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Carlyle Secured Lending, Inc. - Quarter Report: 2018 June (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, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period                      to                     
Commission File No. 000-54899
 
 
TCG BDC, 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, 40th 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  ☒    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):
Large accelerated filer
 
x
  
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
 
 
 
 
Emerging Growth Company
 
o
  
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
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 7, 2018
Common stock, $0.01 par value
62,568,651





TCG BDC, INC.
INDEX
 
 
 
 
Part I.
Financial Information
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II.
Other Information
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 

2





TCG BDC, INC.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(dollar amounts in thousands, except per share data)
 
June 30, 2018
 
December 31, 2017
ASSETS
(unaudited)
 
 
Investments, at fair value
 
 
 
Investments—non-controlled/non-affiliated, at fair value (amortized cost of $1,746,623 and $1,782,488, respectively)
$
1,722,393

 
$
1,779,584

Investments—non-controlled/affiliated, at fair value (amortized cost of $15,940 and $16,273, respectively)
16,394

 
15,431

Investments—controlled/affiliated, at fair value (amortized cost of $208,501 and $172,251, respectively)
208,005

 
172,516

Total investments, at fair value (amortized cost of $1,971,064 and $1,971,012, respectively)
1,946,792

 
1,967,531

Cash and cash equivalents
27,928

 
32,039

Receivable for investment sold
40,077

 
7,022

Deferred financing costs
3,246

 
3,626

Interest receivable from non-controlled/non-affiliated investments
6,150

 
5,066

Interest receivable from non-controlled/affiliated investments
8

 
42

Interest and dividend receivable from controlled/affiliated investments
6,442

 
5,981

Prepaid expenses and other assets
525

 
76

Total assets
$
2,031,168

 
$
2,021,383

LIABILITIES
 
 
 
Secured borrowings (Note 6)
$
585,105

 
$
562,893

2015-1 Notes payable, net of unamortized debt issuance costs of $1,846 and $1,947, respectively (Note 7)
271,154

 
271,053

Payable for investments purchased
8,780

 
9,469

Due to Investment Adviser
134

 
69

Interest and credit facility fees payable (Notes 6 and 7)
6,166

 
5,353

Dividend payable (Note 9)
23,151

 
30,481

Base management and incentive fees payable (Note 4)
13,252

 
13,098

Administrative service fees payable (Note 4)
113

 
95

Other accrued expenses and liabilities
1,501

 
1,568

Total liabilities
909,356

 
894,079

Commitments and contingencies (Notes 8 and 11)
 
 
 
NET ASSETS
 
 
 
Common stock, $0.01 par value; 200,000,000 shares authorized; 62,568,651 shares and 62,207,603 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
626

 
622

Paid-in capital in excess of par value
1,179,432

 
1,172,807

Offering costs
(1,633
)
 
(1,618
)
Accumulated net investment income (loss), net of cumulative dividends of $268,555 and $222,254 at June 30, 2018 and December 31, 2017, respectively
9,561

 
2,522

Accumulated net realized gain (loss)
(41,902
)
 
(43,548
)
Accumulated net unrealized appreciation (depreciation)
(24,272
)
 
(3,481
)
Total net assets
$
1,121,812

 
$
1,127,304

NET ASSETS PER SHARE
$
17.93

 
$
18.12

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

3



TCG BDC, 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, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Investment income:
 
 
 
 
 
 
 
From non-controlled/non-affiliated investments:
 
 
 
 
 
 
 
Interest income
$
41,717

 
$
30,526

 
$
80,986

 
$
58,880

Other income
3,590

 
4,046

 
4,485

 
6,582

Total investment income from non-controlled/non-affiliated investments
45,307

 
34,572

 
85,471

 
65,462

From non-controlled/affiliated investments:
 
 
 
 
 
 
 
Interest income
447

 

 
885

 

Total investment income from non-controlled/affiliated investments
447

 

 
885

 

From controlled/affiliated investments:
 
 
 
 
 
 
 
Interest income
3,198

 
2,372

 
5,829

 
4,321

Dividend income
3,500

 
1,800

 
7,750

 
3,060

Total investment income from controlled/affiliated investments
6,698

 
4,172

 
13,579

 
7,381

Total investment income
52,452

 
38,744

 
99,935

 
72,843

Expenses:
 
 
 
 
 
 
 
Base management fees (Note 4)
7,266

 
5,657

 
14,488

 
10,782

Incentive fees (Note 4)
5,984

 
5,361

 
11,314

 
10,138

Professional fees
959

 
1,153

 
1,721

 
1,596

Administrative service fees (Note 4)
185

 
165

 
371

 
338

Interest expense (Notes 6 and 7)
8,709

 
5,738

 
16,524

 
10,772

Credit facility fees (Note 6)
581

 
529

 
1,106

 
1,032

Directors’ fees and expenses
93

 
131

 
191

 
234

Other general and administrative
435

 
448

 
840

 
821

Total expenses
24,212

 
19,182

 
46,555

 
35,713

Waiver of base management fees (Note 4)

 
1,886

 

 
3,594

Net expenses
24,212

 
17,296

 
46,555

 
32,119

Net investment income (loss) before taxes
28,240

 
21,448

 
53,380

 
40,724

Excise tax expense
30

 

 
40

 
169

Net investment income (loss)
28,210

 
21,448

 
53,340

 
40,555

Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments:
 
 
 
 
 
 
 
Net realized gain (loss) from:
 
 
 
 
 
 
 
Non-controlled/non-affiliated investments
1,775

 
(202
)
 
1,646

 
(7,896
)
Net change in unrealized appreciation (depreciation):
 
 
 
 
 
 
 
Non-controlled/non-affiliated investments
(15,282
)
 
(5,879
)
 
(21,326
)
 
(1,423
)
Non-controlled/affiliated investments
(136
)
 

 
1,296

 

Controlled/affiliated investments
(1,461
)
 
134

 
(761
)
 
438

Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments
(15,104
)
 
(5,947
)
 
(19,145
)
 
(8,881
)
Net increase (decrease) in net assets resulting from operations
$
13,106

 
$
15,501

 
$
34,195

 
$
31,674

Basic and diluted earnings per common share (Note 9)
$
0.21

 
$
0.34

 
$
0.55

 
$
0.72

Weighted-average shares of common stock outstanding—Basic and Diluted (Note 9)
62,568,651

 
45,977,943

 
62,534,740

 
43,854,102

Dividends declared per common share (Note 9)
$
0.37

 
$
0.37

 
$
0.74

 
$
0.78

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

4



TCG BDC, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(dollar amounts in thousands)
(unaudited)
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
Increase (decrease) in net assets resulting from operations:
 
 
 
Net investment income (loss)
$
53,340

 
$
40,555

Net realized gain (loss) on investments
1,646

 
(7,896
)
Net change in unrealized appreciation (depreciation) on investments
(20,791
)
 
(985
)
Net increase (decrease) in net assets resulting from operations
34,195

 
31,674

Capital transactions:
 
 
 
Common stock issued, net of offering and underwriting costs
(15
)
 
357,550

Reinvestment of dividends
6,629

 
202

Dividends declared (Note 12)
(46,301
)
 
(39,820
)
Net increase (decrease) in net assets resulting from capital share transactions
(39,687
)
 
317,932

Net increase (decrease) in net assets
(5,492
)
 
349,606

Net assets at beginning of period
1,127,304

 
764,137

Net assets at end of period
$
1,121,812

 
$
1,113,743

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

5



TCG BDC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(unaudited)
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
Cash flows from operating activities:
 
 
 
Net increase (decrease) in net assets resulting from operations
$
34,195

 
$
31,674

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
555

 
459

Net accretion of discount on investments
(6,308
)
 
(6,571
)
Paid-in-kind interest
(429
)
 

Net realized (gain) loss on investments
(1,646
)
 
7,896

Net change in unrealized (appreciation) depreciation on investments
20,791

 
985

Cost of investments purchased and change in payable for investments purchased
(397,804
)
 
(696,931
)
Proceeds from sales and repayments of investments and change in receivable for investments sold
372,391

 
472,827

Changes in operating assets:
 
 
 
Interest receivable
(851
)
 
(2,072
)
Dividend receivable
(660
)
 
(475
)
Prepaid expenses and other assets
(449
)
 
(104
)
Changes in operating liabilities:
 
 
 
Due to Investment Adviser
65

 
(97
)
Interest and credit facility fees payable
813

 
231

Base management and incentive fees payable
154

 
975

Administrative service fees payable
18

 
(17
)
Other accrued expenses and liabilities
(67
)
 
269

Net cash provided by (used in) operating activities
20,768

 
(190,951
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock, net of offering and underwriting costs
(15
)
 
350,990

Offering costs from issuance of common stock

 
(358
)
Borrowings on SPV Credit Facility and Credit Facility
423,050

 
306,000

Repayments of SPV Credit Facility and Credit Facility
(400,838
)
 
(396,288
)
Repayments of Debt Assumed from NFIC Acquisition

 
(42,128
)
Debt issuance costs paid
(74
)
 
(679
)
Dividends paid in cash
(47,002
)
 
(36,916
)
Net cash provided by (used in) financing activities
(24,879
)
 
180,621

Net increase (decrease) in cash and cash equivalents
(4,111
)
 
(10,330
)
Cash and cash equivalents, beginning of period
32,039

 
38,489

Cash and cash equivalents, end of period
$
27,928

 
$
28,159

Supplemental disclosures:
 
 
 
Offering costs payable
$

 
$
1,128

Interest paid during the period
$
15,710

 
$
10,512

Taxes, including excise tax, paid during the period
$
105

 
$

Dividends declared during the period
$
46,301

 
$
39,820

Reinvestment of dividends
$
6,629

 
$
202

Cost of investments received in the NFIC Acquisition from shares issued (Note 13)
$

 
$
(8,046
)
Shares issued in consideration of NFIC Acquisition (Note 13)
$

 
$
8,046

Debt assumed from NFIC Acquisition (Note 13)
$

 
$
42,128

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

6



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
As of June 30, 2018
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/non-affiliated (1)
Industry
 
Reference Rate & Spread (2)
 
Interest Rate (2)
 
Acquisition Date
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (6)
 
Fair Value (7)
 
Percentage of Net Assets
First Lien Debt (79.06%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Achilles Acquisition LLC (2) (3) (4) (5) (13) (15)
Banking, Finance, Insurance & Real Estate
 
L + 6.00%
 
8.09%
 
6/6/2017
 
6/6/2023
 
$
46,950

 
$
45,863

 
$
46,740

 
4.17
 %
Advanced Instruments, LLC (2) (3) (4) (5) (13) (15)
Healthcare & Pharmaceuticals
 
L + 5.25%
 
7.25%
 
11/1/2016
 
10/31/2022
 
20,067

 
19,794

 
19,951

 
1.78

Aero Operating, LLC (Dejana Industries, Inc.) (2) (3) (4) (5) (13) (15)
Business Services
 
L + 7.25%
 
9.23%
 
1/5/2018
 
12/29/2022
 
2,814

 
2,784

 
2,832

 
0.25

Alpha Packaging Holdings, Inc. (2) (3) (4) (13)
Containers, Packaging & Glass
 
L + 4.25%
 
6.58%
 
6/26/2015
 
5/12/2020
 
2,881

 
2,880

 
2,881

 
0.26

Alpine SG, LLC (2) (3) (13)
High Tech Industries
 
L + 6.00%
 
8.09%
 
2/2/2018
 
11/16/2022
 
3,405

 
3,372

 
3,411

 
0.30

AMS Group HoldCo, LLC (2) (3) (4) (5) (13) (15)
Transportation: Cargo
 
L + 6.00%
 
8.33%
 
9/29/2017
 
9/29/2023
 
31,604

 
30,931

 
31,319

 
2.79

Analogic Corporation (2) (3) (4) (13) (15)
Healthcare & Pharmaceuticals
 
L + 6.00%
 
8.08%
 
6/22/2018
 
6/22/2024
 
35,337

 
34,565

 
34,853

 
3.11

BeyondTrust Software, Inc. (2) (3) (4) (13)
Software
 
L + 6.25%
 
8.61%
 
11/21/2017
 
11/21/2023
 
16,915

 
16,689

 
17,032

 
1.52

Brooks Equipment Company, LLC (2) (3) (4) (13)
Construction & Building
 
L + 5.00%
 
7.31%
 
6/26/2015
 
8/29/2020
 
2,502

 
2,492

 
2,502

 
0.22

Capstone Logistics Acquisition, Inc. (2) (3) (4) (13)
Transportation: Cargo
 
L + 4.50%
 
6.59%
 
6/26/2015
 
10/7/2021
 
14,306

 
14,226

 
14,190

 
1.26

Captive Resources Midco, LLC (2) (3) (4) (5) (13) (15)
Banking, Finance, Insurance & Real Estate
 
L + 6.00%
 
8.09%
 
6/30/2015
 
12/18/2021
 
30,382

 
30,105

 
30,248

 
2.70

Central Security Group, Inc. (2) (3) (4) (13)
Consumer Services
 
L + 5.63%
 
7.72%
 
6/26/2015
 
10/6/2021
 
38,806

 
38,497

 
38,806

 
3.46

CIP Revolution Holdings, LLC (2) (3) (4) (5) (13) (15)
Media: Advertising, Printing & Publishing
 
L + 6.00%
 
8.33%
 
8/19/2016
 
8/19/2021
 
18,939

 
18,801

 
18,775

 
1.67

CircusTrix Holdings, LLC (2) (3) (4) (5) (13) (15)
Hotel, Gaming & Leisure
 
L + 5.50%
 
7.81%
 
2/2/2018
 
12/16/2021
 
9,259

 
9,040

 
9,248

 
0.82

Colony Hardware Corporation (2) (3) (4) (13)
Construction & Building
 
L + 6.00%
 
8.09%
 
9/4/2015
 
10/23/2021
 
23,782

 
23,553

 
23,763

 
2.12

Comar Holding Company, LLC (2) (3) (5) (13) (15)
Containers, Packaging & Glass
 
L + 5.25%
 
7.58%
 
6/18/2018
 
6/18/2024
 
26,670

 
25,990

 
26,264

 
2.34

Continuum Managed Services Holdco, LLC (2) (3) (4) (5) (13) (15) 
High Tech Industries
 
L + 6.00%
 
8.10%
 
6/20/2017
 
6/8/2023
 
22,770

 
22,158

 
22,881

 
2.04

Dade Paper & Bag, LLC (2) (3) (4) (5)
Forest Products & Paper
 
L + 7.50%
 
9.59%
 
6/9/2017
 
6/10/2024
 
49,500

 
48,624

 
49,589

 
4.42

Datto, Inc. (2) (3) (5) (15)
High Tech Industries
 
L + 8.00%
 
10.05%
 
12/7/2017
 
12/7/2022
 
35,622

 
35,125

 
36,218

 
3.23

Dent Wizard International Corporation (2) (3) (4)
Automotive
 
L + 4.00%
 
6.10%
 
4/28/2015
 
4/7/2020
 
891

 
889

 
889

 
0.08

Derm Growth Partners III, LLC (Dermatology Associates) (2) (3) (4) (5) (13) (15)
Healthcare & Pharmaceuticals
 
L + 6.25%
 
8.58%
 
5/31/2016
 
5/31/2022
 
50,759

 
50,282

 
50,606

 
4.51

DermaRite Industries, LLC (2) (3) (5) (13) (15)
Healthcare & Pharmaceuticals
 
L + 7.00%
 
9.09%
 
3/3/2017
 
3/3/2022
 
20,566

 
20,296

 
20,176

 
1.80

Dimensional Dental Management, LLC (2) (3) (5) (12) (15)
Healthcare & Pharmaceuticals
 
L + 6.75%
 
8.84%
 
2/12/2016
 
2/12/2021
 
33,674

 
33,112

 
32,692

 
2.91

Direct Travel, Inc. (2) (3) (4) (5) (13) (15)
Hotel, Gaming & Leisure
 
L + 6.50%
 
8.83%
 
10/14/2016
 
12/1/2021
 
35,254

 
34,748

 
35,254

 
3.14

EIP Merger Sub, LLC (Evolve IP) (2) (3) (4) (5) (12)
Telecommunications
 
L + 5.75%
 
7.84%
 
6/7/2016
 
6/7/2022
 
33,348

 
32,655

 
32,894

 
2.93

Emergency Communications Network, LLC (2) (3) (4) (5) (13)
Telecommunications
 
L + 6.25%
 
8.34%
 
6/1/2017
 
6/1/2023
 
24,750

 
24,550

 
24,646

 
2.20

Ensono, LP (2) (3) (13)
Telecommunications
 
L + 5.25%
 
7.34%
 
4/30/2018
 
6/27/2025
 
8,667

 
8,662

 
8,640

 
0.77


7



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of June 30, 2018
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/non-affiliated (1)
Industry
 
Reference Rate & Spread (2)
 
Interest Rate (2)
 
Acquisition Date
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (6)
 
Fair Value (7)
 
Percentage of Net Assets
First Lien Debt (79.06%) (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Frontline Technologies Holdings, LLC (2) (3) (5) (15)  
Software
 
L + 6.50%
 
8.59%
 
9/18/2017
 
9/18/2023
 
$
39,000

 
$
38,606

 
$
37,874

 
3.38
 %
FWR Holding Corporation (2) (3) (4) (5) (13) (15)
Beverage, Food & Tobacco
 
L + 6.00%
 
8.09%
 
8/21/2017
 
8/21/2023
 
40,045

 
38,964

 
40,509

 
3.61

Global Franchise Group, LLC (2) (3) (4) (5) (13) (15)
Beverage, Food & Tobacco
 
L + 5.75%
 
7.84%
 
9/15/2017
 
12/18/2019
 
13,584

 
13,496

 
13,584

 
1.21

Green Energy Partners/Stonewall LLC (2) (3) (4) (13)
Energy: Electricity
 
L + 5.50%
 
7.83%
 
6/26/2015
 
11/13/2021
 
19,850

 
19,554

 
19,540

 
1.74

GRO Sub Holdco, LLC (Grand Rapids) (2) (3) (4) (5) (13) (15)
Healthcare & Pharmaceuticals
 
L + 6.00%
 
8.33%
 
2/28/2018
 
2/22/2024
 
6,914

 
6,699

 
6,877

 
0.61

Hummel Station LLC (2) (3) (4) (13)  
Energy: Electricity
 
L + 6.00%
 
8.09%
 
2/3/2016
 
10/27/2022
 
15,000

 
14,303

 
14,569

 
1.30

Hydrofarm, LLC (2) (5)
Wholesale
 
L + 7.00%
 
8.89%
 
5/15/2017
 
5/12/2022
 
18,644

 
18,503

 
14,934

 
1.33

Indra Holdings Corp. (Totes Isotoner) (2) (3) (5) (13)
Non-durable Consumer Goods
 
L + 4.25%
 
6.34%
 
4/29/2014
 
5/1/2021
 
18,965

 
17,389

 
11,419

 
1.02

Innovative Business Services, LLC (2) (3) (5) (13) (15)
High Tech Industries
 
L + 5.50%
 
7.82%
 
4/5/2018
 
4/5/2023
 
16,390

 
15,869

 
16,065

 
1.43

Legacy.com Inc. (2) (3) (5) (12)
High Tech Industries
 
L + 6.00%
 
8.33%
 
3/20/2017
 
3/20/2023
 
17,000

 
16,674

 
17,369

 
1.55

Metrogistics LLC (2) (3) (4) (13)
Transportation: Cargo
 
L + 6.50%
 
8.80%
 
12/13/2016
 
9/30/2022
 
17,748

 
17,561

 
17,727

 
1.58

Moxie Liberty LLC (2) (3) (4) (13)
Energy: Electricity
 
L + 6.50%
 
8.83%
 
10/16/2017
 
8/21/2020
 
9,924

 
9,094

 
9,358

 
0.83

National Technical Systems, Inc. (2) (3) (4) (5) (13) (15)
Aerospace & Defense
 
L + 6.25%
 
8.23%
 
6/26/2015
 
6/12/2021
 
26,351

 
26,087

 
25,047

 
2.23

NES Global Talent Finance US LLC (United Kingdom)  (2) (3) (4) (13)
Energy: Oil & Gas
 
L + 5.50%
 
7.86%
 
5/9/2018
 
5/11/2023
 
7,847

 
7,696

 
7,740

 
0.69

NMI AcquisitionCo, Inc. (2) (3) (4) (5) (15)
High Tech Industries
 
L + 6.75%
 
8.84%
 
9/6/2017
 
9/6/2022
 
51,680

 
50,792

 
51,102

 
4.55

OnCourse Learning Corporation (2) (3) (4) (5) (13) (15)
Consumer Services
 
L + 6.50%
 
8.80%
 
9/12/2016
 
9/12/2021
 
38,830

 
38,462

 
38,679

 
3.45

Payment Alliance International, Inc. (2) (3) (5) (12)
Business Services
 
L + 6.05%
 
8.39%
 
9/15/2017
 
9/15/2021
 
24,387

 
23,926

 
24,555

 
2.19

Plano Molding Company, LLC (2) (3) (4) (5)
Hotel, Gaming & Leisure
 
L + 8.00%
 
10.09%
 
5/1/2015
 
5/12/2021
 
19,424

 
19,193

 
17,480

 
1.56

PPT Management Holdings, LLC (2) (3) (5)
Healthcare & Pharmaceuticals
 
L + 6.50%
 
8.09%
 
12/15/2016
 
12/16/2022
 
24,688

 
24,527

 
20,844

 
1.86

PricewaterhouseCoopers Public Sector LLP (2) (3) (15) 
Aerospace & Defense
 
L + 3.25%
 
4.34%
 
5/1/2018
 
5/1/2023
 

 
(138
)
 
(109
)
 
(0.01
)
Prime Risk Partners, Inc. (2) (3) (5) (15)
 
Banking, Finance, Insurance & Real Estate
 
L + 5.00%
 
7.33%
 
8/15/2017
 
8/13/2023
 
1,903

 
1,862

 
1,890

 
0.17

Prime Risk Partners, Inc. (2) (3) (5) (12) (15)
 
Banking, Finance, Insurance & Real Estate
 
L + 5.00%
 
7.33%
 
8/15/2017
 
8/13/2023
 
23,959

 
23,437

 
23,830

 
2.12

Product Quest Manufacturing, LLC (2) (3) (5) (15)
Containers, Packaging & Glass
 
L + 6.75%
 
10.00%
 
9/21/2017
 
3/31/2019
 
4,051

 
4,051

 
4,051

 
0.36

Product Quest Manufacturing, LLC (2) (3) (5) (10) (12)
Containers, Packaging & Glass
 
L + 5.75%
 
7.84%
 
9/9/2015
 
9/9/2020
 
33,000

 
32,270

 
9,988

 
0.89

Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) (2) (3) (4) (13)
Wholesale
 
L + 4.50%
 
6.83%
 
12/1/2017
 
1/28/2020
 
14,831

 
14,340

 
14,715

 
1.31

QW Holding Corporation (Quala) (2) (3) (4) (5) (13)
Environmental Industries
 
L + 6.75%
 
8.73%
 
8/31/2016
 
8/31/2022
 
36,364

 
35,674

 
35,622

 
3.18

Reliant Pro Rehab, LLC (2) (3) (5) (12)
Healthcare & Pharmaceuticals
 
L + 10.00%
 
12.09%
 
6/24/2016
 
12/28/2018
 
24,438

 
24,519

 
24,682

 
2.20

Smile Doctors, LLC (2) (3) (5) (13) (15)
Healthcare & Pharmaceuticals
 
L + 5.75%
 
8.11%
 
10/6/2017
 
10/6/2022
 
14,585

 
14,449

 
14,595

 
1.30


8



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of June 30, 2018
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/non-affiliated (1)
Industry
 
Reference Rate & Spread (2)
 
Interest Rate (2)
 
Acquisition Date
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (6)
 
Fair Value (7)
 
Percentage of Net Assets
First Lien Debt (79.06%) (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SolAero Technologies Corp. (2) (3) (5) (10)
Telecommunications
 
L + 5.25%
 
7.34%
 
5/24/2016
 
12/10/2020
 
$
24,485

 
$
23,854

 
$
19,284

 
1.72
 %
SPay, Inc. (2) (3) (4) (5) (13) (15)
Hotel, Gaming & Leisure
 
L + 5.75%
 
7.82%
 
6/15/2018
 
6/15/2024
 
18,409

 
17,803

 
18,062

 
1.61

Superior Health Linens, LLC (2) (3) (4) (5) (13) (15)
Business Services
 
L + 6.50%
 
7.85%
 
9/30/2016
 
9/30/2021
 
21,125

 
20,885

 
20,902

 
1.87

Surgical Information Systems, LLC (2) (3) (4) (5) (12) (13)  
High Tech Industries
 
L + 4.85%
 
6.94%
 
4/24/2017
 
4/24/2023
 
27,708

 
27,475

 
27,608

 
2.46

T2 Systems Canada, Inc. (2) (3) (4)
Transportation: Consumer
 
L + 6.75%
 
8.84%
 
5/24/2017
 
9/28/2022
 
3,989

 
3,913

 
3,996

 
0.36

T2 Systems, Inc. (2) (3) (4) (5) (15)
Transportation: Consumer
 
L + 6.75%
 
8.84%
 
9/28/2016
 
9/28/2022
 
32,490

 
31,853

 
32,548

 
2.90

The Hilb Group, LLC (2) (3) (5) (12) (15)
Banking, Finance, Insurance & Real Estate
 
L + 6.00%
 
8.33%
 
6/24/2015
 
6/24/2021
 
42,065

 
41,402

 
41,694

 
3.72

The Topps Company, Inc. (2) (3) (4) (13)
Non-durable Consumer Goods
 
L + 6.00%
 
8.33%
 
6/26/2015
 
10/2/2020
 
22,250

 
22,183

 
22,139

 
1.97

Trump Card, LLC (2) (3) (5) (15)
Transportation: Cargo
 
L + 5.50%
 
7.84%
 
6/26/2018
 
4/21/2022
 
7,845

 
7,761

 
7,820

 
0.70

TSB Purchaser, Inc. (Teaching Strategies, LLC) (2) (3) (4) (13) (15)
Media: Advertising, Printing & Publishing
 
L + 6.00%
 
7.92%
 
5/14/2018
 
5/14/2024
 
28,169

 
27,431

 
27,724

 
2.47

Tweddle Group, Inc. (2) (3) (4) (10) (13)
Media: Advertising, Printing & Publishing
 
L + 6.00%
 
8.09%
 
10/20/2016
 
10/24/2022
 
7,032

 
6,953

 
3,121

 
0.28

Vetcor Professional Practices, LLC (2) (3) (4) (5) (13) (15)
Consumer Services
 
L + 6.25%
 
8.34%
 
6/26/2015
 
4/20/2021
 
40,482

 
40,146

 
40,482

 
3.61

VRC Companies, LLC (2) (3) (4) (5) (13) (15) 
Business Services
 
L + 6.50%
 
8.59%
 
3/31/2017
 
3/31/2023
 
42,377

 
41,602

 
42,292

 
3.77

Watchfire Enterprises, Inc. (2) (3) (13)
Media: Advertising, Printing & Publishing
 
L + 4.00%
 
6.33%
 
6/9/2017
 
10/2/2020
 
1,248

 
1,239

 
1,248

 
0.11

Winchester Electronics Corporation (2) (3) (4) (5) (13)
Capital Equipment
 
L + 6.50%
 
8.59%
 
10/14/2016
 
6/30/2022
 
36,363

 
36,117

 
36,363

 
3.24

Zemax Software Holdings, LLC (2) (3) (5) (15)
Software
 
L + 5.75%
 
8.09%
 
6/25/2018
 
6/25/2024
 
10,274

 
10,043

 
10,143

 
0.90

Zenith Merger Sub, Inc. (2)(3)(4)(5)(13)(15)
Business Services
 
L + 5.50%
 
7.83%
 
12/13/2017
 
12/13/2023
 
11,872

 
11,712

 
11,872

 
1.06

First Lien Debt Total
 
 
 
 
 
 
 
 
 
 
 
 
$
1,570,914

 
$
1,539,134

 
137.19
 %
Second Lien Debt (8.27%)
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
Access CIG, LLC (2) (5) (15)
Business Services
 
L + 7.75%
 
9.84%
 
2/14/2018
 
2/27/2026
 
$
2,573

 
$
2,548

 
$
2,579

 
0.23
 %
AmeriLife Group, LLC (2) (3) (5) (13)  
Banking, Finance, Insurance & Real Estate
 
L + 8.75%
 
10.84%
 
7/9/2015
 
1/10/2023
 
22,000

 
21,666

 
22,000

 
1.96

Argon Medical Devices Holdings, Inc. (2) (3) (5)
Healthcare & Pharmaceuticals
 
L + 8.00%
 
10.09%
 
11/2/2017
 
1/23/2026
 
7,500

 
7,466

 
7,583

 
0.68

Confie Seguros Holding II Co. (2) (3) (5) (13)
Banking, Finance, Insurance & Real Estate
 
L + 9.50%
 
11.81%
 
6/29/2015
 
5/8/2019
 
9,000

 
8,967

 
8,828

 
0.78

Drew Marine Group Inc. (2) (3) (4) (5) (13)  
Chemicals, Plastics & Rubber
 
L + 7.00%
 
9.09%
 
11/19/2013
 
5/19/2021
 
12,500

 
12,485

 
12,450

 
1.11

Paradigm Acquisition Corp. (2) (3) (5)
Business Services
 
L + 8.50%
 
10.97%
 
10/6/2017
 
10/12/2025
 
9,600

 
9,510

 
9,719

 
0.87

Pathway Partners Vet Management Company LLC (2) (3) (5) (15)
Consumer Services
 
L + 8.00%
 
10.09%
 
10/4/2017
 
10/10/2025
 
11,943

 
11,771

 
11,733

 
1.05


9



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of June 30, 2018
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/non-affiliated (1)
Industry
 
Reference Rate & Spread (2)
 
Interest Rate (2)
 
Acquisition Date
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (6)
 
Fair Value (7)
 
Percentage of Net Assets
Second Lien Debt (8.27%) (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pharmalogic Holdings Corp. (2) (3) (5) (15)
Healthcare & Pharmaceuticals
 
L + 8.00%
 
10.09%
 
6/7/2018
 
12/11/2023
 
$
563

 
$
560

 
$
566

 
0.05
 %
Project Accelerate Parent, LLC (2) (3) (5)
Software
 
L + 8.50%
 
10.50%
 
1/2/2018
 
1/2/2026
 
22,500

 
21,960

 
22,577

 
2.01

Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) (2) (3) (5)
Wholesale
 
L + 8.50%
 
10.80%
 
1/24/2014
 
7/28/2020
 
3,000

 
2,969

 
2,814

 
0.25

Q International Courier, LLC (2) (3) (5)
Transportation: Cargo
 
L + 8.25%
 
10.34%
 
9/19/2017
 
9/19/2025
 
18,750

 
18,399

 
19,009

 
1.69

Reladyne, Inc. (2) (3) (4) (5) (13)
Wholesale
 
L + 9.50%
 
11.59%
 
4/19/2018
 
1/21/2023
 
10,000

 
9,818

 
9,891

 
0.88

Santa Cruz Holdco, Inc. (2) (3) (5)
Non-durable Consumer Goods
 
L + 8.25%
 
10.32%
 
12/15/2017
 
12/13/2024
 
17,138

 
16,975

 
17,352

 
1.55

Superion, LLC (fka Ramundsen Public Sector, LLC) (2) (3) (13)
Sovereign & Public Finance
 
