Carlyle Secured Lending, Inc. - Quarter Report: 2015 June (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

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 June 30, 2015

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

For the transition period to

Commission File No. 000-54899

CARLYLE GMS FINANCE, INC.

(Exact name of Registrant as specified in its charter)

Maryland

80-0789789

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

520 Madison Avenue, 38th Floor, New York, NY 10022

(Address of principal executive office) (Zip Code)

(212) 813-4900

(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 ¨

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 ¨ No ¨

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ 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 August 12, 2015
Common stock, $0.01 par value		26,757,953

CARLYLE GMS FINANCE, INC.

INDEX


Part I.	Financial Information

Item 1.	Financial Statements

	Consolidated Statements of Assets and Liabilities as of June 30, 2015 (unaudited) and December 31, 2014	3

	Consolidated Statements of Operations for the three month and six month periods ended June 30, 2015 (unaudited) and June 30, 2014 (unaudited)	4

	Consolidated Statements of Changes in Net Assets for the six month periods ended June 30, 2015 (unaudited) and June 30, 2014 (unaudited)	5

	Consolidated Statements of Cash Flows for the six month periods ended June 30, 2015 (unaudited) and June 30, 2014 (unaudited)	6

	Consolidated Schedules of Investments as of June 30, 2015 (unaudited) and December 31, 2014	7

	Notes to Consolidated Financial Statements (unaudited)	20

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65

Item 4.	Controls and Procedures	66

Part II.	Other Information

Item 1.	Legal Proceedings	67

Item 1A.	Risk Factors	67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 3.	Defaults Upon Senior Securities	69

Item 4.	Mine Safety Disclosures	69

Item 5.	Other Information	70

Item 6.	Exhibits	71

	Signatures	72

CARLYLE GMS FINANCE, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(dollar amounts in thousands, except per share data)


	June 30, 2015			December 31, 2014
	(unaudited)
ASSETS
Investments—non-controlled/non-affiliated, at fair value (amortized cost of $917,292 and $707,701, respectively)	$	912,502		$	698,662
Cash		46,477			8,754
Deferred financing costs		6,687			4,635
Interest receivable		2,702			4,512
Prepaid expenses and other assets		1,328			157

Total assets	$	969,696		$	716,720

LIABILITIES
Payable for investments purchased	$	30,523		$	55,343
Secured borrowings (Note 5)		134,958			308,441
2015-1 Notes payable (Note 6)		273,000			—
Due to Investment Adviser		43			41
Interest and credit facility fees payable (Notes 5 and 6)		3,368			1,192
Base management and incentive fees payable (Note 4)		5,916			6,319
Dividend payable (Note 8)		9,902			6,276
Administrative service fees payable (Note 4)		120			91
Other accrued expenses and liabilities		1,214			760

Total liabilities		459,044			378,463

Commitments and contingencies (Notes 7 and 11)
NET ASSETS
Common stock, $0.01 par value; 200,000,000 shares authorized; 26,755,935 shares and 17,932,697 shares, respectively, issued and outstanding		268			179
Paid-in capital in excess of par value		522,674			351,636
Offering costs		(74	)		(74	)
Accumulated net investment income (loss), net of cumulative dividends of $35,897 and $18,162, respectively		(7,698	)		(4,388	)
Accumulated net realized gain (loss)		272			(57	)
Accumulated net unrealized appreciation (depreciation)		(4,790	)		(9,039	)

Total net assets	$	510,652		$	338,257

NET ASSETS PER SHARE	$	19.09		$	18.86

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollar amounts in thousands, except per share data)

(unaudited)


	For the three month periods ended					For the six month periods ended
	June 30, 2015		June 30, 2014			June 30, 2015		June 30, 2014
Investment income:
Interest income from non-controlled/non-affiliated investments	$	15,925	$	9,944		$	28,904	$	16,577

Total investment income		15,925		9,944			28,904		16,577

Expenses:
Base management fees (Note 4)		3,080		1,455			5,803		2,446
Incentive fees (Note 4)		1,986		1,149			3,606		2,089
Professional fees		465		596			849		1,193
Administrative service fees (Note 4)		188		218			300		475
Interest expense (Notes 5 and 6)		2,129		634			3,909		983
Credit facility fees (Note 5)		446		1,526			874		2,056
Directors’ fees and expenses		106		103			207		185
Transfer agency fees		44		34			93		60
Other general and administrative		562		178			772		330

Total expenses		9,006		5,893			16,413		9,817
Waiver of base management fees (Note 4)		1,026		485			1,934		815

Net expenses		7,980		5,408			14,479		9,002

Net investment income (loss)		7,945		4,536			14,425		7,575
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments:
Net realized gain (loss) on investments—non-controlled/non-affiliated		593		145			329		191
Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated		677		(89	)		4,249		842

Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments		1,270		56			4,578		1,033

Net increase (decrease) in net assets resulting from operations	$	9,215	$	4,592		$	19,003	$	8,608

Basic and diluted earnings per common share (Note 8)	$	0.40	$	0.36		$	0.89	$	0.73

Weighted-average shares of common stock outstanding—Basic and Diluted (Note 8)		23,062,818		12,891,548			21,330,007		11,819,417

Dividends declared per common share (Note 8)	$	0.37	$	0.27		$	0.74	$	0.46

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(dollar amounts in thousands)

(unaudited)


	For the six month periods ended
	June 30, 2015			June 30, 2014
Increase (decrease) in net assets resulting from operations:
Net investment income (loss)	$	14,425		$	7,575
Net realized gain (loss) on investments—non-controlled/non-affiliated		329			191
Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated		4,249			842

Net increase (decrease) in net assets resulting from operations		19,003			8,608

Capital transactions:
Common stock issued		171,082			65,472
Reinvestment of dividends		45			3
Dividends declared (Note 11)		(17,735	)		(5,930	)

Net increase (decrease) in net assets resulting from capital share transactions		153,392			59,545

Net increase (decrease) in net assets		172,395			68,153

Net assets at beginning of period		338,257			186,002

Net assets at end of period	$	510,652		$	254,155

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollar amounts in thousands)

(unaudited)


	For the six month periods ended
	June 30, 2015			June 30, 2014
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$	19,003		$	8,608
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Amortization of deferred financing costs		516			1,347
Net accretion of discount on securities		(1,223	)		(518	)
Net realized (gain) loss on investments—non-controlled/non-affiliated		(329	)		(191	)
Net change in unrealized (appreciation) depreciation on investments—non- controlled/non-affiliated		(4,249	)		(842	)
Cost of investments purchased and change in payable for investments purchased		(359,342	)		(225,613	)
Proceeds from sales and repayments of investments		126,483			55,267
Changes in operating assets:
Interest receivable		1,810			(3,404	)
Prepaid expenses and other assets		(1,171	)		(82	)
Changes in operating liabilities:
Due to Investment Adviser		2			5
Interest and credit facility fees payable		283			178
Base management and incentive fees payable		(403	)		2,433
Administrative service fees payable		29			29
Other accrued expenses and liabilities		454			114

Net cash provided by (used in) operating activities		(218,137	)		(162,669	)

Cash flows from financing activities:
Proceeds from issuance of common stock		171,082			65,472
Borrowings on Revolving Credit Facility and Facility		223,700			108,100
Repayments of Revolving Credit Facility and Facility		(397,183	)		(21,182	)
Proceeds from issuance of 2015-1 Notes		273,000			—
Debt issuance costs paid		(675	)		(1,958	)
Dividends paid in cash		(14,064	)		(2,446	)

Net cash provided by (used in) financing activities		255,860			147,986

Net increase (decrease) in cash		37,723			(14,683	)
Cash, beginning of period		8,754			42,010

Cash, end of period	$	46,477		$	27,327

Supplemental disclosures:
Offering expenses and financing costs due	$	1,893		$	—
Interest paid during the period	$	3,562		$	795
Dividends declared during the period	$	17,735		$	5,930
Reinvestment of dividends	$	45		$	3

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of June 30, 2015

(dollar amounts in thousands)

(unaudited)


Investments—non-controlled/non-affiliated ⁽¹⁾	Industry	Interest Rate			Maturity Date		Acquisition Date		Par/ Principal Amount		Amortized Cost ⁽⁶⁾		Fair Value ⁽⁷⁾		Percentage of Net Assets
First Lien Debt (72.47%)
Access CIG, LLC ^{(2) (3) (5) (13)}	Business Services		6.00	%		10/17/2021		10/16/2014	$	18,616	$	18,471	$	18,616		3.64	%
ACP Tower Merger Sub, Inc. (Telular Corporation)^{(2) (3) (4)}	Telecommunications		5.50			6/24/2019		6/24/2013		5,625		5,610		5,560		1.09
AF Borrower LLC (Accuvant) ^{(2) (3) (5) (13)}	High Tech Industries		6.25			1/28/2022		12/15/2014		16,359		16,122		16,305		3.19
Alpha Packaging Holdings, Inc. ^{(2) (3) (4) (13)}	Containers, Packaging & Glass		5.25			5/12/2020		5/12/2014		11,409		11,398		11,211		2.19
Anaren, Inc. ^{(2) (3) (4) (13)}	Telecommunications		5.50			2/18/2021		2/18/2014		11,439		11,345		11,299		2.21
APX Group, Inc. ^{(5) (8)}	Consumer Services		6.38			12/1/2019		10/15/2014		10,000		9,723		9,700		1.90
Audax AAMP Holdings, Inc. ^{(2) (3) (4) (13)}	Durable Consumer Goods		6.50			6/24/2017		5/22/2015		11,325		11,229		11,300		2.21
Blue Bird Body Company ^{(2) (3) (4) (8) (13)}	Transportation: Consumer		6.50			6/27/2020		7/22/2014		10,969		10,488		10,476		2.05
Brooks Equipment Company, LLC ^{(2) (3) (4) (13)}	Construction & Building		6.75			8/29/2020		8/29/2014		7,595		7,538		7,567		1.48
Capstone Logistics Acquisition, Inc. ^{(2) (3) (4) (13)}	Transportation: Cargo		5.50			10/7/2021		10/3/2014		19,900		19,719		19,623		3.84
Captive Resources Midco, LLC ^{(2) (3) (5) (9) (13)}	Banking, Finance, Insurance & Real Estate		6.75			6/30/2020		6/30/2015		30,000		29,486		29,667		5.81
Castle Management Borrower LLC (Highgate Hotels L.P.) ^{(2) (3) (4) (13)}	Hotel, Gaming & Leisure		5.50			9/18/2020		10/10/2014		9,928		9,850		9,692		1.90
Central Security Group, Inc.^{(2) (3) (4) (13)}	Consumer Services		6.25			10/6/2020		10/3/2014		24,875		24,541		24,298		4.76
Consolidated Aerospace Manufacturing, LLC.^{(2) (3) (4) (13)}	Aerospace & Defense		5.00			3/27/2020		2/28/2014		6,183		6,165		6,048		1.19
Coyote Logistics, LLC ^{(2) (3) (5) (13)}	Transportation: Cargo		6.25			3/26/2022		3/24/2015		20,800		20,600		21,008		4.11
CRCI Holdings Inc. (CLEAResult Consulting, Inc.) ^{(2) (3) (4) (13)}	Utilities: Electric		5.25			7/10/2019		7/29/2014		5,943		5,922		5,903		1.16
Dent Wizard International Corporation ^{(2) (3) (4) (13)}	Automotive		5.75			4/7/2020		4/28/2015		8,000		7,961		7,913		1.55
DTZ U.S. Borrower, LLC ^{(2) (3) (4) (13)}	Construction & Building		5.50			11/5/2021		10/28/2014		10,448		10,304		10,286		2.01
EP Minerals, LLC ^{(2) (3) (4) (13)}	Metals & Mining		5.50			8/20/2020		8/20/2014		10,421		10,378		10,376		2.03
FCX Holdings Corp. ^{(2) (3) (4) (13)}	Capital Equipment		5.50			8/4/2020		8/4/2014		10,098		10,091		9,951		1.95
Genex Holdings, Inc. ^{(2) (3) (13)}	Banking, Finance, Insurance & Real Estate		5.25			5/30/2021		5/22/2014		4,265		4,247		4,265		0.84
Green Energy Partners/Stonewall LLC ^{(2) (3) (5) (10) (13)}	Energy: Electricity		6.50			11/13/2021		11/12/2014		8,300		8,146		8,456		1.66
Indra Holdings Corp. (Totes Isotoner) ^{(2) (3) (5) (13)}	Non-durable Consumer Goods		5.25			5/1/2021		4/29/2014		14,850		14,724		14,526		2.84
Miller Heiman, Inc. ^{(2) (3) (4) (13)}	Business Services		6.75			9/30/2019		10/1/2013		19,468		19,252		18,885		3.70
MSX International, Inc. ^{(2) (3) (4) (13)}	Automotive		6.00			8/21/2020		8/18/2014		10,617		10,526		10,626		2.08
National Technical Systems, Inc. ^{(2) (3) (4) (5) (13) (14)}	Aerospace & Defense		7.00			6/12/2021		6/12/2015		26,000		25,646		25,881		5.07
NES Global Talent Finance US LLC (United Kingdom) ^{(2) (3) (4) (8) (13)}	Energy: Oil & Gas		6.50			10/3/2019		10/2/2013		12,031		11,851		11,674		2.29

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of June 30, 2015

(dollar amounts in thousands)

(unaudited)


Investments—non-controlled/non-affiliated ⁽¹⁾	Industry	Interest Rate			Maturity Date		Acquisition Date		Par/ Principal Amount		Amortized Cost ⁽⁶⁾		Fair Value ⁽⁷⁾		Percentage of Net Assets
First Lien Debt (72.47%) (continued)
Novetta, LLC ^{(2) (3) (4) (13)}	Aerospace & Defense		6.00	%		10/2/2020		11/19/2014	$	12,139	$	12,040	$	12,039		2.36	%
Paradigm Acquisition Corp. ^{(2) (3) (5) (13)}	Business Services		6.00			6/2/2022		6/2/2015		23,600		23,250		23,345		4.57
Pelican Products, Inc. ^{(2) (3) (4) (13)}	Containers, Packaging & Glass		5.25			4/11/2020		4/8/2014		7,857		7,874		7,712		1.51
Plano Molding Company, LLC ^{(2) (3) (5) (13)}	Hotel, Gaming & Leisure		7.00			5/8/2021		5/1/2015		22,600		22,391		22,510		4.41
Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) ^{(2) (3) (4)}	Wholesale		5.50			1/28/2020		1/24/2014		10,967		10,885		9,794		1.92
PSC Industrial Holdings Corp ^{(2) (3) (4) (13)}	Environmental Industries		5.75			12/5/2020		12/5/2014		11,940		11,833		11,836		2.32
PSI Services LLC ^{(2) (3) (4) (12)}	Business Services		7.75			2/27/2021		2/27/2015		18,000		17,494		18,625		3.65
SolAero Technologies Corp. ^{(2) (3) (4)}	Telecommunications		5.75			12/10/2020		12/9/2014		11,109		11,017		10,975		2.15
SolAero Technologies Corp. ^{(2) (3) (13)}	Telecommunications		6.25			12/10/2020		5/1/2015		9,341		9,250		9,302		1.82
Stafford Logistics, Inc. (Custom Ecology, Inc.) ^{(2) (3) (4)}	Environmental Industries		6.75			6/26/2019		7/1/2013		9,540		9,472		9,180		1.80
Synarc-Biocore Holdings, LLC ^{(2) (3) (4) (13)}	Healthcare & Pharmaceuticals		5.50			3/10/2021		3/6/2014		13,331		13,221		12,977		2.54
Systems Maintenance Services Holding, Inc. ^{(2) (3) (13)}	High Tech Industries		5.00			10/18/2019		10/18/2013		2,204		2,197		2,171		0.42
TASC, Inc. ^{(2) (3) (4) (8) (13)}	Aerospace & Defense		7.00			5/23/2020		12/17/2014		19,900		19,144		19,999		3.92
Teaching Strategies, LLC ^{(2) (3) (4) (13)}	Media: Advertising, Printing & Publishing		6.00			10/1/2019		2/5/2015		14,811		14,752		14,695		2.88
The Hilb Group, LLC ^{(2) (3) (5) (12) (15)}	Banking, Finance, Insurance & Real Estate		6.75			6/24/2021		6/24/2015		22,600		21,944		22,406		4.39
The Hygenic Corporation (Performance Health)^{(2) (3) (5) (13)}	Non-durable Consumer Goods		6.00			10/11/2020		2/27/2015		16,000		15,783		15,886		3.11
The SI Organization, Inc. ^{(2) (3) (4) (13)}	Aerospace & Defense		5.75			11/23/2019		5/16/2014		8,824		8,754		8,835		1.73
The Topps Company, Inc. ^{(2) (3) (4) (13)}	Non-durable Consumer Goods		7.25			10/2/2018		10/1/2013		11,454		11,374		11,453		2.24
TruckPro, LLC ^{(2) (3) (4) (13)}	Automotive		5.75			8/6/2018		8/6/2013		9,274		9,236		9,219		1.80
U.S. Farathane, LLC ^{(2) (3) (4) (13)}	Automotive		6.75			12/23/2021		2/6/2015		16,234		15,925		16,330		3.20
Vetcor Professional Practices LLC ^{(2) (3) (4) (5) (13) (16)}	Consumer Services		7.00			4/20/2021		5/19/2015		8,400		8,289		8,375		1.64
Violin Finco S.A.R.L. (Alexander Mann Solutions) (United Kingdom) ^{(2) (3) (4) (8) (13)}	Business Services		5.75			12/20/2019		12/18/2013		11,315		11,230		11,315		2.22
Vitera Healthcare Solutions, LLC ^{(2) (3) (4) (13)}	Healthcare & Pharmaceuticals		6.00			11/4/2020		11/1/2013		9,489		9,414		9,449		1.85
Zest Holdings, LLC ^{(2) (3) (4) (13)}	Durable Consumer Goods		5.25			8/16/2020		8/18/2014		11,751		11,750		11,766		2.30

*First Lien Debt Total*											$	659,852	$	661,306		129.50	%

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of June 30, 2015

(dollar amounts in thousands)

(unaudited)


Investments—non-controlled/non-affiliated ⁽¹⁾	Industry	Interest Rate			Maturity Date		Acquisition Date		Par/ Principal Amount		Amortized Cost ⁽⁶⁾		Fair Value ⁽⁷⁾		Percentage of Net Assets
Second Lien Debt (19.49%)
AF Borrower LLC (Accuvant) ^{(2) (3) (5)}	High Tech Industries		10.00	%		1/28/2023		12/15/2014	$	8,000	$	7,924	$	7,974		1.56	%
Allied Security Holdings LLC ^{(2) (3) (5) (13)}	Business Services		8.00			8/14/2021		9/25/2014		8,000		7,945		7,990		1.57
Ascensus Inc. ^{(2) (3) (4)}	Banking, Finance, Insurance &Real Estate		9.00			12/2/2020		12/2/2013		8,000		7,902		7,929		1.55
Berlin Packaging L.L.C. ^{(2) (3) (5) (13)}	Containers, Packaging & Glass		7.75			10/1/2022		9/24/2014		9,200		9,136		9,304		1.82
Charter NEX US Holdings, Inc.^{(2) (3) (5) (13)}	Chemicals, Plastics & Rubber		9.25			2/5/2023		1/30/2015		10,000		9,858		9,621		1.88
Confie Seguros Holding II Co. ^{(2) (3) (5)}	Banking, Finance, Insurance & Real Estate		10.25			5/8/2019		6/29/2015		12,000		11,884		11,995		2.35
Creganna Finance (US) LLC (Ireland) ^{(2) (3) (5) (8)}	Healthcare & Pharmaceuticals		9.00			6/1/2022		11/20/2014		9,900		9,809		9,962		1.95
DiversiTech Corporation ^{(2) (3) (5) (13)}	Capital Equipment		9.00			11/19/2022		5/19/2015		8,400		8,288		8,145		1.60
Drew Marine Group Inc. ^{(2) (3) (4) (5)}	Chemicals, Plastics & Rubber		8.00			5/19/2021		11/19/2013		12,500		12,477		11,993		2.35
Genex Holdings, Inc. ^{(2) (3) (5) (17)}	Banking, Finance, Insurance & Real Estate		8.75			5/30/2022		5/22/2014		5,990		5,901		5,861		1.14
Genoa, a QoL Healthcare Company, LLC ^{(2) (3) (5) (13)}	Retail		8.75			4/30/2023		4/21/2015		9,900		9,802		9,538		1.87
Institutional Shareholder Services Inc. ^{(2) (3) (5) (13)}	Banking, Finance, Insurance & Real Estate		8.50			4/30/2022		4/30/2014		12,500		12,391		11,953		2.34
Jazz Acquisition, Inc. (Wencor) ^{(2) (3) (5) (13)}	Aerospace & Defense		7.75			6/19/2022		6/25/2014		6,700		6,672		6,466		1.27
Landslide Holdings, Inc. (LANDesk Software) ^{(2) (3) (13)}	Software		8.25			2/25/2021		2/25/2014		3,500		3,478		3,236		0.63
MRI Software, LLC ^{(2) (3) (5)}	Software		9.00			6/23/2022		6/19/2015		11,250		11,084		10,929		2.14
Phillips-Medisize Corporation ^{(2) (3) (5) (13)}	Chemicals, Plastics & Rubber		8.25			6/16/2022		6/13/2014		5,000		4,956		4,982		0.98
Power Stop, LLC ⁽⁵⁾	Automotive		11.00			5/29/2022		5/29/2015		10,000		9,802		9,964		1.95
Prime Security Services Borrower, LLC (Protection One Inc.)^{(2) (3) (5)}	Consumer Services		9.75			7/1/2022		6/19/2015		6,700		6,602		6,612		1.30
Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) ^(2) (3) (5)	Wholesale		9.50			7/28/2020		1/24/2014		3,000		2,950		2,474		0.48
Systems Maintenance Services Holding, Inc. ^{(2) (3) (4)}	High Tech Industries		9.25			10/18/2020		10/18/2013		6,000		5,956		5,935		1.16
TASC, Inc. ^{(5) (8)}	Aerospace & Defense		12.00			5/23/2021		12/17/2014		6,000		5,884		6,263		1.23
Vitera Healthcare Solutions, LLC ^{(2) (3) (5)}	Healthcare & Pharmaceuticals		9.25			11/4/2021		11/1/2013		2,000		1,975		1,908		0.37
Watchfire Enterprises, Inc. ^{(2) (3) (5) (13)}	Media: Advertising, Printing & Publishing		9.00			10/2/2021		10/2/2013		7,000		6,918		6,777		1.33

