.7

 

$

(0.6

)

$

5.3

 

 

Based on our December 31, 2012 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

(in millions)

 

Interest

 

Interest

 

Net

 

Basis Point Change

 

Income

 

Expense

 

Income

 

Up 300 basis points

 

$

62.8

 

$

9.0

 

$

53.8

 

Up 200 basis points

 

$

22.1

 

$

6.0

 

$

16.1

 

Up 100 basis points

 

$

(14.8

)

$

3.0

 

$

(17.8

)

Down 100 basis points

 

$

5.8

 

$

(0.6

)

$

6.4

 

Down 200 basis points

 

$

5.8

 

$

(0.6

)

$

6.4

 

Down 300 basis points

 

$

5.6

 

$

(0.6

)

$

6.2

 

 

Item 4. Controls and Procedures.

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive and financial officers, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934). Based on that evaluation, the Company’s principal executive and financial officers have concluded that our current disclosure controls and procedures are effective in timely alerting them of material information relating to the Company that is required to be disclosed by us in the reports it files or submits under the Securities Exchange Act of 1934.

 

There have been no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are party to certain lawsuits in the normal course of business. In addition, Allied Capital was involved in various legal proceedings that we assumed in connection with the Allied Acquisition. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of any such legal proceedings cannot at this time be predicted with certainty, we do not expect that these legal proceedings will materially affect our business, financial condition or results of operations.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

We did not sell any equity securities during the period covered in this report that were not registered under the Securities Act of 1933.

 

We did not repurchase any shares of our common stock during the period covered in this report.

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.  Other Information.

 

On May 2, 2013, the Company’s board of directors appointed Michael J. Arougheti, 40, as the Company’s Chief Executive Officer.  Mr.Arougheti served as the Company’s President since its initial public offering in 2004 until his appointment as the Company’s CEO and has served on the Company’s board of directors since 2009.  Mr. Arougheti will also continue to serve as a Senior Partner in the Private Debt Group of Ares Management, a member of Ares Management’s Executive Committee and a member of Ares Capital Management’s Investment Committee.

 

On May 2, 2013, the Company’s board of directors appointed R. Kipp deVeer III, 40, as the Company’s President. Mr. deVeer has served as an executive of Ares Capital Management since 2004. Mr. deVeer will also continue to serve as a Senior Partner in the Private Debt Group of Ares Management and as a member of Ares Capital Management’s Investment Committee.  Mr. deVeer has been with Ares Management since 2004.

 

On May 2, 2013, the Company’s board of directors appointed Eric B. Beckman, 47, as Executive Vice President of the Company.  Mr. Beckman has served as an executive of Ares Capital Management since 2004. Mr. Beckman will also continue to serve as a Senior Partner in the Private Debt Group of Ares Management and as a member of Ares Capital Management’s Investment Committee.  Mr. Beckman has been with Ares Management since 1998.

 

On May 2, 2013, the Company’s board of directors appointed Mitchell S. Goldstein, 46, as Executive Vice President of the Company. Mr. Goldstein has served as an executive of Ares Capital Management since 2005. Mr. Goldstein will also continue to serve as a Senior Partner in the Private Debt Group of Ares Management and as a member of Ares Capital Management’s Investment Committee.  Mr. Goldstein has been with Ares Management since 2005.

 

On May 2, 2013, the Company’s board of directors appointed Michael L. Smith, 42, as Executive Vice President of the Company.  Mr. Smith has served as an executive of Ares Capital Management since 2004. Mr. Smith will also continue to serve as a Senior Partner in the Private Debt Group of Ares Management and as a member of Ares Capital Management’s Investment Committee.  Mr. Smith has been with Ares Management since 2004.

 

Item 6.  Exhibits.

 

EXHIBIT INDEX

 

Number

 

Description

3.1

 

Articles of Amendment and Restatement, as amended(1)

3.2

 

Second Amended and Restated Bylaws, as amended(2)

10.1

 

Amendment No. 6 to Loan and Servicing Agreement, dated as of January 25, 2013, among Ares Capital CP Funding LLC, as borrower, Ares Capital Corporation, as servicer and transferor, Wells Fargo Securities, LLC, as agent, Wells Fargo Bank, National Association, as swingline lender, and the other lenders party thereto(3)

10.2

 

Form of Indemnification Agreement between Ares Capital Corporation and directors and certain officers(4)

10.3

 

Form of Indemnification Agreement between Ares Capital Corporation and members of Ares Capital Management LLC investment committee(4)

31.1

 

Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2

 

Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1

 

Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 


*

 

Filed herewith

 

 

 

(1)

 

Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q (File No. 814-00663) for the quarter ended September 30, 2012, filed on November 5, 2012.

 

 

 

(2)

 

Incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q (File No. 814-00663) for the quarter ended June 30, 2010, filed on August 5, 2010.

 

 

 

(3)

 

Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 814-00663), filed on January 8, 2013.

 

 

 

(4)

 

Incorporated by reference to Exhibits (k)(3) and (k)(4), as applicable, to the Company’s Form N-2 (File No. 333-188175), filed on April 26, 2013.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ARES CAPITAL CORPORATION

 

 

 

 

Dated: May 7, 2013

By

/s/ MICHAEL J. AROUGHETI

 

 

Michael J. Arougheti

 

 

Chief Executive Officer

 

 

Dated: May 7, 2013

By

/s/ PENNI F. ROLL

 

 

Penni F. Roll

 

 

Chief Financial Officer

 

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