L + 8.50%
 
10.59%
 
5/19/2017
 
2/1/2025
 
1,800

 
1,785

 
1,804

 
0.16

Watchfire Enterprises, Inc. (2) (3) (5)
Media: Advertising, Printing & Publishing
 
L + 8.00%
 
10.31%
 
10/2/2013
 
10/2/2021
 
7,000

 
6,945

 
7,000

 
0.62

Zywave, Inc. (2) (3) (5)
High Tech Industries
 
L + 9.00%
 
11.33%
 
11/18/2016
 
11/17/2023
 
4,950

 
4,889

 
5,000

 
0.45

Second Lien Debt Total
 
 
 
 
 
 
 
 
 
 
 
 
$
158,713

 
$
160,905

 
14.34
 %
Investments—non-controlled/non-affiliated (1)
Industry
 
Acquisition Date
 
Shares/ Units
 
Cost
 
Fair Value (7)
 
Percentage of Net Assets
Equity Investments (1.15%) (5) (16)
 
 
 
 
 
 
 
 
 
 
 
ANLG Holdings, LLC
Healthcare & Pharmaceuticals
 
6/22/2018
 
879,690

 
$
880

 
$
880

 
0.08
%
CIP Revolution Holdings, LLC
Media: Advertising, Printing & Publishing
 
8/19/2016
 
30,000

 
300

 
399

 
0.04

Dade Paper & Bag, LLC
Forest Products & Paper
 
6/9/2017
 
1,500,000

 
1,500

 
2,269

 
0.20

DecoPac, Inc.
Non-durable Consumer Goods
 
9/29/2017
 
1,500,000

 
1,500

 
1,526

 
0.14

Derm Growth Partners III, LLC (Dermatology Associates)
Healthcare & Pharmaceuticals
 
5/31/2016
 
1,000,000

 
1,000

 
1,603

 
0.14

GRO Sub Holdco, LLC (Grand Rapids)
Healthcare & Pharmaceuticals
 
3/29/2018
 
500,000

 
500

 
450

 
0.04

Legacy.com Inc.
High Tech Industries
 
3/20/2017
 
1,500,000

 
1,500

 
1,962

 
0.17

North Haven Goldfinch Topco, LLC
Containers, Packaging & Glass
 
6/18/2018
 
2,314,815

 
2,315

 
2,315

 
0.21

Power Stop Intermediate Holdings, LLC
Automotive
 
5/29/2015
 
7,150

 
369

 
1,407

 
0.13

Rough Country, LLC
Durable Consumer Goods
 
5/25/2017
 
754,775

 
755

 
1,038

 
0.09

SiteLock Group Holdings, LLC
High Tech Industries
 
4/5/2018
 
446,429

 
446

 
446

 
0.04

T2 Systems Parent Corporation
Transportation: Consumer
 
9/28/2016
 
555,556

 
556

 
792

 
0.07

Tailwind HMT Holdings Corp.
Energy: Oil & Gas
 
11/17/2017
 
2,000,000

 
2,000

 
2,381

 
0.21

THG Acquisition, LLC (The Hilb Group, LLC)
Banking, Finance, Insurance & Real Estate
 
6/24/2015
 
1,500,000

 
1,500

 
2,813

 
0.25

Zenith American Holding, Inc.
Business Services
 
12/13/2017
 
1,561,644

 
1,562

 
1,760

 
0.16


10



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of June 30, 2018
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/non-affiliated (1)
Industry
 
Acquisition Date
 
Shares/ Units
 
Cost
 
Fair Value (7)
 
Percentage of Net Assets
Zillow Topco LP
Software
 
6/25/2018
 
312,500

 
313

 
313

 
0.03

Equity Investments Total
 
 
 
 
 
 
$
16,996

 
$
22,354

 
2.00
%
Total investments—non-controlled/non-affiliated
 
 
 
 
 
$
1,746,623

 
$
1,722,393

 
153.53
%
Investments—non-controlled/affiliated (5) 14)
Industry
 
Reference Rate & Spread (2)
 
Interest Rate (2)
 
Acquisition Date
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (6)
 
Fair Value (7)
 
Percentage of Net Assets
First Lien Debt (0.84%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TwentyEighty, Inc. - Revolver (2) (3) (15)
Business Services
 
L + 8.00%
 
11.09%
 
1/31/2017
 
3/31/2020
 
$

 
$
(4
)
 
$

 
%
TwentyEighty, Inc. - (Term A Loans) (2) (3)
Business Services
 
L + 8.00%
 
11.09%
 
1/31/2017
 
3/31/2020
 
3,001

 
2,989

 
3,001

 
0.27

TwentyEighty, Inc. - (Term B Loans)
Business Services
 
N/A
 
8.00% (4.00% cash, 4.00% PIK)
 
1/31/2017
 
3/31/2020
 
6,853

 
6,671

 
6,716

 
0.60

TwentyEighty, Inc. - (Term C Loans)
Business Services
 
N/A
 
9.00% (0.25% cash, 8.75% PIK)
 
1/31/2017
 
3/31/2020
 
6,813

 
6,284

 
6,677

 
0.59

First Lien Debt Total
 
 
 
 
 
 
 
 
 
 

 
$
15,940

 
$
16,394

 
1.46
%
Investments—non-controlled/affiliated (5) (14) (16)
Industry
 
Acquisition Date
 
Shares/ Units
 
Cost
 
Fair
Value 
(7)
 
Percentage of Net Assets
Equity Investments (0.00%)
 
 
 
 
 
 
 
 
 
 
 
TwentyEighty Investors LLC
Business Services
 
1/31/2017
 
69,786

 
$

 
$

 
%
Equity Investments Total
 
 
 
 
 
 
$

 
$

 
%
Total investments—non-controlled/affiliated
 
 
 
 
 
 
$
15,940

 
$
16,394

 
1.46
%
Investments—controlled/affiliated
Industry
 
Reference Rate & Spread (2)

 
Interest Rate (2)
 
Acquisition Date
 
Maturity Date
 
Par Amount/ LLC Interest
 
Cost
 
Fair Value (7)
 
Percentage of Net Assets
Investment Fund (10.68%) (8)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Middle Market Credit Fund, LLC, Mezzanine Loan (2) (5) (9) (11)
Investment Fund
 
L + 9.00%
 
11.30%
 
6/30/2016
 
3/22/2019
 
$
114,000

 
$
114,000

 
$
114,000

 
10.16
%
Middle Market Credit Fund, LLC, Subordinated Loan and Member’s Interest  (5) (11)
Investment Fund
 
N/A
 
0.001%
 
2/29/2016
 
3/1/2021
 
94,501

 
94,501

 
94,005

 
8.38

Investment Fund Total
 
 
 
 
 
 
 
 
 
 
 
 
$
208,501

 
$
208,005

 
18.54
%
Total investments—controlled/affiliated
 
 
 
 
 
 
 
 
 
 
 
 
$
208,501

 
$
208,005

 
18.54
%
Total investments
 
 
 
 
 
 
 
 
 
 
 
 
$
1,971,064

 
$
1,946,792

 
173.53
%
 

11



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of June 30, 2018
(dollar amounts in thousands)
(unaudited)

(1)
Unless otherwise indicated, issuers of debt and equity investments held by TCG BDC, Inc. (together with its consolidated subsidiaries, “we,” “us,” “our,” “TCG BDC” or the “Company”) are domiciled in the United States. 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, 2018, 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 June 30, 2018, the Company is not an “affiliated person” of any of these portfolio companies. Certain portfolio company investments are subject to contractual restrictions on sales.
(2)
Variable rate loans to the portfolio companies bear interest at a rate that is determined by reference to either LIBOR (“L”) or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate), which generally resets quarterly. For each such loan, the Company has indicated the reference rate used and provided the spread and the interest rate in effect as of June 30, 2018. As of June 30, 2018, the reference rates for our variable rate loans were the 30-day LIBOR at 2.09%, the 90-day LIBOR at 2.34% and the 180-day LIBOR at 2.50%.
(3)
Loan includes interest rate floor feature, which is generally 1.00%.
(4)
Denotes that all or a portion of the assets are owned by the Company’s wholly owned subsidiary, TCG BDC SPV LLC (the “SPV”). The SPV has entered into a senior secured revolving credit facility (as amended, the “SPV Credit Facility”). The lenders of the SPV Credit Facility have a first lien security interest in substantially all of the assets of the SPV (see Note 6, Borrowings). Accordingly, such assets are not available to creditors of the Company or Carlyle GMS Finance MM CLO 2015-1 LLC (the “2015-1 Issuer”).
(5)
Denotes that all or a portion of the assets are owned by the Company. The Company has entered into a senior secured revolving credit facility (as amended, the “Credit Facility” and, together with the SPV Credit Facility, the “Facilities”). The lenders of the Credit Facility have a first lien security interest in substantially all of the portfolio investments held by the Company (see Note 6, Borrowings). Accordingly, such assets are not available to creditors of the SPV or the 2015-1 Issuer.
(6)
Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments 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 (see Note 2, Significant Accounting Policies, and Note 3, Fair Value Measurements), pursuant to the Company’s valuation policy. The fair value of all first lien and second lien debt investments, equity investments and the investment fund mezzanine loan was determined using significant unobservable inputs.
(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)
Represents a corporate mezzanine loan, which is subordinated to senior secured term loans of the portfolio company/investment fund.
(10)
Loan was on non-accrual status as of June 30, 2018.
(11)
Under the Investment Company Act, the Company is deemed to be an “affiliated person” of and “control” this investment fund because the Company owns more than 25% of the investment fund’s outstanding voting securities and/or has the power to exercise control over management or policies of such investment fund. See Note 5, Middle Market Credit Fund, LLC, for more details. Transactions related to investments in controlled affiliates for the six month period ended June 30, 2018 were as follows:
Investments—controlled/affiliated
Fair Value as of December 31, 2017
 
Additions/Purchases
 
Reductions/Sales/ Paydowns
 
Net Realized Gain (Loss)
 
Net Change in Unrealized Appreciation (Depreciation)
 
Fair Value as of June 30, 2018
 
Dividend and Interest Income
Middle Market Credit Fund, LLC, Mezzanine Loan
$
85,750

 
$
47,150

 
$
(18,900
)
 
$

 
$

 
$
114,000

 
$
5,829

Middle Market Credit Fund, LLC, Subordinated Loan and Member’s Interest 
86,766

 
8,012

 

 

 
(761
)
 
94,005

 
7,750

Total investments—controlled/affiliated
$
172,516

 
$
55,162

 
$
(18,900
)
 
$

 
$
(761
)
 
$
208,005

 
$
13,579


(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 as follows: Dimensional Dental Management, LLC (4.55%), EIP Merger Sub, LLC (Evolve IP) (3.80%), Legacy.com Inc. (4.06%), Payment Alliance International Inc. (2.70%), Prime Risk Partners, Inc. (1.82%), Product Quest Manufacturing, LLC (3.54%), Reliant Pro Rehab, LLC (nil), Surgical Information Systems, LLC (0.91%) and The Hilb Group, LLC (3.35%). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.
(13)
Denotes that all or a portion of the assets are owned by the 2015-1 Issuer and secure the notes issued in connection with a $400,000 term debt securitization completed by the Company on June 26, 2015 (see Note 7, 2015-1 Notes). Accordingly, such assets are not available to the creditors of the SPV or the Company.
(14)
Under the Investment Company Act, the Company is deemed an “affiliated person” of this portfolio company because the Company owns 5% or more of the portfolio company’s outstanding voting securities. Transactions related to investments in non-controlled affiliates for the six month period ended June 30, 2018 were as follows:

12



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of June 30, 2018
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/affiliated
Fair Value as of December 31, 2017

Purchases/ Paid-in-kind interest

Sales/ Paydowns

Net Accretion of Discount

Net Realized Gain (Loss)

Net Change in Unrealized Appreciation (Depreciation)

Fair value as of June 30, 2018

Interest Income
TwentyEighty, Inc. - Revolver
$
(20
)
 
$

 
$

 
$
2

 
$

 
$
18

 
$

 
$
2

TwentyEighty, Inc. - (Term A Loans)
3,760

 

 
(889
)
 
7

 

 
123

 
3,001

 
193

TwentyEighty, Inc. - (Term B Loans)
6,360

 
138

 

 
39

 

 
179

 
6,716

 
312

TwentyEighty, Inc. - (Term C Loans)
5,331

 
291

 

 
79

 

 
976

 
6,677

 
378

TwentyEighty Investors LLC (Equity)

 

 

 

 

 

 

 

Total investments—non-controlled/affiliated
$
15,431

 
$
429

 
$
(889
)
 
$
127

 
$

 
$
1,296

 
$
16,394

 
$
885


(15)
As of June 30, 2018, the Company had the following unfunded commitments to fund delayed draw and revolving senior secured loans:
Investments—non-controlled/non-affiliated
Type
 
Unused Fee
 
Par/ Principal Amount
 
Fair Value
First and Second Lien Debt—unfunded delayed draw and revolving term loans commitments
 
 
 
 
Access CIG, LLC
Delayed Draw
 
%
 
128

 

Achilles Acquisition LLC
Delayed Draw
 
1.00

 
5,600

 
(22
)
Advanced Instruments, LLC
Revolver
 
0.50

 
1,167

 
(6
)
Aero Operating LLC (Dejana Industries, Inc.)
Revolver
 
1.00

 
405

 
2

AMS Group HoldCo, LLC
Delayed Draw
 
1.00

 
4,009

 
(30
)
AMS Group HoldCo, LLC
Revolver
 
0.50

 
1,968

 
(15
)
Analogic Corporation
Revolver
 
0.50

 
3,365

 
(42
)
Captive Resources Midco, LLC
Delayed Draw
 
1.25

 
3,571

 
(13
)
Captive Resources Midco, LLC
Revolver
 
0.50

 
2,143

 
(8
)
CIP Revolution Holdings, LLC
Revolver
 
0.50

 
1,331

 
(11
)
CircusTrix Holdings, LLC
Delayed Draw
 
1.00

 
1,115

 
(1
)
Comar Holding Company, LLC
Delayed Draw
 
1.00

 
5,136

 
(61
)
Comar Holding Company, LLC
Revolver
 
0.50

 
2,676

 
(32
)
Continuum Managed Services HoldCo, LLC
Delayed Draw
 
1.00

 
1,917

 
8

Continuum Managed Services HoldCo, LLC
Revolver
 
0.50

 
2,500

 
10

Datto, Inc.
Revolver
 
0.50

 
726

 
12

Derm Growth Partners III, LLC (Dermatology Associates)
Revolver
 
0.50

 
2,064

 
(6
)
DermaRite Industries LLC
Revolver
 
0.50

 
3,186

 
(52
)
Dimensional Dental Management, LLC
Delayed Draw
 
1.00

 
9,584

 
(218
)
Direct Travel, Inc.
Delayed Draw
 
1.00

 
2,174

 

Frontline Technologies Holdings, LLC
Delayed Draw
 
1.00

 
7,705

 
(186
)
FWR Holding Corporation
Delayed Draw
 
1.00

 
6,778

 
63


13



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of June 30, 2018
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/non-affiliated
Type
 
Unused Fee
 
Par/ Principal Amount
 
Fair Value
FWR Holding Corporation
Revolver
 
0.50

 
3,000

 
28

Global Franchise Group, LLC
Revolver
 
0.50

 
495

 

GRO Sub Holdco, LLC (Grand Rapids)
Delayed Draw
 
1.00

 
7,000

 
(17
)
GRO Sub Holdco, LLC (Grand Rapids)
Revolver
 
0.50

 
1,071

 
(3
)
Innovative Business Services, LLC
Delayed Draw
 
1.00

 
3,886

 
(56
)
Innovative Business Services, LLC
Revolver
 
0.50

 
2,232

 
(32
)
National Technical Systems, Inc.
Revolver
 
0.50

 
2,500

 
(137
)
NMI AcquisitionCo, Inc.
Revolver
 
0.50

 
435

 
(5
)
OnCourse Learning Corporation
Revolver
 
0.50

 
424

 
(2
)
Pathway Partners Vet Management Company LLC
Delayed Draw
 
1.00

 
6,112

 
(71
)
Pharmalogic Holdings Corp.
Delayed Draw
 
1.00

 
237

 
1

PricewaterhouseCoopers Public Sector LLP
Revolver
 
0.50

 
6,250

 
(109
)
Prime Risk Partners, Inc.
Delayed Draw
 
0.50

 
492

 
(3
)
Prime Risk Partners, Inc.
Delayed Draw
 
0.50

 
6,124

 
(26
)
Product Quest Manufacturing, LLC
Revolver
 
0.50

 
1,906

 

Smile Doctors, LLC
Delayed Draw
 
1.00

 
1,345

 
1

Smile Doctors, LLC
Revolver
 
0.50

 
252

 

SPay, Inc.
Delayed Draw
 
1.00

 
10,227

 
(116
)
SPay, Inc.
Revolver
 
0.50

 
2,045

 
(23
)
Superior Health Linens, LLC
Revolver
 
0.50

 
2,100

 
(20
)
T2 Systems, Inc.
Revolver
 
0.50

 
1,760

 
3

TSB Purchaser, Inc. (Teaching Strategies, LLC)
Revolver
 
0.50

 
1,891

 
(28
)
The Hilb Group, LLC
Delayed Draw
 
1.00

 
18,648

 
(114
)
Trump Card, LLC
Revolver
 
0.50

 
318

 
(1
)
TwentyEighty, Inc. (f/k/a Miller Heiman, Inc.)
Revolver
 
0.50

 
607

 

Vetcor Professional Practices, LLC
Delayed Draw
 
1.00

 
6,433

 

VRC Companies, LLC
Revolver
 
0.50

 
792

 
(1
)
VRC Companies, LLC
Delayed Draw
 
0.75

 
3,949

 
(7
)
Zemax Software Holdings, LLC
Revolver
 
0.50

 
1,284

 
(14
)
Zenith Merger Sub, Inc.
Revolver
 
0.50

 
1,685

 

Total unfunded commitments
 
 
 
 
$
164,748

 
$
(1,360
)
 
(16)
Security acquired in transaction exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), and may be deemed to be “restricted securities” under the Securities Act, unless otherwise noted.



14



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of June 30, 2018
(dollar amounts in thousands)
(unaudited)

As of June 30, 2018, investments at fair value consisted of the following:
Type
Amortized Cost
 
Fair Value
 
% of Fair Value
First Lien Debt (excluding First Lien/Last Out)
$
1,331,384

 
$
1,320,216

 
67.81
%
First Lien/Last Out Unitranche
255,470

 
235,312

 
12.09

Second Lien Debt
158,713

 
160,905

 
8.27

Equity Investments
16,996

 
22,354

 
1.15

Investment Fund
208,501

 
208,005

 
10.68

Total
$
1,971,064

 
$
1,946,792

 
100.00
%
The rate type of debt investments at fair value as of June 30, 2018 was as follows:
Rate Type
Amortized Cost
 
Fair Value
 
% of Fair Value of First and Second Lien Debt
Floating Rate
$
1,732,612

 
$
1,703,040

 
99.22
%
Fixed Rate
12,955

 
13,393

 
0.78

Total
$
1,745,567

 
$
1,716,433

 
100.00
%

The industry composition of investments at fair value as of June 30, 2018 was as follows:
Industry
Amortized Cost
 
Fair Value
 
% of Fair Value
Aerospace & Defense
$
25,949

 
$
24,938

 
1.28
%
Automotive
1,258

 
2,296

 
0.12

Banking, Finance, Insurance & Real Estate
174,802

 
178,043

 
9.15

Beverage, Food & Tobacco
52,460

 
54,093

 
2.78

Business Services
130,469

 
132,905

 
6.83

Capital Equipment
36,117

 
36,363

 
1.87

Chemicals, Plastics & Rubber
12,485

 
12,450

 
0.64

Construction & Building
26,045

 
26,265

 
1.35

Consumer Services
128,876

 
129,700

 
6.66

Containers, Packaging & Glass
67,506

 
45,499

 
2.34

Durable Consumer Goods
755

 
1,038

 
0.05

Energy: Electricity
42,951

 
43,467

 
2.23

Energy: Oil & Gas
9,696

 
10,121

 
0.52

Environmental Industries
35,674

 
35,622

 
1.83

Forest Products & Paper
50,124

 
51,858

 
2.66

Healthcare & Pharmaceuticals
238,649

 
236,358

 
12.14

High Tech Industries
178,300

 
182,062

 
9.35


15



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of June 30, 2018
(dollar amounts in thousands)
(unaudited)

Industry
Amortized Cost
 
Fair Value
 
% of Fair Value
Hotel, Gaming & Leisure
80,784

 
80,044

 
4.11

Investment Fund
208,501

 
208,005

 
10.68

Media: Advertising, Printing & Publishing
61,669

 
58,267

 
2.99

Non-durable Consumer Goods
58,047

 
52,436

 
2.69

Software
87,611

 
87,939

 
4.52

Sovereign & Public Finance
1,785

 
1,804

 
0.09

Telecommunications
89,721

 
85,464

 
4.39

Transportation: Cargo
88,878

 
90,065

 
4.63

Transportation: Consumer
36,322

 
37,336

 
1.92

Wholesale
45,630

 
42,354

 
2.18

Total
$
1,971,064

 
$
1,946,792

 
100.00
%
The geographical composition of investments at fair value as of June 30, 2018 was as follows:
Geography
Amortized Cost
 
Fair Value
 
% of Fair Value
United Kingdom
$
7,696

 
$
7,740

 
0.40
%
United States
1,963,368

 
1,939,052

 
99.60

Total
$
1,971,064

 
$
1,946,792

 
100.00
%
The accompanying notes are an integral part of these consolidated financial statements.

16



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
As of December 31, 2017
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/non-affiliated (1)
Industry
 
Interest Rate(2)
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (6)
 
Fair Value (7)
 
Percentage of Net Assets
First Lien Debt (77.04%)
 
 
 
 
 
 
 
 
 
 
 
 
 
Access CIG, LLC (2)(3)(4)(13)
Business Services
 
L + 5.00% (1.00% Floor)
 
10/17/2021
 
$
18,149

 
$
18,054

 
$
18,263

 
1.62
%
Achilles Acquisition LLC (2)(3)(4)(5)(13)(15)
Banking, Finance, Insurance & Real Estate
 
L + 6.00% (1.00% Floor)
 
6/6/2023
 
40,910

 
39,931

 
40,523

 
3.59

Advanced Instruments, LLC (2)(3)(4)(5)(13)(15)
Healthcare & Pharmaceuticals
 
L + 5.25% (1.00% Floor)
 
10/31/2022
 
10,421

 
10,227

 
10,421

 
0.92

Alpha Packaging Holdings, Inc. (2)(3)(4)(13)
Containers, Packaging & Glass
 
L + 4.25% (1.00% Floor)
 
5/12/2020
 
2,896

 
2,894

 
2,896

 
0.26

AMS Group HoldCo, LLC (2)(3)(4)(5)(13)(15)
Transportation: Cargo
 
L + 6.00% (1.00% Floor)
 
9/29/2023
 
29,925

 
29,254

 
29,925

 
2.65

Anaren, Inc. (2)(3)(4)(13)
Telecommunications
 
L + 4.50% (1.00% Floor)
 
2/18/2021
 
3,802

 
3,789

 
3,809

 
0.34

Audax AAMP Holdings, Inc. (2)(3)(5)
Durable Consumer Goods
 
L + 7.50% (1.00% Floor)
 
1/31/2018
 
12,487

 
12,459

 
12,362

 
1.10

BeyondTrust Software, Inc. (2)(3)(4)(5)(13)
Software
 
L + 6.25% (1.00% Floor)
 
11/21/2023
 
17,000

 
16,758

 
16,910

 
1.50

Brooks Equipment Company, LLC (2)(3)(4)(13)
Construction & Building
 
L + 5.00% (1.00% Floor)
 
8/29/2020
 
2,546

 
2,535

 
2,546

 
0.23

Capstone Logistics Acquisition, Inc. (2)(3)(4)(13)
Transportation: Cargo
 
L + 4.50% (1.00% Floor)
 
10/7/2021
 
19,198

 
19,081

 
18,895

 
1.68

Captive Resources Midco, LLC (2)(3)(4)(5)(13)(15)
Banking, Finance, Insurance & Real Estate
 
L + 6.00% (1.00% Floor)
 
12/18/2021
 
30,900

 
30,635

 
30,783

 
2.73

Central Security Group, Inc. (2)(3)(4)(13)
Consumer Services
 
L + 5.63% (1.00% Floor)
 
10/6/2021
 
39,007

 
38,668

 
38,941

 
3.45

CIP Revolution Holdings, LLC (2)(3)(4)(5)(13)(15)
Media: Advertising, Printing & Publishing
 
L + 6.00% (1.00% Floor)
 
8/19/2021
 
19,048

 
18,917

 
18,993

 
1.68

Colony Hardware Corporation (2)(3)(4)(13)
Construction & Building
 
L + 6.00% (1.00% Floor)
 
10/23/2021
 
22,071

 
21,838

 
22,049

 
1.96

Continuum Managed Services Holdco, LLC (2)(3)(4)(5)(13)(15)
High Tech Industries
 
L + 8.75% (1.00% Floor)
 
6/8/2023
 
22,885

 
22,208

 
23,237

 
2.06

Dade Paper & Bag, LLC (2)(3)(4)(5)
Forest Products & Paper
 
L + 7.50% (1.00% Floor)
 
6/10/2024
 
49,750

 
48,822

 
49,884

 
4.42

Datto, Inc. (2)(3)(5)(15)
High Tech Industries
 
L + 8.00% (1.00% Floor)
 
12/7/2022
 
35,622

 
35,082

 
35,818

 
3.18

Dent Wizard International Corporation (2)(3)(4)
Automotive
 
L + 4.75% (1.00% Floor)
 
4/7/2020
 
895

 
893

 
894

 
0.08

Derm Growth Partners III, LLC (Dermatology Associates) (2)(3)(4)(5)(13)(15)
Healthcare & Pharmaceuticals
 
L + 6.50% (1.00% Floor)
 
5/31/2022
 
50,658

 
50,104

 
50,441

 
4.47

DermaRite Industries, LLC (2)(3)(5)(13)(15)
Healthcare & Pharmaceuticals
 
L + 7.00% (1.00% Floor)
 
3/3/2022
 
20,003

 
19,729

 
19,850

 
1.76

Dimensional Dental Management, LLC (2)(3)(5)(12)(15)
Healthcare & Pharmaceuticals
 
L + 6.75% (1.00% Floor)
 
2/12/2021
 
33,674

 
33,038

 
33,514

 
2.97

Direct Travel, Inc. (2)(3)(4)(5)(13)(15)
Hotel, Gaming & Leisure
 
L + 6.50% (1.00% Floor)
 
12/1/2021
 
29,623

 
29,136

 
29,708

 
2.64

EIP Merger Sub, LLC (Evolve IP) (2)(3)(5)(12)(13)
Telecommunications
 
L + 6.25% (1.00% Floor)
 
6/7/2021
 
27,284

 
26,618

 
26,738

 
2.37

Emergency Communications Network, LLC (2)(3)(4)(5)(13)
Telecommunications
 
L + 6.25% (1.00% Floor)
 
6/1/2023
 
24,875

 
24,669

 
24,850

 
2.20

EP Minerals, LLC (2)(3)(4)(13)
Metals & Mining
 
L + 4.50% (1.00% Floor)
 
8/20/2020
 
7,920

 
7,901

 
7,931

 
0.70

FCX Holdings Corp. (2)(3)(4)(13)
Capital Equipment
 
L + 4.50% (1.00% Floor)
 
8/4/2020
 
3,820

 
3,823

 
3,824

 
0.34

Frontline Technologies Holdings, LLC (2)(3)(5)(15)
Software
 
L + 6.50% (1.00% Floor)
 
9/18/2023
 
39,197

 
38,757

 
39,159

 
3.47

 

17



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2017
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/non-affiliated (1)
Industry
 
Interest Rate(2)
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (6)
 
Fair Value (7)
 
Percentage of Net Assets
First Lien Debt (77.04%) (continued)
 
 
 
 
 
 
 
 
 
 
 
 
FWR Holding Corporation (2)(3)(4)(5)(13)(15)
Beverage, Food & Tobacco
 
L + 6.00% (1.00% Floor)
 
8/21/2023
 
$
36,692

 
$
35,525

 
$
36,098

 
3.20
%
Global Franchise Group, LLC (2)(3)(4)(5)(13)(15)
Beverage, Food & Tobacco
 
L + 5.75% (1.00% Floor)
 
12/18/2019
 
14,468

 
14,345

 
14,468

 
1.28

Global Software, LLC (2)(3)(4)(13)
High Tech Industries
 
L + 5.25% (1.00% Floor)
 
5/2/2022
 
20,800

 
20,501

 
20,774

 
1.84

Green Energy Partners/Stonewall LLC(2)(3)(4)(13)
Energy: Electricity
 
L + 5.50% (1.00% Floor)
 
11/13/2021
 
19,950

 
19,621

 
19,334

 
1.71

Hummel Station LLC (2)(3)(5)(13)
Energy: Electricity
 
L + 6.00% (1.00% Floor)
 
10/27/2022
 
15,000

 
14,375

 
13,905

 
1.23

Hydrofarm, LLC (2)(5)(13)
Wholesale
 
L + 7.00%
 
5/12/2022
 
18,763

 
18,640

 
18,241

 
1.62

Indra Holdings Corp. (Totes Isotoner) (2)(3)(5)(13)
Non-durable Consumer Goods
 
L + 4.25% (1.00% Floor)
 
5/1/2021
 
18,965

 
17,224

 
11,222

 
1.00

Legacy.com Inc. (2)(3)(5)(12)
High Tech Industries
 
L + 6.00% (1.00% Floor)
 
3/20/2023
 
17,000

 
16,653

 
17,558

 
1.56

Metrogistics LLC (2)(3)(4)(13)
Transportation: Cargo
 
L + 6.50% (1.00% Floor)
 
9/30/2022
 
17,978

 
17,774

 
17,921

 
1.59

Moxie Liberty LLC (2)(3)(5)(13)
Energy: Electricity
 
L + 6.50% (1.00% Floor)
 
8/21/2020
 
9,975

 
9,008

 
9,148

 
0.81

National Technical Systems, Inc. (2)(3)(4)(5)(13)(15)
Aerospace & Defense
 
L + 6.25% (1.00% Floor)
 