*Second Lien Debt Total*											$	179,594	$	177,811		34.82	%

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of June 30, 2015

(dollar amounts in thousands)

(unaudited)


Investments—non-controlled/non-affiliated ⁽¹⁾	Industry		Maturity Date		Acquisition Date		Par/ Principal Amount		Amortized Cost ⁽⁶⁾		Fair Value ⁽⁷⁾		Percentage of Net Assets
Structured Finance Obligations (7.80%) ^{(5) (8) (11)}
1776 CLO I, Ltd., Subordinated Notes		Structured Finance		5/8/2020		2/27/2014	$	11,750	$	8,962	$	7,285		1.43	%
AIMCO CLO, Series 2014-A, Class F, 5.47% ⁽²⁾		Structured Finance		7/20/2026		5/12/2014		2,700		2,359		2,174		0.43
AIMCO CLO, Series 2014-A, Subordinated Notes		Structured Finance		7/20/2026		5/12/2014		11,500		9,325		8,079		1.58
Ares XXVIII CLO Ltd., Subordinated Notes		Structured Finance		10/17/2024		10/10/2013		7,000		4,956		4,480		0.88
Babson CLO Ltd. 2005-I, Subordinated Notes		Structured Finance		4/15/2019		7/16/2013		7,632		432		185		0.04
Blackrock Senior Income Series V, Limited, Subordinated Notes (Ireland)		Structured Finance		8/13/2019		3/11/2014		4,600		2,397		2,266		0.44
CIFC Funding 2007-III, Ltd., Income Notes		Structured Finance		7/26/2021		5/20/2014		6,500		3,138		3,282		0.64
Clydesdale CLO 2005, Ltd., Subordinated Notes		Structured Finance		12/6/2017		7/15/2013		5,750		—		10		0.00
Flagship VII Limited, Subordinated Notes		Structured Finance		1/20/2026		12/18/2013		7,000		5,473		4,637		0.91
GoldenTree Loan Opportunities V, Limited, Subordinated Notes		Structured Finance		10/18/2021		10/11/2013		5,000		3,022		2,975		0.58
ING Investment Management CLO IV, Ltd., Preferred Shares		Structured Finance		6/14/2022		5/7/2014		9,575		5,163		5,410		1.06
ING IM CLO 2012-1 LLC, Preferred Shares		Structured Finance		3/14/2022		12/5/2014		7,610		4,866		5,083		1.00
ING IM CLO 2012-1 LLC, Subordinated Notes		Structured Finance		3/14/2022		12/5/2014		2,500		1,597		1,670		0.33
MSIM Peconic Bay, Ltd., Subordinated Notes		Structured Finance		7/20/2019		10/22/2013		4,500		1,027		1,193		0.23
Nautique Funding Ltd., Income Notes		Structured Finance		4/15/2020		2/24/2014		5,000		2,878		2,781		0.54
Steele Creek CLO 2014-I, LLC, Subordinated Notes		Structured Finance		8/21/2026		7/18/2014		18,000		14,328		13,950		2.73
Venture VI CDO Limited, Preference Shares		Structured Finance		8/3/2020		4/17/2014		7,000		3,659		3,710		0.73
Westwood CDO I, Ltd., Subordinated Notes		Structured Finance		3/25/2020		4/30/2015		4,000		2,049		2,000		0.39

*Structured Finance Obligations Total*									$	75,631	$	71,170		13.94	%


Investments—non-controlled/non-affiliated ⁽¹⁾	Industry	Maturity Date	Acquisition Date		Par/ Principal Amount		Cost		Fair Value ⁽⁷⁾		Percentage of Net Assets
Equity Investments (0.24%) ^{(5) (8)}
Power Stop, LLC	Automotive			5/29/2015		7	$	715	$	715		0.14	%
The Hilb Group, LLC	Banking, Finance, Insurance & Real Estate			6/24/2015		1,500		1,500		1,500		0.29

*Equity Investments Total*							$	2,215	$	2,215		0.43	%

Total Investments—non-controlled/non-affiliated							$	917,292	$	912,502		178.69	%

(1)

Unless otherwise indicated, issuers of debt and equity investments held by Carlyle GMS Finance, Inc. (“GMS Finance” or the “Company”) are domiciled in the United States and issuers of structured finance obligations are domiciled in the Cayman Islands. Under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”), the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. As of June 30, 2015, the Company does not “control” any of these portfolio companies.

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of June 30, 2015

(dollar amounts in thousands)

(unaudited)

Under the Investment Company Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities. As of June 30, 2015, the Company is not an “affiliated person” of any portfolio company.

(2)

Variable rate loans to the portfolio companies and variable rate notes of structured finance obligations 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), which generally resets quarterly. For each such loan and note, the Company has provided the interest rate in effect as of June 30, 2015.

(3)	Loan includes interest rate floor feature.

(4)

Denotes that all or a portion of the assets are owned by the Company’s wholly owned subsidiary, Carlyle GMS Finance SPV LLC (the “Borrower Sub”). The Borrower Sub has a senior secured revolving credit facility (as amended, the “Revolving Credit Facility”). The lenders of the Revolving Credit Facility have a first lien security interest in substantially all of the assets of the Borrower Sub (see Note 5, Borrowings) and such assets are assets of the Borrower Sub to satisfy obligations of the Borrower Sub under the Revolving Credit Facility and are not available to creditors of the Company.

(5)

Denotes that all or a portion of the assets are owned by the Company. The Company has a senior secured revolving credit facility (as amended, the “Facility”), which was subsequently amended on January 8, 2015 (the “First Facility Amendment Effective Date”). The lenders of the Facility have a perfected first-priority security interest in substantially all of the portfolio investments held by the Company (see Note 5, Borrowings).

(6)

Amortized cost represents original cost, including origination fees, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method. Equity tranche collateralized loan obligation (“CLO”) fund investments, which are referred to as “structured finance obligations”, are recorded at amortized cost using the effective interest method.

(7)	Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (Notes 2 and 3), pursuant to the Company’s valuation policies.

(8)

The Company has determined the indicated investments are non-qualifying assets under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

(9)

Captive Resources Midco, LLC has an undrawn delayed draw term loan of $3,125 par value at LIBOR + 5.75%, 1.00% floor, and an undrawn revolver of $1,875 par value at LIBOR + 5.75%, 1.00% floor. An unused rate of 1.25% and 0.50% is charged on the delayed draw term loan and revolver principal, respectively, while undrawn.

(10)	Green Energy Partners/Stonewall LLC has an undrawn delayed draw term loan of $8,300 par value at LIBOR + 5.50%, 1.00% floor. An unused rate of 3.00% is charged on the principal while undrawn.

(11)

As of June 30, 2015, the Company has a greater than 25% but less than 50% equity or subordinated notes ownership interest in certain structured finance obligations. These investments have governing documents that preclude the Company from controlling management of the entity and therefore the Company has determined that the issuer of the investment is not a controlled affiliate or a non-controlled affiliate because the investments are not “voting securities”.

(12)	In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, the Company is entitled to receive additional interest as a result of an agreement among lenders.

(13)

Denotes that all or a portion of the assets secures the notes offered in connection with a $400 million term debt securitization completed by the Company on June 26, 2015 (see Note 6, 2015-1 Notes). These assets are owned by Carlyle GMS Finance MM CLO 2015-1 LLC, a wholly-owned and consolidated subsidiary of the Company, and are not available to the creditors of the Borrower Sub or the Company.

(14)

National Technical Systems, Inc. has an undrawn delayed draw term loan of $4,469 par value at LIBOR + 6.00%, 1.00% floor, and an undrawn revolver of $2,031 par value at LIBOR + 6.00%, 1.00% floor. An unused rate of 1.00% and 0.50% is charged on the delayed draw term loan and revolver principal, respectively, while undrawn.

(15)	The Hilb Group, LLC has an undrawn delayed draw term loan of $10,892 par value at LIBOR + 5.75%, 1.00% floor ⁽¹²⁾. An unused rate of 1.00% is charged on the principal while undrawn.

(16)	Vetcor Professional Practices LLC has an undrawn delayed draw term loan of $4,200 par value at LIBOR + 6.00%, 1.00% floor. An unused rate of 1.00% is charged on the principal while undrawn.

(17)	Genex Holdings, Inc. has an undrawn delayed draw second lien term loan of $2,000 par value at LIBOR + 7.75%, 1.00% floor. An unused rate of 8.75% is charged on the principal while undrawn.

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of June 30, 2015

(dollar amounts in thousands)

(unaudited)

As of June 30, 2015, investments—non-controlled/non-affiliated at fair value consisted of the following:


Type	Amortized Cost		Fair Value		% of Fair Value
First Lien Debt	$	659,852	$	661,306		72.47	%
Second Lien Debt		179,594		177,811		19.49
Structured Finance Obligations		75,631		71,170		7.80
Equity Investments		2,215		2,215		0.24

Total	$	917,292	$	912,502		100.00	%

The industrial composition of investments—non-controlled/non-affiliated at fair value as of June 30, 2015 was as follows:


Industry	Amortized Cost		Fair Value		% of Fair Value
Aerospace & Defense	$	84,305	$	85,531		9.37	%
Automotive		54,165		54,767		6.00
Banking, Finance, Insurance & Real Estate		95,255		95,576		10.47
Business Services		97,642		98,776		10.83
Capital Equipment		18,379		18,096		1.98
Chemicals, Plastics & Rubber		27,291		26,596		2.91
Construction & Building		17,842		17,853		1.96
Consumer Services		49,155		48,985		5.37
Containers, Packaging & Glass		28,408		28,227		3.09
Durable Consumer Goods		22,979		23,066		2.53
Energy: Electricity		8,146		8,456		0.93
Energy: Oil & Gas		11,851		11,674		1.28
Environmental Industries		21,305		21,016		2.30
Healthcare & Pharmaceuticals		34,419		34,296		3.76
High Tech Industries		32,199		32,385		3.55
Hotel, Gaming & Leisure		32,241		32,202		3.53
Media: Advertising, Printing & Publishing		21,670		21,472		2.35
Metals & Mining		10,378		10,376		1.14
Non-durable Consumer Goods		41,881		41,865		4.59
Retail		9,802		9,538		1.05
Software		14,562		14,165		1.55
Structured Finance		75,631		71,170		7.80
Telecommunications		37,222		37,136		4.07
Transportation: Cargo		40,319		40,631		4.45
Transportation: Consumer		10,488		10,476		1.15
Utilities: Electric		5,922		5,903		0.65
Wholesale		13,835		12,268		1.34

Total	$	917,292	$	912,502		100.00	%

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of June 30, 2015

(dollar amounts in thousands)

(unaudited)

The geographical composition of investments—non-controlled/non-affiliated at fair value as of June 30, 2015 was as follows:


Geography	Amortized Cost		Fair Value		% of Fair Value
Cayman Islands	$	73,234	$	68,904		7.55	%
Ireland		12,206		12,228		1.34
United Kingdom		23,081		22,989		2.52
United States		808,771		808,381		88.59

Total	$	917,292	$	912,502		100.00	%

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of December 31, 2014

(dollar amounts in thousands)


Investments—non-controlled/non-affiliated ⁽¹⁾	Industry	Interest Rate			Maturity Date		Acquisition Date		Par Amount		Amortized Cost ⁽⁶⁾		Fair Value ⁽⁷⁾		Percentage of Net Assets
First Lien Debt (73.68%)
Access CIG, LLC ^{(2) (3) (5)}	Business Services		6.00	%		10/17/2021		10/16/2014	$	15,000	$	14,855	$	14,865		4.40	%
Accuvant Finance, LLC ^{(2) (3) (5)}	High Tech Industries		7.00			10/22/2020		4/22/2014		8,988		8,917		8,988		2.66
ACP Tower Merger Sub, Inc. (Telular Corporation) ^{(2) (3) (4)}	Telecommunications		5.50			6/24/2019		6/24/2013		5,781		5,764		5,689		1.68
AF Borrower LLC (Accuvant) ^{(2) (3) (5)}	High Tech Industries		6.25			1/28/2022		12/15/2014		12,000		11,762		11,842		3.50
Alpha Packaging Holdings, Inc. ^{(2) (3) (4)}	Containers, Packaging & Glass		5.25			5/12/2020		5/12/2014		11,567		11,554		11,301		3.34
American Tire Distributors, Inc. ^{(2) (3) (5)}	Automotive		5.75			6/1/2018		6/12/2014		3,192		3,193		3,116		0.92
Anaren, Inc. ^{(2) (3) (4)}	Telecommunications		5.50			2/18/2021		2/18/2014		11,497		11,396		11,363		3.36
APX Group, Inc. ^{(5) (8)}	Consumer Services		6.38			12/1/2019		10/15/2014		10,000		9,688		9,575		2.83
Blue Bird Body Company ^{(2) (3) (4) (8)}	Transportation: Consumer		6.50			6/27/2020		7/22/2014		11,250		10,719		10,940		3.24
Brooks Equipment Company, LLC ^{(2) (3) (4)}	Construction & Building		6.75			8/29/2020		8/29/2014		7,890		7,826		7,766		2.30
Capstone Logistics Acquisition, Inc. ^{(2) (3) (4)}	Transportation: Cargo		5.50			10/7/2021		10/3/2014		19,950		19,757		19,477		5.76
Castle Management Borrower LLC (Highgate Hotels L.P.) ^{(2) (3) (4) (9)}	Hotel, Gaming & Leisure		5.50			9/18/2020		10/10/2014		8,778		8,693		8,610		2.55
Central Security Group, Inc.^{(2) (3) (4)}	Consumer Services		6.25			10/6/2020		10/3/2014		25,000		24,638		24,780		7.33
Consolidated Aerospace Manufacturing, LLC.^{(2) (3) (4)}	Aerospace & Defense		5.00			3/27/2020		2/28/2014		6,730		6,708		6,558		1.94
CRCI Holdings Inc. (CLEAResult Consulting, Inc.) ^{(2) (3) (4)}	Utilities: Electric		5.25			7/10/2019		7/29/2014		5,985		5,962		5,858		1.73
DTZ U.S. Borrower, LLC ^{(2) (3) (4)}	Construction & Building		5.50			11/5/2021		10/28/2014		10,500		10,347		10,290		3.04
EP Minerals, LLC ^{(2) (3) (4)}	Metals & Mining		5.50			8/20/2020		8/20/2014		10,474		10,426		10,298		3.04
FCX Holdings Corp. ^{(2) (3) (4)}	Capital Equipment		5.50			8/4/2020		8/4/2014		10,149		10,141		9,942		2.94
Genex Holdings, Inc. ^{(2) (3) (4)}	Banking, Finance, Insurance & Real Estate		5.25			5/30/2021		5/22/2014		4,286		4,268		4,227		1.25
Green Energy Partners/Stonewall LLC ^{(2) (3) (5) (10)}	Energy: Electricity		6.50			11/13/2021		11/12/2014		8,300		8,136		8,338		2.46
Hercules Achievement, Inc. (Varsity Brands Holding Co., Inc.) ^(2) (3) (5)	Durable Consumer Goods		6.00			12/11/2021		12/10/2014		20,000		19,803		19,820		5.86
Indra Holdings Corp. (Totes Isotoner) ^{(2) (3) (5)}	Non-durable Consumer Goods		5.25			5/1/2021		4/29/2014		14,925		14,790		14,701		4.35
Landslide Holdings, Inc. (LANDesk Software) ^{(2) (3) (4)}	Software		5.00			2/25/2020		2/25/2014		9,875		9,878		9,705		2.87
Meritas Schools Holdings, LLC ^{(2) (3) (4)}	Consumer Services		7.00			6/25/2019		6/21/2013		7,080		7,025		7,138		2.11
Miller Heiman, Inc. ^{(2) (3) (4)}	Business Services		6.75			9/30/2019		10/1/2013		19,719		19,479		19,338		5.72
MRI Software LLC ^{(2) (3) (4)}	Software		5.25			2/4/2021		1/31/2014		14,888		14,823		14,560		4.30
MSX International, Inc. ^{(2) (3) (4)}	Automotive		6.00			8/21/2020		8/18/2014		11,176		11,072		11,039		3.26
NES Global Talent Finance US LLC (United Kingdom) ^{(2) (3) (4) (8)}	Energy: Oil & Gas		6.50			10/3/2019		10/2/2013		12,188		11,988		12,188		3.60
Novetta, LLC ^{(2) (3) (4)}	Aerospace & Defense		6.00			10/2/2020		11/19/2014		12,220		12,112		12,017		3.55

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2014

(dollar amounts in thousands)


Investments—non-controlled/non-affiliated ⁽¹⁾	Industry	Interest Rate			Maturity Date		Acquisition Date		Par Amount		Amortized Cost ⁽⁶⁾		Fair Value ⁽⁷⁾		Percentage of Net Assets
First Lien Debt (73.68%) (continued)
Pelican Products, Inc. ^{(2) (3) (4)}	Containers, Packaging & Glass		5.25	%		4/11/2020		4/8/2014	$	7,897	$	7,915	$	7,748		2.29	%
Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) ^(2) (3) (4)	Wholesale		5.50			1/28/2020		1/24/2014		11,024		10,933		10,764		3.18
PSC Industrial Holdings Corp ^{(2) (3) (4)}	Environmental Industries		7.00			12/5/2020		12/5/2014		12,000		11,884		11,820		3.50
QoL Meds, LLC ^{(2) (3) (4)}	Retail		5.50			7/15/2020		7/14/2014		12,988		12,929		12,757		3.77
RCHP, Inc. (Regionalcare) ^{(2) (3) (4)}	Healthcare & Pharmaceuticals		6.00			4/23/2019		4/21/2014		19,792		19,612		19,630		5.80
SolAero Technologies Corp. ^{(2) (3) (4)}	Telecommunications		5.75			12/10/2020		12/9/2014		11,250		11,150		10,936		3.23
Stafford Logistics, Inc. (Custom Ecology, Inc.) ^{(2) (3) (4)}	Environmental Industries		6.75			6/26/2019		7/1/2013		9,540		9,466		9,006		2.66
Sterling Infosystems, Inc ^{(2) (3) (4)}	Business Services		5.50			5/13/2021		5/12/2014		8,955		8,916		8,895		2.63
Synarc-Biocore Holdings, LLC ^{(2) (3) (4)}	Healthcare & Pharmaceuticals		5.50			3/10/2021		3/6/2014		13,399		13,280		12,953		3.83
Systems Maintenance Services Holding, Inc. ^{(2) (3) (4)}	High Tech Industries		5.00			10/18/2019		10/18/2013		2,215		2,208		2,170		0.64
TASC, Inc ^{(2) (3) (5) (8)}	Aerospace & Defense		7.00			5/23/2020		12/17/2014		20,000		19,200		19,600		5.79
The SI Organization, Inc. ^{(2) (3) (4)}	Aerospace & Defense		5.75			11/23/2019		5/16/2014		9,372		9,288		9,465		2.80
The Topps Company, Inc. ^{(2) (3) (4)}	Non-durable Consumer Goods		7.25			10/2/2018		10/1/2013		11,512		11,422		11,363		3.36
TruckPro, LLC ^{(2) (3) (4)}	Automotive		5.75			8/6/2018		8/6/2013		9,499		9,456		9,415		2.78
Violin Finco S.A.R.L. (Alexander Mann Solutions)
(United Kingdom) ^{(2) (3) (4) (8)}	Business Services		5.75			12/20/2019		12/18/2013		12,375		12,274		12,375		3.66
Vitera Healthcare Solutions, LLC ^{(2) (3) (4)}	Healthcare & Pharmaceuticals		6.00			11/4/2020		11/1/2013		9,533		9,453		9,462		2.80
Zest Holdings, LLC ^{(2) (3) (4)}	Durable Consumer Goods		5.25			8/16/2020		8/18/2014		12,344		12,344		12,099		3.58

*First Lien Debt Total*											$	517,450	$	514,787		152.19	%


Second Lien Debt (15.44%)
AF Borrower LLC (Accuvant) ^{(2) (3) (5)}	High Tech Industries		10.00			1/28/2023		12/15/2014		8,000		7,921		7,839		2.32
Allied Security Holdings LLC ^{(2) (3) (5)}	Business Services		8.00			8/14/2021		9/25/2014		8,000		7,942		7,850		2.32
Ascensus Inc. ^{(2) (3) (4)}	Banking, Finance, Insurance & Real Estate		9.00			12/2/2020		12/2/2013		8,000		7,896		7,983		2.36
Berlin Packaging L.L.C. ^{(2) (3) (5)}	Containers, Packaging & Glass		7.75			10/1/2022		9/24/2014		9,200		9,132		9,062		2.68
Creganna Finance (US) LLC (Ireland) ^{(2) (3) (5) (8)}	Healthcare & Pharmaceuticals		9.00			6/1/2022		11/20/2014		9,900		9,804		9,402		2.78
Drew Marine Group Inc. ^{(2) (3) (5)}	Chemicals, Plastics & Rubber		8.00			5/19/2021		11/19/2013		12,500		12,475		11,720		3.46
Genex Holdings, Inc. ^{(2) (3) (5)}	Banking, Finance, Insurance & Real Estate		8.75			5/30/2022		5/22/2014		4,990		4,936		4,740		1.40
Institutional Shareholder Services Inc. ^{(2) (3) (5)}	Banking, Finance, Insurance & Real Estate		8.50			4/30/2022		4/30/2014		12,500		12,386		11,600		3.43
Jazz Acquisition, Inc. (Wencor) ^{(2) (3) (5)}	Aerospace & Defense		7.75			6/19/2022		6/25/2014		6,700		6,671		6,283		1.86
Landslide Holdings, Inc. (LANDesk Software) ^{(2) (3) (5)}	Software		8.25			2/25/2021		2/25/2014		3,500		3,477		3,335		0.99

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2014

(dollar amounts in thousands)


Investments—non-controlled/non-affiliated ⁽¹⁾	Industry	Interest Rate			Maturity Date		Acquisition Date		Par Amount		Amortized Cost ⁽⁶⁾		Fair Value ⁽⁷⁾		Percentage of Net Assets
Second Lien Debt (15.44%) (continued)
Phillips-Medisize Corporation ^{(2) (3) (5)}	Chemicals, Plastics & Rubber		8.25	%		6/16/2022		6/13/2014	$	5,000	$	4,954	$	4,743		1.40	%
Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) ^(2) (3) (5)	Wholesale		9.50			7/28/2020		1/24/2014		3,000		2,947		2,816		0.83
Systems Maintenance Services Holding, Inc. ^{(2) (3) (4)}	High Tech Industries		9.25			10/18/2020		10/18/2013		6,000		5,953		5,830		1.72
TASC, Inc ^{(5) (8)}	Aerospace & Defense		12.00			5/23/2021		12/17/2014		6,000		5,880		6,060		1.79
Vitera Healthcare Solutions, LLC ^{(2) (3) (5)}	Healthcare & Pharmaceuticals		9.25			11/4/2021		11/1/2013		2,000		1,973		1,929		0.57
Watchfire Enterprises, Inc. ^{(2) (3) (5)}	Media: Advertising, Printing &Publishing		9.00			10/2/2021		10/2/2013		7,000		6,914		6,682		1.98

*Second Lien Debt Total*											$	111,261	$	107,874		31.89	%


Investments—non-controlled/non-affiliated ⁽¹⁾	Industry		Maturity Date		Acquisition Date		Par Amount		Amortized Cost ⁽⁶⁾		Fair Value ⁽⁷⁾		Percentage of Net Assets
Structured Finance Obligations (10.88%) ^{(5) (8) (11)}
1776 CLO I, Ltd., Subordinated Notes		Structured Finance		5/8/2020		2/27/2014	$	11,750	$	10,106	$	8,813		2.61	%
AIMCO CLO, Series 2014-A, Class F, 5.47% ⁽²⁾		Structured Finance		7/20/2026		5/12/2014		2,700		2,350		2,187		0.65
AIMCO CLO, Series 2014-A, Subordinated Notes		Structured Finance		7/20/2026		5/12/2014		11,500		9,732		9,832		2.91
Ares XXVIII CLO Ltd., Subordinated Notes		Structured Finance		10/17/2024		10/10/2013		7,000		5,242		5,278		1.56
Babson CLO Ltd. 2005-I, Subordinated Notes		Structured Finance		4/15/2019		7/16/2013		7,632		432		161		0.05
Blackrock Senior Income Series V, Limited, Subordinated Notes (Ireland)		Structured Finance		8/13/2019		3/11/2014		4,600		2,592		2,521		0.75
CIFC Funding 2007-III, Ltd., Income Notes		Structured Finance		7/26/2021		5/20/2014		6,500		3,525		3,510		1.04
Clydesdale CLO 2005, Ltd., Subordinated Notes		Structured Finance		12/6/2017		7/15/2013		5,750		—		10		0.00
Flagship VII Limited, Subordinated Notes		Structured Finance		1/20/2026		12/18/2013		7,000		5,823		5,628		1.66
GoldenTree Loan Opportunities V, Limited, Subordinated Notes		Structured Finance		10/18/2021		10/11/2013		5,000		3,136		2,920		0.86
ING Investment Management CLO IV, Ltd., Preferred Shares		Structured Finance		6/14/2022		5/7/2014		8,925		5,327		5,690		1.68
ING IM CLO 2012-1 LLC, Preferred Shares		Structured Finance		3/14/2022		12/5/2014		3,500		2,367		2,494		0.74
ING IM CLO 2012-1 LLC, Subordinated Notes		Structured Finance		3/14/2022		12/5/2014		2,500		1,691		1,781		0.53
Landmark VIII, CLO Ltd., Income Notes		Structured Finance		10/19/2020		10/22/2013		8,600		3,603		3,337		0.99
MSIM Peconic Bay, Ltd., Subordinated Notes		Structured Finance		7/20/2019		10/22/2013		4,500		1,210		1,018		0.30
Nautique Funding Ltd., Income Notes		Structured Finance		4/15/2020		2/24/2014		5,000		2,991		2,980		0.88
Pacifica CDO V, Ltd., Subordinated Notes		Structured Finance		1/26/2020		3/28/2014		4,700		87		70		0.02
Steele Creek CLO 2014-I, LLC, Subordinated Notes		Structured Finance		8/21/2026		7/18/2014		18,000		15,030		14,040		4.15
Venture VI CDO Limited, Preference Shares		Structured Finance		8/3/2020		4/17/2014		7,000		3,746		3,731		1.09

*Structured Finance Obligations Total*									$	78,990	$	76,001		22.47	%

Total Investments—non-controlled/non-affiliated									$	707,701	$	698,662		206.55	%

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2014

(dollar amounts in thousands)

(1)

Unless otherwise indicated, issuers of debt investments of GMS Finance are domiciled in the United States and issuers of structured finance obligations are domiciled in the Cayman Islands. Under the Investment Company Act, the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. As of December 31, 2014, the Company does not “control” any of these portfolio companies. Under the Investment Company Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities. As of December 31, 2014, the Company is not an “affiliated person” of any portfolio company.

(2)

(3)	Loan includes interest rate floor feature.

(4)

These assets are owned by the Borrower Sub. The Borrower Sub has the Revolving Credit Facility. The lenders of the Revolving Credit Facility have a first lien security interest in substantially all of the assets of the Borrower Sub (see Note 5, Borrowings) and such assets are assets of the Borrower Sub to satisfy obligations of the Borrower Sub under the Revolving Credit Facility and are not available to creditors of the Company.

(5)

These assets are owned by the Company. The Company has the Facility, which was subsequently amended on the First Facility Amendment Effective Date. The lenders of the Facility have a perfected first-priority security interest in substantially all of the portfolio investments held by the Company. The lenders of the Facility also have a perfected first-priority security interest in the unfunded investor equity capital commitments (provided that the amount of unfunded capital commitments ultimately available to the lenders is limited to $100,000) and such security interest will be released once the Company receives equity capital contributions in an amount equal to $100,000 subsequent to the First Facility Amendment Effective Date (see Note 5, Borrowings).

(6)

Amortized cost represents original cost, including origination fees, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method. Equity tranche structured finance obligations are recorded at amortized cost using an effective interest method.

(7)	Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (Notes 2 and 3), pursuant to the Company’s valuation policies.

(8)

(9)	Castle Management Borrower LLC (Highgate Hotels L.P.) has an undrawn delayed draw term loan of $1,200 par value at LIBOR + 4.50%, 1.00% floor. An unused rate of 1.00% is charged on the principal while undrawn. The delayed draw term loan is owned by the Company.

(10)	Green Energy Partners/Stonewall LLC has an undrawn delayed draw term loan of $8,300 par value at LIBOR + 5.50%, 1.00% floor. An unused rate of 3.00% is charged on the principal while undrawn.

(11)

As of December 31, 2014, the Company has a greater than 25% but less than 50% equity or subordinated notes ownership interest in certain structured finance obligations. These investments have governing documents that preclude the Company from controlling management of the entity and therefore the Company has determined that the issuer of the investment is not a controlled affiliate or a non-controlled affiliate because the investments are not “voting securities”.

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2014

(dollar amounts in thousands)

As of December 31, 2014, investments—non-controlled/non-affiliated at fair value consisted of the following:


Type	Amortized Cost		Fair Value		% of Fair Value
First Lien Debt	$	517,450	$	514,787		73.68	%
Second Lien Debt		111,261		107,874		15.44
Structured Finance Obligations		78,990		76,001		10.88

Total	$	707,701	$	698,662		100.00	%

The industrial composition of investments—non-controlled/non-affiliated at fair value as of December 31, 2014 was as follows:


Industry	Amortized Cost		Fair Value		% of Fair Value
Aerospace & Defense	$	59,859	$	59,983		8.59	%
Automotive		23,721		23,570		3.37
Banking, Finance, Insurance & Real Estate		29,486		28,550		4.09
Business Services		63,466		63,323		9.06
Capital Equipment		10,141		9,942		1.42
Chemicals, Plastics & Rubber		17,429		16,463		2.36
Construction & Building		18,173		18,056		2.58
Consumer Services		41,351		41,493		5.94
Containers, Packaging & Glass		28,601		28,111		4.02
Durable Consumer Goods		32,147		31,919		4.57
Energy: Electricity		8,136		8,338		1.19
Energy: Oil & Gas		11,988		12,188		1.74
Environmental Industries		21,350		20,826		2.98
Healthcare & Pharmaceuticals		54,122		53,376		7.64
High Tech Industries		36,761		36,669		5.25
Hotel, Gaming & Leisure		8,693		8,610		1.23
Media: Advertising, Printing & Publishing		6,914		6,682		0.96
Metals & Mining		10,426		10,298		1.47
Non-durable Consumer Goods		26,212		26,064		3.73
Retail		12,929		12,757		1.83
Software		28,178		27,600		3.95
Structured Finance		78,990		76,001		10.88
Telecommunications		28,310		27,988		4.01
Transportation: Cargo		19,757		19,477		2.79
Transportation: Consumer		10,719		10,940		1.57
Utilities: Electric		5,962		5,858		0.84
Wholesale		13,880		13,580		1.94

Total	$	707,701	$	698,662		100.00	%

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2014

(dollar amounts in thousands)

The geographical composition of investments—non-controlled/non-affiliated at fair value as of December 31, 2014 was as follows:


Geography	Amortized Cost		Fair Value		% of Fair Value
Cayman Islands	$	76,398	$	73,480		10.52	%
Ireland		12,396		11,923		1.70
United Kingdom		24,262		24,563		3.51
United States		594,645		588,696		84.27

Total	$	707,701	$	698,662		100.00	%

The accompanying notes are an integral part of these consolidated financial statements.

CARLYLE GMS FINANCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2015

(dollar amounts in thousands, except per share data)

1. ORGANIZATION

Carlyle GMS Finance, Inc. (“GMS Finance” or the “Company”) is a Maryland corporation formed on February 8, 2012, and structured as an externally managed, non-diversified closed-end investment company. On May 2, 2013, GMS Finance filed its election 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”). GMS Finance has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

GMS Finance’s investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies, which the Company defines as companies with approximately $10 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”). GMS Finance seeks to achieve its investment objective by investing primarily in first lien senior secured loans (which may include stand-alone first lien loans; “last out” first lien loans, which are loans that have a secondary priority behind “first out” first lien loans; “unitranche” loans, which are loans that combine features of first lien, second lien or subordinated loans, generally in a first lien position; and secured corporate bonds with similar features to these categories of first lien loans) and second lien senior secured loans (which may include senior secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first lien loans) (collectively, “Middle Market Senior Loans”). The Middle Market Senior Loans are generally made to private U.S. middle market companies that are, in many cases, controlled by private equity firms. Depending on market conditions, GMS Finance expects that between 70% and 80% of the value of its assets will be invested in Middle Market Senior Loans, with the balance invested in higher-yielding investments, which may include middle market junior loans such as corporate mezzanine loans, equity co-investments, broadly syndicated first lien and second lien senior secured loans, high-yield bonds, structured finance obligations and/or other opportunistic investments. GMS Finance expects that the composition of its portfolio will change over time given Carlyle GMS Investment Management L.L.C.’s (the “Investment Adviser”) view on, among other things, the economic and credit environment (including with respect to interest rates) in which the Company is operating.

On May 2, 2013, GMS Finance completed its initial closing of capital commitments (the “Initial Closing”) and subsequently commenced substantial investment operations. Prior to May 2, 2013, GMS Finance had not commenced operations and was a development stage company as defined by Accounting Standards Codification (“ASC”) 915, Development Stage Entity. During this time, GMS Finance focused substantially all of its efforts on establishing its business. If GMS Finance has not consummated an initial public offering of its common stock that results in an unaffiliated public float of at least 15% of the aggregate capital commitments received prior to the date of such initial public offering (a “Qualified IPO”) by May 2, 2018, then GMS Finance (subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act) will use its best efforts to wind down and/or liquidate and dissolve.

GMS Finance is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. GMS Finance will remain an emerging growth company for up to five years following an initial public offering, although if the market value of the common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, GMS Finance would cease to be an emerging growth company as of the following December 31.

Carlyle GMS Finance SPV LLC (the “Borrower Sub”) is a Delaware limited liability company that was formed on January 3, 2013. The Borrower Sub invests in first and second lien senior secured loans. The Borrower Sub is a wholly-owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the date of its formation, January 3, 2013.

On June 26, 2015, the Company completed a $400 million term debt securitization (the “2015-1 Debt Securitization”). The notes offered in the 2015-1 Debt Securitization (the “2015-1 Notes”) were issued by Carlyle GMS Finance MM CLO 2015-1 LLC (the “2015-1 Issuer”), a wholly-owned and consolidated subsidiary of the Company, and are secured by a diversified portfolio consisting primarily of first and second lien senior secured loans. Refer to Note 6 for details. The 2015-1 Issuer is consolidated in these consolidated financial statements commencing from the date of its formation, May 8, 2015.

GMS Finance is externally managed by the Investment Adviser, an investment adviser registered under the Investment Advisers Act of 1940, as amended. Carlyle GMS Finance Administration L.L.C. (the “Administrator”) provides the administrative services necessary for GMS Finance to operate. Both the Investment Adviser and the Administrator are wholly-owned subsidiaries of Carlyle Investment Management L.L.C., a subsidiary of The Carlyle Group L.P. “Carlyle” refers to The Carlyle Group L.P., its affiliates and its consolidated subsidiaries, a global alternative asset manager publicly traded on NASDAQ Global Select Market under the symbol “CG”. Refer to the sec.gov website for further information on Carlyle.

As a BDC, GMS Finance is required to comply with certain regulatory requirements. As part of these requirements, the Company must not acquire any assets other than “qualifying assets” specified in the Investment Company Act unless, at the time the acquisition is made, at least 70% of its total assets are qualifying assets (with certain limited exceptions).

GMS Finance has elected to be treated, and intends to continue to comply with the requirements to qualify annually, 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, GMS Finance must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to its stockholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. Pursuant to this election, GMS Finance generally does not have to pay corporate level taxes on any income that it distributes to stockholders, provided that GMS Finance satisfies those requirements.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“US GAAP”). The Company is an investment company for the purposes of accounting and financial reporting in accordance with Accounting Standards Update (“ASU”) 2013-08, Financial Services—Investment Companies (“ASU 2013-08”): Amendments to the Scope, Measurement and Disclosure Requirements. The consolidated financial statements include the accounts of GMS Finance and its wholly-owned subsidiaries, the Borrower Sub and the 2015-1 Issuer. All significant intercompany balances and transactions have been eliminated. US GAAP for an investment company requires investments to be recorded at fair value. The carrying value for all other assets and liabilities approximates their fair value.

The interim financial statements have been prepared in accordance with US GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X. Accordingly, certain disclosures accompanying the annual consolidated financial statements prepared in accordance with US GAAP are omitted. In the opinion of management, all adjustments considered necessary for the fair presentation of consolidated financial statements for the interim period presented have been included. These adjustments are of a normal, recurring nature. This Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2014. The results of operations for the three month and six month periods ended June 30, 2015 are not necessarily indicative of the operating results to be expected for the full year.

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experiences and other factors, including expectations of future events that management believes to be reasonable under the circumstances. It also requires management to exercise judgment in the process of applying the Company’s accounting policies. Assumptions and estimates regarding the valuation of investments and their resulting impact on base management and incentive fees involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the consolidated financial statements. Actual results could differ from these estimates and such differences could be material.

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 using the specific identification method without regard to unrealized appreciation or depreciation previously recognized, and includes investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented in the accompanying Consolidated Statements of Operations reflects the net change in the fair value of investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. See Note 3 for further information about fair value measurements.

Cash

Cash consists of demand deposits. The Company’s cash is held with two large financial institutions and cash held in such financial institutions may, at times, exceed the Federal Deposit Insurance Corporation insured limit.

Revenue Recognition

Interest from Investments and Realized Gain/Loss on Investments

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 debt securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of debt investments represents the original cost, including origination fees, adjusted for the accretion of discounts and amortization of premiums, if any. At time of exit, the realized gain or loss on an investment is the difference between the amortized cost at time of exit and the cash received at exit using the specific identification method.

The Company may have loans in its portfolio that contain payment-in-kind (“PIK”) provisions. PIK represents interest that is accrued and recorded as interest income at the contractual rates, increases the loan principal on the respective capitalization dates, and is generally due at maturity. As of June 30, 2015 and December 31, 2014 and for the three month and six month periods ended June 30, 2015 and 2014, no loans in the portfolio contained PIK provisions.

delinquencies and liquidations of or within the CLO funds. These uncertainties are difficult to predict and are subject to future events that could have impacted the Company’s estimates if the information was known at the time. As a result, actual results may differ significantly from these estimates. Interest income from investments in the notes of CLO funds, which are also included in “structured finance obligations”, is recorded on an accrual basis.

Other Income

Other income may include income such as consent, waiver and amendment fees associated with the Company’s investment activities as well as any fees for managerial assistance services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive a fee for guaranteeing the outstanding debt of a portfolio company. Such fee will be amortized into other income over the life of the guarantee. The unamortized amount, if any, is included in other assets in the accompanying Consolidated Statements of Assets and Liabilities.

Non-Accrual Income

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 are paid current and, in management’s judgment, are likely to remain current. Management may not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of June 30, 2015 and December 31, 2014, and for the three month and six month periods ended June 30, 2015 and 2014, no loans in the portfolio were on non-accrual status.

Revolving Credit Facility, Facility and 2015-1 Notes Related Costs, Expenses and Deferred Financing Costs (See Note 5, Borrowings, and Note 6, 2015-1 Notes)

Interest expense and unused commitment fees on the Revolving Credit Facility and Facility are recorded on an accrual basis. Unused commitment fees are included in credit facility fees in the accompanying Consolidated Statements of Operations.

The Revolving Credit Facility and Facility are recorded at carrying value, which approximates fair value.

Deferred financing costs include capitalized expenses related to the closing of the Revolving Credit Facility and Facility. Amortization of deferred financing costs for each credit facility is computed on the straight-line basis over the respective term of each credit facility, except for a portion that was accelerated in connection with the amendment of the Revolving Credit Facility as described in Note 5. The amortization of such costs is included in credit facility fees in the accompanying Consolidated Statements of Operations.

Deferred financing costs also include capitalized expenses including structuring and arrangement fees related to the offering of the 2015-1 Notes. Amortization of deferred financing costs for the 2015-1 Notes is computed on the effective yield method over the term of 2015-1 Notes. The amortization of such costs is included in interest expense in the accompanying Consolidated Statements of Operations.