6/12/2021
 
26,351

 
26,072

 
24,817

 
2.20

NES Global Talent Finance US LLC (United Kingdom) (2)(3)(4)(8)(13)
Energy: Oil & Gas
 
L + 5.50% (1.00% Floor)
 
10/3/2019
 
13,600

 
13,439

 
13,369

 
1.19

NMI AcquisitionCo, Inc. (2)(3)(4)(5)(15)
High Tech Industries
 
L + 6.75% (1.00% Floor)
 
9/6/2022
 
51,091

 
50,112

 
50,944

 
4.52

OnCourse Learning Corporation (2)(3)(4)(5)(13)(15)
Consumer Services
 
L + 6.50% (1.00% Floor)
 
9/12/2021
 
35,905

 
35,513

 
35,740

 
3.17

Payment Alliance International, Inc. (2)(3)(5)(12)
Business Services
 
L + 6.05% (1.00% Floor)
 
9/15/2021
 
26,544

 
25,983

 
26,464

 
2.35

Pelican Products, Inc. (2)(3)(4)(13)
Containers, Packaging & Glass
 
L + 4.25% (1.00% Floor)
 
4/11/2020
 
3,585

 
3,589

 
3,581

 
0.32

Plano Molding Company, LLC (2)(3)(4)(5)
Hotel, Gaming & Leisure
 
L + 7.50% (1.00% Floor)
 
5/12/2021
 
19,523

 
19,263

 
16,934

 
1.50

PMG Acquisition Corporation (2)(3)(4)(5)(13)(15)
Healthcare & Pharmaceuticals
 
L + 6.25% (1.00% Floor)
 
5/22/2022
 
27,025

 
26,649

 
27,161

 
2.41

PPT Management Holdings, LLC(2)(3)(4)(5)(13)
Healthcare & Pharmaceuticals
 
L + 6.00% (1.00% Floor)
 
12/16/2022
 
24,750

 
24,572

 
23,443

 
2.08

Prime Risk Partners, Inc. (2)(3)(5)(15)
Banking, Finance, Insurance & Real Estate
 
L + 5.75% (1.00% Floor)
 
8/13/2023
 
1,639

 
1,594

 
1,650

 
0.15

Prime Risk Partners, Inc. (2)(3)(5)(12)(15)
Banking, Finance, Insurance & Real Estate
 
L + 5.75% (1.00% Floor)
 
8/13/2023
 
20,521

 
19,959

 
21,032

 
1.87

Product Quest Manufacturing, LLC (2)(3)(5)(10)(12)
Containers, Packaging & Glass
 
L + 6.75% (1.00% Floor)
 
9/9/2020
 
33,000

 
32,270

 
19,487

 
1.73

Product Quest Manufacturing, LLC (2)(3)(5)(15)
Containers, Packaging & Glass
 
L + 6.75% (3.25% Floor)
 
3/31/2019
 
2,729

 
2,729

 
2,729

 
0.24

Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) (2)(3)(4)(13)
Wholesale
 
L + 4.50% (1.00% Floor)
 
1/28/2020
 
14,910

 
14,285

 
14,133

 
1.25

QW Holding Corporation (Quala) (2)(3)(4)(5)(13)
Environmental Industries
 
L + 6.75% (1.00% Floor)
 
8/31/2022
 
36,549

 
35,772

 
35,715

 
3.17

Reliant Pro Rehab, LLC (2)(3)(5)(12)
Healthcare & Pharmaceuticals
 
L + 10.00% (1.00% Floor)
 
12/28/2018
 
24,563

 
24,544

 
24,563

 
2.18

Smile Doctors, LLC (2)(3)(5)(13)(15)
Healthcare & Pharmaceuticals
 
L + 5.75% (1.00% Floor)
 
10/6/2022
 
9,059

 
8,930

 
9,011

 
0.80


18



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2017
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/non-affiliated (1)
Industry
 
Interest Rate(2)
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (6)
 
Fair Value (7)
 
Percentage of Net Assets
First Lien Debt (77.04%) (continued)
 
 
 
 
 
 
 
 
 
 
 
 
SolAero Technologies Corp. (2)(3)(4)(5)
Telecommunications
 
L + 5.25% (1.00% Floor)
 
12/10/2020
 
$
24,828

 
$
24,221

 
$
23,416

 
2.08
%
Superior Health Linens, LLC (2)(3)(4)(5)(13)(15)
Business Services
 
L + 6.50% (1.00% Floor)
 
9/30/2021
 
21,061

 
20,788

 
21,026

 
1.87

Surgical Information Systems, LLC (2)(3)(4)(5)(12)(13)
High Tech Industries
 
L + 5.00% (1.00% Floor)
 
4/24/2023
 
30,000

 
29,728

 
30,075

 
2.67

T2 Systems Canada, Inc. (2)(3)(4)
Transportation: Consumer
 
L + 6.75% (1.00% Floor)
 
9/28/2022
 
4,009

 
3,926

 
3,950

 
0.35

T2 Systems, Inc. (2)(3)(4)(5)(13)(15)
Transportation: Consumer
 
L + 6.75% (1.00% Floor)
 
9/28/2022
 
32,649

 
31,956

 
32,146

 
2.85

The Hilb Group, LLC (2)(3)(5)(12)(15)
Banking, Finance, Insurance & Real Estate
 
L + 6.00% (1.00% Floor)
 
6/24/2021
 
38,622

 
38,132

 
38,204

 
3.39

The SI Organization, Inc.(2)(3)(4)(5)(13)
Aerospace & Defense
 
L + 4.75% (1.00% Floor)
 
11/23/2019
 
14,300

 
14,310

 
14,419

 
1.28

The Topps Company, Inc. (2)(3)(4)(13)
Non-durable Consumer Goods
 
L + 6.00% (1.25% Floor)
 
10/2/2020
 
23,130

 
22,970

 
22,991

 
2.04

TruckPro, LLC (2)(3)(4)(13)
Automotive
 
L + 5.00% (1.00% Floor)
 
8/6/2018
 
8,860

 
8,850

 
8,831

 
0.78

Tweddle Group, Inc. (2)(3)(4)(13)
Media: Advertising, Printing & Publishing
 
L + 6.00% (1.00% Floor)
 
10/24/2022
 
7,356

 
7,266

 
7,264

 
0.64

Vetcor Professional Practices, LLC (2)(3)(4)(5)(13)(15)
Consumer Services
 
L + 6.25% (1.00% Floor)
 
4/20/2021
 
38,868

 
38,502

 
38,725

 
3.43

Vistage Worldwide, Inc. (2)(3)(4)(13)
Business Services
 
L + 5.50% (1.00% Floor)
 
8/19/2021
 
32,916

 
32,753

 
32,916

 
2.92

VRC Companies, LLC (2)(3)(4)(5)(13)(15)
Business Services
 
L + 6.50% (1.00% Floor)
 
3/31/2023
 
38,600

 
37,873

 
38,541

 
3.42

W/S Packaging Group Inc. (2)(3)(4)
Containers, Packaging & Glass
 
L + 5.00% (1.00% Floor)
 
8/9/2019
 
4,004

 
3,887

 
3,789

 
0.34

Watchfire Enterprises, Inc. (2)(3)(13)
Media: Advertising, Printing & Publishing
 
L + 4.25% (1.00% Floor)
 
10/2/2020
 
1,362

 
1,351

 
1,362

 
0.12

Winchester Electronics Corporation (2)(3)(4)(5)(13)
Capital Equipment
 
L + 6.50% (1.00% Floor)
 
6/30/2022
 
36,547

 
36,292

 
36,933

 
3.28

Zenith Merger Sub, Inc. (2)(3)(4)(5)(13)(15)
Business Services
 
L + 5.50% (1.00% Floor)
 
12/12/2023
 
15,290

 
15,069

 
15,198

 
1.35

Zest Holdings, LLC (2)(3)(4)(13)
Durable Consumer Goods
 
L + 4.25% (1.00% Floor)
 
8/16/2023
 
3,431

 
3,423

 
3,453

 
0.31

First Lien Debt Total
 
 
 
 
 
 
 
 
$
1,526,058

 
$
1,515,845

 
134.46
%
Second Lien Debt (12.51%)
 
 
 
 
 
 
 
 
 
 
 
 
 
AIM Group USA Inc. (2)(3)(4)(5)(13)
Aerospace & Defense
 
L + 9.00% (1.00% Floor)
 
8/2/2022
 
$
23,000

 
$
22,737

 
$
23,230

 
2.06
%
AmeriLife Group, LLC (2)(3)(5)(13)
Banking, Finance, Insurance & Real Estate
 
L + 8.75% (1.00% Floor)
 
1/10/2023
 
22,000

 
21,647

 
21,817

 
1.94

Argon Medical Devices, Inc. (2)(3)(4)(5)
Healthcare & Pharmaceuticals
 
L + 9.50% (1.00% Floor)
 
6/23/2022
 
25,000

 
24,447

 
25,000

 
2.22

Argon Medical Devices Holdings, Inc. (2)(3)(5)
Healthcare & Pharmaceuticals
 
L + 8.00% (1.00% Floor)
 
1/23/2026
 
7,500

 
7,465

 
7,515

 
0.67

Berlin Packaging L.L.C. (2)(3)(13)
Containers, Packaging & Glass
 
L + 6.75% (1.00% Floor)
 
10/1/2022
 
1,146

 
1,140

 
1,153

 
0.10

Confie Seguros Holding II Co.(2)(3)(5)(13)
Banking, Finance, Insurance & Real Estate
 
L + 9.50% (1.25% Floor)
 
5/8/2019
 
9,000

 
8,959

 
8,715

 
0.77


19



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2017
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/non-affiliated (1)
Industry
 
Interest Rate(2)
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (6)
 
Fair Value (7)
 
Percentage of Net Assets
Second Lien Debt (12.51%) (continued)
 
 
 
 
 
 
 
 
 
 
 
 
Drew Marine Group Inc. (2)(3)(4)(5)(13)
Chemicals, Plastics & Rubber
 
L + 7.00% (1.00% Floor)
 
5/19/2021
 
$
12,500

 
$
12,484

 
$
12,456

 
1.10
%
Genex Holdings, Inc. (2)(3)(5)
Banking, Finance, Insurance & Real Estate
 
L + 7.75% (1.00% Floor)
 
5/30/2022
 
8,990

 
8,915

 
8,924

 
0.79

Paradigm Acquisition Corp. (2)(3)(5)
Business Services
 
L + 8.50% (1.00% Floor)
 
10/12/2025
 
9,600

 
9,507

 
9,584

 
0.85

Pathway Partners Vet Management Company LLC (2)(3)(5)(15)
Consumer Services
 
L + 8.00% (1.00% Floor)
 
10/10/2025
 
7,751

 
7,644

 
7,741

 
0.69

Pexco LLC (2)(3)(5)
Chemicals, Plastics & Rubber
 
L + 8.00% (1.00% Floor)
 
5/8/2025
 
20,000

 
19,818

 
20,362

 
1.81

Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) (2)(3)(5)
Wholesale
 
L + 8.50% (1.00% Floor)
 
7/28/2020
 
3,000

 
2,967

 
2,485

 
0.22

Q International Courier, LLC (2)(3)(5)
Transportation: Cargo
 
L + 8.25% (1.00% Floor)
 
9/19/2025
 
18,750

 
18,384

 
18,621

 
1.65

Reladyne, Inc. (2)(3)(4)(13)
Wholesale
 
L + 9.50% (1.00% Floor)
 
1/21/2023
 
5,000

 
4,884

 
4,929

 
0.44

Rough Country, LLC (2)(3)(5)(13)
Durable Consumer Goods
 
L + 8.50% (1.00% Floor)
 
11/25/2023
 
42,500

 
41,311

 
42,802

 
3.80

Santa Cruz Holdco, Inc. (2)(3)(5)
Non-durable Consumer Goods
 
L + 8.25% (1.00% Floor)
 
12/13/2024
 
17,138

 
16,967

 
17,079

 
1.51

Superion, LLC (fka Ramundsen Public Sector, LLC) (2)(3)(13)
Sovereign & Public Finance
 
L + 8.50% (1.00% Floor)
 
2/1/2025
 
1,800

 
1,784

 
1,820

 
0.16

Watchfire Enterprises, Inc.(2)(3)(5)
Media: Advertising, Printing & Publishing
 
L + 8.00% (1.00% Floor)
 
10/2/2021
 
7,000

 
6,941

 
7,000

 
0.62

Zywave, Inc. (2)(3)(5)
High Tech Industries
 
L + 9.00% (1.00% Floor)
 
11/17/2023
 
4,950

 
4,886

 
5,000

 
0.44

Second Lien Debt Total
 
 
 
 
 
 
 
 
$
242,887

 
$
246,233

 
21.84
%
Investments—non-controlled/non-affiliated (1)
Industry
 
Shares/ Units
 
Cost
 
Fair Value (7)
 
Percentage of Net Assets
Equity Investments (0.89%) (5)
 
 
 
 
 
 
 
 
 
CIP Revolution Holdings, LLC
Media: Advertising, Printing & Publishing
 
30,000

 
$
300

 
$
369

 
0.03
%
Dade Paper & Bag, LLC
Forest Products & Paper
 
1,500,000

 
1,500

 
2,140

 
0.19

DecoPac, Inc.
Non-durable Consumer Goods
 
1,500,000

 
1,500

 
1,500

 
0.13

Derm Growth Partners III, LLC (Dermatology Associates)
Healthcare & Pharmaceuticals
 
1,000,000

 
1,000

 
1,796

 
0.16

GS Holdco LLC (Global Software, LLC)
High Tech Industries
 
1,000,000

 
1,001

 
1,550

 
0.14

Legacy.com Inc.
High Tech Industries
 
1,500,000

 
1,500

 
1,739

 
0.15

Power Stop Intermediate Holdings, LLC
Automotive
 
7,150

 
369

 
1,191

 
0.11

Rough Country, LLC
Durable Consumer Goods
 
754,775

 
755

 
873

 
0.08

T2 Systems Parent Corporation
Transportation: Consumer
 
555,556

 
556

 
499

 
0.04

Tailwind HMT Holdings Corp.
Energy: Oil & Gas
 
2,000,000

 
2,000

 
2,000

 
0.18

THG Acquisition, LLC (The Hilb Group, LLC)
Banking, Finance, Insurance & Real Estate
 
1,500,000

 
1,500

 
2,287

 
0.20

Zenith American Holding, Inc.
Business Services
 
1,561,644

 
1,562

 
1,562

 
0.14

Equity Investments Total
 
 
 
 
$
13,543

 
$
17,506

 
1.55
%
Total investments—non-controlled/non-affiliated
 
 
 
$
1,782,488

 
$
1,779,584

 
157.85
%

20



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2017
(dollar amounts in thousands)
(unaudited)

Investments—non-controlled/affiliated (5)(14)
Industry
 
Interest Rate(2)
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (6)
 
Fair Value (7)
 
Percentage of Net Assets
First Lien Debt (0.78%)
 
 
 
 
 
 
 
 
 
 
 
 
 
TwentyEighty, Inc. - Revolver (2)(3)(15)
Business Services
 
L + 8.00%
 
3/21/2020
 
$

 
$
(6
)
 
$
(20
)
 
%
TwentyEighty, Inc. - (Term A Loans) (2)(3)
Business Services
 
L + 3.50% cash, 4.50% PIK
 
3/21/2020
 
3,890

 
3,871

 
3,760

 
0.33
%
TwentyEighty, Inc. - (Term B Loans)
Business Services
 
1.00% cash, 7.00% PIK
 
3/21/2020
 
6,715

 
6,494

 
6,360

 
0.57
%
TwentyEighty, Inc. - (Term C Loans)
Business Services
 
0.25% cash, 8.75% PIK
 
3/21/2020
 
6,521

 
5,914

 
5,331

 
0.47
%
First Lien Debt Total
 
 
 
 
 
 
 
 
$
16,273

 
$
15,431

 
1.37
%
 
Investments—non-controlled/affiliated (5)(14)
Industry
 
Shares/ Units
 
Cost
 
Fair Value (7)
 
Percentage of Net Assets
Equity Investments (0.00%)
 
 
 
 
 
 
 
 
 
TwentyEighty Investors LLC
Business Services
 
69,786

 
$

 
$

 
%
Equity Investments Total
 
 
 
 
$

 
$

 
$

Total investments—non-controlled/affiliated
 
 
 
16,273

 
15,431

 
1.37
%
Investments—controlled/affiliated
Industry
 
Interest Rate(2)
 
Maturity Date
 
Par Amount/ LLC Interest
 
Cost
 
Fair Value(7)
 
Percentage of Net Assets
Investment Fund (8.77%) (8)
 
 
 
 
 
 
 
 
 
 
 
 
 
Middle Market Credit Fund, LLC, Mezzanine Loan (2)(5)(9)(11)
Investment Fund
 
L + 9.00%

 
6/22/2018
 
$
85,750

 
$
85,750

 
$
85,750

 
7.61
%
Middle Market Credit Fund, LLC, Subordinated Loan and Member’s Interest (5)(11)
Investment Fund
 
0.001
%
 
3/1/2021
 
86,501

 
86,501

 
86,766

 
7.70

Investment Fund Total
 
 
 
 
 
 
 
 
$
172,251

 
$
172,516

 
15.31
%
Total investments—controlled/affiliated
 
 
 
 
 
 
 
 
$
172,251

 
$
172,516

 
15.31
%
Total investments
 
 
 
 
 
 
 
 
$
1,971,012

 
$
1,967,531

 
174.53
%

(1)
Unless otherwise indicated, issuers of debt and equity investments held by the Company are domiciled in the United States. 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, 2017, 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, 2017, the Company is not an “affiliated person” of any of these portfolio companies.
(2)
Variable rate loans to the portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate), which generally resets quarterly. For each such loan, the Company has provided the interest rate in effect as of December 31, 2017. As of December 31, 2017, all of our LIBOR loans were indexed to the 90-day LIBOR rate at 1.69%, except for those loans as indicated in Notes 16 and 17 below.
(3)
Loan includes interest rate floor feature.
(4)
Denotes that all or a portion of the assets are owned by the SPV. The SPV has entered into the SPV Credit Facility. The lenders of the SPV Credit Facility have a first lien security interest in substantially all of the assets of the SPV (see Note 6, Borrowings). Accordingly, such assets are not available to creditors of the Company or the 2015-1 Issuer.
(5)
Denotes that all or a portion of the assets are owned by the Company. The Company has entered into the Credit Facility. The lenders of the Credit Facility have a first lien security interest in substantially all of the portfolio investments held by the Company (see Note 6, Borrowings). Accordingly, such assets are not available to creditors of the SPV or the 2015-1 Issuer.
(6)
Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments 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 (see Note 2, Significant Accounting Policies, and Note 3, Fair Value Measurements), pursuant to the Company’s valuation policy. The fair value of all first lien and second lien debt investments, equity investments and the investment fund mezzanine loan was determined using significant unobservable inputs.
(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)
Represents a corporate mezzanine loan, which is subordinated to senior secured term loans of the portfolio company/investment fund.

21



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2017
(dollar amounts in thousands)
(unaudited)

(10)
Loan was on non-accrual status as of December 31, 2017.
(11)
Under the Investment Company Act, the Company is deemed to be an “affiliated person” of and “control” this investment fund because the Company owns more than 25% of the investment fund’s outstanding voting securities and/or has the power to exercise control over management or policies of such investment fund. See Note 5, Middle Market Credit Fund, LLC, for more details.
(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 as follows: Dimensional Dental Management, LLC (4.58%), EIP Merger Sub, LLC (Evolve IP) (3.97%), Legacy.com Inc. (4.11%), Payment Alliance International, Inc. (2.70%), Prime Risk Partners, Inc. (3.32%), Product Quest Manufacturing, LLC (3.54%), Reliant Pro Rehab (nil), Surgical Information Systems, LLC (1.01%) and The Hilb Group, LLC (3.38%). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.
(13)
Denotes that all or a portion of the assets are owned by the 2015-1 Issuer and secure the notes issued in connection with the 2015-1 Debt Securitization (see Note 7, 2015-1 Notes). Accordingly, such assets are not available to the creditors of the SPV or the Company.
(14)
Under the Investment Company Act, the Company is deemed an “affiliated person” of this portfolio company because the Company owns 5% or more of the portfolio company’s outstanding voting securities.


22



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2017
(dollar amounts in thousands)
(unaudited)

(15)
As of December 31, 2017, the Company had the following unfunded commitments to fund delayed draw and revolving senior secured loans:
First and Second Lien Debt—unfunded delayed draw and revolving term loans commitments
Type
 
Unused Fee
 
Par/ Principal Amount
 
Fair Value
Achilles Acquisition LLC
Delayed Draw
 
1.00
%
 
$
2,051

 
$
(18
)
Advanced Instruments, LLC
Revolver
 
0.50
%
 
1,167

 

AMS Group HoldCo, LLC
Delayed Draw
 
1.00
%
 
5,491

 

AMS Group HoldCo, LLC
Revolver
 
0.50
%
 
2,315

 

Captive Resources Midco, LLC
Delayed Draw
 
1.25
%
 
3,571

 
(11
)
Captive Resources Midco, LLC
Revolver
 
0.50
%
 
2,143

 
(7
)
CIP Revolution Holdings, LLC
Revolver
 
0.50
%
 
1,331

 
(5
)
Continuum Managed Services HoldCo, LLC
Delayed Draw
 
1.00
%
 
1,917

 
25

Continuum Managed Services HoldCo, LLC
Revolver
 
0.50
%
 
2,500

 
32

Datto, Inc.
Revolver
 
0.50
%
 
726

 
4

Derm Growth Partners III, LLC (Dermatology Associates)
Revolver
 
0.50
%
 
2,420

 
(10
)
DermaRite Industries LLC
Revolver
 
0.50
%
 
3,848

 
(28
)
Dimensional Dental Management, LLC
Delayed Draw
 
1.00
%
 
9,584

 
(35
)
Direct Travel, Inc.
Delayed Draw
 
1.00
%
 
4,118

 
7

Frontline Technologies Holdings, LLC
Delayed Draw
 
1.00
%
 
7,705

 
(6
)
FWR Holding Corporation
Delayed Draw
 
1.00
%
 
9,333

 
(111
)
FWR Holding Corporation
Revolver
 
0.50
%
 
3,889

 
(46
)
Global Franchise Group, LLC
Revolver
 
0.50
%
 
495

 

National Technical Systems, Inc.
Revolver
 
0.50
%
 
2,500

 
(161
)
NMI AcquisitionCo, Inc.
Revolver
 
0.50
%
 
1,280

 
(4
)
OnCourse Learning Corporation
Revolver
 
0.50
%
 
1,324

 
(6
)
Pathway Partners Vet Management Company LLC
Delayed Draw
 
1.00
%
 
3,410

 
(3
)
Prime Risk Partners, Inc.
Delayed Draw
 
0.50
%
 
768

 
4

Prime Risk Partners, Inc.
Delayed Draw
 
0.50
%
 
9,562

 
163

PMG Acquisition Corporation
Revolver
 
0.50
%
 
2,356

 
9

Product Quest Manufacturing, LLC
Revolver
 
0.50
%
 
3,229

 

Smile Doctors, LLC
Delayed Draw
 
1.00
%
 
6,345

 
(26
)
Smile Doctors, LLC
Revolver
 
0.50
%
 
827

 
(3
)
Superior Health Linens, LLC
Revolver
 
0.50
%
 
2,617

 
(4
)
T2 Systems, Inc.
Revolver
 
0.50
%
 
1,760

 
(26
)
The Hilb Group, LLC
Delayed Draw
 
1.00
%
 
3,594

 
(36
)
TwentyEighty, Inc. (f/k/a Miller Heiman, Inc.)
Revolver
 
0.50
%
 
607

 
(20
)
Vetcor Professional Practices, LLC
Delayed Draw
 
1.00
%
 
8,248

 
(31
)
VRC Companies, LLC
Delayed Draw
 
0.75
%
 
3,294

 
(8
)
VRC Companies, LLC
Revolver
 
0.50
%
 
401

 
(1
)
Zenith Merger Sub, Inc.
Revolver
 
0.50
%
 
1,648

 
(9
)
Total unfunded commitments
 
 
 
 
$
118,374

 
$
(371
)
(16)
As of December 31, 2017, this LIBOR loan was indexed to the 30-day LIBOR rate at 1.56%.
(17)
As of December 31, 2017, this LIBOR loan was indexed to the 180-day LIBOR rate at 1.84%.

23



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2017
(dollar amounts in thousands)
(unaudited)

As of December 31, 2017, investments at fair value consisted of the following:
Type
Amortized Cost
 
Fair Value
 
% of Fair Value
First Lien Debt (excluding First Lien/Last Out)
$
1,295,406

 
$
1,293,641

 
65.75
%
First Lien/Last Out Unitranche
246,925

 
237,635

 
12.08

Second Lien Debt
242,887

 
246,233

 
12.51

Equity Investments
13,543

 
17,506

 
0.89

Investment Fund
172,251

 
172,516

 
8.77

Total
$
1,971,012

 
$
1,967,531

 
100.00
%
The rate type of debt investments at fair value as of December 31, 2017 was as follows:
Rate Type
Amortized Cost
 
Fair Value
 
% of Fair Value of First and Second Lien Debt
Floating Rate
$
1,772,810

 
$
1,765,818

 
99.34
%
Fixed Rate
12,408

 
11,691

 
0.66

Total
$
1,785,218

 
$
1,777,509

 
100.00
%
The industry composition of investments at fair value as of December 31, 2017 was as follows:
Industry
Amortized Cost
 
Fair Value
 
% of Fair Value
Aerospace & Defense
$
63,119

 
$
62,466

 
3.17
%
Automotive
10,112

 
10,916

 
0.55

Banking, Finance, Insurance & Real Estate
171,272

 
173,935

 
8.84

Beverage, Food & Tobacco
49,870

 
50,566

 
2.57

Business Services
177,862

 
178,985

 
9.10

Capital Equipment
40,115

 
40,757

 
2.07

Chemicals, Plastics & Rubber
32,302

 
32,818

 
1.67

Construction & Building
24,373

 
24,595

 
1.25

Consumer Services
120,327

 
121,147

 
6.16

Containers, Packaging & Glass
46,509

 
33,635

 
1.71

Durable Consumer Goods
57,948

 
59,490

 
3.02

Energy: Electricity
43,004

 
42,387

 
2.15

Energy: Oil & Gas
15,439

 
15,369

 
0.78

Environmental Industries
35,772

 
35,715

 
1.82

Forest Products & Paper
50,322

 
52,024

 
2.64

Healthcare & Pharmaceuticals
230,705

 
232,715

 
11.83

High Tech Industries
181,671

 
186,695

 
9.49

Hotel, Gaming & Leisure
48,399

 
46,642

 
2.37

Investment Fund
172,251

 
172,516

 
8.77

Media: Advertising, Printing & Publishing
34,775

 
34,988

 
1.78

Metals & Mining
7,901

 
7,931

 
0.40

Non-durable Consumer Goods
58,661

 
52,792

 
2.68

Software
55,515

 
56,069

 
2.85

Sovereign & Public Finance
1,784

 
1,820

 
0.09

Telecommunications
79,297

 
78,813

 
4.01

Transportation: Cargo
84,493

 
85,362

 
4.34

Transportation: Consumer
36,438

 
36,595

 
1.86

Wholesale
40,776

 
39,788

 
2.03

Total
$
1,971,012

 
$
1,967,531

 
100.00
%

24



TCG BDC, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2017
(dollar amounts in thousands)
(unaudited)

The geographical composition of investments at fair value as of December 31, 2017 was as follows:
Geography
Amortized Cost
 
Fair Value
 
% of Fair Value
United Kingdom
$
13,439

 
$
13,369

 
0.68
%
United States
1,957,573

 
1,954,162

 
99.32

Total
$
1,971,012

 
$
1,967,531

 
100.00
%

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


25




TCG BDC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
As of June 30, 2018
(dollar amounts in thousands, except per share data)
1. ORGANIZATION
TCG BDC, Inc. (together with its consolidated subsidiaries, “we,” “us,” “our,” “TCG BDC” or the “Company”) is a Maryland corporation formed on February 8, 2012, and structured as an externally managed, non-diversified closed-end investment company. The Company is managed by its investment adviser, Carlyle Global Credit Investment Management L.L.C. (“CGCIM” or “Investment Adviser”), a wholly owned subsidiary of The Carlyle Group L.P. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In addition, the Company 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 (together with the rules and regulations promulgated thereunder, the “Code”).
The Company’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”), which the Company believes is a useful proxy for cash flow. The Company seeks to achieve its investment objective primarily through direct originations of secured debt, including first lien senior secured loans (which may include stand-alone first lien loans, first lien/last out loans and “unitranche” loans) and second lien senior secured loans (collectively, “Middle Market Senior Loans”), with the balance of its assets invested in higher yielding investments (which may include unsecured debt, mezzanine debt and investments in equities). 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, the Company expects that between 70% and 80% of the value of its assets will be invested in Middle Market Senior Loans. The Company expects that the composition of its portfolio will change over time given the Investment Adviser’s view on, among other things, the economic and credit environment (including with respect to interest rates) in which the Company is operating.
The Company invests primarily in loans to middle market companies whose debt, if rated, is rated below investment grade, and, if not rated, would likely be rated below investment grade if it were rated (that is, below BBB- or Baa3, which is often referred to as “junk”). Exposure to below investment grade instruments involves certain risks, including speculation with respect to the borrower’s capacity to pay interest and repay principal.
On May 2, 2013, the Company completed its initial closing of capital commitments (the “Initial Closing”) and subsequently commenced substantial investment operations. Effective March 15, 2017, the Company changed its name from “Carlyle GMS Finance, Inc.” to “TCG BDC, Inc.” On June 19, 2017, the Company closed its initial public offering (“IPO”), issuing 9,454,200 shares of its common stock (including shares issued pursuant to the exercise of the underwriters’ over-allotment option on July 5, 2017) at a public offering price of $18.50 per share. Net of underwriting costs, the Company received cash proceeds of $169,488. Shares of common stock of TCG BDC began trading on the NASDAQ Global Select Market under the symbol “CGBD” on June 14, 2017.
Until December 31, 2017, the Company was an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act of 2012. As of June 30, 2017, the market value of the common stock held by non-affiliates exceeded $700,000. Accordingly, the Company ceased to be an emerging growth company as of December 31, 2017.
The Company is externally managed by the Investment Adviser, an investment adviser registered under the Investment Advisers Act of 1940, as amended. Carlyle Global Credit Administration L.L.C. (the “Administrator”) provides the administrative services necessary for the Company 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. and its affiliates and its consolidated subsidiaries (other than portfolio companies of its affiliated funds), 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.
TCG BDC SPV LLC (the “SPV”) is a Delaware limited liability company that was formed on January 3, 2013. The SPV invests in first and second lien senior secured loans. The SPV 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. Effective March 15, 2017, the SPV changed its name from “Carlyle GMS Finance SPV LLC” to “TCG BDC SPV LLC”.