Organization and Offering Costs

The Company agreed to reimburse the Investment Adviser for initial organization and offering costs incurred on behalf of GMS Finance up to $1,500. As of June 30, 2015 and December 31, 2014, $1,500 of organization and offering costs had been incurred by GMS Finance and $57 of excess organization and offering costs had been incurred by the Investment Adviser. The $1,500 of incurred organization and offering costs are

allocated to all stockholders based on their respective capital commitment and are re-allocated amongst all stockholders at the time of each capital drawdown subsequent to the Initial Closing. The Company’s organization costs incurred are expensed and the offering costs are charged against equity when incurred.

Income Taxes

For federal income tax purposes, GMS Finance has elected to be treated as a RIC under the Code, and intends to make the required distributions to its stockholders as specified therein. In order to qualify as a RIC, GMS Finance must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then GMS Finance is generally required to pay income taxes only on the portion of its taxable income and gains it does not distribute.

The minimum distribution requirements applicable to RICs require GMS Finance to distribute to its stockholders at least 90% of its investment company taxable income (“ICTI”), as defined by the Code, each year. Depending on the level of ICTI earned in a tax year, GMS Finance may choose to carry forward ICTI in excess of current year distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.

In addition, based on the excise distribution requirements, GMS Finance is subject to a 4% nondeductible federal excise tax on undistributed income unless GMS Finance distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in the preceding year. For this purpose, however, any ordinary income or capital gain net income retained by GMS Finance that is subject to corporate income tax is considered to have been distributed. GMS Finance intends to make sufficient distributions each taxable year to satisfy the excise distribution requirements.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely than not” to be sustained by the applicable tax authority. All penalties and interest associated with income taxes, if any, are included in income tax expense.

The Borrower Sub and the 2015-1 Issuer are disregarded entities for tax purposes and are consolidated with the tax return of GMS Finance.

Capital Calls and Dividends and Distributions to Common Stockholders

The Company records the shares issued in connection with capital calls as of the effective date, or due date, of the capital call, which is the date shares are issued. To the extent that the Company has taxable income available, the Company intends to make quarterly distributions to its common stockholders. Dividends and distributions to common stockholders are recorded on the record date. The amount to be distributed is determined by the Board of Directors each quarter and is generally based upon the taxable earnings estimated by management and available cash. Net realized capital gains, if any, are generally distributed at least annually, although the Company may decide to retain such capital gains for investment.

common stock to implement the plan issued at the net asset value per share most recently determined by the Board of Directors. After a Qualified IPO, the Company intends to use primarily newly issued shares to implement the plan so long as the market value per share is equal to or greater than the net asset value per share as of the close of business on the relevant payment date for such dividend or distribution. If the market value per share is less than the net asset value per share as of the close of business on the relevant payment date, the plan administrator would purchase the common stock on behalf of participants in the open market, unless the Company instructs the plan administrator otherwise.

Functional Currency

The functional currency of the Company is the U.S. Dollar and all transactions were in U.S. Dollars.

Recent Accounting Standards Updates

On April 7, 2015, the Financial Accounting Standards Board issued ASU 2015-3, Interest—Imputation of Interest (Subtopic 835-30—Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-3”). ASU 2015-3 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and premiums. This guidance is effective for the Company on January 1, 2016 and the ASU requires the guidance to be applied on a retrospective basis. This guidance is not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

3. FAIR VALUE MEASUREMENTS

The Company applies fair value accounting in accordance with the terms of Financial Accounting Standards Board ASC Topic 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the amount that would be exchanged to sell an asset or transfer a liability in an orderly transfer between market participants at the measurement date. The Company values securities/instruments traded in active markets on the measurement date by multiplying the closing price of such traded securities/instruments by the quantity of shares or amount of the instrument held. The Company may also obtain quotes with respect to certain of its investments, such as its securities/instruments traded in active markets and its liquid securities/instruments that are not traded in active markets, from pricing services, brokers, or counterparties (i.e. “consensus pricing”). When doing so, the Company determines whether the quote obtained is sufficient according to US GAAP to determine the fair value of the security. The Company may use the quote obtained or alternative pricing sources may be utilized including valuation techniques typically utilized for illiquid securities/instruments.

Securities/instruments that are illiquid or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or GMS Finance’s Board of Directors, does not represent fair value shall each be valued as of the measurement date using all techniques appropriate under the circumstances and for which sufficient data is available. These valuation techniques may vary by investment and include comparable public market valuations, comparable precedent transaction valuations and/or discounted cash flow analyses. The process generally used to determine the applicable value is as follows: (i) the value of each portfolio company or investment is initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments, a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs is used to determine a preliminary value, which is also reviewed alongside consensus pricing, where available; (ii) preliminary valuation conclusions are documented and reviewed by a valuation committee comprised of members of senior management; (iii) the Board of Directors engages a third-party valuation firm to provide positive assurance on portions of the Middle Market Senior Loans and equity investments portfolio each quarter (such that each non-traded investment is reviewed by a third-party valuation firm at least once on a rolling twelve month basis) including a review of management’s preliminary valuation and conclusion on fair value; (iv) the Audit Committee of the Board of Directors (the “Audit

Committee”) reviews the assessments of the Investment Adviser and the third-party valuation firm and provides the Board of Directors with any recommendations with respect to changes to the fair value of each investment in the portfolio; and (v) the Board of Directors discusses the valuation recommendations of the Audit Committee and determines the fair value of each investment in the portfolio in good faith based on the input of the Investment Adviser and, where applicable, the third-party valuation firm.

All factors that might materially impact the value of an investment are considered, including, but not limited to the assessment of the following factors, as relevant:

•

the nature and realizable value of any collateral;

•

call features, put features and other relevant terms of debt;

•

the portfolio company’s leverage and ability to make payments;

•

the portfolio company’s public or private credit rating;

•

the portfolio company’s actual and expected earnings and discounted cash flow;

•

prevailing interest rates and spreads for similar securities and expected volatility in future interest rates;

•

the markets in which the portfolio company does business and recent economic and/or market events; and

•

comparisons to comparable transactions and publicly traded securities.

Investment performance data utilized are the most recently available financial statements and compliance certificates received from the portfolio companies as of the measurement date which in many cases may reflect a lag in information.

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. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the realized gains or losses on investments to be different from the net change in unrealized appreciation or depreciation currently reflected in the consolidated financial statements as of June 30, 2015 and December 31, 2014.

US GAAP establishes a hierarchical disclosure framework which ranks the level of observability of market price inputs used in measuring investments at fair value. The observability of inputs is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available quoted prices or for which fair value can be measured from quoted prices in active markets generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.

Investments measured and reported at fair value are classified and disclosed based on the observability of inputs used in determination of fair values, as follows:

•

Level I—inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. The types of financial instruments in Level I generally include unrestricted securities, including equities and derivatives, listed in active markets. The Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

•

Level II—inputs to the valuation methodology are either directly or indirectly observable as of the reporting date and are those other than quoted prices in active markets. The type of financial instruments in this category generally includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.

•

Level III—inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are in this category generally include investments in privately-held entities, collateralized loan obligations, and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Investment Adviser’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur. For the three month and six month periods ended June 30, 2015 and 2014, there were no transfers between levels.

The following tables summarize the Company’s investments measured at fair value on a recurring basis by the above fair value hierarchy levels as of June 30, 2015 and December 31, 2014:


	June 30, 2015
	Level I		Level II		Level III		Total
Assets
First Lien Debt	$	—	$	9,700	$	651,606	$	661,306
Second Lien Debt		—		—		177,811		177,811
Structured Finance Obligations		—		—		71,170		71,170
Equity Investments		—		—		2,215		2,215

Total	$	—	$	9,700	$	902,802	$	912,502


	December 31, 2014
	Level I		Level II		Level III		Total
Assets
First Lien Debt	$	—	$	9,575	$	505,212	$	514,787
Second Lien Debt		—		—		107,874		107,874
Structured Finance Obligations		—		—		76,001		76,001

Total	$	—	$	9,575	$	689,087	$	698,662

The changes in the Company’s investments at fair value for which the Company has used Level III inputs to determine fair value and net change in unrealized appreciation (depreciation) included in earnings for Level III investments still held are as follows:


				Financial Assets For the three month period ended June 30, 2015
	First Lien Debt			Second Lien Debt		Structured Finance Obligations			Equity Investments		Total
Balance, beginning of period	$	582,393		$	118,198	$	78,131		$	—	$	778,722
Purchases		167,679			58,419		2,240			2,215		230,553
Sales		(9,857	)		—		(5,110	)		—		(14,967	)
Paydowns		(90,728	)		—		(3,192	)		—		(93,920	)
Accretion of discount		840			36		5			—		881
Net realized gains (losses)		205			—		388			—		593
Net change in unrealized appreciation (depreciation)		1,074			1,158		(1,292	)		—		940

Balance, end of period	$	651,606		$	177,811	$	71,170		$	2,215	$	902,802

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of June 30, 2015 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations	$	579		$	1,158	$	(1,252	)	$	—	$	485


	Financial Assets For the three month period ended June 30, 2014
	First Lien Debt			Second Lien Debt			Structured Finance Obligations			Total
Balance, beginning of period	$	223,959		$	46,575		$	47,811		$	318,345
Purchases		80,968			30,939			29,437			141,344
Sales		—			(4,050	)		—			(4,050	)
Paydowns		(32,234	)		(3,570	)		(1,664	)		(37,468	)
Accretion of discount		308			76			—			384
Net realized gains (losses)		—			120			25			145
Net change in unrealized appreciation (depreciation)		898			1,048			(2,035	)		(89	)

Balance, end of period	$	273,899		$	71,138		$	73,574		$	418,611

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of June 30, 2014 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations	$	860		$	1,022		$	(2,035	)	$	(153	)


				Financial Assets For the six month period ended June 30, 2015
	First Lien Debt			Second Lien Debt		Structured Finance Obligations			Equity Investments		Total
Balance, beginning of period	$	505,212		$	107,874	$	76,001		$	—	$	689,087
Purchases		253,976			68,272		10,059			2,215		334,522
Sales		(9,857	)		—		(8,421	)		—		(18,278	)
Paydowns		(103,076	)		—		(5,129	)		—		(108,205	)
Accretion of discount		1,117			61		10			—		1,188
Net realized gains (losses)		207			—		122			—		329
Net change in unrealized appreciation (depreciation)		4,027			1,604		(1,472	)		—		4,159

Balance, end of period	$	651,606		$	177,811	$	71,170		$	2,215	$	902,802

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of June 30, 2015 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations	$	3,436		$	1,604	$	(1,755	)	$	—	$	3,285


	Financial Assets For the six month period ended June 30, 2014
	First Lien Debt			Second Lien Debt			Structured Finance Obligations			Total
Balance, beginning of period	$	141,676		$	39,767		$	31,364		$	212,807
Purchases		170,216			37,353			51,951			259,520
Sales		—			(4,050	)		(3,125	)		(7,175	)
Paydowns		(39,742	)		(3,570	)		(4,780	)		(48,092	)
Accretion of discount		432			86			—			518
Net realized gains (losses)		—			120			71			191
Net change in unrealized appreciation (depreciation)		1,317			1,432			(1,907	)		842

Balance, end of period	$	273,899		$	71,138		$	73,574		$	418,611

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of June 30, 2014 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations	$	1,378		$	1,406		$	(1,903	)	$	881

The Company generally uses the following framework when determining the fair value of investments that are categorized as Level III:

Investments in debt securities are initially evaluated to determine whether the enterprise value of the portfolio company is greater than the applicable debt. The enterprise value of the portfolio company is estimated using a market approach and an income approach. The market approach utilizes market value (EBITDA) multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The Company carefully considers numerous factors when selecting the appropriate companies whose multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, relevant risk factors, as well as size, profitability and growth expectations. The income approach typically uses a discounted cash flow analysis of the portfolio company.

Investments in debt securities that do not have sufficient coverage through the enterprise value analysis are valued based on an expected probability of default and discount recovery analysis.

Investments in debt securities with sufficient coverage through the enterprise value analysis are generally valued using a discounted cash flow analysis of the underlying security. Projected cash flows in the discounted cash flow typically represent the relevant security’s contractual interest, fees and principal payments plus the assumption of full principal recovery at the security’s expected maturity date. The discount rate to be used is determined using an average of two market-based methodologies.

Investments in structured finance obligations are generally valued using a discounted cash flow and/or consensus pricing.

Investments in equities are generally valued using a market approach and/or an income approach. The market approach utilizes EBITDA multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The income approach typically uses a discounted cash flow analysis of the portfolio company.

The following tables summarize the quantitative information related to the significant unobservable inputs for Level III instruments which are carried at fair value as of June 30, 2015 and December 31, 2014:


	Fair Value as of June 30, 2015		Valuation Techniques	Significant Unobservable Inputs	Range						Weighted Average
	Fair Value as of June 30, 2015		Valuation Techniques	Significant Unobservable Inputs	Low			High			Weighted Average
Investments in First Lien Debt	$	551,529	Discounted Cash Flow	Discount Rate		5.40	%		10.90	%		6.88	%
		100,077	Consensus Pricing	Indicative Quotes		99.13			100.94			100.05

Total First Lien Debt		651,606

Investments in Second Lien Debt		119,010	Discounted Cash Flow	Discount Rate		9.26	%		15.18	%		10.12	%
		58,801	Consensus Pricing	Indicative Quotes		96.50			104.38			100.11

Total Second Lien Debt		177,811

Investments in Structured Finance Obligations		68,802	Discounted Cash Flow	Discount Rate		14.60	%		22.70	%		17.01	%
				Default Rate		0.19			1.26			0.77
				Prepayment Rate		17.01			32.00			21.19
				Recovery Rate		68.59			75.00			73.92
		2,368	Consensus Pricing	Indicative Quotes		0.18			80.50			74.06

Total Structured Finance Obligations		71,170

Investments in Equity		2,215	Income Approach	Discount Rate		9.70	%		10.44	%		10.20	%
			Market Approach	Comparable Multiple		10.56	x		11.09	x		10.92	x

Total Equity Investments		2,215

Total Level III Investments	$	902,802


	Fair Value as of December 31, 2014		Valuation Techniques	Significant Unobservable Inputs	Range						Weighted Average
	Fair Value as of December 31, 2014		Valuation Techniques	Significant Unobservable Inputs	Low			High			Weighted Average
Investments in First Lien Debt	$	469,796	Discounted Cash Flow	Discount Rate		5.23	%		9.02	%		6.33	%
		35,416	Consensus Pricing	Indicative Quotes		98.50			99.33			98.71

Total First Lien Debt		505,212

Investments in Second Lien Debt		84,902	Discounted Cash Flow	Discount Rate		9.15	%		11.32	%		10.05	%
		22,972	Consensus Pricing	Indicative Quotes		98.13			101.00			99.03

Total Second Lien Debt		107,874

Investments in Structured Finance Obligations		59,533	Discounted Cash Flow	Discount Rate		12.65	%		15.80	%		13.87	%
				Default Rate		—			1.32			0.60
				Prepayment Rate		18.78			32.50			25.41
				Recovery Rate		67.54			75.00			73.28
		16,468	Consensus Pricing	Indicative Quotes		0.18			81.00			77.28

Total Structured Finance Obligations		76,001

Total Level III Investments	$	689,087

The significant unobservable inputs used in the fair value measurement of the Company’s investments in first and second lien debt securities are discount rates and indicative quotes. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in indicative quotes in isolation may result in a significantly lower fair value measurement.

The significant unobservable inputs used in the fair value measurement of the Company’s investments in structured finance obligations are discount rates, default rates, prepayment rates, recovery rates and indicative quotes. Significant increases in discount rates, default rates or prepayment rates in isolation would result in a significantly lower fair value measurement, while a significant increase in recovery rates in isolation would result in a significantly higher fair value. Significant decreases in indicative quotes in isolation may result in a significantly lower fair value measurement.

The significant unobservable inputs used in the fair value measurement of the Company’s investments in equities are discount rates and comparable EBITDA multiples. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in comparable EBITDA multiples would result in a significantly lower fair value measurement.

Financial instruments disclosed but not carried at fair value

The following table presents the carrying value and fair value of the Company’s secured borrowings and 2015-1 Notes disclosed but not carried at fair value as of June 30, 2015 and December 31, 2014.


	June 30, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
Secured borrowings	$	134,958	$	134,958	$	308,441	$	308,441
2015-1 Notes		273,000		273,000		—		—

Total	$	407,958	$	407,958	$	308,441	$	308,441

The carrying values of the secured borrowings and 2015-1 Notes approximate their respective fair values and are categorized as Level III within the hierarchy. Secured borrowings and 2015-1 Notes are valued generally using discounted cash flow analysis. The significant unobservable inputs used in the fair value measurement of the Company’s secured borrowings are discount rates. Significant increases in discount rates would result in a significantly lower fair value measurement. The significant unobservable inputs used in the fair value measurement of the Company’s 2015-1 Notes are discount rates, default rates, prepayment rates and recovery rates. Significant increases in discount rates, default rates or prepayment rates in isolation would result in a significantly lower fair value measurement, while a significant increase in recovery rates in isolation would result in a significantly higher fair value.

The carrying value of other financial assets and liabilities approximates their fair value based on the short term nature of these items.

4. RELATED PARTY TRANSACTIONS

Investment Advisory Agreement

On April 3, 2013, the Company’s Board of Directors, including a majority of the directors who are not “interested persons” as defined in Section 2(a)(19) of the Investment Company Act (“Independent Directors”), approved an investment advisory and management agreement (the “Investment Advisory Agreement”) between the Company and the Investment Adviser in accordance with, and on the basis of an evaluation satisfactory to such directors as required by, Section 15(c) of the Investment Company Act. The initial term of the Investment Advisory Agreement is two years from April 3, 2013 and, unless terminated earlier, the Investment Advisory Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by the vote of the Board of Directors and by the vote of a majority of the Independent Directors. On March 11, 2015, the Company’s Board of Directors, including a majority of the Independent Directors, approved the continuance of the Advisory Agreement for a one year period. The Investment Advisory Agreement will automatically terminate in the event of an assignment and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party. Subject to the overall supervision of the Board of Directors, the Investment Adviser provides investment advisory services to the Company. For providing these services, the Investment Adviser receives fees from the Company consisting of two components—a base management fee and an incentive fee.

Prior to a Qualified IPO, the base management fee is calculated and payable quarterly in arrears at an annual rate of 1.50% of the average daily gross assets of the Company for the period adjusted for share issuances or repurchases, excluding any cash and cash equivalents and including assets acquired with leverage from use of the Revolving Credit Facility and Facility and 2015-1 Notes (see Note 5, Borrowings, and Note 6, 2015-1 Notes). For purposes of this calculation, cash and cash equivalents include any temporary investments in cash-equivalents, U.S. government securities and other high quality investment grade debt investments that mature in 12 months or less from the date of investment. Base management fees for any partial quarter are prorated. The Investment Adviser contractually waived one-third (0.50%) of the base management fee prior to a Qualified IPO. The fee waiver will terminate if and when a Qualified IPO has been consummated.

The incentive fee has two parts. The first part is calculated and payable quarterly in arrears based on the pre-incentive fee net investment income for the immediately preceding calendar quarter. The second part is determined and payable in arrears based on capital gains as of the end of each calendar year.

Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the operating expenses accrued for the quarter (including the base management fee, expenses payable under the administration agreement, and any interest expense or fees on any credit facilities or outstanding debt and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay-in-kind interest and

zero coupon securities), accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

Prior to any Qualified IPO of the Company’s common stock, pre-incentive fee net investment income, expressed as a rate of return on the average daily Hurdle Calculation Value (as defined below) throughout the immediately preceding calendar quarter, is compared to a “hurdle rate” of 1.50% per quarter (6% annualized). “Hurdle Calculation Value” means, on any given day, the sum of (x) the value of net assets as of the end of the calendar quarter immediately preceding such day plus (y) the aggregate amount of capital drawn from investors (or reinvested in the Company pursuant to a dividend reinvestment plan) from the beginning of the current quarter to such day minus (z) the aggregate amount of distributions (including share repurchases) made by the Company from the beginning of the current quarter to such day but only to the extent such distributions were not declared and accounted for on the books and records in a previous quarter.

GMS Finance pays its Investment Adviser an incentive fee with respect to its pre-incentive fee net investment income in each calendar quarter as follows:

•

no incentive fee based on pre-incentive fee net investment income in any calendar quarter in which its pre-incentive fee net investment income does not exceed the hurdle of 1.50%;

•

100% of 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 but is less than 1.875% in any calendar quarter (7.50% annualized). The Company refers to this portion of the pre-incentive fee net investment income (which exceeds the hurdle but is less than 1.875%) as the “catch-up.” The “catch-up” is meant to provide the Investment Adviser with approximately 20% of the Company’s pre-incentive fee net investment income as if a hurdle did not apply if this net investment income exceeds 1.875% in any calendar quarter; and

•

20% of the amount of pre-incentive fee net investment income, if any, that exceeds 1.875% in any calendar quarter (7.50% annualized) will be payable to the Investment Adviser. This reflects that once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive fee investment income thereafter is allocated to the Investment Adviser.

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20% of realized capital gains, if any, on a cumulative basis from inception through the date of determination, computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation, less the aggregate amount of any previously paid capital gain incentive fees, provided that, the incentive fee determined at the end of the first calendar year of operations may be calculated for a period of shorter than twelve calendar months to take into account any realized capital gains computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation.

The Company will defer payment of any incentive fee otherwise earned by the Investment Adviser if, during the most recent four full calendar quarter periods (or, if less, the number of full calendar quarters completed since the initial drawdown of capital from the stockholders, “Initial Drawdown”) ending on or prior to the date such payment is to be made, the sum of (a) the aggregate distributions to stockholders and (b) the change in net assets (defined as gross assets less indebtedness and before taking into account any incentive fees payable during the period) is less than 6.0% of net assets (defined as gross assets less indebtedness) at the beginning of such period, provided, that such percentage will be appropriately prorated during the four full calendar quarters immediately following the Initial Drawdown. These calculations are adjusted for any share issuances or repurchases. Any deferred incentive fees are carried over for payment in subsequent calculation periods. The Investment Adviser may earn an incentive fee under the Investment Advisory Agreement on the Company’s repurchase of debt issued by the Company at a gain.

Prior to a Qualified IPO and subject to the receipt of any necessary regulatory approvals, the Company’s Investment Adviser intends to make (or require individual employees or entities in which employees own an

interest to make) capital commitments to purchase shares of the Company’s common stock in an amount equal to approximately 25% of each installment of the net after tax incentive fee that the Investment Adviser receives from the Company. For the three month and six month periods ended June 30, 2015, incentive fee paid on pre-incentive fee net investment income resulted in new commitments of $274 by the Investment Adviser related to the after tax incentive. For the three month and six month periods ended June 30, 2014, there was no incentive fee paid on pre-incentive fee net investment income or realized capital gains, therefore, no commitments were made and no shares were issued to the Investment Adviser related to the after tax incentive.

For the three month and six month periods ended June 30, 2015, base management fees were $2,054 and $3,869, respectively (net of waiver of $1,026 and $1,934, respectively), incentive fees related to pre-incentive fee net investment income were $1,986 and $3,606, respectively, and there were no incentive fees related to realized capital gains. For the three month and six month periods ended June 30, 2014, base management fees were $970 and $1,631, respectively (net of waiver of $485 and $815, respectively), incentive fees related to pre-incentive fee net investment income were $1,137 and $1,933, respectively, and there were no incentive fees related to realized capital gains. For the three month and six month periods ended June 30, 2015, the Company recorded an accrued capital gains incentive fee of $0 and $0, respectively, based upon the cumulative net realized and unrealized appreciation/ (depreciation) as of June 30, 2015. For the three month and six month periods ended June 30, 2014, the Company recorded an accrued capital gains incentive fee of $12 and $156, respectively, based upon the cumulative net realized and unrealized appreciation/ (depreciation) as of June 30, 2014.The accrual for any capital gains incentive fee under US 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 June 30, 2015 and December 31, 2014, $5,916 and $6,319, respectively, was included in base management and incentive fees payable in the accompanying Consolidated Statements of Assets and Liabilities.

On April 3, 2013, the Investment Adviser entered into a personnel agreement with The Carlyle Group Employee Co., L.L.C. (“Carlyle Employee Co.”), an affiliate of the Investment Adviser, pursuant to which Carlyle Employee Co. provides the Investment Adviser with access to investment professionals.

Administration Agreement

On April 3, 2013, the Company’s Board of Directors approved an administration agreement (the “Administration Agreement”) between the Company and the Administrator. Pursuant to the Administration Agreement, the Administrator provides services and receives reimbursements equal to an amount that reimburses the Administrator for its costs and expenses and the Company’s allocable portion of overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including the Company’s allocable portion of the compensation paid to or compensatory distributions received by the Company’s officers (including the Chief Compliance Officer and Chief Financial Officer) and respective staff who provide services to the Company, operations staff who provide services to the Company, and any internal audit staff, to the extent internal audit performs a role in the Company’s Sarbanes-Oxley Act internal control assessment. Reimbursement under the Administration Agreement occurs quarterly in arrears.

The initial term of the Administration Agreement is two years from April 3, 2013 and, unless terminated earlier, the Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board of Directors or by a majority vote of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s Independent Directors. On March 11, 2015, the Company’s Board of Directors, including a majority of the Independent Directors, approved the continuance of the Administration Agreement for a one year period. The Administration Agreement may not be assigned by a party without the consent of the other party and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party.

For the three month and six month periods ended June 30, 2015, GMS Finance incurred $188 and $300, respectively, and for the three month and six month periods ended June 30, 2014, GMS Finance incurred $218 and $475, respectively in fees under the Administrative Agreement, which were included in administrative service fees in the accompanying Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, $120 and $91, respectively, was unpaid and included in administrative service fees payable in the accompanying Consolidated Statements of Assets and Liabilities.

Sub-Administration Agreements

On April 3, 2013, the Administrator entered into sub-administration agreements with Carlyle Employee Co. and CELF Advisors LLP. Pursuant to the agreements, Carlyle Employee Co. and CELF Advisors LLP provide the Administrator with access to personnel.

On April 3, 2013, the Administrator entered into a sub-administration agreement with State Street Bank and Trust Company (as amended, the “Sub-Administration Agreement”). On March 11, 2015, the Company’s Board of Directors, including a majority of the Independent Directors, approved an amendment to the Sub-Administration Agreement. As amended, effective as of April 1, 2015, the initial term of the Sub-Administration Agreement ends on April 1, 2017 and, unless terminated earlier, the Sub-Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board of Directors or by the vote of a majority of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s Independent Directors. The Sub-Administration Agreement may be terminated upon at least 60 days’ written notice and without penalty by the vote of a majority of the outstanding securities of the Company, or by the vote of the Board of Directors or by either party to the Sub-Administration Agreement.

For the three month and six month periods ended June 30, 2015, fees incurred in connection with the Sub-Administration Agreement, which amounted to $128 and $219, respectively, were included in other general and administrative in the accompanying Consolidated Statements of Operations. For the three month and six month periods ended June 30, 2014, fees incurred in connection with the Sub-Administration Agreement, which amounted to $50 and $80, respectively, were included in other general and administrative in the accompanying Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, $127 and $80, respectively, was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities.

Placement Fees

On April 3, 2013, the Company entered into a placement fee arrangement with TCG Securities, L.L.C. (“TCG”), a licensed broker-dealer and an affiliate of the Investment Adviser, which may require stockholders to pay a placement fee to TCG for TCG’s services.

For the three month and six month periods ended June 30, 2015, TCG earned placement fees of $1 and $2, respectively, from GMS Finance stockholders in connection with the issuance or sale of the Company’s common stock. For the three month and six month periods ended June 30, 2014, TCG did not earn or receive any placement fees from GMS Finance stockholders in connection with the issuance or sale of the Company’s common stock.

Board of Directors

GMS Finance’s Board of Directors currently consists of seven members, four of whom are Independent Directors. On April 3, 2013, the Board of Directors also established an Audit Committee consisting of its Independent Directors, and may establish additional committees in the future. For the three month and six month periods ended June 30, 2015, GMS Finance incurred $106 and $207, respectively, and for the three month and six month periods ended June 30, 2014, GMS Finance incurred $103 and $185, respectively, in fees and expenses associated with its Independent Directors and Audit Committee. As of June 30, 2015 and December 31, 2014, $2

and $5, respectively, was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities. As of June 30, 2015 and December 31, 2014, certain current directors had committed $1,541 and $1,500, respectively, in capital commitments to the Company.

5. BORROWINGS

In accordance with the Investment Company Act, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the Investment Company Act, is at least 200% after such borrowing. As of June 30, 2015 and December 31, 2014, asset coverage was 225.17%, including the 2015-1 Notes, and 209.67%, respectively. During the six month period ended June 30, 2015, there were net secured borrowings of $223,700 under the Revolving Credit Facility and Facility and net repayments of $397,183 under the Revolving Credit Facility and Facility. During the six month period ended June 30, 2014, there were net repayments of $7,082 under the Revolving Credit Facility and secured borrowings of $94,000 under the Facility. As of June 30, 2015 and December 31, 2014, there was $134,958 and $308,441, respectively, in secured borrowings outstanding.

Revolving Credit Facility

The Borrower Sub closed on May 24, 2013 on the Revolving Credit Facility, which was subsequently amended on June 30, 2014 (“First Amendment”) and further amended on June 19, 2015 (“Second Amendment”). The Second Amendment, among other things (a) provided for the distribution of loan assets to the Company in connection with the 2015-1 Debt Securitization, (b) extended the scheduled commitment termination date from May 24, 2017 to May 24, 2018, (c) extended the scheduled final maturity date from May 22, 2020 to May 22, 2021, (d) increased the per annum drawn margin from 1.85% to 1.90%, (e) changed the unused margin schedule and (f) modified certain other tests, restrictions and requirements set forth in the Revolving Credit Facility. The size and other material terms of the Revolving Credit Facility were unchanged.

Advances under the Revolving Credit Facility first became available once the Borrower Sub held at least $30,000 of minimum equity in its assets. The Revolving Credit Facility provides for secured borrowings during the applicable revolving period up to an amount equal to the lesser of $400,000, the borrowing base as calculated pursuant to the terms of the Revolving Credit Facility, and the amount of net cash proceeds and unpledged capital commitments the Company has received with an accordion feature that can, subject to certain conditions, increase the aggregate maximum credit commitment up to an amount not to exceed $750,000, subject to restrictions imposed on borrowings under the Investment Company Act and certain restrictions and conditions set forth in the Revolving Credit Facility, including adequate collateral to support such borrowings. The Revolving Credit Facility has a revolving period through May 24, 2018 and a maturity date of May 22, 2021. Borrowings under the Revolving Credit Facility bear interest initially at the applicable commercial paper rate (if the lender is a conduit lender) or LIBOR (or, if applicable, a rate based on the prime rate or federal funds rate) plus 1.90% per year during the revolving period, with pre-determined future interest rate increases of 1.00%-1.85% over the three years following the end of the revolving period. The Borrower Sub is also required to pay an undrawn commitment fee of between 0.25% and 0.75% per year depending on the usage of the Revolving Credit Facility. Payments under the Revolving Credit Facility are made quarterly. The lenders have a first lien security interest on substantially all of the assets of the Borrower Sub.

As part of the Revolving Credit Facility, the Borrower Sub is subject to limitations as to how borrowed funds may be used and the types of loans that are eligible to be acquired by the Borrower Sub including, but not limited to, restrictions on sector and geographic concentrations, loan size, payment frequency, tenor and minimum investment ratings (or estimated ratings). In addition, borrowed funds are intended to be used primarily to purchase first lien loan assets, and the Borrower Sub is limited in its ability to purchase certain other assets (including, but not limited to, second lien loans, covenant-lite loans, revolving and delayed draw loans and discount loans) and other assets are not permitted to be purchased (including, but not limited to paid-in-kind loans and structured finance obligations). The Revolving Credit Facility has certain requirements relating to interest coverage, collateral quality and portfolio performance, including limitations on delinquencies and charge

offs, certain violations of which could result in the acceleration of the amounts due under the Revolving Credit Facility. The Revolving Credit Facility is also subject to a borrowing base that applies different advance rates to assets held by the Borrower Sub based generally on the fair market value of such assets. Under certain circumstances as set forth in the Revolving Credit Facility, the Company could be obliged to repurchase loans from the Borrower Sub.

Related to the First Amendment, which reduced the maximum commitments under the Revolving Credit Facility, $827 of deferred financing costs (representing the prorated financing costs related to the reduction in commitments) were immediately expensed on June 30, 2014 in lieu of continuing to amortize over the term of the Revolving Credit Facility.

As of June 30, 2015 and December 31, 2014, the Borrower Sub was in compliance with all covenants and other requirements of the Revolving Credit Facility.

Facility

The Company closed on March 21, 2014 on the Facility, which was subsequently amended on January 8, 2015 (the “First Facility Amendment Effective Date”). The amendment modified the release of the $100,000 pledge of unfunded investor equity capital commitments to occur once $100,000 of incremental capital has been called and received by the Company subsequent to the First Facility Amendment Effective Date (as opposed to subsequent to the original March 21, 2014 closing date of the Facility). The maximum principal amount of the Facility is $150,000, subject to availability under the Facility, which is based on certain advance rates multiplied by the value of the Company’s portfolio investments (subject to certain concentration limitations) net of certain other indebtedness that the Company may incur in accordance with the terms of the Facility. Proceeds of the Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Facility may be increased to $225,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Facility includes a $20,000 limit for swingline loans and a $5,000 limit for letters of credit. The Company may borrow amounts in U.S. dollars or certain other permitted currencies. Amounts drawn under the Facility, including amounts drawn in respect of letters of credit, will bear interest at either LIBOR plus an applicable spread of 2.25%, or an “alternative base rate” (which is the highest of a prime rate, the federal funds effective rate plus 0.50%, or one month LIBOR plus 1.00%) plus an applicable spread of 1.25%. The Company may elect either the LIBOR or the “alternative base rate” at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. The Company also pays a fee of 0.375% on undrawn amounts under the Facility and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then-applicable margin under the Facility while the letter of credit is outstanding. The availability period under the Facility will terminate on March 21, 2018 (the “Commitment Termination Date”) and the Facility will mature on March 21, 2019 (the “Maturity Date”). During the period from the Commitment Termination Date to the Maturity Date, the Company will be obligated to make mandatory prepayments under the Facility out of the proceeds of certain asset sales, other recovery events and equity and debt issuances.

Subject to certain exceptions, the Facility is secured by a perfected first-priority security interest in substantially all of the portfolio investments held by the Company and the Company’s unfunded investor equity capital commitments (provided that the amount of unfunded capital commitments ultimately available to the lenders is limited to $100,000). The pledge of unfunded investor equity capital commitments was subject to release once $100,000 of incremental capital had been called and received by the Company subsequent to the First Facility Amendment Effective Date. Such capital call commitment had not been satisfied as of December 31, 2014. The pledge of unfunded investor equity capital commitments had been released as of June 30, 2015. The Facility includes customary covenants, including certain financial covenants related to asset coverage, shareholders’ equity and liquidity, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance covenants, as well as usual and customary events of default for senior secured revolving credit facilities of this nature.

As of June 31, 2015 and December 31, 2014, the Company was in compliance with all covenants and other requirements of the Facility.

Summary of Facilities

The facilities of the Company and the Borrower Sub consisted of the following as of June 30, 2015 and December 31, 2014:


	June 30, 2015
	Total Facility		Borrowings Outstanding		Unused Portion ⁽¹⁾		Amount Available ⁽²⁾
Revolving Credit Facility	$	400,000	$	103,958	$	296,042	$	21,591
Facility		150,000		31,000		119,000		119,000

Total	$	550,000	$	134,958	$	415,042	$	140,591


	December 31, 2014
	Total Facility		Borrowings Outstanding		Unused Portion⁽¹⁾		Amount Available⁽²⁾
Revolving Credit Facility	$	400,000	$	246,441	$	153,559	$	10,557
Facility		150,000		62,000		88,000		58,623

Total	$	550,000	$	308,441	$	241,559	$	69,180

(1)	The unused portion is the amount upon which commitment fees are based.

(2)	Available for borrowing based on the computation of collateral to support the borrowings.

As of June 30, 2015 and December 31, 2014, $1,282 and $1,025, respectively, of interest expense, $80 and $139, respectively, of unused commitment fees, and $26 and $28, respectively, of other fees were included in interest and credit facility fees payable related to the facilities. For the three month and six month periods ended June 30, 2015, the weighted average interest rate was 2.22% and 2.20%, respectively, and average principal debt outstanding was $363,649 and $345,319, respectively. For the three month and six month periods ended June 30, 2014, the weighted average interest rate was 2.13% and 2.12%, respectively, and average principal debt outstanding was $117,699 and $92,401, respectively. As of June 30, 2015 and December 31, 2014, the interest rate was 2.20% and 2.17%, respectively, based on floating LIBOR rates.

For the three month and six month periods ended June 30, 2015 and 2014, the components of interest expense and credit facility fees related to the facilities were as follows:


	For the three month periods ended				For the six month periods ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Interest expense	$	2,041	$	634	$	3,821	$	983
Facility unused commitment fee		132		372		302		658
Amortization of deferred financing costs		281		1,128		513		1,347
Other fees		30		26		56		51

Total interest expense and credit facility fees	$	2,484	$	2,160	$	4,692	$	3,039

Cash paid for interest expense	$	2,112	$	510	$	3,562	$	795

6. 2015-1 Notes

On June 26, 2015, the Company completed the 2015-1 Debt Securitization. The 2015-1 Notes were issued by the 2015-1 Issuer, a wholly-owned and consolidated subsidiary of the Company, and are secured by a

diversified portfolio consisting primarily of first and second lien senior secured loans. The 2015-1 Debt Securitization was executed through a private placement of the 2015-1 Notes, consisting of $160 million of Aaa/AAA Class A-1A Notes which bear interest at the three-month London Interbank Offered Rate (“LIBOR”), plus 1.85%; $40 million of Aaa/AAA Class A-1B Notes which bear interest at the three-month LIBOR plus 1.75% for first 24 months and the three-month LIBOR plus 2.05% thereafter; $27 million of Aaa/AAA Class A-1C Notes which bear interest at 3.75% and $46 million of Aa2 Class A-2 Notes which bear interest at the three-month LIBOR plus 2.70%. The 2015-1 Notes were issued at par and are scheduled to mature on July 15, 2027. The Company received 100% of the preferred interests (the “Preferred Interests”) issued by the 2015-1 Issuer on the closing date of the 2015-1 Debt Securitization in exchange for the Company’s contribution to the Issuer of the initial closing date loan portfolio. The Preferred Interests do not bear interest and had a nominal value of $125.9 million at closing. In connection with the contribution, the Company has made customary representations, warranties and covenants to the 2015-1 Issuer in the purchase agreement. The Class A-1A, Class A-1B and Class A-1C and Class A-2 Notes are included in the June 30, 2015 consolidated financial statements. The Preferred Interests were eliminated in consolidation.

On the closing date of the 2015-1 Debt Securitization, the 2015-1 Issuer effected a one-time distribution to the Company of a substantial portion of the proceeds of the private placement of the 2015-1 Notes, net of expenses, which distribution was used to repay a portion of the certain amounts outstanding under the Revolving Credit Facility and the Facility. As part of the 2015-1 Debt Securitization, certain first and second lien senior secured loans were distributed by the Borrower Sub to the Company pursuant to a distribution and contribution agreement. The Company contributed the loans that comprised the initial closing date loan portfolio (including the loans distributed to the Company from the Borrower Sub) to the 2015-1 Issuer pursuant to a contribution agreement. Future loans transfers from the Company to the 2015-1 Issuer will be made pursuant to a sale agreement and are subject to the approval of the Company’s Board of Directors. Assets of the 2015-1 Issuer are not available to the creditors of the Borrower Sub or the Company. In connection with the issuance and sale of the 2015-1 Notes, the Company has made customary representations, warranties and covenants in the purchase agreement.

During the reinvestment period, pursuant to the indenture governing the 2015-1 Notes, all principal collections received on the underlying collateral may be used by the 2015-1 Issuer to purchase new collateral under the direction of Investment Adviser in its capacity as collateral manager of the 2015-1 Issuer and in accordance with the Company’s investment strategy.

The Investment Adviser serves as collateral manager to the 2015-1 Issuer under a collateral management agreement (the “Collateral Management Agreement”). Pursuant to the Collateral Management Agreement, the 2015-1 Issuer will pay management fees (comprised of base management fees, subordinated management fees and incentive management fees) (“Management Fees”) to the Investment Adviser for rendering collateral management services. As per the Collateral Management Agreement, for the period the Company retains all of the Preferred Interests, the Investment Adviser will not earn Management Fees for providing such collateral management services. The Company currently retains all of the Preferred Interests, thus there were no management fees for the three and six month periods ended June 30, 2015.

Pursuant to an undertaking by the Company in connection with the 2015-1 Debt Securitization, the Company has agreed to hold on an ongoing basis Preferred Interests with an aggregate dollar purchase price at least equal to 5% of the aggregate outstanding amount of all collateral obligations by the 2015-1 Issuer for so long as any securities of the 2015-1 Issuer remain outstanding. As of June 30, 2015, the Company was in compliance with its undertaking.

The 2015-1 Issuer pays ongoing administrative expenses to the trustee, independent accountants, legal counsel, rating agencies and independent managers in connection with developing and maintaining reports, and providing required services in connection with the administration of the 2015-1 Issuer.

As of June 30, 2015, there were 55 first lien and second lien senior secured loans with a total fair value of approximately $391,436 securing the 2015-1 Notes. The pool of loans in the securitization must meet certain requirements, including asset mix and concentration, term, agency rating, collateral coverage, minimum coupon, minimum spread and sector diversity requirements.

For the six months ended June 30, 2015, the effective annualized weighted average interest rate, which includes amortization of debt issuance costs on the 2015-1 Notes, was 2.39%, based on floating LIBOR rates. For the six months ended June 30, 2015, interest expense, including the amortization of deferred debt issuance costs, was $91. There was no cash paid for interest during the six months ended June 30, 2015.