26



On June 9, 2017, pursuant to the Agreement and Plan of Merger, dated May 3, 2017 (the “Agreement”), by and between the Company and NF Investment Corp. (“NFIC”), NFIC merged with and into the Company (the “NFIC Acquisition”), with the Company as the surviving entity. The NFIC Acquisition was accounted for as an asset acquisition. NFIC SPV LLC (the “NFIC SPV” and, together with the SPV, the “SPVs”) is a Delaware limited liability company that was formed on June 18, 2013. Upon the consummation of the NFIC Acquisition, the NFIC SPV became a wholly owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the closing date of the NFIC Acquisition, June 9, 2017.
On June 26, 2015, the Company completed a $400,000 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 of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. Refer to Note 7 for details. The 2015-1 Issuer is consolidated in these consolidated financial statements commencing from the date of its formation, May 8, 2015.
On February 29, 2016, the Company and Credit Partners USA LLC (“Credit Partners”) entered into an amended and restated limited liability company agreement, which was subsequently amended on June 24, 2016 (as amended, the “Limited Liability Company Agreement”) to co-manage Middle Market Credit Fund, LLC (“Credit Fund”). Credit Fund primarily invests in first lien loans of middle market companies. Credit Fund is managed by a six-member board of managers, on which the Company and Credit Partners each have equal representation. The Company and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $400,000 each. Refer to Note 5, Middle Market Credit Fund, LLC, for details.
As a BDC, the Company 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).
To qualify as a RIC, the Company 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, the Company generally does not have to pay corporate level taxes on any income that it distributes to stockholders, provided that the Company 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 Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 946, Financial Services—Investment Companies (“ASC 946”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, the SPVs 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, 2017. The results of operations for the three month and six month periods ended June 30, 2018 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

27



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 and Cash Equivalents
Cash and cash equivalents consist of demand deposits and highly liquid investments (e.g., money market funds, U.S. treasury notes) with original maturities of three months or less. Cash equivalents are carried at amortized cost, which approximates fair value. The Company’s cash and cash equivalents are 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 investments 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 and upfront fees received that are deemed to be an adjustment to yield, 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. Such income is included in interest income in the Consolidated Statements of Operations. As of June 30, 2018 and December 31, 2017, the fair value of the loan in the portfolio with PIK provisions was $13,393 and $15,451, respectively, which represents approximately 0.7% and 0.8% of total investments at fair value, respectively. For the three month and six month periods ended June 30, 2018, the Company earned $216 and $429 in PIK income, respectively. For the three month and six month periods ended June 30, 2017, there was no PIK interest accrued.
Dividend Income
Dividend income from the investment fund is recorded on the record date for the investment fund to the extent that such amounts are payable by the investment fund and are expected to be collected.
Other Income
Other income may include income such as consent, waiver, amendment, syndication and prepayment fees associated with the Company’s investment activities as well as any fees for managerial assistance services rendered by the Company to the portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive fees for guaranteeing the outstanding debt of a portfolio company. Such fees are 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. For the three month and six month periods ended June 30, 2018, the Company earned $3,590 and $4,485, respectively, in other income, primarily from syndication and prepayment fees. For the three month and six month periods ended June 30, 2017, the Company earned $4,046 and $6,582, respectively, in other income, primarily from syndication and prepayment fees.

28



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, 2018 and December 31, 2017, the fair value of the loans in the portfolio on non-accrual status was $32,393 and $19,487, respectively, which represents approximately 1.7% and 1.0% of total investments at fair value, respectively. The remaining first and second lien debt investments were performing and current on their interest payments as of June 30, 2018 and December 31, 2017.
SPV Credit Facility, Credit Facility and 2015-1 Notes Related Costs, Expenses and Deferred Financing Costs (See Note 6, Borrowings, and Note 7, 2015-1 Notes)
Interest expense and unused commitment fees on the SPV Credit Facility and Credit Facility are recorded on an accrual basis. Unused commitment fees are included in credit facility fees in the accompanying Consolidated Statements of Operations.

The SPV Credit Facility and Credit Facility are recorded at carrying value, which approximates fair value.
Deferred financing costs include capitalized expenses related to the closing or amendments of the SPV Credit Facility and Credit 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 SPV Credit Facility as described in Note 6. The unamortized balance of such costs is included in deferred financing costs in the accompanying Consolidated Statements of Assets and Liabilities. The amortization of such costs is included in credit facility fees in the accompanying Consolidated Statements of Operations.
Debt issuance costs include capitalized expenses including structuring and arrangement fees related to the offering of the 2015-1 Notes. Amortization of debt issuance costs for the 2015-1 Notes is computed on the effective yield method over the term of the 2015-1 Notes. The unamortized balance of such costs is presented as a direct deduction to the carrying amount of the 2015-1 Notes in the accompanying Consolidated Statements of Assets and Liabilities. The amortization of such costs is included in interest expense in the accompanying Consolidated Statements of Operations.
The 2015-1 Notes are recorded at carrying value, which approximates fair value.
Offering Costs
Offering costs consist primarily of fees and expenses incurred in connection with the offering of shares, including legal, underwriting, printing and other costs, as well as costs associated with the preparation and filing of applicable registration statements. Offering costs are charged against equity when incurred. During the three month and six month periods ended June 30, 2018, $30 of offering costs were incurred, 50% of which were paid by the Investment Adviser. During the three month and six month periods ended June 30, 2017, $2,972 of offering costs were incurred, 50% of which were paid by the Investment Adviser.
Income Taxes
For federal income tax purposes, the Company 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, the Company must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then the Company 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 the Company 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, the Company 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.

29



In addition, based on the excise distribution requirements, the Company is subject to a 4% nondeductible federal excise tax on undistributed income unless the Company 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 the Company that is subject to corporate income tax is considered to have been distributed. The Company 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 SPVs and the 2015-1 Issuer are disregarded entities for tax purposes and are consolidated with the tax return of the Company. For the three month and six month periods ended June 30, 2018, the Company incurred $30 and $40, respectively, in excise tax expense. For the three month and six month periods ended June 30, 2017, the Company incurred $0 and $169, respectively, in excise tax expense.
Dividends and Distributions to Common Stockholders
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.

Prior to July 5, 2017, the Company had an “opt in” dividend reinvestment plan. Effective on July 5, 2017, the Company converted the “opt in” dividend reinvestment plan to an “opt out” dividend reinvestment plan that provides for reinvestment of dividends and other distributions on behalf of the stockholders, other than those stockholders who have “opted out” of the plan. As a result of adopting the plan, if the Board of Directors authorizes, and the Company declares, a cash dividend or distribution, the stockholders who have not elected to “opt out” of the dividend reinvestment plan will have their cash dividends or distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash. Each registered stockholder may elect to have such stockholder’s dividends and distributions distributed in cash rather than participate in the plan. For any registered stockholder that does not so elect, distributions on such stockholder’s shares will be reinvested by State Street Bank and Trust Company, the Company’s plan administrator, in additional shares. The number of shares to be issued to the stockholder will be determined based on the total dollar amount of the cash distribution payable, net of applicable withholding taxes. 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 on the relevant valuation date. If the market value per share is less than the net asset value per share on the relevant valuation date, the plan administrator would implement the plan through the purchase of 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
    
The FASB issued Accounting Standards Update (“ASU”) 2014-9, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-9”) in May 2014 and subsequently issued several amendments to the standard. ASU 2014-9, and related amendments, provide comprehensive guidance for recognizing revenue from contracts with customers. Entities are able to recognize revenue when the entity transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The guidance includes a five-step framework that requires an entity to: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when the entity satisfies a performance obligation. The guidance in ASU 2014-9, and the related amendments, was effective for the Company on January 1, 2018. The Company has adopted the ASU on January 1, 2018, which did not have a material impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. ASU 2016-18 clarifies the presentation of restricted cash in the statement of cash flows by requiring the amounts described as

30



restricted cash be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. If cash and cash equivalents and restricted cash are presented separately on the statement of financial position, a reconciliation of these separate line items to the total cash amount included in the statement of cash flows are required either in the footnotes or on the face of the statement of cash flows. This guidance was effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017 and early adoption was permitted. The Company has adopted the ASU on January 1, 2018, which did not have a material impact on the Company’s consolidated financial statements.
3. FAIR VALUE MEASUREMENTS
The Company applies fair value accounting in accordance with the terms of 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 the Company’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 other than Credit Fund 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.

31



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, 2018 and December 31, 2017.
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 1—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 1 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 2—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 3—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 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, 2018 and 2017, 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, 2018 and December 31, 2017:
 
June 30, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
First Lien Debt
$

 
$

 
$
1,555,528

 
$
1,555,528

Second Lien Debt

 

 
160,905

 
160,905

Equity Investments

 

 
22,354

 
22,354

Investment Fund
 
 
 
 
 
 
 
Mezzanine Loan

 

 
114,000

 
114,000

Subtotal
$

 
$

 
$
1,852,787

 
$
1,852,787

Investments measured at net asset value (1)
 
 
 
 
 
 
94,005

Total
 
 
 
 
 
 
$
1,946,792


32



 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
First Lien Debt
$

 
$

 
$
1,531,276

 
$
1,531,276

Second Lien Debt

 

 
246,233

 
246,233

Equity Investments

 

 
17,506

 
17,506

Investment Fund
 
 
 
 
 
 
 
Mezzanine Loan

 

 
85,750

 
85,750

Subtotal
$

 
$

 
$
1,880,765

 
$
1,880,765

Investments measured at net asset value (1)
 
 
 
 
 
 
86,766

Total
 
 
 
 
 
 
$
1,967,531

(1)
Amount represents the Company’s subordinated loan and member’s interest investments in Credit Fund. The fair value of these investments has been estimated using the net asset value of the Company’s ownership interests in Credit Fund.

The changes in the Company’s investments at fair value for which the Company has used Level 3 inputs to determine fair value and net change in unrealized appreciation (depreciation) included in earnings for Level 3 investments still held are as follows:
 
Financial Assets
For the three month period ended June 30, 2018
 
First Lien Debt
 
Second Lien Debt
 
Equity Investments
 
Investment Fund - Mezzanine Loan
 
Total
Balance, beginning of period
$
1,475,874

 
$
217,707

 
$
18,812

 
$
107,600

 
$
1,819,993

Purchases
237,592

 
9,098

 
3,953

 
25,300

 
275,943

Sales
(40,077
)
 

 
(2,775
)
 

 
(42,852
)
Paydowns
(104,997
)
 
(66,675
)
 

 
(18,900
)
 
(190,572
)
Accretion of discount
2,422

 
1,496

 

 

 
3,918

Net realized gains (losses)

 

 
1,775

 

 
1,775

Net change in unrealized appreciation (depreciation)
(15,286
)
 
(721
)
 
589

 

 
(15,418
)
Balance, end of period
$
1,555,528

 
$
160,905

 
$
22,354

 
$
114,000

 
$
1,852,787

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of June 30, 2018 included in net change in unrealized appreciation (depreciation) on investments on the Consolidated Statements of Operations
$
(14,619
)
 
$
1,105

 
$
1,188

 
$

 
$
(12,326
)


33



 
Financial Assets
For the six month period ended June 30, 2018
 
First Lien Debt
 
Second Lien Debt
 
Equity Investments
 
Investment Fund - Mezzanine Loan
 
Total
Balance, beginning of period
$
1,531,276

 
$
246,233

 
$
17,506

 
$
85,750

 
$
1,880,765

Purchases
303,849

 
34,092

 
4,453

 
47,150

 
389,544

Sales
(61,037
)
 
(3,960
)
 
(2,775
)
 

 
(67,772
)
Paydowns
(202,107
)
 
(116,667
)
 

 
(18,900
)
 
(337,674
)
Accretion of discount
3,949

 
2,359

 

 

 
6,308

Net realized gains (losses)
(131
)
 
2

 
1,775

 

 
1,646

Net change in unrealized appreciation (depreciation)
(20,271
)
 
(1,154
)
 
1,395

 

 
(20,030
)
Balance, end of period
$
1,555,528

 
$
160,905

 
$
22,354

 
$
114,000

 
$
1,852,787

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of June 30, 2018 included in net change in unrealized appreciation (depreciation) on investments on the Consolidated Statements of Operations
$
(20,493
)
 
$
(1,893
)
 
$
1,172

 
$

 
$
(21,214
)

 
Financial Assets
For the three month period ended June 30, 2017
 
First Lien Debt
 
Second Lien Debt
 
Structured Finance Obligations
 
Equity Investments
 
Investment Fund - Mezzanine Loan
 
Total
Balance, beginning of period
$
1,085,554

 
$
161,643

 
$
2,776

 
$
8,451

 
$
86,044

 
$
1,344,468

Purchases
439,832

 
95,278

 

 
2,256

 
38,500

 
575,866

Sales
(103,969
)
 

 

 

 

 
(103,969
)
Paydowns
(146,949
)
 
(7,393
)
 
(231
)
 

 
(11,444
)
 
(166,017
)
Accretion of discount
2,848

 
147

 

 

 

 
2,995

Net realized gains (losses)
(299
)
 

 
97

 

 

 
(202
)
Net change in unrealized appreciation (depreciation)
(6,939
)
 
1,090

 
(45
)
 
15

 

 
(5,879
)
Balance, end of period
$
1,270,078

 
$
250,765

 
$
2,597

 
$
10,722

 
$
113,100

 
$
1,647,262

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of June 30, 2017 included in net change in unrealized appreciation (depreciation) on investments on the Consolidated Statements of Operations
$
(5,197
)
 
$
1,089

 
$
127

 
$
15

 
$

 
$
(3,966
)


34



 
Financial Assets
For the six month period ended June 30, 2017
 
First Lien Debt
 
Second Lien Debt
 
Structured Finance Obligations
 
Equity Investments
 
Investment Fund - Mezzanine Loan
 
Total
Balance, beginning of period
$
1,139,548

 
$
171,864

 
$
5,216

 
$
6,474

 
$
62,384

 
$
1,385,486

Purchases
532,625

 
97,060

 

 
3,756

 
84,160

 
717,601

Sales
(128,692
)
 
(2,978
)
 

 

 

 
(131,670
)
Paydowns
(267,821
)
 
(17,393
)
 
(2,749
)
 

 
(33,444
)
 
(321,407
)
Accretion of discount
6,273

 
298

 

 

 

 
6,571

Net realized gains (losses)
(7,851
)
 
(3
)
 
(42
)
 

 

 
(7,896
)
Net change in unrealized appreciation (depreciation)
(4,004
)
 
1,917

 
172

 
492

 

 
(1,423
)
Balance, end of period
$
1,270,078

 
$
250,765

 
$
2,597

 
$
10,722

 
$
113,100

 
$
1,647,262

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of June 30, 2017 included in net change in unrealized appreciation (depreciation) on investments on the Consolidated Statements of Operations
$
(8,669
)
 
$
2,037

 
$
127

 
$
492

 
$

 
$
(6,013
)
The Company generally uses the following framework when determining the fair value of investments that are categorized as Level 3:
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 debt securities may also be valued using 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.
Investments in the subordinated loan and member’s interest of the investment fund are valued using the net asset value of the Company’s ownership interest in the investment fund and investments in the mezzanine loan of the investment fund are valued using discounted cash flow analysis with expected repayment rate of principal and interest.
The following tables summarize the quantitative information related to the significant unobservable inputs for Level 3 instruments which are carried at fair value as of June 30, 2018 and December 31, 2017:

35



 
Fair Value as of June 30, 2018
 
Valuation Techniques
 
Significant Unobservable Inputs
 
Range
 
 
 
Low
 
High
 
Weighted Average
Investments in First Lien Debt
$
1,384,659

 
Discounted Cash Flow
 
Discount Rate
 
5.74
%
 
20.65
%
 
9.68
%
 
157,760

 
Consensus Pricing
 
Indicative Quotes
 
97.13

 
101.00

 
99.63

 
13,109

 
Income Approach
 
Discount Rate
 
14.76
%
 
24.49
%
 
17.08
%
 
 
 
Market Approach
 
Comparable Multiple
 
4.55x

 
7.67x

 
6.93x

Total First Lien Debt
1,555,528

 
 
 
 
 
 
 
 
 
 
Investments in Second Lien Debt
158,325

 
Discounted Cash Flow
 
Discount Rate
 
9.01
%
 
14.56
%
 
10.87
%
 
2,580

 
Consensus Pricing
 
Indicative Quotes
 
100.25

 
100.25

 
100.25

Total Second Lien Debt
160,905

 
 
 
 
 
 
 
 
 
 
Investments in Equity
22,354

 
Income Approach
 
Discount Rate
 
8.08
%
 
11.26
%
 
9.08
%
 
 
 
Market Approach
 
Comparable Multiple
 
7.24x

 
14.70x

 
10.24x

Total Equity Investments
22,354

 
 
 
 
 
 
 
 
 
 
Investments in Investment Fund—Mezzanine Loan
114,000

 
Income Approach
 
Repayment Rate
 
100.00
%
 
100.00
%
 
100.00
%
Total Investment Fund—Mezzanine Loan
114,000

 
 
 
 
 
 
 
 
 
 
Total Level 3 Investments
$
1,852,787

 
 
 
 
 
 
 
 
 
 
 
Fair Value as of December 31, 2017
 
Valuation Techniques
 
Significant Unobservable Inputs
 
Range
 
 
 
Low
 
High
 
Weighted Average
Investments in First Lien Debt
$
1,369,558

 
Discounted Cash Flow
 
Discount Rate
 
4.85
%
 
17.40
%
 
8.18
%
 
142,231

 
Consensus Pricing
 
Indicative Quotes
 
59.17

 
100.83

 
95.93

 
19,487

 
Income Approach
 
Discount Rate
 
9.78
%
 
9.78
%
 
9.78
%
 
 
 
Market Approach
 
Comparable Multiple
 
8.33x

 
8.33x

 
8.33x

Total First Lien Debt
1,531,276

 
 
 
 
 
 
 
 
 
 
Investments in Second Lien Debt
211,365

 
Discounted Cash Flow
 
Discount Rate
 
7.61
%
 
18.26
%
 
9.43
%
 
34,868

 
Consensus Pricing
 
Indicative Quotes
 
96.83

 
100.58

 
99.23

Total Second Lien Debt
246,233

 
 
 
 
 
 
 
 
 
 
Investments in Equity
17,506

 
Income Approach
 
Discount Rate
 
7.60
%
 
10.61
%
 
8.81
%
 
 
 
Market Approach
 
Comparable Multiple
 
7.80x

 
14.69x

 
10.41x

Total Equity Investments
17,506

 
 
 
 
 
 
 
 
 
 
Investments in Investment Fund—Mezzanine Loan
85,750

 
Income Approach
 
Repayment Rate
 
100.00
%
 
100.00
%
 
100.00
%
Total Investment Fund—Mezzanine Loan
85,750

 
 
 
 
 
 
 
 
 
 
Total Level 3 Investments
$
1,880,765

 
 
 
 
 
 
 
 
 
 
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, indicative quotes and comparable EBITDA multiples. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in indicative quotes or comparable EBITDA multiples 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

36



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 disclosed but not carried at fair value as of June 30, 2018 and December 31, 2017:
 
June 30, 2018
 
December 31, 2017
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Secured borrowings
$
585,105

 
$
585,105

 
$
562,893

 
$
562,893

Total
$
585,105

 
$
585,105

 
$
562,893

 
$
562,893

The carrying values of the secured borrowings approximate their respective fair values and are categorized as Level 3 within the hierarchy. Secured borrowings 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 following table represents the carrying values (before debt issuance costs) and fair values of the Company’s 2015-1 Notes disclosed but not carried at fair value as of June 30, 2018 and December 31, 2017:
 
June 30, 2018
 
December 31, 2017
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Aaa/AAA Class A-1A Notes
$
160,000

 
$
160,000

 
$
160,000

 
$
160,064

Aaa/AAA Class A-1B Notes
40,000

 
40,000

 
40,000

 
40,020

Aaa/AAA Class A-1C Notes
27,000

 
27,000

 
27,000

 
27,014

Aa2 Class A-2 Notes
46,000

 
46,000

 
46,000

 
46,027

Total
$
273,000

 
$
273,000

 
$
273,000

 
$
273,125

The fair value determination of the Company’s 2015-1 Notes was based on the market quotation(s) received from broker/dealer(s). These fair value measurements were based on significant inputs not observable and thus represent Level 3 measurements as defined in the accounting guidance for fair value measurement.
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 (the “Independent Directors”), approved an investment advisory agreement (the “Original 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 Original Investment Advisory Agreement was amended on September 15, 2017 (as amended, the “Investment Advisory Agreement”) after the approval of the Company’s Board of Directors, including a majority of the Independent Directors, at an in-person meeting of the Board of Directors held on May 30, 2017 and the approval of the Company’s stockholders at a special meeting of stockholders held on September 15, 2017. The Investment Advisory Agreement was amended, among other things, to (i) reduce the incentive fee payable by the Company to the Investment Adviser from an annual rate of 20% to an annual rate of 17.5%, (ii) delete the incentive fee payment deferral test described below, and (iii) include in the pre-incentive fee net investment income, in the case of investments with a deferred interest feature, accrued income that the Company has not yet received in cash. The initial term of the Investment Advisory Agreement is two years from September 15, 2017 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. 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

37



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.
Effective September 15, 2017, the base management fee is calculated and payable quarterly in arrears at an annual rate of 1.50% of the average value of the gross assets at the end of the two most recently completed fiscal quarters, except for the first quarter following the IPO, in which case the base management fee is calculated based on the Company’s gross assets as of the end of such fiscal quarter. In each case, the base management fee will be appropriately adjusted for any share issuances or repurchases during such fiscal quarter and the base management fees for any partial month or quarter will be pro-rated. The Company’s gross assets exclude any cash and cash equivalents and include assets acquired through the incurrence of debt from use of the SPV Credit Facility, Credit Facility and 2015-1 Notes (see Note 6, Borrowings, and Note 7, 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.
Prior to September 15, 2017, under the Original Investment Advisory Agreement, the base management fee was 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. Prior to the IPO, the Investment Adviser waived its right to receive one-third (0.50%) of the 1.50% base management fee. Any waived base management fees are not subject to recoupment by the Investment Adviser. The fee waiver terminated when the IPO had been consummated. As previously disclosed, in connection with the IPO, the Investment Adviser agreed to continue the fee waiver until the completion of the first full quarter after the consummation of the IPO. As a result, beginning October 1, 2017, the base management fee is calculated at an annual rate of 1.50% of the Company’s gross assets.
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 includes, in the case of investments with a deferred interest feature, 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.
Effective September 15, 2017, pre-incentive fee net investment income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, will be compared to a “hurdle rate” of 1.50% per quarter (6% annualized) or a “catch-up rate” of 1.82% per quarter (7.28% annualized), as applicable.
Pursuant to the Investment Advisory Agreement, the Company 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 rate 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 rate but is less than 1.82% in any calendar quarter (7.28% annualized). The Company refers to this portion of the pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 1.82%) as the “catch-up.” The “catch-up” is meant to provide the Investment Adviser with approximately 17.5% of the Company’s pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeds 1.82% in any calendar quarter; and
17.5% of the amount of pre-incentive fee net investment income, if any, that exceeds 1.82% in any calendar quarter (7.28% annualized) will be payable to the Investment Adviser. This reflects that once the hurdle rate is reached and the catch-up is achieved, 17.5% of all pre-incentive fee investment income thereafter is allocated to the Investment Adviser.

38



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 17.5% 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.    
Prior to the September 15, 2017, under the Original Investment Advisory Agreement, pre-incentive fee net investment income, which did not include, in the case of investments with a deferred interest feature, accrued income that the Company has not yet received in cash, and was expressed as a rate of return on the average daily Hurdle Calculation Value (as defined below) throughout the immediately preceding calendar quarter, was compared to a “hurdle rate” of 1.50% per quarter (6% annualized) or a “catch-up” of 1.875% per quarter (7.50% annualized), as applicable. “Hurdle Calculation Value” meant, 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. In addition, under the Original Investment Advisory Agreement, the Company deferred payment of any incentive fee otherwise earned by the Investment Adviser if, during the most recent four full calendar quarter periods 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. These calculations were adjusted for any share issuances or repurchases. Any deferred incentive fees were carried over for payment in subsequent calculation periods.
As previously disclosed, in connection with the IPO, the Investment Adviser agreed to charge 17.5% instead of 20% with respect to the entire calculation of the incentive fee beginning on the first full quarter following the consummation of the IPO until the earlier of (i) October 1, 2017 and (ii) the date that the Company’s stockholders vote on the approval of the amendment to the Original Investment Advisory Agreement. The Company’s stockholders voted to approve the Investment Advisory Agreement on September 15, 2017.

For the three month and six month periods ended June 30, 2018, base management fees were $7,266 and $14,488, respectively, incentive fees related to pre-incentive fee net investment income were $5,984 and $11,314, respectively, and there were no incentive fees related to realized capital gains. For the three month and six month periods ended June 30, 2017, base management fees were $3,771 and $7,188 (net of waiver of $1,886 and $3,594, respectively), incentive fees related to pre-incentive fee net investment income were $5,361 and $10,138, respectively, and there were no incentive fees related to realized capital gains. For the three month and six month periods ended June 30, 2018 and 2017, there were no accrued capital gains incentive fees based upon the cumulative net realized and unrealized appreciation (depreciation) from inception through June 30, 2018 and 2017, respectively, as computed in accordance with the Investment Advisory Agreement. 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, 2018 and December 31, 2017, $13,252 and $13,098, respectively, were 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 Treasurer) and respective staff who provide services to the Company, operations staff who provide services to the Company, and any internal audit staff, to the

39



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 February 26, 2018, 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, 2018, the Company incurred $185 and $371, respectively, and for the three month and six month periods ended June 30, 2017, the Company incurred $165 and $338, 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, 2018 and December 31, 2017, $113 and $95, 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 (“CELF”) (the “Carlyle Sub-Administration Agreements”). Pursuant to the Carlyle Sub-Administration Agreements, Carlyle Employee Co. and CELF provide the Administrator with access to personnel. The sub-administration agreement between the Administrator and CELF was terminated effective as of February 26, 2018.
On April 3, 2013, the Administrator entered into a sub-administration agreement with State Street Bank and Trust Company (“State Street” and, such agreement, the “State Street Sub-Administration Agreement” and, together with the Carlyle Sub-Administration Agreements, the “Sub-Administration Agreements”). On March 11, 2015, the Company’s Board of Directors, including a majority of the Independent Directors, approved an amendment to the State Street Sub-Administration Agreement. The initial term of the State Street Sub-Administration Agreement ends on April 1, 2017 and, unless terminated earlier, the State Street 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. On February 26, 2018, the Company’s Board of Directors, including a majority of the Independent Directors, approved the continuance of the State Street Sub-Administration Agreement for a one year period. The State Street 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 State Street Sub-Administration Agreement.
For the three month and six month periods ended June 30, 2018, fees incurred in connection with the State Street Sub-Administration Agreement, which amounted to $189 and $381, 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, 2017, fees incurred in connection with the State Street Sub-Administration Agreement, which amounted to $162 and $322, respectively, were included in other general and administrative in the accompanying Consolidated Statements of Operations. As of June 30, 2018 and December 31, 2017, $192 and $196, respectively, was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities.
Board of Directors
The Company’s Board of Directors currently consists of five members, three of whom are Independent Directors. On April 3, 2013, the Board of Directors established an Audit Committee consisting of its Independent Directors. The Board of Directors also established a Nominating and Governance Committee of the Board of Directors and a Compensation Committee of the Board of Directors and may establish additional committees in the future. For the three month and six month periods ended June 30, 2018, the Company incurred $93 and $191, respectively, and for the three month and six month periods ended June 30, 2017, the Company incurred $131 and $234, respectively, in fees and expenses associated with its Independent Directors' services on the Company's Board of Directors and the Audit Committee. As of June 30, 2018 and December 31, 2017, $0 and $3, respectively, was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities.

40



Transactions with Credit Fund
For the three month and six month periods ended June 30, 2018, the Company sold 2 and 3 investments, respectively, to Credit Fund for proceeds of $40,377 and $55,302, respectively, and realized gains of $0. For the three month and six month periods ended June 30, 2017, the Company sold 13 and 16 investments, respectively, to Credit Fund for proceeds of $82,578 and $113,321, respectively, and realized gains of $13 and $190, respectively. See Note 5, Middle Market Credit Fund, LLC, for further information about Credit Fund.
5. MIDDLE MARKET CREDIT FUND, LLC
Overview
On February 29, 2016, the Company and Credit Partners entered into the Limited Liability Company Agreement to co-manage Credit Fund, an unconsolidated Delaware limited liability company. Credit Fund primarily invests in first lien loans of middle market companies. Credit Fund is managed by a six-member board of managers, on which the Company and Credit Partners each have equal representation. Establishing a quorum for Credit Fund’s board of managers requires at least four members to be present at a meeting, including at least two of the Company’s representatives and two of Credit Partners’ representatives. The Company and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $400,000 each. Funding of such commitments generally requires the approval of the board of Credit Fund, including the board members appointed by the Company. By virtue of its membership interest, the Company and Credit Partners each indirectly bear an allocable share of all expenses and other obligations of Credit Fund.
Together with Credit Partners, the Company co-invests through Credit Fund. Investment opportunities for Credit Fund are sourced primarily by the Company and its affiliates. Portfolio and investment decisions with respect to Credit Fund must be unanimously approved by a quorum of Credit Fund’s investment committee consisting of an equal number of representatives of the Company and Credit Partners. Therefore, although the Company owns more than 25% of the voting securities of Credit Fund, the Company does not believe that it has control over Credit Fund (other than for purposes of the Investment Company Act). Middle Market Credit Fund SPV, LLC (the “Credit Fund Sub”) and MMCF CLO 2017-1 LLC (the “2017-1 Issuer”), each a Delaware limited liability company, were formed on April 5, 2016 and October 6, 2017, respectively. Credit Fund Sub and the 2017-1 Issuer are wholly owned subsidiaries of Credit Fund and are consolidated in Credit Fund’s consolidated financial statements commencing from the date of their respective formations. Credit Fund Sub and the 2017-1 Issuer primarily invest in first lien loans of middle market companies. Credit Fund and its wholly owned subsidiaries follow the same Internal Risk Rating System as the Company.
Credit Fund, the Company and Credit Partners entered into an administration agreement with Carlyle Global Credit Administration L.L.C., the administrative agent of Credit Fund (in such capacity, the “Administrative Agent”), pursuant to which the Administrative Agent is delegated certain administrative and non-discretionary functions, is authorized to enter into sub-administration agreements at the expense of Credit Fund with the approval of the board of managers of Credit Fund, and is reimbursed by Credit Fund for its costs and expenses and Credit Fund’s allocable portion of overhead incurred by the Administrative Agent in performing its obligations thereunder.
Selected Financial Data
Since inception of Credit Fund and through June 30, 2018 and December 31, 2017, the Company and Credit Partners each made capital contributions of $1 and $1 in members’ equity, respectively, and $94,500 and $86,500 in subordinated loans, respectively, to Credit Fund. As of June 30, 2018 and December 31, 2017, Credit Fund had borrowings of $114,000 and $85,750, respectively, in mezzanine loans under a revolving credit facility with the Company (the “Credit Fund Facility”). As of June 30, 2018 and December 31, 2017, Credit Fund had total subordinated loans and members’ equity outstanding of $188,010 and $173,532, respectively. As of June 30, 2018 and December 31, 2017, the Company’s ownership interest in such subordinated loans and members’ equity was $94,005 and $86,766, respectively, and in such mezzanine loans was $114,000 and $85,750, respectively.
As of June 30, 2018 and December 31, 2017, Credit Fund held cash and cash equivalents totaling $50,152 and $19,502, respectively.
As of June 30, 2018 and December 31, 2017, Credit Fund had total investments at fair value of $1,136,216 and $984,773, respectively, which comprised of first lien senior secured loans and second lien senior secured loans to 58 and 51 portfolio companies, respectively. As of June 30, 2018 and December 31, 2017, no loans in Credit Fund’s portfolio were on non-accrual status or contained PIK provisions. All investments in the portfolio were floating rate debt investments with an interest rate floors. The portfolio companies in Credit Fund are U.S. middle market companies in industries similar to those in which the

41



Company may invest directly. Additionally, as of June 30, 2018 and December 31, 2017, Credit Fund had commitments to fund various undrawn revolving and delayed draw senior secured loans to its portfolio companies totaling $123,950 and $72,458, respectively.
Below is a summary of Credit Fund’s portfolio, followed by a listing of the loans in Credit Fund’s portfolio as of June 30, 2018 and December 31, 2017:
 
As of
June 30, 2018
 
As of
December 31, 2017
Senior secured loans (1)
$
1,145,556

 
$
993,380

Weighted average yields of senior secured loans based on amortized cost (2)
7.12
%
 
6.80
%
Weighted average yields of senior secured loans based on fair value (2)
7.12
%
 
6.79
%
Number of portfolio companies in Credit Fund
58

 
51

Average amount per portfolio company (1)
$
19,751

 
$
19,478

(1)
At par/principal amount.
(2)
Weighted average yields include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of June 30, 2018 and December 31, 2017. Weighted average yield on debt and income producing securities at fair value is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at fair value included in such securities. Weighted average yield on debt and income producing securities at amortized cost is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at amortized cost included in such securities. Actual yields earned over the life of each investment could differ materially from the yields presented above.