For the three month and six month periods ended June 30, 2015 and 2014, the components of interest expense on the 2015-1 Notes were as follows:


	For the three month periods ended				For the six month periods ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Interest expense	$	88	$	—	$	88	$	—
Amortization of deferred financing costs		3		—		3		—

Total interest expense and credit facility fees	$	91	$	—	$	91	$	—

Cash paid for interest expense	$	—	$	—	$	—	$	—

The following were the carrying values and fair values of the Company’s 2015-1 Notes as of June 30, 2015 and December 31, 2014:


	June 30, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
Aaa/AAA Class A-1A Notes	$	160,000	$	160,000	$	—	$	—
Aaa/AAA Class A-1B Notes		40,000		40,000		—		—
Aaa/AAA Class A-1C Notes		27,000		27,000		—		—
Aa2 Class A-2 Notes		46,000		46,000		—		—

Total	$	273,000	$	273,000	$	—	$	—

7. COMMITMENTS AND CONTINGENCIES

A summary of significant contractual payment obligations was as follows as of June 30, 2015 and December 31, 2014:


	Revolving Credit Facility and Facility				2015-1 Notes
Payment Due by Period	June 30, 2015		December 31, 2014		June 30, 2015		December 31, 2014
Less than 1 Year	$	—	$	—	$	—	$	—
1-3 Years		—		—		—		—
3-5 Years		31,000		62,000		—		—
More than 5 Years		103,958		246,441		273,000		—

Total	$	134,958	$	308,441	$	273,000	$	—

In the ordinary course of its business, the Company enters into contracts or agreements that contain indemnification or warranties. Future events could occur that lead to the execution of these provisions against the Company. The Company believes that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in the consolidated financial statements as of June 30, 2015 and December 31, 2014 for any such exposure.

As of June 30, 2015 and December 31, 2014, the Company had $1,151,104 and $1,129,522, respectively, in total capital commitments from stockholders, of which $627,250 and $776,750, respectively, was unfunded. As of June 30, 2015 and December 31, 2014, certain current directors had committed $1,541 and $1,500, respectively, in capital commitments to the Company.

As of December 31, 2014, there was a $100,000 pledge of unfunded investor equity capital commitments to the lenders of the Facility, which was subject to release once $100,000 of incremental capital had been called and received by the Company subsequent to the effective date of the First Facility Amendment Effective Date. Such capital call commitment had not been satisfied as of December 31, 2014. The pledge of unfunded investor equity capital commitments had been released as of June 30, 2015.

The Company had the following unfunded commitments to fund delayed draw senior secured loans as of the indicated dates:


	Par Value as of
	June 30, 2015		December 31, 2014
Unfunded delayed draw commitments	$	32,986	$	9,500
Unfunded revolving term loan commitments		3,906		—

Total unfunded commitments	$	36,892	$	9,500

8. NET ASSETS

The Company has the authority to issue 200,000,000 shares of common stock, $0.01 per share par value.

During the six month period ended June 30, 2015, the Company issued 8,823,238 shares for $171,127. The following table summarizes capital activity during the six month period ended June 30, 2015:


	Common Stock				Capital in Excess of Par Value		Offering Costs			Accumulated Net Investment Income (Loss)			Accumulated Net Realized Gain (Loss) on Investments			Accumulated Net Unrealized Appreciation (Depreciation) on Investments			Total Net Assets
	Shares		Amount		Capital in Excess of Par Value		Offering Costs			Accumulated Net Investment Income (Loss)			Accumulated Net Realized Gain (Loss) on Investments						Total Net Assets
Balance, beginning of period		17,932,697	$	179	$	351,636	$	(74	)	$	(4,388	)	$	(57	)	$	(9,039	)	$	338,257
Common stock issued		8,820,836		89		170,993		—			—			—			—			171,082
Reinvestment of dividends		2,402		—		45		—			—			—			—			45
Net investment income (loss)		—		—		—		—			14,425			—			—			14,425
Net realized gain (loss) on investments—non-controlled/ non-affiliated		—		—		—		—			—			329			—			329
Net change in unrealized appreciation (depreciation) on investments—non-controlled/ non-affiliated		—		—		—		—			—			—			4,249			4,249
Dividends declared		—		—		—		—			(17,735	)		—			—			(17,735	)

Balance, end of period		26,755,935	$	268	$	522,674	$	(74	)	$	(7,698	)	$	272		$	(4,790	)	$	510,652

During the six month period ended June 30, 2014, the Company issued 3,315,579 shares for $65,475. The following table summarizes capital activity during the six month period ended June 30, 2014:


	Common Stock				Capital In Excess Of Par Value		Offering Costs			Accumulated Net Investment Income (Loss)			Accumulated Net Realized Gain (Loss) on Investments		Accumulated Net Change in Unrealized Appreciation (Depreciation) on Investments			Total Net Assets
	Shares		Amount		Capital In Excess Of Par Value		Offering Costs			Accumulated Net Investment Income (Loss)			Accumulated Net Realized Gain (Loss) on Investments					Total Net Assets
Balance, beginning of period		9,575,990	$	96	$	186,965	$	(74	)	$	(664	)	$	—	$	(321	)	$	186,002
Common stock issued		3,315,431		33		65,439		—			—			—		—			65,472
Reinvestment of dividends		148		—		3		—			—			—		—			3
Net investment income (loss)		—		—		—		—			7,575			—		—			7,575
Net realized gain (loss) on investments-non-controlled/non-affiliated		—		—		—		—			—			191		—			191
Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated		—		—		—		—			—			—		842			842
Dividends declared		—		—		—		—			(5,930	)		—		—			(5,930	)

Balance, end of period		12,891,569	$	129	$	252,407	$	(74	)	$	981		$	191	$	521		$	254,155

The following table summarizes total shares issued and proceeds received related to capital drawdowns delivered pursuant to subscriptions for the Company’s common stock and reinvestment of dividends during the six month period ended June 30, 2015:


	Shares Issued		Proceeds Received
January 16, 2015		924,977	$	18,000
January 26, 2015^**		1,051		20
February 26, 2015		2,312,659		45,005
April 21, 2015^**		1,351		25
May 1, 2015		1,462,746		28,085
May 22, 2015		1,708,068		33,000
June 25, 2015		2,412,386		46,992

Total		8,823,238	$	171,127

^**	Represents shares issued upon the reinvestment of dividends

The following table summarizes total shares issued and proceeds received related to capital drawdowns delivered pursuant to subscriptions for the Company’s common stock during the six month period ended June 30, 2014:


	Shares Issued		Proceeds Received
January 27, 2014		1,020,810		19,998
February 21, 2014		491,849		9,689
March 21, 2014		1,802,772		35,785
April 14, 2014^**		148		3

Total		3,315,579	$	65,475

^**	Represents shares issued upon the reinvestment of dividends

Subscribed but unissued shares are presented in equity with a deduction of subscriptions receivable until cash is received for a subscription. There were no subscribed but unissued shares as of June 30, 2015 and December 31, 2014.

Subscription transactions during the six month periods ended June 30, 2015 and 2014 were executed at an offering price at a premium to net asset value due to the requirement to use prior quarter net asset value as the offering price unless it would result in the Company selling shares of its common stock at a price below the current net asset value and also in order to effect a reallocation of organizational costs to subsequent investors. Such subscription transactions increased net asset value by $0.10 per share and $0.04 per share, respectively, for the six month periods ended June 30, 2015 and 2014.

The Company computes earnings per common share in accordance with ASC 260, Earnings Per Share. Basic earnings per common share were calculated by dividing net increase (decrease) in net assets resulting from operations attributable to the Company by the weighted-average number of common shares outstanding for the period.

Basic and diluted earnings per common share were as follows:


	For the three month periods ended				For the six month periods ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Net increase (decrease) in net assets resulting from operations	$	9,215	$	4,592	$	19,003	$	8,608
Weighted-average common shares outstanding		23,062,818		12,891,548		21,330,007		11,819,417

Basic and diluted earnings per common share	$	0.40	$	0.36	$	0.89	$	0.73

The following table summarizes the Company’s dividends declared and payable since inception through the quarter ended June 30, 2015:


Date Declared	Record Date	Payment Date	Per Share Amount		Total Amount
March 13, 2014	March 31, 2014	April 14, 2014	$	0.19	$	2,449
June 26, 2014	June 30, 2014	July 14, 2014	$	0.27	$	3,481
September 12, 2014	September 18, 2014	October 9, 2014	$	0.44	$	5,956
December 19, 2014	December 29, 2014	January 26, 2015	$	0.35	$	6,276
March 11, 2015	March 13, 2015	April 17, 2015	$	0.37	$	7,833
June 24, 2015	June 30, 2015	July 22, 2015	$	0.37	$	9,902

9. CONSOLIDATED FINANCIAL HIGHLIGHTS

The following is a schedule of consolidated financial highlights for the six month periods ended June 30, 2015 and 2014:


	For the six month periods ended
	June 30, 2015			June 30, 2014
Per Share Data:
Net asset value per share, beginning of period	$	18.86		$	19.42
Net investment income (loss) ⁽¹⁾		0.68			0.64
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments		0.19			0.07

Net increase (decrease) in net assets resulting from operations		0.87			0.71

Dividends declared ⁽²⁾		(0.74	)		(0.46	)
Effect of subscription offering price ⁽³⁾		0.10			0.04

Net asset value per share, end of period	$	19.09		$	19.71

Number of shares outstanding, end of period		26,755,935			12,891,569
Total return ⁽⁴⁾		5.14	%		3.86	%
Net assets, end of period	$	510,652		$	254,155
Ratio to average net assets:
Expenses net of waiver, before incentive fees		2.55	%		2.88	%
Expenses net of waiver, after incentive fees		3.40	%		3.75	%
Expenses gross of waiver, after incentive fees		3.86	%		4.09	%
Net investment income (loss) ⁽⁵⁾		3.39	%		3.16	%
Interest expense and credit facility fees		1.12	%		1.27	%
Ratios/Supplemental Data:
Asset coverage		225.17	%		265.31	%
Portfolio turnover		16.21	%		16.98	%
Total committed capital, end of period	$	1,151,104		$	1,109,162
Ratio of total contributed capital to total committed capital, end of period		45.51	%		22.85	%
Weighted-average shares outstanding		21,330,007			11,819,417

(1)	Net investment income (loss) per share was calculated as net investment income (loss) for the period divided by the weighted average number of shares outstanding for the period.

(2)	Dividends declared per share was calculated as the sum of dividends declared during the period divided by the number of shares outstanding at each respective quarter-end date (refer to Note 8).

(3)	Increase is due to offering price of subscriptions during the period (refer to Note 8).

(4)

Total return (not annualized) is based on the change in net asset value per share during the period plus the declared dividends, assuming reinvestment of dividends in accordance with the dividend reinvestment plan, divided by the beginning net asset value for the period. Total return for the six month periods ended June 30, 2015 and 2014 is inclusive of $0.10 and $0.04, respectively, per share increase in net asset value for the periods related to the offering price of subscriptions. Excluding the effects of the higher offering price of subscriptions, total return (not annualized) would have been 4.61% and 3.66%, respectively (refer to Note 8).

(5)	The net investment income ratio is net of the waiver of base management fees.

10. LITIGATION

The Company may become party to certain lawsuits in the ordinary course of business. The Company does not believe that the outcome of current matters, if any, will materially impact the Company or its consolidated financial statements. As of June 30, 2015 and December 31, 2014, the Company was not subject to any material legal proceedings, nor, to the Company’s knowledge, is any material legal proceeding threatened against the Company.

In addition, portfolio investments of the Company could be the subject of litigation or regulatory investigations in the ordinary course of business. The Company does not believe that the outcome of any current contingent liabilities of its portfolio investments, if any, will materially affect the Company or these consolidated financial statements.

11. TAX

The Company has not recorded a liability for any uncertain tax positions pursuant to the provisions of ASC 740, Income Taxes, as of June 30, 2015 and December 31, 2014.

In the normal course of business, the Company is subject to examination by federal and certain state, local and foreign tax regulators for the 2013 and 2014 tax years. As of June 30, 2015 and December 31, 2014, the Company had filed tax returns and therefore is subject to examination.

The Company’s taxable income for each period is an estimate and will not be finally determined until the Company files its tax return for each year. Therefore, the final taxable income, and the taxable income earned in each period and carried forward for distribution in the following period, may be different than this estimate. The estimated tax character of dividends declared for the six month periods ended June 30, 2015 and 2014 was as follows:


	For the six month periods ended
	June 30, 2015		June 30, 2014
Ordinary income	$	17,735	$	5,930
Tax return of capital	$	—	$	—

12. SUBSEQUENT EVENTS

Subsequent events have been evaluated through the date the consolidated financial statements were issued. There have been no subsequent events that require recognition or disclosure through the date the consolidated financial statements were issued, except as disclosed below.

Subsequent to June 30, 2015, the Company borrowed $38,000 under the Revolving Credit Facility and $14,000 under the Facility to fund investment acquisitions. The Company also voluntarily repaid $5,000 under the Facility.

On August 7, 2015, the Company issued a capital call and delivered capital drawdown notices totaling $20,000. Proceeds from the capital call and the related issuance of 1,032,504 shares is expected on or about August 21, 2015.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(dollar amounts in thousands, except per share data, unless otherwise indicated)

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We have included or incorporated by reference in this Form 10-Q, and from time to time our management may make, “forward-looking statements”. These forward-looking statements are not historical facts, but instead relate to future events or the future performance or financial condition of Carlyle GMS Finance, Inc. (“we,” “us,” “our,” “GMS Finance,” or the “Company”). These statements are based on current expectations, estimates and projections about us, our current or prospective portfolio investments, our industry, our beliefs, and our assumptions. The forward-looking statements contained in this Form 10-Q and the documents incorporated by reference herein 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;

•

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

•

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

•

our expected financings and investments;

•

our ability to successfully 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;

•

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

•

our intent to satisfy the requirements of a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended.

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 implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2014 and Part II, Item 1A of and elsewhere in this Form 10-Q.

We have based the forward-looking statements included in this Form 10-Q on information available to us on the date of this Form 10-Q, 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 (the “SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

OVERVIEW

Management’s Discussion and Analysis should be read in conjunction with Part I, Item 1 of this Form 10-Q “Financial Statements.” This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2014 and Part II, Item 1A of this Form 10-Q “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements.

Carlyle GMS Finance, Inc. (“we,” “us,” “our,” “GMS Finance,” or the “Company”) is a Maryland corporation formed on February 8, 2012, and structured as an externally managed, non-diversified closed-end investment company. On May 2, 2013, GMS Finance filed its election 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”). GMS Finance has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”).

GMS Finance’s investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies, which we define as companies with approximately $10 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”). GMS Finance seeks to achieve its investment objective by investing primarily in first lien senior secured loans (which may include stand-alone first lien loans; “last out” first lien loans, which are loans that have a secondary priority behind “first out” first lien loans; “unitranche” loans, which are loans that combine features of first lien, second lien or subordinated loans, generally in a first lien position; and secured corporate bonds with similar features to these categories of first lien loans) and second lien senior secured loans (which may include senior secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first lien loans) (collectively, “Middle Market Senior Loans”). The Middle Market Senior Loans are generally made to private U.S. middle market companies that are, in many cases, controlled by private equity firms. Depending on market conditions, GMS Finance expects that between 70% and 80% of the value of its assets will be invested in Middle Market Senior Loans, with the balance invested in higher-yielding investments, which may include middle market junior loans such as corporate mezzanine loans, equity co-investments, broadly syndicated first lien and second lien senior secured loans, high-yield bonds, structured finance obligations and/or other opportunistic investments. We expect that the composition of our portfolio will change over time given our Investment Adviser’s view on, among other things, the economic and credit environment (including with respect to interest rates) in which we are operating.

Investments

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt available to middle market companies, the general economic environment and the competitive environment for the type of investments we make.

Revenue

We generate revenue primarily in the form of interest and fee income on debt investments we hold and capital gains, if any, on investments. Our debt investments generally have a stated term of five to eight years and generally bear interest at a floating rate usually determined on the basis of a benchmark such as LIBOR. Interest on these debt securities is generally paid quarterly. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. We may also generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees.

Expenses

Our primary operating expenses include the payment of: (i) investment advisory fees, including base management fees and incentive fees, to our Investment Adviser pursuant to an investment advisory and management agreement (the “Investment Advisory Agreement”) between us and our Investment Adviser; (ii) costs and other expenses and our allocable portion of overhead incurred by Administrator in performing its administrative obligations under an administration agreement (the “Administration Agreement”) between us and our Administrator; and (iii) other operating expenses as detailed below:

•

our initial organization costs and offering costs incurred prior to the filing of our election to be regulated as a BDC (the amount in excess of $1,500 to be paid by our Investment Adviser);

•

the costs associated with the Private Offering;

•

the costs of any other offerings of our common stock and other securities, if any;

•

calculating individual asset values and our net asset value (including the cost and expenses of any independent valuation firms);

•

expenses, including travel expenses, incurred by the Investment Adviser, or members of the Investment Adviser team managing our investments, or payable to third parties, performing due diligence on prospective portfolio companies and, if necessary, expenses of enforcing our rights;

•

the base management fee and any incentive fee payable under our Investment Advisory Agreement;

•

certain costs and expenses relating to distributions paid on our shares;

•

administration fees payable under our Administration Agreement and sub-administration agreements, including related expenses;

•

debt service and other costs of borrowings or other financing arrangements;

•

the allocated costs incurred by the Investment Adviser in providing managerial assistance to those portfolio companies that request it;

•

amounts payable to third parties relating to, or associated with, making or holding investments;

•

the costs associated with subscriptions to data service, research-related subscriptions and expenses and quotation equipment and services used in making or holding investments;

•

transfer agent and custodial fees;

•

costs of hedging;

•

commissions and other compensation payable to brokers or dealers;

•

federal and state registration fees;

•

any U.S. federal, state and local taxes, including any excise taxes;

•

independent director fees and expenses;

•

costs of preparing financial statements and maintaining books and records, costs of preparing tax returns, costs of Sarbanes-Oxley Act compliance and attestation and costs of filing reports or other documents with the SEC (or other regulatory bodies), and other reporting and compliance costs, including registration and listing fees, and the compensation of professionals responsible for the preparation or review of the foregoing;

•

the costs of any reports, proxy statements or other notices to our stockholders (including printing and mailing costs), the costs of any stockholders’ meetings and the compensation of investor relations personnel responsible for the preparation of the foregoing and related matters;

•

the costs of specialty and custom software for monitoring risk, compliance and overall portfolio, including any development costs incurred prior to the filing of our election to be regulated as a BDC;

•

our fidelity bond;

•

directors and officers/errors and omissions liability insurance, and any other insurance premiums;

•

indemnification payments;

•

direct fees and expenses associated with independent audits, agency, consulting and legal costs; and

•

all other expenses incurred by us or the Administrator in connection with administering our business, including our allocable share of certain officers and their staff compensation.

We expect our general and administrative expenses to be relatively stable or to decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines.

PORTFOLIO AND INVESTMENT ACTIVITY

As of June 30, 2015 and December 31, 2014, average loan size in the portfolio was approximately $11,344 and $10,141, respectively, at amortized cost, with no single industry representing more than 11% and 11%, respectively, of total fair value.

The fair value of our investments was approximately $912,502 comprised of 83 portfolio companies/structured finance obligations as of June 30, 2015. The fair value of our investments was approximately $698,662 comprised of 72 portfolio companies/structured finance obligations as of December 31, 2014.

The Company’s investment activity for the three month periods ended June 30, 2015 and 2014 is presented below (information presented herein is at amortized cost unless otherwise indicated).


	For the three month periods ended
	June 30, 2015			June 30, 2014
Investments—non-controlled/non-affiliated:
Total Investments—non-controlled/non-affiliated, beginning of period	$	794,139		$	317,735
New investments		230,553			141,344
Net accretion of discount on securities		894			384
Net realized gain (loss) on investments		593			145
Investments sold or repaid		(108,887	)		(41,518	)

Total Investments—non-controlled/non-affiliated, end of period	$	917,292		$	418,090

Principal amount of investments funded:
First Lien Debt	$	170,147		$	81,675
Second Lien Debt		59,250			31,000
Structured Finance Obligations		4,000			42,100
Equity investments		1,507			—

Total	$	234,904		$	154,775

Principal amount of investments sold or repaid:
First Lien Debt	$	(100,388	)	$	(32,234	)
Second Lien Debt		—			(7,500	)
Structured Finance Obligations		(11,700	)		—

Total	$	(112,088	)	$	(39,734	)

Number of new funded investments		19			20
Average new funded investment amount	$	12,134		$	7,067
Percentage of new funded debt investments at floating rates		96	%		100	%
Percentage of new funded debt investments at fixed rates		4	%		0	%

As of June 30, 2015 and December 31, 2014, investments—non-controlled/non-affiliated consisted of the following:


	June 30, 2015				December 31, 2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
First Lien Debt	$	659,852	$	661,306	$	517,450	$	514,787
Second Lien Debt		179,594		177,811		111,261		107,874
Structured Finance Obligations		75,631		71,170		78,990		76,001
Equity Investments		2,215		2,215		—		—

Total	$	917,292	$	912,502	$	707,701	$	698,662

The weighted average yields⁽¹⁾ for our first and second lien debt, based on the amortized cost and fair value as of June 30, 2015 and December 31, 2014, were as follows:


	June 30, 2015						December 31, 2014
	Amortized Cost			Fair Value			Amortized Cost			Fair Value
First Lien Debt		6.49	%		6.47	%		6.01	%		6.04	%
Second Lien Debt		9.18	%		9.27	%		8.86	%		9.14	%

(1)	Yields do not include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of June 30, 2015 and December 31, 2014. Actual yields earned over the life of each investment could differ materially from the yields presented above.