42



Consolidated Schedule of Investments as of June 30, 2018
Investments (1)
Industry
 
Reference Rate & Spread (2)
 
Interest Rate (2)
 
Maturity Date
 
 Par/ Principal Amount
 
Amortized Cost (5)
 
Fair Value (6)
First Lien Debt (99.47% of fair value)
 
 
 
 
 
 
 
 
 
 
 
 
 
Acrisure, LLC (2) (3) (4)
Banking, Finance, Insurance & Real Estate
 
L + 4.25%
 
6.61%
 
11/22/2023
 
$
20,991

 
$
20,945

 
$
20,991

Acrisure, LLC (2) (3) (4)
Banking, Finance, Insurance & Real Estate
 
L + 3.75%
 
6.11%
 
11/22/2023
 
12,000

 
11,984

 
12,017

Advanced Instruments, LLC (2) (3) (4) (7) (10) (11)
Healthcare & Pharmaceuticals
 
L + 5.25%
 
7.25%
 
10/31/2022
 
11,850

 
11,744

 
11,778

Ahead, LLC (2) (3) (4) (7) (10)
High Tech Industries
 
L + 4.50%
 
6.59%
 
6/29/2023
 
15,790

 
15,688

 
15,781

Alpha Packaging Holdings, Inc. (2) (3) (4) (11)
Containers, Packaging & Glass
 
L + 4.25%
 
6.58%
 
5/12/2020
 
16,947

 
16,908

 
16,947

AM Conservation Holding Corporation (2) (3) (4) (11)
Energy: Electricity
 
L + 4.50%
 
6.82%
 
10/31/2022
 
38,505

 
38,249

 
38,497

AQA Acquisition Holding, Inc. (2) (3) (4) (7) (10) (11)
High Tech Industries
 
L + 4.25%
 
6.58%
 
5/24/2023
 
27,266

 
27,158

 
27,266

Big Ass Fans, LLC (2) (3) (4) (11)
Capital Equipment
 
L + 3.75%
 
6.08%
 
5/21/2024
 
7,960

 
7,923

 
7,970

Borchers, Inc. (2) (3) (4) (7) (10) (11)
Chemicals, Plastics & Rubber
 
L + 4.50%
 
6.83%
 
11/1/2024
 
15,669

 
15,608

 
15,648

Brooks Equipment Company, LLC (2) (3) (4) (11)
Construction & Building
 
L + 5.00%
 
7.31%
 
8/29/2020
 
6,712

 
6,700

 
6,711

Clearent Newco, LLC (2) (3) (4) (7) (10)
High Tech Industries
 
L + 4.00%
 
6.08%
 
3/20/2024
 
22,428

 
22,016

 
22,215

DBI Holding LLC (2) (3) (4) (7) (11)
Transportation: Cargo
 
L + 5.25%
 
7.36%
 
8/1/2021
 
34,668

 
34,406

 
34,082

DecoPac, Inc. (2) (3) (4) (7) (10) (11)
Non-durable Consumer Goods
 
L + 4.25%
 
6.55%
 
9/29/2024
 
12,965

 
12,828

 
12,965

Dent Wizard International Corporation (2) (3) (4)
Automotive
 
L + 4.00%
 
6.1%
 
4/7/2020
 
24,379

 
24,282

 
24,325

DTI Holdco, Inc. (2) (3) (4) (11)
High Tech Industries
 
L + 4.75%
 
6.84%
 
9/30/2023
 
19,178

 
19,020

 
19,084

EIP Merger Sub, LLC (Evolve IP) (2) (3) (4) (8) (11)
Telecommunications
 
L + 5.75%
 
7.84%
 
6/7/2022
 
22,509

 
22,025

 
22,156

EIP Merger Sub, LLC (Evolve IP) (2) (3) (9) (11)
Telecommunications
 
L + 5.75%
 
7.84%
 
6/7/2022
 
1,500

 
1,465

 
1,480

Empower Payments Acquisitions, Inc. (2) (3) (4) (11)
Media: Advertising, Printing & Publishing
 
L + 4.50%
 
6.83%
 
11/30/2023
 
17,238

 
16,949

 
17,062

Exactech, Inc. (2) (3) (4)
Healthcare & Pharmaceuticals
 
L + 3.75%
 
5.84%
 
2/14/2025
 
12,968

 
12,911

 
13,040

Executive Consulting Group, LLC, Inc. (2) (3) (4) (10)
Business Services
 
L + 4.50%
 
6.59%
 
6/20/2024
 
15,395

 
15,217

 
15,327

Golden West Packaging Group LLC (2) (3) (4) (11)
Containers, Packaging & Glass
 
L + 5.25%
 
7.34%
 
6/20/2023
 
31,078

 
30,849

 
31,026

HMT Holding Inc. (2) (3) (4) (7) (10) (11)
Energy: Oil & Gas
 
L + 4.50%
 
6.59%
 
11/17/2023
 
36,374

 
35,739

 
36,374

J.S. Held LLC (2) (3) (4) (7) (10) (11)
Banking, Finance, Insurance & Real Estate
 
L + 5.25%
 
7.58%
 
9/27/2023
 
19,320

 
19,137

 
19,320

Jensen Hughes, Inc. (2) (3) (4) (7) (10) (11)
Utilities: Electric
 
L + 4.50%
 
6.59%
 
3/22/2024
 
25,536

 
25,344

 
25,653

Kestra Financial, Inc. (2) (3) (4) (11)
Banking, Finance, Insurance & Real Estate
 
L + 4.50%
 
6.8%
 
6/24/2022
 
21,847

 
21,625

 
21,809

MAG DS Corp. (2) (4) (7) (10)
Aerospace & Defense
 
L + 4.75%
 
5.84%
 
6/6/2025
 
20,000

 
19,782

 
19,932

Mold-Rite Plastics, LLC (2) (3) (4)
Chemicals, Plastics & Rubber
 
L + 4.50%
 
6.83%
 
12/14/2021
 
14,925

 
14,996

 
14,925

MSHC, Inc. (2) (3) (4) (7) (10) (11)
Construction & Building
 
L + 4.25%
 
6.58%
 
7/31/2023
 
14,790

 
14,746

 
14,784

North American Dental Management, LLC (2) (3) (4) (7) (10) (11)
Healthcare & Pharmaceuticals
 
L + 5.00%
 
7.09%
 
7/7/2023
 
29,228

 
28,539

 
29,036

North Haven CA Holdings, Inc. (CoAdvantage) (2) (3) (4) (7) (10) (11)
Business Services
 
L + 4.50%
 
6.83%
 
10/2/2023
 
28,670

 
28,359

 
28,670


43



Consolidated Schedule of Investments as of June 30, 2018
Investments (1)
Industry
 
Reference Rate & Spread (2)
 
Interest Rate (2)
 
Maturity Date
 
 Par/ Principal Amount
 
Amortized Cost (5)
 
Fair Value (6)
Odyssey Logistics & Technology Corporation (2) (3) (4) (11)
Transportation: Cargo
 
L + 3.75%
 
5.84%
 
10/12/2024
 
$
19,900

 
$
19,809

 
$
19,900

Output Services Group (2) (3) (4) (7) (10)
Media: Advertising, Printing & Publishing
 
L + 4.25%
 
6.34%
 
3/26/2024
 
12,405

 
12,333

 
12,430

PAI Holdco, Inc. (Parts Authority) (2) (3) (4) (7) (10) (11)
Automotive
 
L + 4.25%
 
6.58%
 
1/5/2025
 
16,523

 
16,426

 
16,499

Paradigm Acquisition Corp. (2) (3) (4) (11)
Business Services
 
L + 4.25%
 
6.7%
 
10/12/2024
 
23,383

 
23,329

 
23,383

Park Place Technologies, Inc. (2) (3) (4)
High Tech Industries
 
L + 4.00%
 
6.09%
 
3/29/2025
 
15,000

 
14,926

 
15,002

Pasternack Enterprises, Inc. (Infinite RF) (2) (3) (4)
Capital Equipment
 
L + 5.00%
 
7.09%
 
5/27/2022
 
20,126

 
20,040

 
20,126

Pharmalogic Holdings Corp. (2) (3) (4) (10)
Healthcare & Pharmaceuticals
 
L + 4.00%
 
6.09%
 
6/11/2023
 
7,052

 
7,028

 
7,052

Ping Identity Corporation (2) (3) (4)
High Tech Industries
 
L + 3.75%
 
5.84%
 
1/25/2025
 
5,000

 
4,981

 
5,006

Premier Senior Marketing, LLC (2) (3) (4) (11)
Banking, Finance, Insurance & Real Estate
 
L + 5.00%
 
7.09%
 
7/1/2022
 
15,753

 
15,650

 
15,700

Propel Insurance Agency, LLC (2) (3) (4) (7) (10)
Banking, Finance, Insurance & Real Estate
 
L + 4.50%
 
6.59%
 
6/1/2024
 
21,190

 
20,596

 
20,827

PSI Services LLC (2) (3) (4) (7) (10) (11)
Business Services
 
L + 5.00%
 
7.09%
 
1/20/2023
 
30,070

 
29,574

 
29,758

Q Holding Company (2) (3) (4) (11)
Automotive
 
L + 5.00%
 
7.09%
 
12/18/2021
 
17,188

 
17,141

 
17,159

QW Holding Corporation (Quala) (2) (3) (4) (7) (10) (11)
Environmental Industries
 
L + 6.75%
 
8.73%
 
8/31/2022
 
9,754

 
9,323

 
9,290

Radiology Partners, Inc. (2) (3) (4) (7) (10)
Healthcare & Pharmaceuticals
 
L + 5.75%
 
7.84%
 
12/4/2023
 
29,035

 
28,755

 
29,633

Restaurant Technologies, Inc. (2) (3) (4) (11)
Retail
 
L + 4.75%
 
7.07%
 
11/23/2022
 
17,281

 
17,156

 
17,281

Situs Group Holdings Corporation (2) (3) (4)
Banking, Finance, Insurance & Real Estate
 
L + 4.50%
 
6.59%
 
2/26/2023
 
11,970

 
11,955

 
11,980

Sovos Brands Intermediate, Inc. (2) (3) (4) (7) (10) (11)
Beverage, Food & Tobacco
 
L + 4.50%
 
6.67%
 
7/18/2024
 
21,459

 
21,315

 
20,817

Superion, LLC (fka Ramundsen Public Sector, LLC) (2) (3) (4) (11)
Sovereign & Public Finance
 
L + 4.25%
 
6.34%
 
2/1/2024
 
3,950

 
3,934

 
3,941

Surgical Information Systems, LLC (2) (3) (4) (9) (11)
High Tech Industries
 
L + 4.85%
 
6.94%
 
4/24/2023
 
27,708

 
27,475

 
27,608

Systems Maintenance Services Holding, Inc. (2) (3) (4) (11)
High Tech Industries
 
L + 5.00%
 
7.09%
 
10/28/2023
 
24,133

 
24,009

 
19,065

T2 Systems Canada, Inc. (2) (3) (4)
Transportation: Consumer
 
L + 6.75%
 
8.84%
 
9/28/2022
 
2,659

 
2,608

 
2,664

T2 Systems, Inc. (2) (3) (4) (7) (10) (11)
Transportation: Consumer
 
L + 6.75%
 
8.84%
 
9/28/2022
 
15,852

 
15,532

 
15,880

The Original Cakerie, Ltd. (Canada) (2) (3) (4) (7) (10)
Beverage, Food & Tobacco
 
L + 4.50%
 
6.56%
 
7/20/2022
 
6,773

 
6,725

 
6,760

The Original Cakerie, Co. (Canada) (2) (3) (4) (11)
Beverage, Food & Tobacco
 
L + 5.00%
 
7.09%
 
7/20/2022
 
9,087

 
9,029

 
9,075

ThoughtWorks, Inc.  (2) (3) (4) (7) (10) (11)
Business Services
 
L + 4.00%
 
6.09%
 
10/12/2024
 
10,286

 
10,249

 
10,342

U.S. Acute Care Solutions, LLC (2) (3) (4) (11)
Healthcare & Pharmaceuticals
 
L + 5.00%
 
7.09%
 
5/15/2021
 
31,748

 
31,554

 
31,214

U.S. TelePacific Holdings Corp. (2) (3) (4) (11)
Telecommunications
 
L + 5.00%
 
7.33%
 
5/2/2023
 
28,668

 
28,416

 
28,232

Upstream Intermediate, LLC (2) (3) (4) (7) (10)
Healthcare & Pharmaceuticals
 
L + 4.50%
 
6.55%
 
1/3/2024
 
18,803

 
18,710

 
18,803

Valicor Environmental Services, LLC (2) (3) (4) (7) (10) (11)
Environmental Industries
 
L + 5.00%
 
7.05%
 
6/1/2023
 
26,781

 
26,348

 
26,721

WIRB - Copernicus Group, Inc. (2) (3) (4) (7) (10) (11)
Healthcare & Pharmaceuticals
 
L + 4.25%
 
6.34%
 
8/12/2022
 
16,559

 
16,450

 
16,444

WRE Holding Corp. (2) (3) (4) (7) (10) (11)
Environmental Industries
 
L + 4.75%
 
6.84%
 
1/3/2023
 
7,188

 
7,105

 
7,096


44



Consolidated Schedule of Investments as of June 30, 2018
Investments (1)
Industry
 
Reference Rate & Spread (2)
 
Interest Rate (2)
 
Maturity Date
 
 Par/ Principal Amount
 
Amortized Cost (5)
 
Fair Value (6)
Zywave, Inc. (2) (3) (4) (7) (10) (11)
High Tech Industries
 
L + 5.00%
 
7.34%
 
11/17/2022
 
$
17,536

 
$
17,386

 
$
17,536

First Lien Debt Total
 
 
 
 
 
 
 
 
 
 
$
1,129,009

 
$
1,130,095

Second Lien Debt (0.53% of fair value)
 
 
 
 
 
 
 
 
 
 
 
 
 
Paradigm Acquisition Corp. (2) (3) (11)
Business Services
 
L + 8.50%
 
10.97%
 
10/12/2025
 
$
4,800

 
$
4,755

 
$
4,860

Superion, LLC (fka Ramundsen Public Sector, LLC) (2) (3) (11)
Sovereign & Public Finance
 
L + 8.50%
 
10.59%
 
2/1/2025
 
200

 
198

 
200

Zywave, Inc. (2) (3) (11)
High Tech Industries
 
L + 9.00%
 
11.33%
 
11/17/2023
 
1,050

 
1,037

 
1,061

Second Lien Debt Total
 
 
 
 
 
 
 
 
 
 
$
5,990

 
$
6,121

Total Investments
 
 
 
 
 
 
 
 
 
 
$
1,134,999

 
$
1,136,216

(1)
Unless otherwise indicated, issuers of investments held by Credit Fund are domiciled in the United States. As of June 30, 2018, the geographical composition of investments as a percentage of fair value was 1.39% in Canada and 98.61% in the United States. Certain portfolio company investments are subject to contractual restrictions on sales.
(2)
Variable rate loans to the portfolio companies bear interest at a rate that is determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate), which generally resets quarterly. For each such loan, Credit Fund has indicated the reference rate used and provided the spread and the interest rate in effect as of June 30, 2018. As of June 30, 2018, the reference rates for Credit Fund’s variable rate loans were the 30-day LIBOR at 2.09%, the 90-day LIBOR at 2.34% and the 180-day LIBOR at 2.50%.
(3)
Loan includes interest rate floor feature, which is generally 1.00%.
(4)
Denotes that all or a portion of the assets are owned by Credit Fund Sub. Credit Fund Sub has entered into a revolving credit facility (the “Credit Fund Sub Facility”). The lenders of the Credit Fund Sub Facility have a first lien security interest in substantially all of the assets of Credit Fund Sub. Accordingly, such assets are not available to creditors of Credit Fund or the 2017-1 Issuer.
(5)
Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.
(6)
Fair value is determined in good faith by or under the direction of the board of managers of Credit Fund, pursuant to Credit Fund’s valuation policy, with the fair value of all investments determined using significant unobservable inputs, which is substantially similar to the valuation policy of the Company provided in Note 3, Fair Value Measurements.
(7)
Denotes that all or a portion of the assets are owned by Credit Fund. Credit Fund has entered into the Credit Fund Facility. The lenders of the Credit Fund Facility have a first lien security interest in substantially all of the assets of Credit Fund. Accordingly, such assets are not available to creditors of Credit Fund Sub or the 2017-1 Issuer.
(8)
Credit Fund receives less than the stated interest rate of this loan as a result of an agreement among lenders. The interest rate reduction is 1.20% on EIP Merger Sub, LLC (Evolve IP). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.
(9)
In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, Credit Fund is entitled to receive additional interest as a result of an agreement among lenders as follows: EIP Merger Sub, LLC (Evolve IP) (3.80%) and Surgical Information Systems, LLC (0.91%). Pursuant to the agreement among lenders in respect of these loans, these investments represent a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.
(10)
As of June 30, 2018, Credit Fund had the following unfunded commitments to fund delayed draw and revolving senior secured loans:

45



First Lien Debt—unfunded delayed draw and revolving term loans commitments
Type
 
Unused Fee
 
Par/ Principal Amount
 
Fair Value
Advanced Instruments, LLC
Revolver
 
0.50
%
 
$
1,333

 
$
(7
)
Ahead, LLC
Revolver
 
0.50

 
4,211

 
(2
)
AQA Acquisition Holding, Inc.
Revolver
 
0.50

 
2,459

 

Borchers, Inc.
Revolver
 
0.50

 
1,936

 
(2
)
Clearent Newco, LLC
Delayed Draw
 
1.00

 
6,000

 
(43
)
Clearent Newco, LLC
Revolver
 
0.50

 
1,520

 
(11
)
DecoPac, Inc.
Revolver
 
0.50

 
1,907

 

Executive Consulting Group, LLC.
Revolver
 
0.50

 
2,368

 
(9
)
HMT Holding Inc.
Revolver
 
0.50

 
3,457

 

J.S. Held LLC
Delayed Draw
 
1.00

 
1,044

 

Jensen Hughes, Inc.
Delayed Draw
 
1.00

 
3,143

 
12

Jensen Hughes, Inc.
Revolver
 
0.50

 
1,636

 
6

MAG DS Corp.
Revolver
 
0.50

 
5,000

 
(14
)
MSHC, Inc.
Delayed Draw
 

 
15,185

 
(3
)
North American Dental Management, LLC
Delayed Draw
 
1.00

 
7,980

 
(38
)
North American Dental Management, LLC
Revolver
 
0.50

 
2,727

 
(13
)
North Haven CA Holdings, Inc. (CoAdvantage)
Revolver
 
0.50

 
6,114

 

Output Services Group
Delayed Draw
 
4.25

 
2,564

 
4

PAI Holdco, Inc. (Parts Authority)
Delayed Draw
 
1.00

 
3,286

 
(4
)
Pharmalogic Holdings Corp.
Revolver
 
0.50

 
2,947

 

Propel Insurance Agency, LLC
Delayed Draw
 
0.50

 
7,143

 
(86
)
Propel Insurance Agency, LLC
Revolver
 
0.50

 
1,667

 
(20
)
PSI Services LLC
Revolver
 
0.50

 
754

 
(8
)
QW Holding Corporation (Quala)
Delayed Draw
 
1.00

 
7,515

 
(153
)
QW Holding Corporation (Quala)
Revolver
 
0.50

 
5,498

 
(112
)
Radiology Partners, Inc.
Revolver
 
0.50

 
841

 
17

Sovos Brands Intermediate, Inc.
Revolver
 
0.50

 
3,378

 
(88
)
T2 Systems, Inc.
Revolver
 
0.50

 
1,173

 
2

The Original Cakerie, Ltd. (Canada)
Revolver
 
0.50

 
1,365

 
(2
)
ThoughtWorks, Inc.
Delayed Draw
 
2.00

 
1,714

 
8

Upstream Intermediate, LLC
Revolver
 
0.50

 
1,151

 

Valicor Environmental Services, LLC
Revolver
 
0.50

 
2,838

 
(6
)
WIRB - Copernicus Group, Inc.
Delayed Draw
 
1.00

 
7,200

 
(33
)
WIRB - Copernicus Group, Inc.
Revolver
 
0.50

 
1,000

 
(5
)
WRE Holding Corp.
Delayed Draw
 
1.06

 
2,336

 
(22
)
WRE Holding Corp.
Revolver
 
0.50

 
412

 
(4
)
Zywave, Inc.
Revolver
 
0.50

 
1,148

 

Total unfunded commitments
 
 
 
 
$
123,950

 
$
(636
)
(11)
Denotes that all or a portion of the assets are owned by the 2017-1 Issuer and secure the notes issued in connection with a $399,900 term debt securitization completed by Credit Fund on December 19, 2017 (the “2017-1 Debt Securitization”). Accordingly, such assets are not available to creditors of Credit Fund or Credit Fund Sub.



46



Consolidated Schedule of Investments as of December 31, 2017
Investments (1)
Industry
 
Interest Rate (2)
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (5)
 
Fair Value (6)
First Lien Debt (99.39% of fair value)
 
 
 
 
 
 
 
 
 
 
 
Acrisure, LLC (2)(3)(4)(11)
Banking, Finance, Insurance & Real Estate
 
L + 4.25% (1.00% Floor)
 
11/22/2023
 
$
21,097

 
$
21,055

 
$
21,291

Advanced Instruments, LLC (2)(3)(4)(7)(10)(11)(13)
Healthcare & Pharmaceuticals
 
L + 5.25% (1.00% Floor)
 
10/31/2022
 
11,910

 
11,793

 
11,910

Alpha Packaging Holdings, Inc. (2)(3)(4)(13)
Containers, Packaging & Glass
 
L + 4.25% (1.00% Floor)
 
5/12/2020
 
16,860

 
16,812

 
16,860

AM Conservation Holding Corporation (2)(3)(4)(13)
Energy: Electricity
 
L + 4.50% (1.00% Floor)
 
10/31/2022
 
38,700

 
38,433

 
38,553

AMS Finco, S.A.R.L. (Alexander Mann Solutions) (United Kingdom) (2)(3)(4)(11)(13)
Business Services
 
L + 5.50% (1.00% Floor)
 
5/26/2024
 
24,875

 
24,646

 
24,875

Anaren, Inc. (2)(3)(4)
Telecommunications
 
L + 4.50% (1.00% Floor)
 
2/18/2021
 
9,993

 
9,971

 
9,993

AQA Acquisition Holding, Inc. (2)(3)(4)(7)(10)(13)
High Tech Industries
 
L + 4.50% (1.00% Floor)
 
5/24/2023
 
27,403

 
27,288

 
27,403

Big Ass Fans, LLC (2)(3)(4)(13)
Capital Equipment
 
L + 4.25% (1.00% Floor)
 
5/21/2024
 
8,000

 
7,964

 
8,010

Borchers, Inc. (2)(3)(4)(7)(10)(13)
Chemicals, Plastics & Rubber
 
L + 4.50% (1.00% Floor)
 
11/1/2024
 
15,748

 
15,694

 
15,665

Brooks Equipment Company, LLC (2)(3)(4)(13)
Construction & Building
 
L + 5.00% (1.00% Floor)
 
8/29/2020
 
7,061

 
7,045

 
7,061

DBI Holding LLC (2)(3)(4)(11)(13)
Transportation: Cargo
 
L + 5.25% (1.00% Floor)
 
8/1/2021
 
19,800

 
19,659

 
19,833

DecoPac, Inc. (2)(3)(4)(7)(10)(13)
Non-durable Consumer Goods
 
L + 4.25% (1.00% Floor)
 
9/29/2024
 
13,414

 
13,270

 
13,415

Dent Wizard International Corporation (2)(3)(4)(11)
Automotive
 
L + 4.75% (1.00% Floor)
 
4/7/2020
 
24,502

 
24,382

 
24,475

DTI Holdco, Inc. (2)(3)(4)(11)(13)
High Tech Industries
 
L + 5.25% (1.00% Floor)
 
9/30/2023
 
19,750

 
19,575

 
19,663

EIP Merger Sub, LLC (Evolve IP) (2)(3)(4)(8)(11)(13)
Telecommunications
 
L + 6.25% (1.00% Floor)
 
6/7/2022
 
22,663

 
22,127

 
22,153

EIP Merger Sub, LLC (Evolve IP) (2)(3)(9)(11)(13)
Telecommunications
 
L + 6.25% (1.00% Floor)
 
6/7/2022
 
1,500

 
1,462

 
1,470

Empower Payments Acquisitions, Inc. (2)(3)(4)(13)
Media: Advertising, Printing & Publishing
 
L + 5.50% (1.00% Floor)
 
11/30/2023
 
17,325

 
17,018

 
17,325

FCX Holdings Corp. (2)(3)(4)(11)
Capital Equipment
 
L + 4.50% (1.00% Floor)
 
8/4/2020
 
18,491

 
18,438

 
18,512

Golden West Packaging Group LLC (2)(3)(4)(11)(13)
Containers, Packaging & Glass
 
L + 5.25% (1.00% Floor)
 
6/20/2023
 
20,895

 
20,709

 
20,895

HMT Holding Inc. (2)(3)(4)(7)(10)(13)
Energy: Oil & Gas
 
L + 4.50% (1.00% Floor)
 
11/17/2023
 
35,062

 
34,387

 
34,709

J.S. Held LLC (2)(3)(4)(7)(10)(13)
Banking, Finance, Insurance & Real Estate
 
L + 5.50% (1.00% Floor)
 
9/27/2023
 
18,204

 
18,018

 
18,144

Jensen Hughes, Inc. (2)(3)(4)(7)(10)(11)(13)
Utilities: Electric
 
L + 5.00% (1.00% Floor)
 
12/4/2021
 
20,963

 
20,784

 
20,963

Kestra Financial, Inc. (2)(3)(4)(13)
Banking, Finance, Insurance & Real Estate
 
L + 5.25% (1.00% Floor)
 
6/24/2022
 
17,206

 
17,009

 
17,203

Mold-Rite Plastics, LLC (2)(3)(4)(11)
Chemicals, Plastics & Rubber
 
L + 4.50% (1.00% Floor)
 
12/14/2021
 
15,000

 
14,946

 
14,993

MSHC, Inc. (2)(3)(4)(13)
Construction & Building
 
L + 4.25% (1.00% Floor)
 
7/31/2023
 
10,000

 
9,957

 
10,032

North American Dental Management, LLC (2)(3)(4)(7)(10)(11)(13)
Healthcare & Pharmaceuticals
 
L + 5.00% (1.00% Floor)
 
7/7/2023
 
23,978

 
23,157

 
23,577

North Haven CA Holdings, Inc. (CoAdvantage) (2)(3)(4)(7)(10)(13)
Business Services
 
L + 4.50% (1.00% Floor)
 
10/2/2023
 
31,565

 
31,237

 
31,436

Odyssey Logistics & Technology Corporation (2)(3)(4)(11)(13)
Transportation: Cargo
 
L + 4.25% (1.00% Floor)
 
10/12/2024
 
20,000

 
19,906

 
19,998

PAI Holdco, Inc. (Parts Authority) (2)(3)(4)(7)(10)(11)(13)
Automotive
 
L + 4.75% (1.00% Floor)
 
12/30/2022
 
16,564

 
16,459

 
16,515

Paradigm Acquisition Corp. (2)(3)(4)(13)
Business Services
 
L + 4.25% (1.00% Floor)
 
10/12/2024
 
23,500

 
23,445

 
23,554


47



Consolidated Schedule of Investments as of December 31, 2017
Investments (1)
Industry
 
Interest Rate (2)
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (5)
 
Fair Value (6)
Pasternack Enterprises, Inc. (Infinite RF) (2)(3)(4)(11)
Capital Equipment
 
L + 5.00% (1.00% Floor)
 
5/27/2022
 
$
20,228

 
$
20,134

 
$
20,174

Premier Senior Marketing, LLC (2)(3)(4)(11)(13)
Banking, Finance, Insurance & Real Estate
 
L + 5.00% (1.00% Floor)
 
7/1/2022
 
11,675

 
11,606

 
11,628

PSI Services LLC (2)(3)(4)(7)(10)(11)(13)
Business Services
 
L + 5.00% (1.00% Floor)
 
1/20/2023
 
30,676

 
30,171

 
30,082

Q Holding Company (2)(3)(4)(13)
Automotive
 
L + 5.00% (1.00% Floor)
 
12/18/2021
 
17,277

 
17,227

 
17,277

QW Holding Corporation (Quala) (2)(3)(4)(7)(10)(11)(13)
Environmental Industries
 
L + 6.75% (1.00% Floor)
 
8/31/2022
 
11,453

 
10,879

 
10,933

Radiology Partners, Inc. (2)(3)(4)(7)(10)(12)
Healthcare & Pharmaceuticals
 
L + 5.75% (1.00% Floor)
 
12/4/2023
 
25,793

 
25,494

 
25,642

Restaurant Technologies, Inc. (2)(3)(4)(11)(13)
Retail
 
L + 4.75% (1.00% Floor)
 
11/23/2022
 
17,369

 
17,241

 
17,219

Sovos Brands Intermediate, Inc. (2)(3)(4)(7)(10)(13)
Beverage, Food & Tobacco
 
L + 4.50% (1.00% Floor)
 
7/18/2024
 
21,568

 
21,419

 
21,633

Superion (fka Ramundsen Public Sector, LLC) (2)(3)(4)(13)
Sovereign & Public Finance
 
L + 4.25% (1.00% Floor)
 
2/1/2024
 
3,970

 
3,955

 
4,000

Surgical Information Systems, LLC (2)(3)(4)(9)(11)(13)
High Tech Industries
 
L + 5.00% (1.00% Floor)
 
4/24/2023
 
30,000

 
29,728

 
30,075

Systems Maintenance Services Holding, Inc. (2)(3)(4)(11)(13)
High Tech Industries
 
L + 5.00% (1.00% Floor)
 
10/28/2023
 
24,255

 
24,126

 
20,617

T2 Systems Canada, Inc. (2)(3)(4)
Transportation: Consumer
 
L + 6.75% (1.00% Floor)
 
9/28/2022
 
2,673

 
2,617

 
2,634

T2 Systems, Inc. (2)(3)(4)(7)(10)(13)
Transportation: Consumer
 
L + 6.75% (1.00% Floor)
 
9/28/2022
 
15,929

 
15,577

 
15,679

Teaching Strategies, LLC (2)(3)(4)(7)(10)(11)(13)
Media: Advertising, Printing & Publishing
 
L + 4.75% (1.00% Floor)
 
2/27/2023
 
17,964

 
17,803

 
17,952

The Original Cakerie, Ltd. (Canada) (2)(3)(4)(7)(10)(11)
Beverage, Food & Tobacco
 
L + 5.00% (1.00% Floor)
 
7/20/2021
 
6,939

 
6,879

 
6,922

The Original Cakerie, Co. (Canada) (2)(3)(11)(13)
Beverage, Food & Tobacco
 
L + 5.50% (1.00% Floor)
 
7/20/2021
 
3,585

 
3,572

 
3,579

ThoughtWorks, Inc. (2)(3)(11)(13)
Business Services
 
L + 4.50% (1.00% Floor)
 
10/12/2024
 
8,000

 
7,980

 
8,032

U.S. Acute Care Solutions, LLC (2)(3)(4)(13)
Healthcare & Pharmaceuticals
 
L + 5.00% (1.00% Floor)
 
5/15/2021
 
32,030

 
31,808

 
31,537

U.S. TelePacific Holdings Corp. (2)(3)(4)(13)
Telecommunications
 
L + 5.00% (1.00% Floor)
 
5/2/2023
 
29,850

 
29,566

 
28,581

Valicor Environmental Services, LLC (2)(3)(4)(7)(10)(11)(13)
Environmental Industries
 
L + 5.00% (1.00% Floor)
 
6/1/2023
 
27,047

 
26,576

 
26,984

WIRB - Copernicus Group, Inc. (2)(3)(4)(13)
Healthcare & Pharmaceuticals
 
L + 5.00% (1.00% Floor)
 
8/12/2022
 
14,838

 
14,780

 
14,838

WRE Holding Corp. (2)(3)(4)(7)(10)(11)(13)
Environmental Industries
 
L + 4.75% (1.00% Floor)
 
1/3/2023
 
5,367

 
5,283

 
5,279

Zest Holdings, LLC (2)(3)(4)(11)
Durable Consumer Goods
 
L + 4.25% (1.00% Floor)
 
8/16/2023
 
19,152

 
19,107

 
19,272

Zywave, Inc. (2)(3)(4)(7)(10)(13)
High Tech Industries
 
L + 5.00% (1.00% Floor)
 
11/17/2022
 
17,663

 
17,508

 
17,663

First Lien Debt Total
 
 
 
 
 
 
 
 
$
977,682

 
$
978,718

Second Lien Debt (0.61% of fair value)
 
 
 
 
 
 
 
 
 
 
 
Paradigm Acquisition Corp. (2)(3)(12)(13)
Business Services
 
L + 8.50% (1.00% Floor)
 
10/12/2025
 
$
4,800

 
$
4,753

 
$
4,792

Superion, LLC (fka Ramundsen Public Sector, LLC) (2)(3)(13)
Sovereign & Public Finance
 
L + 8.50% (1.00% Floor)
 
2/1/2025
 
200

 
198

 
202

Zywave, Inc. (2)(3)(13)
High Tech Industries
 
L + 9.00% (1.00% Floor)
 
11/17/2023
 
1,050

 
1,036

 
1,061

Second Lien Debt Total
 
 
 
 
 
 
 
 
$
5,987

 
$
6,055

Total Investments
 
 
 
 
 
 
 
 
$
983,669

 
$
984,773

(1)
Unless otherwise indicated, issuers of investments held by Credit Fund are domiciled in the United States. As of December 31, 2017, the geographical composition of investments as a percentage of fair value was 1.07% in Canada, 2.52% in the United Kingdom and 96.41% in the United States.

48



(2)
Variable rate loans to the portfolio companies bear interest at a rate that may be determined by reference to either LIBOR (“L”) or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate (“P”)), which generally resets quarterly. For each such loan, Credit Fund has provided the interest rate in effect as of December 31, 2017. As of December 31, 2017, all of Credit Fund’s LIBOR loans were indexed to the 90-day LIBOR rate at 1.69%, except for those loans as indicated in Notes 11 and 12 below.
(3)
Loan includes interest rate floor feature.
(4)
Denotes that all or a portion of the assets are owned by Credit Fund Sub. Credit Fund Sub has entered into the Credit Fund Sub Facility. The lenders of the Credit Fund Sub Facility have a first lien security interest in substantially all of the assets of Credit Fund Sub. Accordingly, such assets are not available to creditors of Credit Fund or the 2017-1 Issuer.
(5)
Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.
(6)
Fair value is determined in good faith by or under the direction of the board of managers of Credit Fund, pursuant to Credit Fund’s valuation policy, with the fair value of all investments determined using significant unobservable inputs, which is substantially similar to the valuation policy of the Company provided in “—Critical Accounting Policies—Fair Value Measurements.”
(7)
Denotes that all or a portion of the assets are owned by Credit Fund. Credit Fund has entered into the Credit Fund Facility. The lenders of the Credit Fund Facility have a first lien security interest in substantially all of the assets of Credit Fund. Accordingly, such assets are not available to creditors of Credit Fund Sub or the 2017-1 Issuer.
(8)
Credit Fund receives less than the stated interest rate of this loan as a result of an agreement among lenders. The interest rate reduction is 1.25% on EIP Merger Sub, LLC (Evolve IP). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.
(9)
In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, Credit Fund is entitled to receive additional interest as a result of an agreement among lenders as follows: EIP Merger Sub, LLC (Evolve IP) (3.97%) and Surgical Information Systems, LLC (1.01%). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.
(10)
As of December 31, 2017, Credit Fund had the following unfunded commitments to fund delayed draw and revolving senior secured loans:
First Lien Debt—unfunded delayed draw and revolving term loans commitments
Type
 
Unused Fee
 
Par/ Principal Amount
 
Fair Value
Advanced Instruments, LLC
Revolver
 
0.50
%
 
$
1,333

 
$

AQA Acquisition Holding, Inc.
Revolver
 
0.50
%
 
2,459

 

Borchers, Inc.
Revolver
 
0.50
%
 
1,935

 
(9
)
DecoPac, Inc.
Revolver
 
0.50
%
 
1,457

 

HMT Holding Inc.
Revolver
 
0.50
%
 
4,938

 
(43
)
Jensen Hughes, Inc.
Delayed Draw
 
1.00
%
 
1,180

 

Jensen Hughes, Inc.
Revolver
 
0.50
%
 
2,000

 

J.S. Held LLC
Delayed Draw
 
1.00
%
 
2,253

 
(7
)
North American Dental Management, LLC
Delayed Draw
 
1.00
%
 
13,354

 
(134
)
North American Dental Management, LLC
Revolver
 
0.50
%
 
2,727

 
(27
)
North Haven CA Holdings, Inc. (CoAdvantage)
Revolver
 
0.50
%
 
3,362

 
(12
)
PAI Holdco, Inc. (Parts Authority)
Delayed Draw
 
1.00
%
 
3,286

 
(8
)
PSI Services LLC
Revolver
 
0.50
%
 
302

 
(6
)
QW Holding Corporation (Quala)
Delayed Draw
 
1.00
%
 
7,515

 
(171
)
QW Holding Corporation (Quala)
Revolver
 
0.50
%
 
3,849

 
(88
)
Radiology Partners, Inc.
Delayed Draw
 
1.00
%
 
2,483

 
(12
)
Radiology Partners, Inc.
Revolver
 
0.50
%
 
1,725

 
(9
)
Sovos Brands Intermediate, Inc.
Revolver
 
0.50
%
 
3,378

 
9

T2 Systems, Inc.
Revolver
 
0.50
%
 
1,173

 
(17
)
Teaching Strategies, LLC
Revolver
 
0.50
%
 
1,900

 
(1
)
The Original Cakerie, Ltd. (Canada)
Revolver
 
0.50
%
 
1,665

 
(3
)
Valicor Environmental Services, LLC
Revolver
 
0.50
%
 
2,838

 
(6
)
WRE Holding Corp.
Delayed Draw
 
1.04
%
 
3,435

 
(32
)
WRE Holding Corp.
Revolver
 
0.50
%
 
748

 
(7
)
Zywave, Inc.
Revolver
 
0.50
%
 
1,163

 

Total unfunded commitments
 
 
 
 
$
72,458

 
$
(583
)
(11)
As of December 31, 2017, this LIBOR loan was indexed to the 30-day LIBOR rate at 1.56%.

49



(12)
As of December 31, 2017, this LIBOR loan was indexed to the 180-day LIBOR rate at 1.84%.
(13)
Denotes that all or a portion of the assets are owned by the 2017-1 Issuer and secure the notes issued in connection with the 2017-1 Debt Securitization. Accordingly, such assets are not available to creditors of Credit Fund or Credit Fund Sub.
Below is certain summarized consolidated financial information for Credit Fund as of June 30, 2018 and December 31, 2017, respectively. Credit Fund commenced operations in May 2016.
 
 
June 30, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
Selected Consolidated Balance Sheet Information
 
 
 
 
ASSETS
 
 
 
 
Investments, at fair value (amortized cost of $1,134,999 and $983,669, respectively)
 
$
1,136,216

 
$
984,773

Cash and other assets
 
56,319

 
26,441

Total assets
 
$
1,192,535

 
$
1,011,214

LIABILITIES AND MEMBERS’ EQUITY
 
 
 
 
Secured borrowings
 
$
450,950

 
$
377,686

2017-1 Notes payable, net of unamortized debt issuance costs of $1,949 and $2,051, respectively
 
347,250

 
348,938

Mezzanine loans
 
114,000

 
85,750

Other liabilities
 
92,325

 
25,308

Subordinated loans and members’ equity
 
188,010

 
173,532

Liabilities and members’ equity
 
$
1,192,535

 
$
1,011,214

 
 
For the three month periods ended
 
For the six month periods ended
 
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
 
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
(unaudited)
Selected Consolidated Statement of Operations Information:
 
 
 
 
 
 
 
 
Total investment income
 
$
20,480

 
$
10,706

 
$
38,391

 
$
18,888

Expenses
 
 
 
 
 
 
 
 
Interest and credit facility expenses
 
13,101

 
6,922

 
23,757

 
12,395

Other expenses
 
380

 
367

 
769

 
685

Total expenses
 
13,481

 
7,289

 
24,526

 
13,080

Net investment income (loss)
 
6,999

 
3,417

 
13,865

 
5,808

Net realized gain (loss) on investments
 

 

 

 

Net change in unrealized appreciation (depreciation) on investments
 
(2,922
)
 
450

 
113

 
1,187

Net increase (decrease) resulting from operations
 
$
4,077

 
$
3,867

 
$
13,978

 
$
6,995

Debt
Credit Fund Facility
On June 24, 2016, Credit Fund entered into the Credit Fund Facility with the Company pursuant to which Credit Fund may from time to time request mezzanine loans from the Company, which was subsequently amended on June 5, 2017, October 2, 2017, November 3, 2017, June 22, 2018 and June 29, 2018. The maximum principal amount of the Credit Fund Facility is $175,000. The maturity date of the Credit Fund Facility is March 22, 2019. Amounts borrowed under the Credit Fund Facility bear interest at a rate of LIBOR plus 9.00%.
During the three month periods ended June 30, 2018 and 2017, there were mezzanine loan borrowings of $25,300 and $38,500, respectively, and repayments of $18,900 and $11,444, respectively, under the Credit Fund Facility. During the six month periods ended June 30, 2018 and 2017, there were mezzanine loan borrowings of $47,150 and $84,160, respectively, and repayments of $18,900 and $33,444, respectively, under the Credit Fund Facility. As of June 30, 2018 and December 31, 2017, there were $114,000 and $85,750 in mezzanine loans outstanding, respectively.
As of June 30, 2018 and December 31, 2017, Credit Fund was in compliance with all covenants and other requirements of the Credit Fund Facility.

50



Credit Fund Sub Facility
On June 24, 2016, Credit Fund Sub closed on the Credit Fund Sub Facility with lenders, which was subsequently amended on May 31, 2017 and October 27, 2017. The Credit Fund Sub Facility provides for secured borrowings during the applicable revolving period up to an amount equal to $640,000. The facility is secured by a first lien security interest in substantially all of the portfolio investments held by Credit Fund Sub. The maturity date of the Credit Fund Sub Facility is May 22, 2023. Amounts borrowed under the Credit Fund Sub Facility bear interest at a rate of LIBOR plus 2.50%.
During the three month periods ended June 30, 2018 and 2017, there were secured borrowings of $41,300 and $178,570, respectively, and repayments of $20,966 and $0, respectively, under the Credit Fund Sub Facility. During the six month periods ended June 30, 2018 and 2017, there were secured borrowings of $109,265 and $297,405, respectively, and repayments of $36,001 and $0, respectively, under the Credit Fund Sub Facility. As of June 30, 2018 and December 31, 2017, there was $450,950 and $377,686 in secured borrowings outstanding, respectively.
As of June 30, 2018 and December 31, 2017, Credit Fund Sub was in compliance with all covenants and other requirements of the Credit Fund Sub Facility.
2017-1 Notes
On December 19, 2017, Credit Fund completed the 2017-1 Debt Securitization. The notes offered in the 2017-1 Debt Securitization (the “2017-1 Notes”) were issued by the 2017-1 Issuer, a wholly owned and consolidated subsidiary of Credit Fund, and are secured by a diversified portfolio of the 2017-1 Issuer consisting primarily of first and second lien senior secured loans. The 2017-1 Debt Securitization was executed through a private placement of the 2017-1 Notes, consisting of $231,700 of Aaa/AAA Class A-1 Notes, which bear interest at the three-month LIBOR plus 1.17%; $48,300 of Aa2/AA Class A-2 Notes, which bear interest at the three-month LIBOR plus 1.50%; $15,000 of A2/A Class B-1 Notes, which bear interest at the three-month LIBOR plus 2.25%; $9,000 of A2/A Class B-2 Notes which bear interest at 4.30%; $22,900 of Baa2/BBB Class C Notes which bear interest at the three-month LIBOR plus 3.20%; and $25,100 of Ba2/BB Class D Notes which bear interest at the three-month LIBOR plus 6.38%. The 2017-1 Notes are scheduled to mature on January 15, 2028. Credit Fund received 100% of the preferred interests issued by the 2017-1 Issuer (the “2017-1 Issuer Preferred Interests”) on the closing date of the 2017-1 Debt Securitization in exchange for Credit Fund’s contribution to the 2017-1 Issuer of the initial closing date loan portfolio. The 2017-1 Issuer Preferred Interests do not bear interest and had a nominal value of $47,900 at closing.
6. BORROWINGS
In accordance with the Investment Company Act, the Company is currently only allowed to borrow amounts such that its asset coverage, as defined in the Investment Company Act, is at least 150% after such borrowing. As of June 30, 2018 and December 31, 2017, asset coverage was 230.73% and 234.86%, respectively. During the three month and six month periods ended June 30, 2018, there were secured borrowings of $170,000 and $423,050, respectively, under the SPV Credit Facility and Credit Facility and repayments of $112,760 and $400,838, respectively, under the SPV Credit Facility and Credit Facility. During the three month and six month periods ended June 30, 2017, there were secured borrowings of $213,000 and $306,000, respectively, under the SPV Credit Facility and Credit Facility and repayments of $272,011 and $396,288, respectively, under the SPV Credit Facility and Credit Facility. As of June 30, 2018 and December 31, 2017, there was $585,105 and $562,893, respectively, in secured borrowings outstanding.
SPV Credit Facility
The SPV closed on May 24, 2013 on the SPV Credit Facility, which was subsequently amended on June 30, 2014, June 19, 2015, June 9, 2016 and May 26, 2017. The SPV 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 SPV 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 SPV Credit Facility, including adequate collateral to support such borrowings. The SPV Credit Facility has a revolving period through May 22, 2020 and a maturity date of May 23, 2022. Borrowings under the SPV 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 2.00% per year through May 23, 2018, with a pre-determined future interest rate increase of 0.50% during the final two years of the revolving period and pre-determined future interest rate increases of 0.875%-1.75% over the two years following the end of the revolving period. The SPV is also required to pay an undrawn commitment fee of between 0.50% and 0.75% per year depending on the drawings under the SPV Credit

51



Facility. Payments under the SPV Credit Facility are made quarterly. The lenders have a first lien security interest on substantially all of the assets of the SPV.
As part of the SPV Credit Facility, the SPV 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 SPV 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 SPV 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 SPV 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 immediate acceleration of the amounts due under the SPV Credit Facility. The SPV Credit Facility is also subject to a borrowing base that applies different advance rates to assets held by the SPV based generally on the fair market value of such assets. Under certain circumstances as set forth in the SPV Credit Facility, the Company could be obliged to repurchase loans from the SPV.
As of June 30, 2018 and December 31, 2017, the SPV was in compliance with all covenants and other requirements of the SPV Credit Facility.
Credit Facility
The Company closed on March 21, 2014 on the Credit Facility, which was subsequently amended on January 8, 2015, May 25, 2016 and March 22, 2017. The maximum principal amount of the Credit Facility is $413,000, subject to availability under the Credit 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 Credit Facility. Proceeds of the Credit Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Credit Facility may be increased to $550,000 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 Credit 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 Credit Facility, including amounts drawn in respect of letters of credit, 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 Credit Facility and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then-applicable margin under the Credit Facility while the letter of credit is outstanding. The availability period under the Credit Facility will terminate on March 21, 2021 and the Credit Facility will mature on March 21, 2022. During the period from March 21, 2021 to March 21, 2022, the Company will be obligated to make mandatory prepayments under the Credit Facility out of the proceeds of certain asset sales, other recovery events and equity and debt issuances.
Subject to certain exceptions, the Credit Facility is secured by a first lien security interest in substantially all of the portfolio investments held by the Company. The Credit 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 30, 2018 and December 31, 2017, the Company was in compliance with all covenants and other requirements of the Credit Facility.
Summary of Facilities
The Facilities consisted of the following as of June 30, 2018 and December 31, 2017:

52



 
June 30, 2018
 
Total Facility
 
Borrowings Outstanding
 
Unused Portion (1)
 
Amount Available (2)
SPV Credit Facility
$
400,000

 
$
255,605

 
$
144,395

 
$
43,162

Credit Facility
413,000

 
329,500

 
83,500

 
83,500

Total
$
813,000

 
$
585,105

 
$
227,895

 
$
126,662

 
 
 
 
 
 
 
 
 
December 31, 2017
 
Total Facility
 
Borrowings Outstanding
 
Unused Portion (1)
 
Amount Available (2)
SPV Credit Facility
$
400,000

 
$
287,393

 
$
112,607

 
$
27,147

Credit Facility
413,000

 
275,500

 
137,500

 
137,500

Total
$
813,000

 
$
562,893

 
$
250,107

 
$
164,647

 
(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 and subject to compliance with applicable covenants and financial ratios.
As of June 30, 2018 and December 31, 2017, $3,363 and $3,140, respectively, of interest expense, $287 and $186, respectively, of unused commitment fees and $23 and $23, respectively, of other fees were included in interest and credit facility fees payable. For the three month and six month periods ended June 30, 2018, the weighted average interest rates were 4.19% and 3.98%, respectively, and the average principal debt outstanding was $542,561 and $548,078, respectively. For the three month and six month periods ended June 30, 2017, the weighted average interest rates were 3.23% and 3.16%, respectively, and the average principal debt outstanding was $425,001 and $400,900, respectively. As of June 30, 2018 and December 31, 2017, the weighted average interest rates were 4.42% and 3.56%, respectively, based on floating LIBOR rates.
For the three month and six month periods ended June 30, 2018 and 2017, the components of interest expense and credit facility fees were as follows:
 
For the three month periods ended
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Interest expense
$
5,740

 
$
3,489

 
$
10,975

 
$
6,381

Facility unused commitment fee
294

 
324

 
582

 
616

Amortization of deferred financing costs
252

 
177

 
454

 
358

Other fees
35

 
29

 
70

 
59

Total interest expense and credit facility fees
$
6,321

 
$
4,019

 
$
12,081

 
$
7,414

Cash paid for interest expense
$
5,461

 
$
3,452

 
$
10,752

 
$
6,345

7. 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 of the 2015-1 Issuer 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 $160,000 of Aaa/AAA Class A-1A Notes which bear interest at the three-month London Interbank Offered Rate (“LIBOR”) plus 1.85%; $40,000 of Aaa/AAA Class A-1B Notes which bear interest at the three-month LIBOR plus 1.75% for the first 24 months and the three-month LIBOR plus 2.05% thereafter; $27,000 of Aaa/AAA Class A-1C Notes which bear interest at 3.75%; and $46,000 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 issued by the 2015-1 Issuer (the “2015-1 Issuer Preferred Interests”) on the closing date of the 2015-1 Debt Securitization in exchange for the Company’s contribution to the 2015-1 Issuer of the initial closing date loan portfolio. The 2015-1 Preferred Interests do not bear interest and had a nominal value of $125,900 at closing. In connection with the contribution, the Company 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 these consolidated financial statements. The 2015-1 Preferred Interests were eliminated in consolidation.

53



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 certain amounts outstanding under the SPV Credit Facility and the Credit Facility. As part of the 2015-1 Debt Securitization, certain first and second lien senior secured loans were distributed by the SPV 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 SPV) to the 2015-1 Issuer pursuant to a contribution agreement. Future loan 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 SPV or the Company. In connection with the issuance and sale of the 2015-1 Notes, the Company 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 pays management fees (comprised of base management fees, subordinated management fees and incentive 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 2015-1 Issuer Preferred Interests, the Investment Adviser does not earn management fees for providing such collateral management services. The Company currently retains all of the 2015-1 Issuer Preferred Interests, thus the Investment Adviser did not earn any management fees from the 2015-1 Issuer for the three month and six month periods ended June 30, 2018 and 2017. Any such waived fees may not be recaptured by the Investment Adviser.
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 the 2015-1 Issuer 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, 2018, 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, 2018, there were 54 first lien and second lien senior secured loans with a total fair value of approximately $382,325 and cash of $1,452 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 in the indenture governing the 2015-1 Notes.
For the six month periods ended June 30, 2018 and 2017, the effective annualized weighted average interest rates, which include amortization of debt issuance costs on the 2015-1 Notes, were 4.04% and 3.20%, respectively, based on floating LIBOR rates. As of June 30, 2018 and December 31, 2017, the weighted average interest rates were 4.33% and 3.44%, respectively, based on floating LIBOR rates.
For the three month and six month periods ended June 30, 2018 and 2017, 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, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Interest expense
$
2,918

 
$
2,198

 
$
5,448

 
$
4,290

Amortization of deferred financing costs
51

 
51

 
101

 
101

Total interest expense and credit facility fees
$
2,969

 
$
2,249

 
$
5,549

 
$
4,391

Cash paid for interest expense
$
2,567

 
$
2,108

 
$
4,958

 
$
4,167

8. COMMITMENTS AND CONTINGENCIES
A summary of significant contractual payment obligations was as follows as of June 30, 2018 and December 31, 2017:

54



 
 
SPV Credit Facility and Credit Facility
 
2015-1 Notes
Payment Due by Period
 
June 30, 2018
 
December 31, 2017
 
June 30, 2018
 
December 31, 2017
Less than 1 Year
 
$

 
$

 
$

 
$

1-3 Years
 

 

 

 

3-5 Years
 
585,105

 
562,893

 

 

More than 5 Years
 

 

 
273,000

 
273,000

Total
 
$
585,105

 
$
562,893

 
$
273,000

 
$
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, 2018 and December 31, 2017 for any such exposure.
The Company had the following unfunded commitments to fund delayed draw and revolving senior secured loans as of the indicated dates:
 
Par Value as of
 
June 30, 2018
 
December 31, 2017
Unfunded delayed draw commitments
$
112,170

 
$
78,991

Unfunded revolving term loan commitments
52,578

 
39,383

Total unfunded commitments
$
164,748

 
$
118,374

9. 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, 2018, the Company issued 361,048 shares for $6,629 through the reinvestment of dividends. The following table summarizes capital activity during the six month period ended June 30, 2018:
 
 
 
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
 
Balance, beginning of period
 
62,207,603

 
$
622

 
$
1,172,807

 
$
(1,618
)
 
$
2,522

 
$
(43,548
)
 
$
(3,481
)
 
$
1,127,304

Reinvestment of dividends
 
361,048

 
4

 
6,625

 

 

 

 

 
6,629

Offering costs
 

 

 

 
(15
)
 

 

 

 
(15
)
Net investment income (loss)
 

 

 

 

 
53,340

 

 

 
53,340

Net realized gain (loss) on investments
 

 

 

 

 

 
1,646

 

 
1,646

Net change in unrealized appreciation (depreciation) on investments
 

 

 

 

 

 

 
(20,791
)
 
(20,791
)
Dividends declared
 

 

 

 

 
(46,301
)
 

 

 
(46,301
)
Balance, end of period
 
62,568,651

 
$
626

 
$
1,179,432

 
$
(1,633
)
 
$
9,561

 
$
(41,902
)
 
$
(24,272
)
 
$
1,121,812

During the six month period ended June 30, 2017, the Company issued 19,703,330 shares for $359,238, including the reinvestment of dividends. In connection with the NFIC Acquisition, the Company issued 434,233 shares of common stock valued at approximately $8,046. See Note 13 for additional information regarding the NFIC Acquisition. In connection with the Company's IPO, the Company issued 9,000,000 shares of common stock at a public offering price of $18.50 per share. Net of

55



its share of underwriting costs, the Company received cash proceeds of $161,505. The following table summarizes capital activity during the six month period ended June 30, 2017:
 
 
 
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
 
Balance, beginning of period
 
41,702,318

 
$
417

 
$
799,580

 
$
(74
)
 
$
(3,207
)
 
$
(25,357
)
 
$
(7,222
)
 
$
764,137

Common stock issued
 
19,692,360

 
197

 
358,839

 

 

 

 

 
359,036

Reinvestment of dividends
 
10,970

 

 
202

 

 

 

 

 
202

Offering costs
 

 

 

 
(1,486
)
 

 

 

 
(1,486
)
Net investment income (loss)
 

 

 

 

 
40,555

 

 

 
40,555

Net realized gain (loss) on investments
 

 

 

 

 

 
(7,896
)
 

 
(7,896
)
Net change in unrealized appreciation (depreciation) on investments
 

 

 

 

 

 

 
(985
)
 
(985
)
Dividends declared
 

 

 

 

 
(39,820
)
 

 

 
(39,820
)
Balance, end of period
 
61,405,648

 
$
614

 
$
1,158,621

 
$
(1,560
)
 
$
(2,472
)
 
$
(33,253
)
 
$
(8,207
)
 
$
1,113,743

The following table summarizes total shares issued and proceeds received related to capital activity during the six month period ended June 30, 2018:
 
 
Shares Issued
 
Proceeds Received
January 17, 2018*
 
361,048

 
$
6,629

Total
 
361,048

 
$
6,629

* Represents shares issued upon the reinvestment of dividends
The following table summarizes total shares issued and proceeds received related to capital activity during the six month period ended June 30, 2017:
 
 
Shares Issued
 
Proceeds Received
January 24, 2017*
 
5,837

 
$
108

April 24, 2017*
 
5,133

 
$
94

May 19, 2017
 
2,141,416

 
$
39,488

June 9, 2017
 
8,116,711

 
$
149,997

June 9, 2017**
 
434,233

 
$
8,046

June 19, 2017***
 
9,000,000

 
$
161,505

Total
 
19,703,330

 
$
359,238

* Represents shares issued upon the reinvestment of dividends
** Represents shares issued in accordance with the elections of the NFIC stockholders pursuant to the NFIC Acquisition (see Note 13, NFIC Acquisition)
*** Represents shares issued in connection with the Company’s IPO

Subscription transactions during the six month period ended June 30, 2017 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 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. Additionally, on June 19, 2017, the Company closed its IPO, issuing 9,000,000 shares of its common stock at a public offering price of $18.50 per share. Net of underwriting and offering

56



costs, the common stock issued in the IPO and net asset value experienced dilution during the period, and such subscription and IPO transactions increased/(decreased) net asset value by $(0.10) per share for the six month period ended June 30, 2017.
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, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Net increase (decrease) in net assets resulting from operations
 
$
13,106

 
$
15,501

 
$
34,195

 
$
31,674

Weighted-average common shares outstanding
 
62,568,651

 
45,977,943

 
62,534,740

 
43,854,102

Basic and diluted earnings per common share
 
$
0.21

 
$
0.34

 
$
0.55

 
$
0.72

The following table summarizes the Company’s dividends declared during the two most recent fiscal years and the current fiscal year to-date:
Date Declared
 
Record Date
 
Payment Date
 
Per Share Amount
 
March 10, 2016
 
March 14, 2016
 
April 22, 2016
 
$
0.40

 
June 8, 2016
 
June 8, 2016
 
July 22, 2016
 
$
0.40

 
September 28, 2016
 
September 28, 2016
 
October 24, 2016
 
$
0.40

 
December 29, 2016
 
December 29, 2016
 
January 24, 2017
 
$
0.41

 
December 29, 2016
 
December 29, 2016
 
January 24, 2017
 
$
0.07

(1) 
March 20, 2017
 
March 20, 2017
 
April 24, 2017
 
$
0.41

 
June 20, 2017
 
June 30, 2017
 
July 18, 2017
 
$
0.37

 
August 7, 2017
 
September 29, 2017
 
October 18, 2017
 
$
0.37

 
November 7, 2017
 
December 29, 2017
 
January 17, 2018
 
$
0.37

 
December 13, 2017
 
December 29, 2017
 
January 17, 2018
 
$
0.12

(1) 
March 29, 2018
 
March 29, 2018
 
April 17, 2018
 
$
0.37

 
May 2, 2018
 
June 29, 2018
 
July 17, 2018
 
$
0.37

 
August 6, 2018
 
September 28, 2018
 
October 17, 2018
 
$
0.37

 
(1) 
Represents a special dividend.