Weighted average yields on first lien and second lien debt have increased as of June 30, 2015 compared to December 31, 2014 primarily due to a shift in mix to higher yielding assets, including unitranche loans.

See the Consolidated Schedules of Investments as of June 30, 2015 and December 31, 2014 in our consolidated financial statements in Part I, Item 1 of this Form 10-Q for more information on these investments, including a list of companies and type and amount of investments.

As part of the monitoring process, our Investment Adviser has developed risk policies pursuant to which it regularly assesses the risk profile of each of our debt investments and rates each of them based on the following categories, which we refer to as “Internal Risk Ratings”:

Internal Risk Ratings Definitions


Rating		Definition
1		Performing—Low Risk: Borrower is operating more than 10% ahead of the Base Case.
2		Performing—Stable Risk: Borrower is operating within 10% of the Base Case (above or below). This is the initial rating assigned to all new borrowers.
3		Performing—Management Notice: Borrower is operating more than 10% below the Base Case. A financial covenant default may have occurred, but there is a low risk of payment default.
4		Watch List: Borrower is operating more than 20% below the Base Case and there is a high risk of covenant default, or it may have already occurred. Payments are current although subject to greater uncertainty, and there is moderate to high risk of payment default.
5		Watch List—Possible Loss: Borrower is operating more than 30% below the Base Case. At the current level of operations and financial condition, the borrower does not have the ability to service and ultimately repay or refinance all outstanding debt on current terms. Payment default is very likely or may have occurred. Loss of principal is possible.
6		Watch List—Probable Loss: Borrower is operating more than 40% below the Base Case, and at the current level of operations and financial condition, the borrower does not have the ability to service and ultimately repay or refinance all outstanding debt on current terms. Payment default is very likely or may have already occurred. Additionally, the prospects for improvement in the borrower’s situation are sufficiently negative that impairment of some or all principal is probable.

Our Investment Adviser’s risk rating model is based on evaluating portfolio company performance in comparison to the Base Case when considering certain credit metrics including, but not limited to, adjusted EBITDA and net senior leverage as well as specific events including, but not limited to, default and impairment.

Our Investment Adviser monitors and, when appropriate, changes the investment ratings assigned to each debt investment in our portfolio. In connection with our quarterly valuation process, our Investment Adviser reviews our investment ratings on a regular basis. The following table summarizes the Internal Risk Ratings as of June 30, 2015 and December 31, 2014:


	June 30, 2015					December 31, 2014
	Fair Value		% of Fair Value			Fair Value		% of Fair Value
(dollar amounts in millions)
Internal Risk Rating 1	$	48.3		5.76	%	$	55.6		8.93	%
Internal Risk Rating 2		721.3		85.96			517.1		83.04
Internal Risk Rating 3		48.1		5.73			41.0		6.58
Internal Risk Rating 4		21.4		2.55			9.0		1.45
Internal Risk Rating 5		—		—			—		—
Internal Risk Rating 6		—		—			—		—

Total	$	839.1		100.00	%	$	622.7		100.00	%

As part of our monitoring process, our Investment Adviser has developed risk policies pursuant to which it regularly assesses the risk profile of each of the structured finance obligation investments.

CONSOLIDATED RESULTS OF OPERATIONS

For the three month and six month periods ended June 30, 2015 and 2014

The net increase or decrease in net assets from operations may vary substantially from period to period as a result of various factors, including the recognition of realized gains and losses and net change in unrealized appreciation and depreciation. As a result, quarterly comparison may not be meaningful.

Investment Income

Interest income for the three month and six month periods ended June 30, 2015 and 2014 were as follows:


	For the three month periods ended				For the six month periods ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Interest income from non-controlled/non-affiliated investments	$	15,925	$	9,944	$	28,904	$	16,577

Total investment income	$	15,925	$	9,944	$	28,904	$	16,577

The increase in interest income and net investment income for the three month and six month periods ended June 30, 2015 and 2014 was driven by our deployment of capital and increasing invested balance. As of June 30, 2015 and 2014, the size of our portfolio was $917,292 and $418,090, respectively, at amortized cost, with total principal amount of investments outstanding of $978,808 and $468,209, respectively. As of June 30, 2015 and 2014, the weighted average yield of our first and second lien debt was 7.06% and 6.46%, respectively, on amortized cost.

Interest income on our first and second lien debt investments is dependent on the composition and credit quality of the portfolio. Generally, we expect the portfolio to generate predictable quarterly interest income based on the terms stated in each loan’s credit agreement. As of June 30, 2015 and 2014, all of our first and second lien debt investments were performing and current on their interest payments. Interest income from structured finance obligations is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows. The effective yield is updated at least quarterly based on payments received and expected future payments. In estimating these cash flows, there are a number of assumptions that are subject to uncertainties, including the amount and timing of principal payments which are impacted by prepayments, repurchases, defaults, delinquencies and liquidations of or within the CLO funds. These uncertainties are difficult to predict and are subject to future events that could have impacted the Company’s estimates if the information was known at the time. As a result, actual results may differ significantly from these estimates.

Net investment income (loss) for the three month and six month periods ended June 30, 2015 and 2014 was as follows:


	For the three month periods ended						For the six month periods ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Total investment income from non-controlled/non-affiliated investments	$	15,925		$	9,944		$	28,904		$	16,577
Net expenses		(7,980	)		(5,408	)		(14,479	)		(9,002	)

Net investment income (loss)	$	7,945		$	4,536		$	14,425		$	7,575

Expenses


	For the three month periods ended						For the six month periods ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Base management fees	$	3,080		$	1,455		$	5,803		$	2,446
Incentive fees		1,986			1,149			3,606			2,089
Professional fees		465			596			849			1,193
Administrative service fees		188			218			300			475
Interest expense		2,129			634			3,909			983
Credit facility fees		446			1,526			874			2,056
Directors’ fees and expenses		106			103			207			185
Transfer agency fees		44			34			93			60
Other general and administrative		562			178			772			330

Total expenses		9,006			5,893			16,413			9,817
Waiver of base management fees		(1,026	)		(485	)		(1,934	)		(815	)

Net expenses	$	7,980		$	5,408		$	14,479		$	9,002

Interest expense and credit facility fees for the three month and six month periods ended June 30, 2015 and 2014 were comprised of the following:


	For the three month periods ended				For the six month periods ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Interest expense	$	2,129	$	634	$	3,909	$	983
Unused commitment fee		135		372		305		658
Amortization of deferred financing costs		281		1,128		513		1,347
Other fees		30		26		56		51

Total interest expense and credit facility fees	$	2,575	$	2,160	$	4,783	$	3,039

Cash paid for interest expense	$	2,112	$	510	$	3,562	$	795

The increase in interest expense for the three month and six month periods ended June 30, 2015 was driven by increased usage of the facilities, additional debt issued through the securitization in the form of the 2015-1 Notes (as defined below), and increased deployment of capital to investments. See Note 6 to the consolidated financial states included in Part I, Item 1 of this Form 10-Q for more information. For the three month and six month periods ended June 30, 2015, the weighted average interest rate under the facilities was 2.22% and 2.20%, respectively, and average principal debt outstanding was $363,649 and $345,319, respectively. For the three month and six month periods ended June 30, 2014, the weighted average interest rate under the facilities was 2.13% and 2.12%, respectively, and average principal debt outstanding was $117,699 and $92,401, respectively.

Increased base management fees (and related waiver of base management fees) and incentive fees related to pre-incentive fee net investment income for the three month and six month periods ended June 30, 2015 and 2014 were driven by our deployment of capital and increasing invested balance. For the three month and six month periods ended June 30, 2015, base management fees were $2,054 and $3,869, respectively (net of waiver of $1,026 and $1,934, respectively), incentive fees related to pre-incentive fee net investment income were $1,986

and $3,606, respectively, and there were no incentive fees related to realized capital gains. For the three month and six month periods ended June 30, 2014, base management fees were $970 and $1,631, respectively (net of waiver of $485 and $815, respectively), incentive fees related to pre-incentive fee net investment income were $1,137 and $1,933, respectively, and there were no incentive fees related to realized capital gains. The accrual for any capital gains incentive fee under accounting principles generally accepted in the United States (“US 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. See Note 4 to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for more information on the incentive and base management fees. For the three month and six month periods ended June 30, 2015, we recorded no accrued capital gains incentive fees based upon our cumulative net realized and unrealized appreciation/ (depreciation) as of June 30, 2015. For the three month and six month periods ended June 30, 2014, we recorded an accrued capital gains incentive fee of $12 and $156, respectively, based upon our cumulative net realized and unrealized appreciation/ (depreciation) as of June 30, 2014.

Professional fees include legal, rating agencies, audit, tax, valuation, technology and other professional fees incurred related to the management of the Company. Administrative service fees represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers and their respective staff. Other general and administrative expenses include insurance, filing, research, subscriptions and other costs.

Net Realized Gain (Loss) and Net Change in Unrealized Appreciation/(Depreciation) on Investments

During the three month and six month periods ended June 30, 2015, the Company had a change in unrealized appreciation on 52 and 68 investments, respectively, totaling approximately $5,595 and $11,731, respectively, which was offset by a change in unrealized depreciation on 48 and 36 investments, respectively, totaling approximately $4,918 and $7,482, respectively. During the three month and six month periods ended June 30, 2014, the Company had a change in unrealized appreciation on 30 and 40 investments, respectively, totaling approximately $3,371 and $4,126, respectively, which was offset by a change in unrealized depreciation on 32 and 24 investments, respectively, totaling approximately $3,460 and $3,284, respectively.


	For the three month periods ended					For the six month periods ended
	June 30, 2015		June 30, 2014			June 30, 2015		June 30, 2014
Net realized gain (loss) on investments—non-controlled/non-affiliated	$	593	$	145		$	329	$	191
Net change in unrealized appreciation (depreciation) on investments— non-controlled/non-affiliated		677		(89	)		4,249		842

Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments	$	1,270	$	56		$	4,578	$	1,033

Net realized gain (loss) and net change in unrealized appreciation (depreciation) for the three month and six month periods ended June 30, 2015 and 2014 was as follows:


	For the three month periods ended
	June 30, 2015					June 30, 2014
Type	Net realized gain (loss)		Net change in unrealized appreciation (depreciation)			Net realized gain (loss)		Net change in unrealized appreciation (depreciation)
First Lien Debt	$	205	$	811		$	—	$	898
Second Lien Debt		—		1,158			120		1,048
Structured Finance Obligations		388		(1,292	)		25		(2,035	)

Total	$	593	$	677		$	145	$	(89	)


	For the six month periods ended
	June 30, 2015					June 30, 2014
Type	Net realized gain (loss)		Net change in unrealized appreciation (depreciation)			Net realized gain (loss)		Net change in unrealized appreciation (depreciation)
First Lien Debt	$	207	$	4,117		$	—	$	1,317
Second Lien Debt		—		1,604			120		1,432
Structured Finance Obligations		122		(1,472	)		71		(1,907	)

Total	$	329	$	4,249		$	191	$	842

For the six month period ended June 30, 2015, we had a net realized gain of $329 primarily due to the sale of two structured finance obligations and the prepayment of one loan investment with a call premium. Net change in unrealized appreciation in our investments for the three month and six month periods ended June 30, 2015 was primarily due to a tightening spread environment during the period.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company generates cash from the net proceeds of offerings of our common stock and through cash flows from operations, including investment sales and repayments as well as income earned on investments and cash equivalents. We may also fund a portion of our investments through borrowings under the Borrower Sub’s Revolving Credit Facility (as defined below) and/or the Company’s Facility (as defined below), as well as through securitization of a portion of our existing investments. The Borrower Sub closed on May 24, 2013 on a senior secured revolving credit facility (as amended, the “Revolving Credit Facility”), which was subsequently amended on June 30, 2014 (the “First Amendment”) and further amended on June 19, 2015 (“Second Amendment”). The Revolving Credit Facility provides for secured borrowings during the applicable revolving period up to an amount equal to the lesser of $400,000, the borrowing base as calculated pursuant to the terms of the Revolving Credit Facility, and the amount of net cash proceeds and unpledged capital commitments the Company has received with an accordion feature that can, subject to certain conditions, increase the aggregate maximum credit commitment up to an amount not to exceed $750,000, subject to restrictions imposed on borrowings under the Investment Company Act and certain restrictions and conditions set forth in the Revolving Credit Facility, including adequate collateral to support such borrowings. The Revolving Credit Facility imposes financial and operating covenants on us and Borrower Sub that restrict our and its business activities. Continued compliance with these covenants will depend on many factors, some of which are beyond our control. The Company closed on March 21, 2014 on a senior secured revolving credit facility (as amended, the “Facility”), which was subsequently amended on January 8, 2015 (the “First Facility Amendment Effective Date”). The maximum principal amount of the Facility is $150,000, subject to availability under the Facility, which is based on certain advance rates multiplied by the value of the Company’s portfolio investments (subject to certain

concentration limitations) net of certain other indebtedness that the Company may incur in accordance with the

terms of the Facility. Proceeds of the Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Facility may be increased to $225,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Facility includes a $20,000 limit for swingline loans and a $5,000 limit for letters of credit. Subject to certain exceptions, the Facility is secured by a perfected first-priority security interest in substantially all of the portfolio investments held by the Company.

The Facility includes customary covenants, including certain financial covenants related to asset coverage, shareholders’ equity and liquidity, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance covenants, as well as usual and customary events of default for senior secured revolving credit facilities of this nature.

Although we believe that we and the Borrower Sub will remain in compliance, there are no assurances that we or the Borrower Sub will continue to comply with the covenants in the Facility and Revolving Credit Facility, as applicable. Failure to comply with these covenants could result in a default under the Facility and/or Revolving Credit Facility that, if we or the Borrower Sub were unable to obtain a waiver from the applicable lenders, could result in the immediate acceleration of the amounts due under the Facility and/or Revolving Credit Facility, and thereby have a material adverse impact on our business, financial condition and results of operations.

For more information on the Revolving Credit Facility and Facility, see Note 5 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

The primary use of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders and for other general corporate purposes.

On June 26, 2015, the Company completed a $400 million term debt securitization (the “2015-1 Debt Securitization”). The notes offered in the Debt Securitization (the “2015-1 Notes”) were issued by Carlyle GMS Finance MM CLO 2015-1 LLC (the “2015-1 Issuer”), a wholly-owned and consolidated subsidiary of the Company, and are secured by a diversified portfolio consisting primarily of first and second lien senior secured loans. The 2015-1 Debt Securitization was executed through a private placement of the 2015-1 Notes, consisting of $160 million of Aaa/AAA Class A-1A Notes which bear interest at the three-month London Interbank Offered Rate (“LIBOR”), plus 1.85%; $40 million of Aaa/AAA Class A-1B Notes which bear interest at the three-month LIBOR plus 1.75% for first 24 months and the three-month LIBOR plus 2.05% thereafter; $27 million of Aaa/AAA Class A-1C Notes which bear interest at 3.75% and $46 million of Aa2 Class A-2 Notes which bear interest at the three-month LIBOR plus 2.70%. The 2015-1 Notes were issued at par and are scheduled to mature on July 15, 2027. The Company received 100% of the preferred interests (the “Preferred Interests”) issued by the 2015-1 Issuer on the closing date of the 2015-1 Debt Securitization in exchange for the Company’s contribution to the Issuer of the initial closing date loan portfolio. The Preferred Interests do not bear interest and had a nominal value of $125.9 million at closing. In connection with the contribution, the Company has made customary representations, warranties and covenants to the 2015-1 Issuer. The Class A-1A, Class A-1B and Class A-1C and Class A-2 Notes are included in the June 30, 2015 consolidated financial statements. The Preferred Interests were eliminated in consolidation. For more information on the 2015-1 Notes, see Note 6 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

As of June 30, 2015 and December 31, 2014, the Company had $46,477 and $8,754, respectively, in cash. The facilities of the Company and the Borrower Sub consisted of the following as of June 30, 2015 and December 31, 2014:


	June 30, 2015
	Total Facility		Borrowings Outstanding		Unused Portion ⁽¹⁾		Amount Available ⁽²⁾
Revolving Credit Facility	$	400,000	$	103,958	$	296,042	$	21,591
Facility		150,000		31,000		119,000		119,000

Total	$	550,000	$	134,958	$	415,042	$	140,591


	December 31, 2014
	Total Facility		Borrowings Outstanding		Unused Portion ⁽¹⁾		Amount Available ⁽²⁾
Revolving Credit Facility	$	400,000	$	246,441	$	153,559	$	10,557
Facility		150,000		62,000		88,000		58,623

Total	$	550,000	$	308,441	$	241,559	$	69,180

(1)	The unused portion is the amount upon which commitment fees are based.

(2)	Available for borrowing based on the computation of collateral to support the borrowings.

The following were the carrying values and fair values of the Company’s 2015-1 Notes as of June 30, 2015 and December 31, 2014:


	June 30, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
Aaa/AAA Class A-1A Notes	$	160,000	$	160,000	$	—	$	—
Aaa/AAA Class A-1B Notes		40,000		40,000		—		—
Aaa/AAA Class A-1C Notes		27,000		27,000		—		—
Aa2 Class A-2 Notes		46,000		46,000		—		—

Total	$	273,000	$	273,000	$	—	$	—

Equity Activity

There were $10,473 and $21,582 of investor equity capital commitments made to the Company during the three month and six month periods ended June 30, 2015, respectively. There were $40,125 and $231,754 of investor equity capital commitments made to the Company during the three month and six month periods ended June 30, 2014, respectively. As of June 30, 2015 and December 31, 2014, the Company had $1,151,104 and $1,129,522, respectively, in total capital commitments from stockholders, of which $627,250 and $776,750, respectively, was unfunded. As of June 30, 2015 and December 31, 2014, certain current directors had committed $1,541 and $1,500, respectively, in capital commitments to the Company.

Shares issued as of June 30, 2015 and December 31, 2014 were 26,755,935 and 17,932,697, respectively.

The following table summarizes activity in the number of shares of our common stock outstanding during the six month periods ended June 30, 2015 and 2014:


	For the six month periods ended
	June 30, 2015		June 30, 2014
Shares in issue, beginning of period		17,932,697		9,575,990
Common stock issued		8,820,836		3,315,431
Reinvestment of dividends		2,402		148

Shares in issue, end of period		26,755,935		12,891,569

Contractual Obligations

A summary of our significant contractual payment obligations was as follows as of June 30, 2015 and December 31, 2014:


	Revolving Credit Facility and Facility				2015-1 Notes
Payment Due by Period	June 30, 2015		December 31, 2014		June 30, 2015		December 31, 2014
Less than 1 Year	$	—	$	—	$	—	$	—
1-3 Years		—		—		—		—
3-5 Years		31,000		62,000		—		—
More than 5 Years		103,958		246,441		273,000		—

Total	$	134,958	$	308,441	$	273,000	$	—

For more information on the Revolving Credit Facility and Facility and 2015-1 Notes, see Note 5 and Note 6, respectively, to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

As of June 30, 2015 and December 31, 2014, $103,958 and $246,441, respectively, of secured borrowings were outstanding under the Revolving Credit Facility, $31,000 and $62,000, respectively, of secured borrowings were outstanding under the Facility and $273,000 and $0, respectively, of 2015-1 Notes were outstanding. For the three month and six month periods ended June 30, 2015, we incurred $2,129 and $3,909, respectively, of interest expense and $135 and $305, respectively, of unused commitment fees. For the three month and six month periods ended June 30, 2014, we incurred $634 and $983, respectively, of interest expense and $372 and $658 of unused commitment fees.

OFF BALANCE SHEET ARRANGEMENTS

In the ordinary course of its business, the Company enters into contracts or agreements that contain indemnification or warranties. Future events could occur that lead to the execution of these provisions against the Company. The Company believes that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in these consolidated financial statements as of June 30, 2015 and December 31, 2014 included in Part I, Item 1 of this Form 10-Q for any such exposure.

We may also enter into future funding commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments.