57



10. CONSOLIDATED FINANCIAL HIGHLIGHTS
The following is a schedule of consolidated financial highlights for the six month periods ended June 30, 2018 and 2017: 
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
Per Share Data:
 
 
 
Net asset value per share, beginning of period
$
18.12

 
$
18.32

Net investment income (loss) (1)
0.86

 
0.93

Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments
(0.31
)
 
(0.23
)
Net increase (decrease) in net assets resulting from operations
0.55

 
0.70

Dividends declared (2)
(0.74
)
 
(0.78
)
Effect of offering price of subscriptions and the offering price of common stock in the IPO, net of underwriting and offering costs (3)
$

 
$
(0.10
)
Net asset value per share, end of period
$
17.93

 
$
18.14

Market price per share, end of period
$
17.02

 
$
18.01

 
 
 
 
Number of shares outstanding, end of period
62,568,651

 
61,405,648

Total return based on net asset value (4)
3.04
 %
 
3.28
 %
Total return based on market price (5)
(11.38
)%
 
(0.65
)%
Net assets, end of period
$
1,121,812

 
$
1,113,743

Ratio to average net assets (6):
 
 
 
Expenses net of waiver, before incentive fees
3.09
 %
 
2.65
 %
Expenses net of waiver, after incentive fees
4.08
 %
 
3.87
 %
Expenses gross of waiver, after incentive fees
4.08
 %
 
4.30
 %
Net investment income (loss) (7)
4.68
 %
 
4.86
 %
Interest expense and credit facility fees
1.55
 %
 
1.41
 %
Ratios/Supplemental Data:
 
 
 
Asset coverage, end of period
230.73
 %
 
284.21
 %
Portfolio turnover
19.28
 %
 
30.87
 %
Weighted-average shares outstanding
62,534,740

 
43,854,102

(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 9).
(3)
Increase (decrease) is due to the offering price of subscriptions and the issuance of common stock in the IPO, net of underwriting and offering costs during the period (refer to Note 9).
(4)
Total return based on net asset value (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, 2018 and 2017 is inclusive of $0.00 and $(0.10), respectively, per share increase (decrease) in net asset value for the periods related to the offering price of subscriptions and the offering price of common stock in the IPO, net of underwriting and offering costs during the period. Excluding the effects of these common stock issuances, total return (not annualized) would have been 3.04% and 3.82%, respectively (refer to Note 9).
(5)
Total return based on market value (not annualized) is calculated as the change in market 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 market price for the period.
(6)
These ratios to average net assets have not been annualized.
(7)
The net investment income ratio is net of the waiver of base management fees, which terminated on September 30, 2017.
11. LITIGATION

58



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, 2018 and December 31, 2017, 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.
12. 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, 2018 and December 31, 2017.
In the normal course of business, the Company is subject to examination by federal and certain state, local and foreign tax regulators. As of June 30, 2018 and December 31, 2017, 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 six month periods ended June 30, 2018 and 2017 was as follows:
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
Ordinary income
$
46,301

 
$
39,820

Tax return of capital
$

 
$

13. NFIC ACQUISITION
On June 9, 2017 (the "Acquisition Date"), the Company closed the NFIC Acquisition, with the Company as the surviving entity. As of the effective time of the NFIC Acquisition, each share of common stock of NFIC was converted into the right to receive a mixture of cash and shares of common stock of the Company, in accordance with the elections of the NFIC stockholders (the “Elections”). Based on the results of the Elections, the NFIC stockholders received in the aggregate 434,233 shares of common stock of the Company and approximately $145,602 in cash.

The NFIC Acquisition was accounted for under the asset acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company allocated the purchase price based on the estimated fair value of NFIC’s assets acquired and liabilities assumed as of the Acquisition Date. There was no goodwill created because the NFIC Acquisition was accounted for as an asset acquisition.

The Company used the fair market value of NFIC’s assets and liabilities as of the Acquisition Date to account for the NFIC Acquisition. The following table summarizes the assets and liabilities of NFIC as of the Acquisition Date:
ASSETS
 
Total investments, at fair value
$
190,672

Cash and other assets
12,464

Total assets
$
203,136

LIABILITIES
 
Secured borrowings
$
42,128

Other accrued expenses and liabilities
7,360

Total liabilities
49,488

NET ASSETS
 
Total net assets
$
153,648


On June 9, 2017, the debt assumed as part of the NFIC Acquisition was fully repaid.

59




During the three month and six month periods ended June 30, 2017, the Company incurred $322 in professional fees and other costs related to the NFIC Acquisition. The Company determined that the fair value of the net assets acquired equaled the purchase price excluding these costs. Accordingly, these costs related to the NFIC Acquisition were expensed.
14. 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, 2018, the Company borrowed $31,000 under the Credit Facility and SPV Credit Facility to fund investment acquisitions. The Company also voluntarily repaid $61,738 under the Credit Facility and SPV Credit Facility.
On August 2, 2018, the Company and the 2015-1 Issuer refinanced the 2015-1 Debt Securitization (the “2015-1 Debt Securitization Refinancing”). Upon closing of the 2015-1 Debt Securitization Refinancing, which is expected on August 30, 2018, the 2015-1 Issuer will, among other things, (a) refinance the issued Class A-1A Notes by redeeming in full the Class A-1A Notes and issuing new AAA Class A-1-1-R Notes in an aggregate principal amount of $234,800 which will bear interest at the three-month LIBOR plus 1.55%; (b) refinance the issued Class A-1B Notes by redeeming in full the Class A-1B Notes and issuing new AAA Class A-1-2-R Notes in an aggregate principal amount of $50,000 which will bear interest at the three-month LIBOR plus 1.48% for the first 24 months and the three-month LIBOR plus 1.78% thereafter; (c) refinance the issued Class A-1C Notes by redeeming in full the Class A-1C Notes and issuing new AAA Class A-1-3-R Notes in an aggregate principal amount of $25,000 which will bear interest at 4.56%; (d) refinance the issued Class A-2 Notes by redeeming in full the Class A-2 Notes and issuing new Class A-2-R Notes in an aggregate principal amount of $66,000 which will bear interest at the three-month LIBOR plus 2.20%; (e) issue new single-A Class B Notes and BBB- Class C Notes in aggregate principal amounts of $46,400 and $27,000, respectively, which will bear interest at the three-month LIBOR plus 3.15% and the three-month LIBOR plus 4.00%, respectively; (f) reduce the 2015-1 Preferred Interests by approximately $25,100 from a nominal value of $125,900 to approximately $100,800 at closing; and (g) extend the reinvestment period end date and maturity date applicable to the 2015-1 Issuer to October 15, 2023 and October 15, 2031, respectively. Following the 2015-1 Debt Securitization Refinancing, the Company will retain the 2015-1 Preferred Interests. The new notes (the “2015-1R Notes”) in the 2015-1 Debt Securitization Refinancing will be issued by the 2015-1 Issuer, Carlyle Direct Lending CLO 2015-1R LLC (formerly known as Carlyle GMS Finance MM CLO 2015-1 LLC), and will be secured by the assets held by the 2015-1 Issuer.
On August 6, 2018, the Board of Directors declared a quarterly dividend of $0.37 per share, which is payable on October 17, 2018 to stockholders of record as of September 28, 2018.
On August 6, 2018, the Board of Directors approved a one-third (0.50%) reduction in the 1.50% annual base management fee rate charged by the Investment Adviser on assets financed using leverage in excess of 1.0x debt to equity. Effective July 1, 2018, the reduced annual fee of 1.00% applies to the average value of the Company's gross assets as of the end of the two most recently completed calendar quarters that exceeds the product of (i) 200% and (ii) the average value of the Company's net asset value at the end of the two most recently completed calendar quarters.

60



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 TCG BDC, Inc. (together with its consolidated subsidiaries, “we,” “us,” “our,” “TCG BDC” 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 any protracted decline in the liquidity of credit markets on our business;
the impact of fluctuations in interest rates on our business;
currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars;
our future operating results;
the impact of changes in laws, policies or regulations (including the interpretation thereof) affecting 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;
competition with other entities and our affiliates for investment opportunities;
the speculative and illiquid nature of our investments;
the use of borrowed money to finance a portion of our investments;
our expected financings and investments;
the adequacy of our cash resources and working capital;
the loss of key personnel;
the costs associated with being a public entity;
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 to consummate acquisitions;
the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments;
the ability of The Carlyle Group Employee Co., L.L.C. to attract and retain highly talented professionals that can provide services to our investment adviser and administrator;
our ability to maintain our status as a business development company; and
our intent to satisfy the requirements of a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended.

61



We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may,” “plans,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “targets,” “projects,” “outlook,” “potential,” “predicts” and variations of these words 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, 2017 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
The following discussion and analysis of our financial condition and results of operations 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, 2017 and Part II, Item 1A of this Form 10-Q “Risk Factors.” Our actual results could differ materially from those anticipated by such forward-looking statements due to factors discussed under “Risk Factors” and “Cautionary Statements Regarding Forward-Looking Statements” appearing elsewhere in this Form 10-Q.
We are a Maryland corporation formed on February 8, 2012, and structured as an externally managed, non-diversified closed-end investment company. We have elected to be regulated as a BDC under the Investment Company Act. We have elected to be treated, and intend to continue to comply with the requirements to qualify annually, as a RIC under Subchapter M of the Code.
Our 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 EBITDA. We seek to achieve our investment objective primarily through direct originations of Middle Market Senior Loans, with the balance of our assets invested in higher yielding investments (which may include unsecured debt, mezzanine debt and investments in equities). We generally make Middle Market Senior Loans to private U.S. middle market companies that are, in many cases, controlled by private equity firms. Depending on market conditions, we expect that between 70% and 80% of the value of our assets will be invested in Middle Market Senior Loans. 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.
On June 9, 2017, we acquired NFIC, a BDC managed by our Investment Advisor. As a result, we issued 434,233 shares of common stock and paid approximately $145,602 in cash to the NFIC stockholders, and acquired approximately $153,648 in net assets.
On June 19, 2017, we closed our IPO, issuing 9,454,200 shares of our common stock (including shares issued pursuant to the exercise of the underwriters’ over-allotment option on July 5, 2017) at a public offering price of $18.50 per share. Net of underwriting costs, we received cash proceeds of $169,488. Shares of common stock of TCG BDC began trading on the NASDAQ Global Select Market under the symbol “CGBD” on June 14, 2017.
We are externally managed by our Investment Adviser, an investment adviser registered under the Advisers Act. Our Administrator provides the administrative services necessary for us to operate. Both our Investment Adviser and our Administrator are wholly owned subsidiaries of Carlyle Investment Management L.L.C., a subsidiary of Carlyle.
In conducting our investment activities, we believe that we benefit from the significant scale and resources of Carlyle, including our Investment Adviser and its affiliates. We have operated our business as a BDC since we began our investment activities in May 2013.
Investments

62



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 income on debt investments we hold. In addition, we generate income from dividends on direct equity investments, capital gains on the sales of loans and debt and equity securities and various loan origination and other fees. 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 investments 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 agreement (the “Investment Advisory Agreement”) between us and our Investment Adviser; (ii) costs and other expenses and our allocable portion of overhead incurred by our 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:
 
the costs associated with the private offering of our common stock prior to our IPO;
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 our Investment Adviser, or members of our 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 our 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

63



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 our 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, 2018, the fair value of our investments was approximately $1,946,792, comprised of 108 investments in 89 portfolio companies/investment fund across 27 industries with 56 sponsors. As of December 31, 2017, the fair value of our investments was approximately $1,967,531, comprised of 107 investments in 90 portfolio companies/investment fund across 28 industries with 57 sponsors.
Based on fair value as of June 30, 2018, our portfolio consisted of approximately 88.2% in secured debt (79.9% in first lien debt (including 12.1% in first lien/last out loans) and 8.3% in second lien debt), 10.7% in Credit Fund and 1.2% in equity investments. Based on fair value as of June 30, 2018, approximately 0.8% of our debt portfolio was invested in debt bearing a fixed interest rate and approximately 99.2% of our debt portfolio was invested in debt bearing a floating interest rate, which primarily are subject to interest rate floors.
Based on fair value as of December 31, 2017, our portfolio consisted of approximately 90.3% in secured debt (77.8% in first lien debt (including 12.1% in first lien/last out loans) and 12.5% in second lien debt), 8.8% in Credit Fund and 0.9% in equity investments. Based on fair value as of December 31, 2017, approximately 0.7% of our debt portfolio was invested in debt bearing a fixed interest rate and approximately 99.3% of our debt portfolio was invested in debt bearing a floating interest rate, which primarily are subject to interest rate floors.

64



Our investment activity for the three month periods ended June 30, 2018 and 2017 is presented below (information presented herein is at amortized cost unless otherwise indicated):
 
For the three month periods ended
 
June 30, 2018
 
June 30, 2017
Investments:
 
 
 
Total investments, beginning of period
$
1,920,852

 
$
1,395,007

New investments purchased
277,943

 
599,866

Net accretion of discount on investments
3,918

 
2,995

Net realized gain (loss) on investments
1,775

 
(202
)
Investments sold or repaid
(233,424
)
 
(269,986
)
Total Investments, end of period
$
1,971,064

 
$
1,727,680

Principal amount of investments funded:
 
 
 
First Lien Debt (excluding First Lien/Last Out)
$
231,471

 
$
451,508

First Lien/Last Out Unitranche
11,715

 

Second Lien Debt
9,246

 
97,873

Structured Finance Obligations

 

Equity Investments
3,953

 
2,273

Investment Fund
27,300

 
62,500

Total
$
283,685

 
$
614,154

Principal amount of investments sold or repaid:
 
 
 
First Lien Debt (excluding First Lien/Last Out)
$
(141,795
)
 
$
(252,170
)
First Lien/Last Out Unitranche
(4,179
)
 

Second Lien Debt
(66,646
)
 
(7,394
)
Structured Finance Obligations

 
(10,250
)
Equity Investments
(1,000
)
 

Investment Fund
(18,900
)
 
(11,444
)
Total
$
(232,520
)
 
$
(281,258
)
Number of new funded investments
16

 
18

Average amount of new funded investments
$
17,371

 
$
33,326

Percentage of new funded debt investments at floating interest rates
100
%
 
99
%
Percentage of new funded debt investments at fixed interest rates
%
 
1
%
As of June 30, 2018 and December 31, 2017, investments consisted of the following:
 
June 30, 2018
 
December 31, 2017
 
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
First Lien Debt (excluding First Lien/Last Out)
$
1,331,384

 
$
1,320,216

 
$
1,295,406

 
$
1,293,641

First Lien/Last Out Unitranche
255,470

 
235,312

 
246,925

 
237,635

Second Lien Debt
158,713

 
160,905

 
242,887

 
246,233

Equity Investments
16,996

 
22,354

 
13,543

 
17,506

Investment Fund
208,501

 
208,005

 
172,251

 
172,516

Total
$
1,971,064

 
$
1,946,792

 
$
1,971,012

 
$
1,967,531


The weighted average yields (1) for our first and second lien debt, based on the amortized cost and fair value as of June 30, 2018 and December 31, 2017, were as follows:
 

65



 
June 30, 2018
 
December 31, 2017
 
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
First Lien Debt (excluding First Lien/Last Out)
8.74
%
 
8.82
%
 
8.35
%
 
8.36
%
First Lien/Last Out Unitranche
10.22
%
 
11.10
%
 
10.02
%
 
10.41
%
First Lien Debt Total
8.98
%
 
9.16
%
 
8.62
%
 
8.68
%
Second Lien Debt
10.91
%
 
10.77
%
 
10.44
%
 
10.30
%
First and Second Lien Debt Total
9.16
%
 
9.31
%
 
8.86
%
 
8.90
%
 
(1)
Weighted average yields include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of June 30, 2018 and December 31, 2017. Weighted average yield on debt and income producing securities at fair value is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at fair value included in such securities. Weighted average yield on debt and income producing securities at amortized cost is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at amortized cost included in such securities. Actual yields earned over the life of each investment could differ materially from the yields presented above.
Total weighted average yields (which includes the effect of accretion of discount and amortization of premiums) of our first and second lien debt investments as measured on an amortized cost basis increased from 8.86% to 9.16% from December 31, 2017 to June 30, 2018. The increase in weighted average yields was primarily due to the increase in 90-day LIBOR from 1.69% to 2.34%, partially offset by borrower refinancing, borrower pricing grids and loans placed on non-accrual status.
The following table summarizes the fair value of our performing and non-performing investments as of June 30, 2018 and December 31, 2017:
 
June 30, 2018
 
December 31, 2017
 
Fair Value
 
Percentage
 
Fair Value
 
Percentage
Performing
$
1,914,399

 
98.3
%
 
$
1,948,044

 
99.0
%
Non-accrual (1)
32,393

 
1.7

 
19,487

 
1.0

Total
$
1,946,792

 
100.0
%
 
$
1,967,531

 
100.0
%
 
(1)
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 has been paid current and, in management’s judgment, 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. See Note 2 to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for more information on the accounting policies.
See the Consolidated Schedules of Investments as of June 30, 2018 and December 31, 2017 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”:

66



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, 2018 and December 31, 2017:
 
June 30, 2018
 
December 31, 2017
 
Fair Value
 
% of Fair Value
 
Fair Value
 
% of Fair Value
(dollar amounts in millions)
 
 
 
 
 
 
 
Internal Risk Rating 1
$
61.7

 
3.59
%
 
$
73.7

 
4.15
%
Internal Risk Rating 2
1,297.0

 
75.57

 
1,399.6

 
78.74

Internal Risk Rating 3
226.1

 
13.17

 
170.2

 
9.57

Internal Risk Rating 4
87.8

 
5.12

 
103.3

 
5.81

Internal Risk Rating 5
30.7

 
1.79

 
30.7

 
1.73

Internal Risk Rating 6
13.1

 
0.76

 

 

Total
$
1,716.4

 
100.00
%
 
$
1,777.5

 
100.00
%

As of each of June 30, 2018 and December 31, 2017, the weighted average Internal Risk Rating of our debt investment portfolio was 2.3 and 2.2, respectively. As of June 30, 2018 and December 31, 2017, 10 and 10 of our debt investments, with an aggregate fair value of $131.6 million and $134.0 million, respectively, were assigned an Internal Risk Rating of 4-6. As of June 30, 2018 and December 31, 2017, three and one first lien debt investment in the portfolio with a fair value of $32.4 million and $19.5 million, respectively, were on non-accrual status, which represented approximately 1.7% and 1.0%, respectively, of total investments at fair value. The remaining first and second lien debt investments were performing and current on their interest payments as of June 30, 2018 and December 31, 2017

During the six month period ended June 30, 2018, 3 investments with fair value of $45.8 million were downgraded to an Internal Risk Rating of 4 due to changes in financial condition and performance of the respective portfolio companies and 1 investment with fair value of $14.6 million was upgraded to an Internal Risk Rating of 3 due to improved performance of the respective portfolio company. 2 investments with fair value of $16.2 million with an Internal Risk Rating of 4 at December 31, 2017 were removed due to repayments in full.

67



CONSOLIDATED RESULTS OF OPERATIONS
For the three month and six month periods ended June 30, 2018 and 2017
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 comparisons may not be meaningful.
Investment Income
Investment income for the three month and six month periods ended June 30, 2018 and 2017 was as follows: 
 
For the three month periods ended
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
First Lien Debt
$
37,909

 
$
28,885

 
$
71,364

 
$
55,586

Second Lien Debt
7,697

 
5,625

 
14,800

 
9,794

Equity Investments
63

 
1

 
63

 
2

Investment Fund
6,698

 
4,172

 
13,579

 
7,381

Cash
85

 
61

 
129

 
80

Total investment income
$
52,452

 
$
38,744

 
$
99,935

 
$
72,843

The increase in investment income for the three month and six month periods ended June 30, 2018 from the comparable periods in 2017 was primarily driven by our increasing invested balance, an increase in LIBOR, and increased interest and dividend income from Credit Fund. As of June 30, 2018, the size of our portfolio increased to $1,971,064 from $1,727,680 as of June 30, 2017, at amortized cost, and total principal amount of investments outstanding increased to $2,001,400 from $1,759,490 as of June 30, 2017. As of June 30, 2018, the weighted average yield of our first and second lien debt increased to 9.16% from 8.63% as of June 30, 2017 on amortized cost, primarily due to the increase in LIBOR, partially offset by borrower refinancing, borrower pricing grids and loans placed on non-accrual status.
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, 2018 and 2017, three and one first lien debt investments in the portfolio were on non-accrual with fair value of $32,393 and $13,165, respectively, which represents approximately 1.7% and 0.8% of of total investments at fair value, respectively. The remaining first and second lien debt investments were performing and current on their interest payments as of June 30, 2018 and 2017.
For the three month periods ended June 30, 2018 and 2017, the Company earned $3,590 and $4,046, respectively, in other income. For the six month periods ended June 30, 2018 and 2017, the Company earned $4,485 and $6,582, respectively, in other income. The decrease in other income for the three month and six month periods ended June 30, 2018 from the comparable periods in 2017 was primarily driven by lower syndication fees and prepayment fees.
Our total dividend and interest income from investments in Credit Fund totaled $6,698 and $13,579 for the three month and six month periods ended June 30, 2018, respectively. Our total dividend and interest income from investments in Credit Fund totaled $4,172 and $7,381 for the three month and six month periods ended June 30, 2017, respectively. The increase was primarily driven by increased invested balance of Credit Fund for three month and six month periods ended June 30, 2018 from the comparable periods in 2017 and an increase in LIBOR.
Net investment income for the three month and six month periods ended June 30, 2018 and 2017 was as follows:
 
For the three month periods ended
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Total investment income
$
52,452

 
$
38,744

 
$
99,935

 
$
72,843

Net expenses
24,242

 
17,296

 
46,595

 
32,288

Net investment income (loss)
$
28,210

 
$
21,448

 
$
53,340

 
$
40,555

Expenses

68



 
For the three month periods ended
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Base management fees
$
7,266

 
$
5,657

 
$
14,488

 
$
10,782

Incentive fees
5,984

 
5,361

 
11,314

 
10,138

Professional fees
959

 
1,153

 
1,721

 
1,596

Administrative service fees
185

 
165

 
371

 
338

Interest expense
8,709

 
5,738

 
16,524

 
10,772

Credit facility fees
581

 
529

 
1,106

 
1,032

Directors’ fees and expenses
93

 
131

 
191

 
234

Other general and administrative
435

 
448

 
840

 
821

Excise tax expense
30

 

 
40

 
169

Total expenses
24,242

 
19,182

 
46,595

 
35,882

Waiver of base management fees

 
1,886

 

 
3,594

Net expenses
$
24,242

 
$
17,296

 
$
46,595

 
$
32,288


Interest expense and credit facility fees for the three month and six month periods ended June 30, 2018 and 2017 were comprised of the following:
 
For the three month periods ended
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Interest expense
$
8,709

 
$
5,738

 
$
16,524

 
$
10,772

Facility unused commitment fee
294

 
324

 
582

 
616

Amortization of deferred financing costs
252

 
177

 
454

 
358

Other fees
35

 
28

 
70

 
58

Total interest expense and credit facility fees
$
9,290

 
$
6,267

 
$
17,630

 
$
11,804

Cash paid for interest expense
$
8,028

 
$
5,560

 
$
15,710

 
$
10,512

The increase in interest expense for the three month and six month periods ended June 30, 2018 compared to the comparable periods in 2017 was driven by increased drawings under the Facilities related to increased deployment of capital for investments. For the three month period ended June 30, 2018, the average interest rate increased to 4.22% from 3.23% for the comparable period in 2017, and average principal debt outstanding increased to $815,561 from $425,001 for the comparable period in 2017. For the six month period ended June 30, 2018, the average interest rate increased to 4.00% from 3.16% for the comparable period in 2017, and average principal debt outstanding increased to $821,078 from $400,900 for the comparable period in 2017.
The increase in base management fees (and related waiver of base management fees, which terminated on September 30, 2017) and incentive fees related to pre-incentive fee net investment income for the three month and six month periods ended June 30, 2018 from the comparable period in 2017 were driven by our deployment of capital, increasing invested balance, and termination of the waiver. For the three month periods ended June 30, 2018 and 2017, base management fees were $7,266 and $3,771, respectively, (net of waiver of $0 and $1,886, respectively), incentive fees related to pre-incentive fee net investment income were $5,984 and $5,361, respectively, and there were no incentive fees related to realized capital gains. For the six month periods ended June 30, 2018 and 2017, base management fees were $14,488 and $7,188, respectively, (net of waiver of $0 and $3,594, respectively), incentive fees related to pre-incentive fee net investment income were $11,314 and $10,138, 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, 2018 and 2017, there were no accrued capital gains incentive fees based upon the cumulative net realized and unrealized appreciation (depreciation) as of June 30, 2018 and 2017, respectively.
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

69



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, 2018, we had realized gains on 1 and 2 investments, respectively, totaling approximately $1,775 and $1,777, respectively, which were offset by realized losses on 0 and 3 investments, respectively, totaling approximately $0 and $131, respectively. During the three month and six month periods ended June 30, 2018, we had a change in unrealized appreciation on 58 and 67 investments, respectively, totaling approximately $7,071 and $13,869, respectively, which was offset by a change in unrealized depreciation on 52 and 54 investments, respectively, totaling approximately $23,950 and $34,660, respectively. During the three month and six month periods ended June 30, 2017, we had realized gains on 5 and 9 investments, respectively, totaling approximately $226 and $412, respectively, which were offset by realized losses on 6 and 7 investments, respectively, totaling approximately $428 and $8,308, respectively. During the three month and six month periods ended June 30, 2017, we had a change in unrealized appreciation on 38 and 53 investments, respectively, totaling approximately $6,889 and $19,882, respectively, which was offset by a change in unrealized depreciation on 66 and 64 investments, respectively, totaling approximately $12,634 and $20,867, respectively. In particular, effective January 31, 2017, TwentyEighty, Inc. (fka Miller Heiman, Inc.) completed a restructuring whereby the first lien debt held by us was converted into new term loans and equity. As a result, $10,943 of unrealized depreciation was reversed and we realized a loss of $7,738 on the investment during the six month period ended June 30, 2017.
Net realized gain (loss) and net change in unrealized appreciation (depreciation) by the type of investments for the three month and six month periods ended June 30, 2018 and 2017 were as follows:
 
For the three month periods ended
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Net realized gain (loss) on investments
$
1,775

 
$
(202
)
 
$
1,646

 
$
(7,896
)
Net change in unrealized appreciation (depreciation) on investments
(16,879
)
 
(5,745
)
 
(20,791
)
 
(985
)
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments
$
(15,104
)
 
$
(5,947
)
 
$
(19,145
)
 
$
(8,881
)
Net realized gain (loss) and net change in unrealized appreciation (depreciation) by the type of investments for the three month and six month periods ended June 30, 2018 and 2017 were as follows:
 
For the three month periods ended
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Type
Net realized gain (loss)
 
Net change in unrealized appreciation (depreciation)
 
Net realized gain (loss)
 
Net change in unrealized appreciation (depreciation)
 
Net realized gain (loss)
 
Net change in unrealized appreciation (depreciation)
 
Net realized gain (loss)
 
Net change in unrealized appreciation (depreciation)
First Lien Debt
$

 
$
(15,286
)
 
$
(299
)
 
$
(6,938
)
 
$
(131
)
 
$
(20,271
)
 
$
(7,851
)
 
$
(4,003
)
Second Lien Debt

 
(721
)
 

 
1,089

 
2

 
(1,154
)
 
(3
)
 
1,916

Structured Finance Obligations

 

 
97

 
(45
)
 

 

 
(42
)
 
172

Equity Investments
1,775

 
589

 

 
15

 
1,775

 
1,395

 

 
492

Investment Fund

 
(1,461
)
 

 
134

 

 
(761
)
 

 
438

Total
$
1,775

 
$
(16,879
)
 
$
(202
)
 
$
(5,745
)
 
$
1,646

 
$
(20,791
)
 
$
(7,896
)
 
$
(985
)
Net change in unrealized depreciation in our investments for the three month and six month periods ended June 30, 2018 compared to the comparable period in 2017 was primarily due to changes in various inputs utilized under our valuation methodology, including, but not limited to, market spreads, leverage multiples and borrower ratings, and the impact of exits.
MIDDLE MARKET CREDIT FUND, LLC
Overview
On February 29, 2016, we and Credit Partners entered into an amended and restated limited liability company agreement, which was subsequently amended on June 24, 2016 (as amended, “the Limited Liability Company Agreement”) to co-manage

70



Credit Fund, an unconsolidated Delaware limited liability company. Credit Fund primarily invests in first lien loans of middle-market companies. Credit Fund is managed by a six-member board of managers, on which we and Credit Partners each have equal representation. Establishing a quorum for Credit Fund’s board of managers requires at least four members to be present at a meeting, including at least two of our representatives and two of Credit Partners’ representatives. We and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $400,000 each. Funding of such commitments generally requires the approval of the board of Credit Fund, including the board members appointed by us. By virtue of its membership interest, the Company and Credit Partners each indirectly bear an allocable share of all expenses and other obligations of Credit Fund.
Together with Credit Partners, we co-invest through Credit Fund. Investment opportunities for Credit Fund are sourced primarily by us and our affiliates. Portfolio and investment decisions with respect to Credit Fund must be unanimously approved by a quorum of Credit Fund’s investment committee consisting of an equal number of representatives of us and Credit Partners. Therefore, although we own more than 25% of the voting securities of Credit Fund, we do not believe that we have control over Credit Fund (other than for purposes of the Investment Company Act). Middle Market Credit Fund SPV, LLC (the “Credit Fund Sub”) and MMCF CLO 2017-1 LLC (the “2017-1 Issuer”), each a Delaware limited liability company, were formed on April 5, 2016 and October 6, 2017, respectively. Credit Fund Sub and 2017-1 Issuer are wholly owned subsidiaries of Credit Fund and are consolidated in Credit Fund’s consolidated financial statements commencing from the date of their respective formations. Credit Fund Sub and the 2017-1 Issuer primarily invest in first lien loans of middle market companies. Credit Fund and its wholly owned subsidiaries follow the same Internal Risk Rating system as us.
Credit Fund, we and Credit Partners entered into an administration agreement with Carlyle Global Credit Administration L.L.C., the administrative agent of Credit Fund (in such capacity, the “Administrative Agent”), pursuant to which the Administrative Agent is delegated certain administrative and non-discretionary functions, is authorized to enter into sub-administration agreements at the expense of Credit Fund with the approval of the board of managers of Credit Fund, and is reimbursed by Credit Fund for its costs and expenses and Credit Fund’s allocable portion of overhead incurred by the Administrative Agent in performing its obligations thereunder.
Selected Financial Data
Since inception of Credit Fund and through June 30, 2018 and December 31, 2017, the Company and Credit Partners each made capital contributions of $1 and $1 in members’ equity, respectively, and $94,500 and $86,500 in subordinated loans, respectively, to Credit Fund. As of June 30, 2018 and December 31, 2017, Credit Fund had borrowings of $114,000 and $85,750, respectively, in mezzanine loans under a revolving credit facility with the Company (the “Credit Fund Facility”). As of June 30, 2018 and December 31, 2017, Credit Fund had total subordinated loans and members’ equity outstanding of $188,010 and $173,532, respectively. As of June 30, 2018 and December 31, 2017, the Company’s ownership interest in such subordinated loans and members’ equity was $94,005 and $86,766, respectively, and in such mezzanine loans was $114,000 and $85,750, respectively.
As of June 30, 2018 and December 31, 2017, Credit Fund held cash and cash equivalents totaling $50,152 and $19,502, respectively.
As of June 30, 2018 and December 31, 2017, Credit Fund had total investments at fair value of $1,136,216 and $984,773, respectively, which was comprised of first lien senior secured loans and second lien senior secured loans to 58 and 51 portfolio companies, respectively. As of June 30, 2018 and December 31, 2017, no loans in Credit Fund’s portfolio were on non-accrual status or contained PIK provisions. All investments in the portfolio were floating rate debt investments with an interest rate floor. The portfolio companies in Credit Fund are U.S. middle market companies in industries similar to those in which the Company may invest directly. Additionally, as of June 30, 2018 and December 31, 2017, Credit Fund had commitments to fund various undrawn revolvers and delayed draw investments to its portfolio companies totaling $123,950 and $72,458, respectively.
Below is a summary of Credit Fund’s portfolio, followed by a listing of the loans in Credit Fund’s portfolio as of June 30, 2018 and December 31, 2017:

71



 
As of June 30, 2018
 
As of December 31, 2017
Senior secured loans (1)
$
1,145,556

 
$
993,380

Weighted average yields of senior secured loans based on amortized cost (2)
7.12
%
 
6.80
%
Weighted average yields of senior secured loans based on fair value (2)
7.12
%
 
6.79
%
Number of portfolio companies in Credit Fund
58

 
51

Average amount per portfolio company (1)
$
19,751

 
$
19,478

(1)
At par/principal amount.
(2)
Weighted average yields include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of June 30, 2018 and December 31, 2017. Weighted average yield on debt and income producing securities at fair value is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at fair value included in such securities. Weighted average yield on debt and income producing securities at amortized cost is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at amortized cost included in such securities. Actual yields earned over the life of each investment could differ materially from the yields presented above.