The Company had the following unfunded commitments to fund delayed draw senior secured loans as of the indicated dates:


	Par Value as of
	June 30, 2015		December 31, 2014
Unfunded delayed draw commitments	$	32,986	$	9,500
Unfunded revolving term loan commitments		3,906		—

Total unfunded commitments	$	36,892	$	9,500

Pursuant to an undertaking by the Company in connection with the 2015-1 Debt Securitization, the Company has agreed to hold on an ongoing basis Preferred Interests with an aggregate dollar purchase price at least equal to 5% of the aggregate outstanding amount of all collateral obligations by the 2015-1 Issuer for so long as any securities of the 2015-1 Issuer remains outstanding. As of June 30, 2015, the Company was in compliance with its undertaking.

DIVIDENDS AND DISTRIBUTIONS TO COMMON STOCKHOLDERS

The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions on behalf of its stockholders, for those who have elected to participate in the plan. As a result of adopting such a plan, if the Board of Directors authorizes, and GMS Finance declares, a cash dividend or distribution, the stockholders who have elected to participate in the dividend reinvestment plan would have their cash dividends or distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash. Prior to a Qualified IPO, the Company intends to use primarily newly issued shares of its common stock to implement the plan issued at the net asset value per share most recently determined by the Board of Directors. After a Qualified IPO, the Company intends to use primarily newly issued shares to implement the plan so long as the market value per share is equal to or greater than the net asset value per share as of the close of business on the relevant payment date for such dividend or distribution. If the market value per share is less than the net asset value per share as of the close of business on the relevant payment date, the plan administrator would purchase the common stock on behalf of participants in the open market, unless the Company instructs the plan administrator otherwise.

The following table summarizes the Company’s dividends declared and payable since inception through the quarter ended June 30, 2015:


Date Declared	Record Date	Payment Date	Per Share Amount		Total Amount		Annualized Dividend Yield⁽¹⁾
March 13, 2014	March 31, 2014	April 14, 2014	$	0.19	$	2,449		4.76	%
June 26, 2014	June 30, 2014	July 14, 2014	$	0.27	$	3,481		5.52	%
September 12, 2014	September 18, 2014	October 9, 2014	$	0.44	$	5,956		9.23	%
December 19, 2014	December 29, 2014	January 26, 2015	$	0.35	$	6,276		8.17	%
March 11, 2015	March 13, 2015	April 17, 2015	$	0.37	$	7,833		8.58	%
June 24, 2015	June 30, 2015	July 22, 2015	$	0.37	$	9,902		9.03	%

(1)	Annualized dividend yield is calculated by dividing the declared dividend by the weighted average of the net asset value at the beginning of the quarter and the capital called during the quarter and annualizing over 4 quarterly periods.

CRITICAL ACCOUNTING POLICIES

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies, including those relating to the valuation of our investment portfolio, are described below. The critical accounting policies should be read in connection with our consolidated financial statements in Part I, Item 1 of this Form 10-Q and in Part II, Item 8 of the Company’s annual report on Form 10-K for the year ended December 31, 2014.

Fair Value Measurements

Company determines whether the quote obtained is sufficient according to US GAAP to determine the fair value of the security. The Company may use the quote obtained or alternative pricing sources may be utilized including valuation techniques typically utilized for illiquid securities/instruments.

Securities/instruments that are illiquid or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or the Board of Directors, does not represent fair value shall each be valued as of the measurement date using all techniques appropriate under the circumstances and for which sufficient data is available. These valuation techniques may vary by investment and include comparable public market valuations, comparable precedent transaction valuations and/or discounted cash flow analyses. The process generally used to determine the applicable value is as follows: (i) the value of each portfolio company or investment is initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments, a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs is used to determine a preliminary value, which is also reviewed alongside consensus pricing, where available; (ii) preliminary valuation conclusions are documented and reviewed by a valuation committee comprised of members of senior management; (iii) the Board of Directors engages a third-party valuation firm to provide positive assurance on portions of the Middle Market Senior Loans and equity investments portfolio each quarter (such that each non-traded investment is reviewed by a third-party valuation firm at least once on a rolling twelve month basis) including a review of management’s preliminary valuation and conclusion on fair value; (iv) the Audit Committee of the Board of Directors (the “Audit Committee”) reviews the assessments of the Investment Adviser and the third-party valuation firm and provides the Board of Directors with any recommendations with respect to changes to the fair value of each investment in the portfolio; and (v) the Board of Directors discusses the valuation recommendations of the Audit Committee and determines the fair value of each investment in the portfolio in good faith based on the input of the Investment Adviser and, where applicable, the third-party valuation firm.

All factors that might materially impact the value of an investment are considered, including, but not limited to the assessment of the following factors, as relevant:

•

the nature and realizable value of any collateral;

•

call features, put features and other relevant terms of debt;

•

the portfolio company’s leverage and ability to make payments;

•

the portfolio company’s public or private credit rating;

•

the portfolio company’s actual and expected earnings and discounted cash flow;

•

prevailing interest rates and spreads for similar securities and expected volatility in future interest rates;

•

the markets in which the portfolio company does business and recent economic and/or market events; and

•

comparisons to comparable transactions and publicly traded securities.

Investments measured and reported at fair value are classified and disclosed based on the observability of inputs used in determination of fair values, as follows:

•

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

The Company generally uses the following framework when determining the fair value of investments that are categorized as Level III:

Investments in debt securities that do not have sufficient coverage through the enterprise value analysis are valued based on an expected probability of default and discount recovery analysis.

Investments in structured finance obligations are generally valued using a discounted cash flow and/or consensus pricing.

The carrying value of other financial assets and liabilities approximates their fair value based on the short term nature of these items.

See Note 3 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information on fair value measurements.

Use of Estimates

The preparation of consolidated financial statements included in Part I, Item 1 of this Form 10-Q, in conformity with US GAAP requires management to make assumptions and estimates that affect the reported

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experiences and other factors, including expectations of future events that management believes to be reasonable under the circumstances. It also requires management to exercise judgment in the process of applying the Company’s accounting policies. Assumptions and estimates regarding the valuation of investments and their resulting impact on base management and incentive fees involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q. Actual results could differ from these estimates and such differences could be material.

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 using the specific identification method without regard to unrealized appreciation or depreciation previously recognized, and includes investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented in the Consolidated Statements of Operations included in Part I, Item 1 of this Form 10-Q reflects the net change in the fair value of investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Revenue Recognition

Interest from Investments and Realized Gain/Loss on Investments

Interest income from investments in the “equity” class of collateralized loan obligation (“CLO”) funds, which are included in “structured finance obligations”, is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financials Assets. We monitor the expected cash inflows from our CLO equity investments, including the expected residual payments and the effective yield is determined and updated at least quarterly. In estimating these cash flows, there are a number of assumptions that are subject to uncertainties, including the amount and timing of principal payments which are impacted by prepayments, repurchases, defaults, delinquencies and liquidations of or within the CLO funds. These uncertainties are difficult to predict and are subject to future events that could have impacted the Company’s estimates if the information was known at the time. As a result, actual results may differ significantly from these estimates. Interest income from investments in the notes of CLO funds, which are also included in “structured finance obligations”, is recorded on an accrual basis.

Other Income

amortized into other income over the life of the guarantee. The unamortized amount, if any, is included in other assets in the Consolidated Statements of Assets and Liabilities included in Part I, Item 1 of this Form 10-Q.

Non-Accrual Income

Income Taxes

The Borrower Sub is a disregarded entity for tax purposes and is consolidated with the tax return of GMS Finance.

Capital Calls and Dividends and Distributions to Common Stockholders

by the Board of Directors each quarter and is generally based upon the taxable earnings estimated by management and available cash. Net realized capital gains, if any, are generally distributed at least annually, although the Company may decide to retain such capital gains for investment.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in the valuations of our investment portfolio and interest rates.

Valuation Risk

Our investments may not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board of Directors in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. 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. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is possible that the difference could be material.

Interest Rate Risk

During the three month and six month periods ended June 30, 2015, a majority of the debt investments held in the Company’s portfolio had floating interest rates. Interest rates on the investments held within the Company’s portfolio of investments are typically based on floating LIBOR, with many of these investments also having a LIBOR floor. Additionally, the Company’s credit facilities are also subject to floating interest rates and are currently paid based on floating LIBOR rates.

Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. There can be no assurance that a significant change in market interest rates will not have a material adverse effect on our income in the future.

The following table estimates the potential changes in net cash flow generated from interest income, should interest rates increase or decrease by 100, 200 or 300 basis points. Interest income is calculated as revenue from interest generated from the Company’s settled portfolio of investments held as of June 30, 2015 and December 31, 2014, excluding structured finance obligations. These hypothetical calculations are based on a model of the settled investments in our portfolio, excluding structured finance obligations, held as of June 30, 2015 and December 31, 2014, and are only adjusted for assumed changes in the underlying base interest rates

and the impact of that change on interest income. Interest expense is calculated based on outstanding secured borrowings as of June 30, 2015 and December 31, 2014 and based on the terms of the Company’s credit facilities. Interest expense on the Company’s credit facilities is calculated using the interest rate as of June 30, 2015 and December 31, 2014, adjusted for the hypothetical changes in rates, as shown below. We intend to continue to finance a portion of our investments with borrowings and the interest rates paid on our borrowings may impact significantly our net interest income.

The Company regularly measures exposure to interest rate risk. The Company assesses interest rate risk and manages 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.

Based on our Consolidated Statements of Assets and Liabilities as of June 30, 2015 and December 31, 2014, the following table shows the annual impact on net investment income of base rate changes in interest rates for our settled investments (considering interest rate floors for variable rate instruments), excluding structured finance obligations, and outstanding secured borrowings assuming no changes in our investment and borrowing structure:


	As of June 30, 2015								As of December 31, 2014
Basis Point Change	Interest Income		Interest Expense			Net Investment Income			Interest Income			Interest Expense			Net Investment Income
Up 300 basis points	$	18,107	$	(11,429	)	$	6,678		$	12,899		$	(9,253	)	$	3,646
Up 200 basis points	$	10,180	$	(7,619	)	$	2,561		$	7,212		$	(6,169	)	$	1,043
Up 100 basis points	$	2,253	$	(3,810	)	$	(1,557	)	$	1,525		$	(3,084	)	$	(1,559	)
Down 100 basis points	$	—	$	1,049		$	1,049		$	(210	)	$	736		$	526
Down 200 basis points	$	—	$	1,049		$	1,049		$	(420	)	$	736		$	316
Down 300 basis points	$	—	$	1,049		$	1,049		$	(630	)	$	736		$	106

Item 4. Controls and Procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President (Principal Executive Officer) and our Chief Financial Officer and Treasurer (Principal Financial Officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our President and our Chief Financial Officer and Treasurer 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 we file or submit under the Exchange Act.

There have been no changes in our internal control over financial reporting periods during the three month period ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company may become party to certain lawsuits in the ordinary course of business. The Company is not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against the Company. See also Note 10 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors.

Except as set forth below, there have been no material changes to the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2014. For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 27, 2015, which is accessible on the SEC’s website at sec.gov.

Risks Related to debt securitization financing transactions.

We are subject to certain risks as a result of our direct interest in the Preferred Interests of the 2015-1 Issuer.

As part of the 2015-1 Debt Securitization, certain first and second lien senior secured loans were distributed by the Borrower Sub to the Company pursuant to a distribution and contribution agreement. The Company contributed the loans that comprised the initial closing date loan portfolio (including the loans distributed to the Company from the Borrower Sub) to the 2015-1 Issuer pursuant to a contribution agreement. Following this transfer, the 2015-1 Issuer held all of the equity ownership interest in such loans portfolio. As a result, the Company received 100% of the Preferred Interests issued by the 2015-1 Issuer in exchange for the Company’s contribution to the 2015-1 Issuer of the initial closing date loan portfolio. The 2015-1 Notes are included in the consolidated financial statements and the Preferred Interests are eliminated in consolidation.

Because each of the Borrower Sub and the 2015-1 Issuer is disregarded as an entity separate from its owner for U.S. federal income tax purposes, the sale or contribution by Borrower Sub to us and the sale or contribution by us to the 2015-1 Issuer did not constitute a taxable event for U.S. federal income tax purposes. If the U.S. Internal Revenue Service were to take a contrary position, there could be a material adverse effect on our business, financial condition, results of operations or cash flows.

The Preferred Interests in the 2015-1 Issuer are subordinated obligations of the 2015-1 Issuer.

The 2015-1 Issuer is the residual claimant on funds, if any, remaining after holders of all classes of 2015-1 Notes have been paid in full on each payment date or upon maturity of the 2015-1 Notes under the 2015-1 Debt Securitization documents. The Preferred Interests in the 2015-1 Issuer represent all of the equity interest in the 2015-1 Issuer and, as the holder of the Preferred Interests, we may receive distributions, if any, only to the extent that the 2015-1 Issuer makes distributions out of funds remaining after holders of all classes of 2015-1 Notes have been paid in full on each payment date any amounts due and owing on such payment date or upon maturity of the 2015-1 Notes.

The 2015-1 Issuer may fail to meet certain asset coverage tests.

Under the documents governing the 2015-1 Debt Securitization, there are two coverage tests applicable to the 2015-1 Notes.

The first such test compares the amount of interest received on the portfolio loans held by the 2015-1 Issuer to the amount of interest payable in respect of the 2015-1 Notes. To meet this first test, interest received on the portfolio loans must equal at least 120% of the interest payable in respect of the 2015-1 Notes issued by the 2015-1 Issuer.

The second such test compares the adjusted collateral principal amount of the portfolio loans of the 2015-1 Debt Securitization to the aggregate outstanding principal amount of the 2015-1 Notes. To meet this second test at any time, the adjusted collateral principal amount of the portfolio loans must equal at least 140% of the outstanding principal amount of the 2015-1 Notes. If any coverage test with respect to the 2015-1 Notes is not met, proceeds from the portfolio of loans that otherwise would have been distributed to the holders of the Preferred Interests of 2015-1 Issuer will instead be used to redeem first the 2015-1 Notes, to the extent necessary to satisfy the applicable asset coverage tests on a pro forma basis after giving effect to all payments made in respect of the 2015-1 Notes, which we refer to as a mandatory redemption, or to obtain the necessary ratings confirmation.

We may not receive cash from the 2015-1 Issuer.

We receive cash from the 2015-1 Issuer only to the extent of payments on the distributions, if any, with respect to the Preferred Interests of the 2015-1 Issuer as permitted under the 2015-1 Debt Securitization. The 2015-1 Issuer may only make payments on Preferred Interests to the extent permitted by the payment priority provisions of the indenture governing the 2015-1 Notes (the “2015-1 Indenture”), as applicable, which generally provide, distribution to Preferred Interests holder may not be made on any payment date unless all amounts owing under the 2015-1 Notes are paid in full.

In addition, if the 2015-1 Issuer does not meet the asset coverage tests or the interest coverage test set forth in the documents governing the 2015-1 Debt Securitization, cash would be diverted to first pay the 2015-1 Notes in amounts sufficient to cause such tests to be satisfied. In the event that we fail to receive cash directly from the 2015-1 Issuer, we could be unable to make such distributions in amounts sufficient to maintain our status as a RIC for U.S. federal income tax purposes, or at all.

We may be required to assume liabilities of the 2015-1 Issuer and are indirectly liable for certain representations and warranties in connection with the 2015-1 Debt Securitization.

As part of the 2015-1 Debt Securitization, we entered into a contribution agreement under which we would be required to repurchase any loan (or participation interest therein) which was sold to the 2015-1 Issuer, in breach of any representation or warranty made by us with respect to such loan on the date such loan was sold. To the extent we fail to satisfy any such repurchase obligation, the trustee of the 2015-1Debt Securitization may, on behalf of the 2015-1 Issuer, bring an action against us to enforce these repurchase obligations.

The structure of the 2015-1 Debt Securitization is intended to prevent, in the event of our bankruptcy, the consolidation of the 2015-1 Issuer with our operations. If the true sale of the assets in the 2015-1 Debt Securitization were not respected in the event of our insolvency, a trustee or debtor-in-possession might reclaim the assets of the 2015-1 Issuer for our estate. However, in doing so, we would become directly liable for all of the indebtedness then outstanding under the 2015-1 Debt Securitization, which would equal the full amount of debt of the 2015-1 Issuer reflected on our consolidated balance sheet.

In addition, in connection with 2015-1 Debt Securitization, the Company has made customary representations, warranties and covenants to the 2015-1 Issuer. We remain liable for any breach of such representations for the life of the 2015-1 Debt Securitization.

The interests of holders of the 2015-1 Notes issued by the 2015-1 Issuer may not be aligned with our interests.

The 2015-1 Notes are the debt obligations ranking senior in right of payment to the Preferred Interests holders. As such, there are circumstances in which the interests of holders of the 2015-1Notes may not be aligned with the interests of the Preferred Interests of the 2015-1 Issuer. For example, under the terms of the 2015-1 Issuer, holders of the 2015-1 Notes have the right to receive payments of principal and interest prior to distribution to the holders of the Preferred Interests of the 2015-1 Issuer.

For as long as the 2015-1 Notes remain outstanding, holders of the 2015-1 Notes have the right to act, in certain circumstances, with respect to the portfolio loans in ways that may benefit their interests but not the interests of holders of the Preferred Interests of the 2015-1 Issuer, including by exercising remedies under the 2015-1 Indenture.

If an event of default has occurred and acceleration occurs in accordance with the terms of the 2015-1 Indenture, the 2015-1 Notes then outstanding will be paid in full before any further payment or distribution to the Preferred Interests. In addition, if an event of default occurs, holders of a majority of the 2015-1 Notes then outstanding will be entitled to determine the remedies to be exercised under the 2015-1 Indenture, subject to the terms of the 2015-1 Indenture. For example, upon the occurrence of an event of default with respect to the notes issued by the 2015-1 Issuer, the trustee or holders of a majority of the 2015-1 Notes then outstanding may declare the principal, together with any accrued interest, of all the 2015-1 Notes to be immediately due and payable. This would have the effect of accelerating the principal on such notes, triggering a repayment obligation on the part of the 2015-1 Issuer. If at such time the portfolio loans of the 2015-1 Issuer were not performing well, the 2015-1 Issuer may not have sufficient proceeds available to enable the trustee under the 2015-1 Indenture to pay a distribution to holders of the Preferred Interests of the 2015-1 Issuer.

Remedies pursued by the holders of the 2015-1 Notes could be adverse to the interests of the holders of the Preferred Interests, and the holders of the 2015-1 Notes will have no obligation to consider any possible adverse effect on such other interests. Thus, any remedies pursued by the holders of the 2015-1 Notes may not be in our best interests and we may not receive payments or distributions upon an acceleration of the 2015-1 Notes. Any failure of the 2015-1 Issuer to make distributions on Preferred Interests we hold, directly or indirectly, whether as a result of an event of default or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows and may result in an inability of us to make distributions sufficient to allow for us to qualify as a RIC for U.S. federal income tax purposes.

If we have not consummated a Qualified IPO by May 2, 2018, it could result in an early optional redemption of the 2015-1 Notes

As previously disclosed, if we have not consummated an initial public offering of our common stock that results in an unaffiliated public float of at least 15% of the aggregate capital commitments received prior to the date of such initial public offering (a “Qualified IPO”) by May 2, 2018, then our Board of Directors (subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act) will use its best efforts to wind-down and/or liquidate and dissolve us. If this were to occur, it would likely result in us using our rights, as a holder of the Preferred Interests to effect an optional redemption of the 2015-1 Notes. If at such time the portfolio loans of the 2015-1 Issuer were not performing well, the 2015-1 Issuer may not have sufficient proceeds available to enable the trustee under the 2015-1 Indenture to pay a distribution to holders of the Preferred Interests of the 2015-1 Issuer.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Except as previously reported by the Company on Form 8-K, we did not sell any equity securities during the period covered in this report that were not registered under the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On August 7, 2015, the Company delivered a capital drawdown notice to investors relating to the issuance of 1,032,504 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), for an aggregate offering price of approximately $20 million. The shares are expected to be issued on or around August 21, 2015.

The issuance of Common Stock is being made pursuant to subscription agreements (“Subscription Agreement”) entered into by the Company and its investors. Under the terms of the Subscription Agreement, investors are required to fund drawdowns to purchase shares of Common Stock up to the amount of their respective capital commitments on an as-needed basis with a minimum of 10 business days’ prior notice to investors.

The issuance and sale of the Common Stock is exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof and Regulation D and Regulation S thereunder.

Item 6. Exhibits.


10.1		Second Amendment, dated as of June 19, 2015, to the Loan and Servicing Agreement, dated as of May 24, 2013.*

10.2		Indenture, dated as of June 26, 2015, between Carlyle GMS Finance MM CLO 2015-1 LLC, as issuer, and State Street Bank and Trust Company, as trustee.*

10.3		Collateral Management Agreement, dated as of June 26, 2015, by and between Carlyle GMS Finance MM CLO 2015-1 LLC, as issuer, and Carlyle GMS Investment Management L.L.C., as collateral manager.*

10.4		Contribution Agreement, dated as of June 26, 2015, by and between Carlyle GMS Finance, Inc., as the contributor, and Carlyle GMS Finance MM CLO 2015-1 LLC, as the contributee.*

31.1		Certification of President (Principal Executive Officer) Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*

31.2		Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*

32.1		Certification of President (Principal Executive Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of Chief Financial Officer (Principal 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

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.