72



Consolidated Schedule of Investments as of June 30, 2018 (unaudited)
Investments (1)
Industry
 
Reference Rate & Spread (2)
 
Interest Rate (2)
 
Maturity Date
 
 Par/ Principal Amount
 
Amortized Cost (5)
 
Fair Value(6)
First Lien Debt (99.47% of fair value)
 
 
 
 
 
 
 
 
 
 
 
 
 
Acrisure, LLC (2) (3) (4)
Banking, Finance, Insurance & Real Estate
 
L + 4.25%
 
6.61%
 
11/22/2023
 
$
20,991

 
$
20,945

 
$
20,991

Acrisure, LLC (2) (3) (4)
Banking, Finance, Insurance & Real Estate
 
L + 3.75%
 
6.11%
 
11/22/2023
 
12,000

 
11,984

 
12,017

Advanced Instruments, LLC (2) (3) (4) (7) (10) (11)
Healthcare & Pharmaceuticals
 
L + 5.25%
 
7.25%
 
10/31/2022
 
11,850

 
11,744

 
11,778

Ahead, LLC (2) (3) (4) (7) (10)
High Tech Industries
 
L + 4.50%
 
6.59%
 
6/29/2023
 
15,790

 
15,688

 
15,781

Alpha Packaging Holdings, Inc. (2) (3) (4) (11)
Containers, Packaging & Glass
 
L + 4.25%
 
6.58%
 
5/12/2020
 
16,947

 
16,908

 
16,947

AM Conservation Holding Corporation (2) (3) (4) (11)
Energy: Electricity
 
L + 4.50%
 
6.82%
 
10/31/2022
 
38,505

 
38,249

 
38,497

AQA Acquisition Holding, Inc. (2) (3) (4) (7) (10) (11)
High Tech Industries
 
L + 4.25%
 
6.58%
 
5/24/2023
 
27,266

 
27,158

 
27,266

Big Ass Fans, LLC (2) (3) (4) (11)
Capital Equipment
 
L + 3.75%
 
6.08%
 
5/21/2024
 
7,960

 
7,923

 
7,970

Borchers, Inc. (2) (3) (4) (7) (10) (11)
Chemicals, Plastics & Rubber
 
L + 4.50%
 
6.83%
 
11/1/2024
 
15,669

 
15,608

 
15,648

Brooks Equipment Company, LLC (2) (3) (4) (11)
Construction & Building
 
L + 5.00%
 
7.31%
 
8/29/2020
 
6,712

 
6,700

 
6,711

Clearent Newco, LLC (2) (3) (4) (7) (10)
High Tech Industries
 
L + 4.00%
 
6.08%
 
3/20/2024
 
22,428

 
22,016

 
22,215

DBI Holding LLC (2) (3) (4) (7) (11)
Transportation: Cargo
 
L + 5.25%
 
7.36%
 
8/1/2021
 
34,668

 
34,406

 
34,082

DecoPac, Inc. (2) (3) (4) (7) (10) (11)
Non-durable Consumer Goods
 
L + 4.25%
 
6.55%
 
9/29/2024
 
12,965

 
12,828

 
12,965

Dent Wizard International Corporation (2) (3) (4)
Automotive
 
L + 4.00%
 
6.1%
 
4/7/2020
 
24,379

 
24,282

 
24,325

DTI Holdco, Inc. (2) (3) (4) (11)
High Tech Industries
 
L + 4.75%
 
6.84%
 
9/30/2023
 
19,178

 
19,020

 
19,084

EIP Merger Sub, LLC (Evolve IP) (2) (3) (4) (8) (11)
Telecommunications
 
L + 5.75%
 
7.84%
 
6/7/2022
 
22,509

 
22,025

 
22,156

EIP Merger Sub, LLC (Evolve IP) (2) (3) (9) (11)
Telecommunications
 
L + 5.75%
 
7.84%
 
6/7/2022
 
1,500

 
1,465

 
1,480

Empower Payments Acquisitions, Inc. (2) (3) (4) (11)
Media: Advertising, Printing & Publishing
 
L + 4.50%
 
6.83%
 
11/30/2023
 
17,238

 
16,949

 
17,062

Exactech, Inc. (2) (3) (4)
Healthcare & Pharmaceuticals
 
L + 3.75%
 
5.84%
 
2/14/2025
 
12,968

 
12,911

 
13,040

Executive Consulting Group, LLC, Inc. (2) (3) (4) (10)
Business Services
 
L + 4.50%
 
6.59%
 
6/20/2024
 
15,395

 
15,217

 
15,327

Golden West Packaging Group LLC (2) (3) (4) (11)
Containers, Packaging & Glass
 
L + 5.25%
 
7.34%
 
6/20/2023
 
31,078

 
30,849

 
31,026

HMT Holding Inc. (2) (3) (4) (7) (10) (11)
Energy: Oil & Gas
 
L + 4.50%
 
6.59%
 
11/17/2023
 
36,374

 
35,739

 
36,374

J.S. Held LLC (2) (3) (4) (7) (10) (11)
Banking, Finance, Insurance & Real Estate
 
L + 5.25%
 
7.58%
 
9/27/2023
 
19,320

 
19,137

 
19,320

Jensen Hughes, Inc. (2) (3) (4) (7) (10) (11)
Utilities: Electric
 
L + 4.50%
 
6.59%
 
3/22/2024
 
25,536

 
25,344

 
25,653

Kestra Financial, Inc. (2) (3) (4) (11)
Banking, Finance, Insurance & Real Estate
 
L + 4.50%
 
6.8%
 
6/24/2022
 
21,847

 
21,625

 
21,809

MAG DS Corp. (2) (4) (7) (10)
Aerospace & Defense
 
L + 4.75%
 
5.84%
 
6/6/2025
 
20,000

 
19,782

 
19,932

Mold-Rite Plastics, LLC (2) (3) (4)
Chemicals, Plastics & Rubber
 
L + 4.50%
 
6.83%
 
12/14/2021
 
14,925

 
14,996

 
14,925

MSHC, Inc. (2) (3) (4) (7) (10) (11)
Construction & Building
 
L + 4.25%
 
6.58%
 
7/31/2023
 
14,790

 
14,746

 
14,784

North American Dental Management, LLC (2) (3) (4) (7) (10) (11)
Healthcare & Pharmaceuticals
 
L + 5.00%
 
7.09%
 
7/7/2023
 
29,228

 
28,539

 
29,036

North Haven CA Holdings, Inc. (CoAdvantage) (2) (3) (4) (7) (10) (11)
Business Services
 
L + 4.50%
 
6.83%
 
10/2/2023
 
28,670

 
28,359

 
28,670

Odyssey Logistics & Technology Corporation (2) (3) (4) (11)
Transportation: Cargo
 
L + 3.75%
 
5.84%
 
10/12/2024
 
19,900

 
19,809

 
19,900


73



Consolidated Schedule of Investments as of June 30, 2018 (unaudited)
Investments (1)
Industry
 
Reference Rate & Spread (2)
 
Interest Rate (2)
 
Maturity Date
 
 Par/ Principal Amount
 
Amortized Cost (5)
 
Fair Value(6)
First Lien Debt (99.47% of fair value)
 
 
 
 
 
 
 
 
 
 
 
 
 
Output Services Group (2) (3) (4) (7) (10)
Media: Advertising, Printing & Publishing
 
L + 4.25%
 
6.34%
 
3/26/2024
 
$
12,405

 
$
12,333

 
$
12,430

PAI Holdco, Inc. (Parts Authority) (2) (3) (4) (7) (10) (11)
Automotive
 
L + 4.25%
 
6.58%
 
1/5/2025
 
16,523

 
16,426

 
16,499

Paradigm Acquisition Corp. (2) (3) (4) (11)
Business Services
 
L + 4.25%
 
6.70%
 
10/12/2024
 
23,383

 
23,329

 
23,383

Park Place Technologies, Inc. (2) (3) (4)
High Tech Industries
 
L + 4.00%
 
6.09%
 
3/29/2025
 
15,000

 
14,926

 
15,002

Pasternack Enterprises, Inc. (Infinite RF) (2) (3) (4)
Capital Equipment
 
L + 5.00%
 
7.09%
 
5/27/2022
 
20,126

 
20,040

 
20,126

Pharmalogic Holdings Corp. (2) (3) (4) (10)
Healthcare & Pharmaceuticals
 
L + 4.00%
 
6.09%
 
6/11/2023
 
7,052

 
7,028

 
7,052

Ping Identity Corporation (2) (3) (4)
High Tech Industries
 
L + 3.75%
 
5.84%
 
1/25/2025
 
5,000

 
4,981

 
5,006

Premier Senior Marketing, LLC (2) (3) (4) (11)
Banking, Finance, Insurance & Real Estate
 
L + 5.00%
 
7.09%
 
7/1/2022
 
15,753

 
15,650

 
15,700

Propel Insurance Agency, LLC (2) (3) (4) (7) (10)
Banking, Finance, Insurance & Real Estate
 
L + 4.50%
 
6.59%
 
6/1/2024
 
21,190

 
20,596

 
20,827

PSI Services LLC (2) (3) (4) (7) (10) (11)
Business Services
 
L + 5.00%
 
7.09%
 
1/20/2023
 
30,070

 
29,574

 
29,758

Q Holding Company (2) (3) (4) (11)
Automotive
 
L + 5.00%
 
7.09%
 
12/18/2021
 
17,188

 
17,141

 
17,159

QW Holding Corporation (Quala) (2) (3) (4) (7) (10) (11)
Environmental Industries
 
L + 6.75%
 
8.73%
 
8/31/2022
 
9,754

 
9,323

 
9,290

Radiology Partners, Inc. (2) (3) (4) (7) (10)
Healthcare & Pharmaceuticals
 
L + 5.75%
 
7.84%
 
12/4/2023
 
29,035

 
28,755

 
29,633

Restaurant Technologies, Inc. (2) (3) (4) (11)
Retail
 
L + 4.75%
 
7.07%
 
11/23/2022
 
17,281

 
17,156

 
17,281

Situs Group Holdings Corporation (2) (3) (4)
Banking, Finance, Insurance & Real Estate
 
L + 4.50%
 
6.59%
 
2/26/2023
 
11,970

 
11,955

 
11,980

Sovos Brands Intermediate, Inc. (2) (3) (4) (7) (10) (11)
Beverage, Food & Tobacco
 
L + 4.50%
 
6.67%
 
7/18/2024
 
21,459

 
21,315

 
20,817

Superion, LLC (fka Ramundsen Public Sector, LLC) (2) (3) (4) (11)
Sovereign & Public Finance
 
L + 4.25%
 
6.34%
 
2/1/2024
 
3,950

 
3,934

 
3,941

Surgical Information Systems, LLC (2) (3) (4) (9) (11)
High Tech Industries
 
L + 4.85%
 
6.94%
 
4/24/2023
 
27,708

 
27,475

 
27,608

Systems Maintenance Services Holding, Inc. (2) (3) (4) (11)
High Tech Industries
 
L + 5.00%
 
7.09%
 
10/28/2023
 
24,133

 
24,009

 
19,065

T2 Systems Canada, Inc. (2) (3) (4)
Transportation: Consumer
 
L + 6.75%
 
8.84%
 
9/28/2022
 
2,659

 
2,608

 
2,664

T2 Systems, Inc. (2) (3) (4) (7) (10) (11)
Transportation: Consumer
 
L + 6.75%
 
8.84%
 
9/28/2022
 
15,852

 
15,532

 
15,880

The Original Cakerie, Ltd. (Canada) (2) (3) (4) (7) (10)
Beverage, Food & Tobacco
 
L + 4.50%
 
6.56%
 
7/20/2022
 
6,773

 
6,725

 
6,760

The Original Cakerie, Co. (Canada) (2) (3) (4) (11)
Beverage, Food & Tobacco
 
L + 5.00%
 
7.09%
 
7/20/2022
 
9,087

 
9,029

 
9,075

ThoughtWorks, Inc.  (2) (3) (4) (7) (10) (11)
Business Services
 
L + 4.00%
 
6.09%
 
10/12/2024
 
10,286

 
10,249

 
10,342

U.S. Acute Care Solutions, LLC (2) (3) (4) (11)
Healthcare & Pharmaceuticals
 
L + 5.00%
 
7.09%
 
5/15/2021
 
31,748

 
31,554

 
31,214

U.S. TelePacific Holdings Corp. (2) (3) (4) (11)
Telecommunications
 
L + 5.00%
 
7.33%
 
5/2/2023
 
28,668

 
28,416

 
28,232

Upstream Intermediate, LLC (2) (3) (4) (7) (10)
Healthcare & Pharmaceuticals
 
L + 4.50%
 
6.55%
 
1/3/2024
 
18,803

 
18,710

 
18,803

Valicor Environmental Services, LLC (2) (3) (4) (7) (10) (11)
Environmental Industries
 
L + 5.00%
 
7.05%
 
6/1/2023
 
26,781

 
26,348

 
26,721

WIRB - Copernicus Group, Inc. (2) (3) (4) (7) (10) (11)
Healthcare & Pharmaceuticals
 
L + 4.25%
 
6.34%
 
8/12/2022
 
16,559

 
16,450

 
16,444

WRE Holding Corp. (2) (3) (4) (7) (10) (11)
Environmental Industries
 
L + 4.75%
 
6.84%
 
1/3/2023
 
7,188

 
7,105

 
7,096

Zywave, Inc. (2) (3) (4) (7) (10) (11)
High Tech Industries
 
L + 5.00%
 
7.34%
 
11/17/2022
 
17,536

 
17,386

 
17,536


74



Consolidated Schedule of Investments as of June 30, 2018 (unaudited)
Investments (1)
Industry
 
Reference Rate & Spread (2)
 
Interest Rate (2)
 
Maturity Date
 
 Par/ Principal Amount
 
Amortized Cost (5)
 
Fair Value(6)
First Lien Debt Total
 
 
 
 
 
 
 
 
 
 
$
1,129,009

 
$
1,130,095

Second Lien Debt (0.53% of fair value)
 
 
 
 
 
 
 
 
 
 
 
 
 
Paradigm Acquisition Corp. (2) (3) (11)
Business Services
 
L + 8.50%
 
10.97%
 
10/12/2025
 
$
4,800

 
$
4,755

 
$
4,860

Superion, LLC (fka Ramundsen Public Sector, LLC) (2) (3) (11)
Sovereign & Public Finance
 
L + 8.50%
 
10.59%
 
2/1/2025
 
200

 
198

 
200

Zywave, Inc. (2) (3) (11)
High Tech Industries
 
L + 9.00%
 
11.33%
 
11/17/2023
 
1,050

 
1,037

 
1,061

Second Lien Debt Total
 
 
 
 
 
 
 
 
 
 
$
5,990

 
$
6,121

Total Investments
 
 
 
 
 
 
 
 
 
 
$
1,134,999

 
$
1,136,216

(1)
Unless otherwise indicated, issuers of investments held by Credit Fund are domiciled in the United States. As of June 30, 2018, the geographical composition of investments as a percentage of fair value was 1.39% in Canada and 98.61% in the United States. Certain portfolio company investments are subject to contractual restrictions on sales.
(2)
Variable rate loans to the portfolio companies bear interest at a rate that is determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate), which generally resets quarterly. For each such loan, Credit Fund has indicated the reference rate used and provided the spread and the interest rate in effect as of June 30, 2018. As of June 30, 2018, the reference rates for Credit Fund’s variable interest loans were the 30-day LIBOR at 2.09%, the 90-day LIBOR at 2.34% and the 180-day LIBOR rate at 2.50%.
(3)
Loan includes interest rate floor feature which is generally 1.00%.
(4)
Denotes that all or a portion of the assets are owned by Credit Fund Sub. Credit Fund Sub has entered into a revolving credit facility (the “Credit Fund Sub Facility”). The lenders of the Credit Fund Sub Facility have a first lien security interest in substantially all of the assets of Credit Fund Sub. Accordingly, such assets are not available to creditors of Credit Fund.
(5)
Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.
(6)
Fair value is determined in good faith by or under the direction of the board of managers of Credit Fund, pursuant to Credit Fund’s valuation policy, with the fair value of all investments determined using significant unobservable inputs, which is substantially similar to the valuation policy of the Company provided in “—Critical Accounting Policies—Fair Value Measurements.”
(7)
Denotes that all or a portion of the assets are owned by Credit Fund. Credit Fund has entered into the Credit Fund Facility. The lenders of the Credit Fund Facility have a first lien security interest in substantially all of the assets of Credit Fund. Accordingly, such assets are not available to creditors of Credit Fund Sub.
(8)
Credit Fund receives less than the stated interest rate of this loan as a result of an agreement among lenders. The interest rate reduction is 1.20% on EIP Merger Sub, LLC (Evolve IP). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.
(9)
In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, Credit Fund is entitled to receive additional interest as a result of an agreement among lenders as follows: EIP Merger Sub, LLC (Evolve IP) (3.80%) and Surgical Information Systems, LLC (0.91%). Pursuant to the agreement among lenders in respect of these loans, these investments represent a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.

75



(10)
As of June 30, 2018, Credit Fund had the following unfunded commitments to fund delayed draw and revolving senior secured loans:
First Lien Debt—unfunded delayed draw and revolving term loans commitments
 
Type
 
Unused Fee
 
Par/ Principal Amount
 
Fair Value
Advanced Instruments, LLC
 
Revolver
 
0.50
%
 
$
1,333

 
$
(7
)
Ahead, LLC
 
Revolver
 
0.50

 
4,211

 
(2
)
AQA Acquisition Holding, Inc.
 
Revolver
 
0.50

 
2,459

 

Borchers, Inc.
 
Revolver
 
0.50

 
1,936

 
(2
)
Clearent Newco, LLC
 
Delayed Draw
 
1.00

 
6,000

 
(43
)
Clearent Newco, LLC
 
Revolver
 
0.50

 
1,520

 
(11
)
DecoPac, Inc.
 
Revolver
 
0.50

 
1,907

 

Executive Consulting Group, LLC.
 
Revolver
 
0.50

 
2,368

 
(9
)
HMT Holding Inc.
 
Revolver
 
0.50

 
3,457

 

J.S. Held LLC
 
Delayed Draw
 
1.00

 
1,044

 

Jensen Hughes, Inc.
 
Delayed Draw
 
1.00

 
3,143

 
12

Jensen Hughes, Inc.
 
Revolver
 
0.50

 
1,636

 
6

MAG DS Corp.
 
Revolver
 
0.50

 
5,000

 
(14
)
MSHC, Inc.
 
Delayed Draw
 

 
15,185

 
(3
)
North American Dental Management, LLC
 
Delayed Draw
 
1.00

 
7,980

 
(38
)
North American Dental Management, LLC
 
Revolver
 
0.50

 
2,727

 
(13
)
North Haven CA Holdings, Inc. (CoAdvantage)
 
Revolver
 
0.50

 
6,114

 

Output Services Group
 
Delayed Draw
 
4.25

 
2,564

 
4

PAI Holdco, Inc. (Parts Authority)
 
Delayed Draw
 
1.00

 
3,286

 
(4
)
Pharmalogic Holdings Corp.
 
Revolver
 
0.50

 
2,947

 

Propel Insurance Agency, LLC
 
Delayed Draw
 
0.50

 
7,143

 
(86
)
Propel Insurance Agency, LLC
 
Revolver
 
0.50

 
1,667

 
(20
)
PSI Services LLC
 
Revolver
 
0.50

 
754

 
(8
)
QW Holding Corporation (Quala)
 
Delayed Draw
 
1.00

 
7,515

 
(153
)
QW Holding Corporation (Quala)
 
Revolver
 
0.50

 
5,498

 
(112
)
Radiology Partners, Inc.
 
Revolver
 
0.50

 
841

 
17

Sovos Brands Intermediate, Inc.
 
Revolver
 
0.50

 
3,378

 
(88
)
T2 Systems, Inc.
 
Revolver
 
0.50

 
1,173

 
2

The Original Cakerie, Ltd. (Canada)
 
Revolver
 
0.50

 
1,365

 
(2
)
ThoughtWorks, Inc.
 
Delayed Draw
 
2.00

 
1,714

 
8

Upstream Intermediate, LLC
 
Revolver
 
0.50

 
1,151

 

Valicor Environmental Services, LLC
 
Revolver
 
0.50

 
2,838

 
(6
)
WIRB - Copernicus Group, Inc.
 
Delayed Draw
 
1.00

 
7,200

 
(33
)
WIRB - Copernicus Group, Inc.
 
Revolver
 
0.50

 
1,000

 
(5
)
WRE Holding Corp.
 
Delayed Draw
 
1.06

 
2,336

 
(22
)
WRE Holding Corp.
 
Revolver
 
0.50

 
412

 
(4
)
Zywave, Inc.
 
Revolver
 
0.50

 
1,148

 

Total unfunded commitments
 
 
 
 
 
$
123,950

 
$
(636
)
(11)
Denotes that all or a portion of the assets are owned by the 2017-1 Issuer and secure the notes issued in connection with a $399,900 term debt securitization completed by Credit Fund on December 19, 2017 (the “2017-1 Debt Securitization”). Accordingly, such assets are not available to creditors of Credit Fund or Credit Fund Sub.



76



Consolidated Schedule of Investments as of December 31, 2017
Investments (1)
 
Industry
 
Interest Rate (2)
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (5)
 
Fair Value (6)
First Lien Debt (99.39% of fair value)
 
 
 
 
 
 
 
 
 
 
 
 
Acrisure, LLC (2)(3)(4)(11)
 
Banking, Finance, Insurance & Real Estate
 
L + 4.25% (1.00% Floor)
 
11/22/2023
 
$
21,097

 
$
21,055

 
$
21,291

Advanced Instruments, LLC (2)(3)(4)(7)(10)(11)(13)
 
Healthcare & Pharmaceuticals
 
L + 5.25% (1.00% Floor)
 
10/31/2022
 
11,910

 
11,793

 
11,910

Alpha Packaging Holdings, Inc. (2)(3)(4)(13)
 
Containers, Packaging & Glass
 
L + 4.25% (1.00% Floor)
 
5/12/2020
 
16,860

 
16,812

 
16,860

AM Conservation Holding Corporation (2)(3)(4)(13)
 
Energy: Electricity
 
L + 4.50% (1.00% Floor)
 
10/31/2022
 
38,700

 
38,433

 
38,553

AMS Finco, S.A.R.L. (Alexander Mann Solutions) (United Kingdom) (2)(3)(4)(11)(13)
 
Business Services
 
L + 5.50% (1.00% Floor)
 
5/26/2024
 
24,875

 
24,646

 
24,875

Anaren, Inc. (2)(3)(4)
 
Telecommunications
 
L + 4.50% (1.00% Floor)
 
2/18/2021
 
9,993

 
9,971

 
9,993

AQA Acquisition Holding, Inc. (2)(3)(4)(7)(10)(13)
 
High Tech Industries
 
L + 4.50% (1.00% Floor)
 
5/24/2023
 
27,403

 
27,288

 
27,403

Big Ass Fans, LLC (2)(3)(4)(13)
 
Capital Equipment
 
L + 4.25% (1.00% Floor)
 
5/21/2024
 
8,000

 
7,964

 
8,010

Borchers, Inc. (2)(3)(4)(7)(10)(13)
 
Chemicals, Plastics & Rubber
 
L + 4.50% (1.00% Floor)
 
11/1/2024
 
15,748

 
15,694

 
15,665

Brooks Equipment Company, LLC (2)(3)(4)(13)
 
Construction & Building
 
L + 5.00% (1.00% Floor)
 
8/29/2020
 
7,061

 
7,045

 
7,061

DBI Holding LLC (2)(3)(4)(11)(13)
 
Transportation: Cargo
 
L + 5.25% (1.00% Floor)
 
8/1/2021
 
19,800

 
19,659

 
19,833

DecoPac, Inc. (2)(3)(4)(7)(10)(13)
 
Non-durable Consumer Goods
 
L + 4.25% (1.00% Floor)
 
9/29/2024
 
13,414

 
13,270

 
13,415

Dent Wizard International Corporation (2)(3)(4)(11)
 
Automotive
 
L + 4.75% (1.00% Floor)
 
4/7/2020
 
24,502

 
24,382

 
24,475

DTI Holdco, Inc. (2)(3)(4)(11)(13)
 
High Tech Industries
 
L + 5.25% (1.00% Floor)
 
9/30/2023
 
19,750

 
19,575

 
19,663

EIP Merger Sub, LLC (Evolve IP) (2)(3)(4)(8)(11)(13)
 
Telecommunications
 
L + 6.25% (1.00% Floor)
 
6/7/2022
 
22,663

 
22,127

 
22,153

EIP Merger Sub, LLC (Evolve IP) (2)(3)(9)(11)(13)
 
Telecommunications
 
L + 6.25% (1.00% Floor)
 
6/7/2022
 
1,500

 
1,462

 
1,470

Empower Payments Acquisitions, Inc. (2)(3)(4)(13)
 
Media: Advertising, Printing & Publishing
 
L + 5.50% (1.00% Floor)
 
11/30/2023
 
17,325

 
17,018

 
17,325

FCX Holdings Corp. (2)(3)(4)(11)
 
Capital Equipment
 
L + 4.50% (1.00% Floor)
 
8/4/2020
 
18,491

 
18,438

 
18,512

Golden West Packaging Group LLC (2)(3)(4)(11)(13)
 
Containers, Packaging & Glass
 
L + 5.25% (1.00% Floor)
 
6/20/2023
 
20,895

 
20,709

 
20,895

HMT Holding Inc. (2)(3)(4)(7)(10)(13)
 
Energy: Oil & Gas
 
L + 4.50% (1.00% Floor)
 
11/17/2023
 
35,062

 
34,387

 
34,709

J.S. Held LLC (2)(3)(4)(7)(10)(13)
 
Banking, Finance, Insurance & Real Estate
 
L + 5.50% (1.00% Floor)
 
9/27/2023
 
18,204

 
18,018

 
18,144

Jensen Hughes, Inc. (2)(3)(4)(7)(10)(11)(13)
 
Utilities: Electric
 
L + 5.00% (1.00% Floor)
 
12/4/2021
 
20,963

 
20,784

 
20,963

Kestra Financial, Inc. (2)(3)(4)(13)
 
Banking, Finance, Insurance & Real Estate
 
L + 5.25% (1.00% Floor)
 
6/24/2022
 
17,206

 
17,009

 
17,203

Mold-Rite Plastics, LLC (2)(3)(4)(11)
 
Chemicals, Plastics & Rubber
 
L + 4.50% (1.00% Floor)
 
12/14/2021
 
15,000

 
14,946

 
14,993

MSHC, Inc. (2)(3)(4)(13)
 
Construction & Building
 
L + 4.25% (1.00% Floor)
 
7/31/2023
 
10,000

 
9,957

 
10,032

North American Dental Management, LLC (2)(3)(4)(7)(10)(11)(13)
 
Healthcare & Pharmaceuticals
 
L + 5.00% (1.00% Floor)
 
7/7/2023
 
23,978

 
23,157

 
23,577

North Haven CA Holdings, Inc. (CoAdvantage) (2)(3)(4)(7)(10)(13)
 
Business Services
 
L + 4.50% (1.00% Floor)
 
10/2/2023
 
31,565

 
31,237

 
31,436

Odyssey Logistics & Technology Corporation (2)(3)(4)(11)(13)
 
Transportation: Cargo
 
L + 4.25% (1.00% Floor)
 
10/12/2024
 
20,000

 
19,906

 
19,998

PAI Holdco, Inc. (Parts Authority) (2)(3)(4)(7)(10)(11)(13)
 
Automotive
 
L + 4.75% (1.00% Floor)
 
12/30/2022
 
16,564

 
16,459

 
16,515

Paradigm Acquisition Corp. (2)(3)(4)(13)
 
Business Services
 
L + 4.25% (1.00% Floor)
 
10/12/2024
 
23,500

 
23,445

 
23,554


77



Consolidated Schedule of Investments as of December 31, 2017
Investments (1)
 
Industry
 
Interest Rate (2)
 
Maturity Date
 
Par/ Principal Amount
 
Amortized Cost (5)
 
Fair Value (6)
First Lien Debt (99.39% of fair value)
 
 
 
 
 
 
 
 
 
 
 
 
Pasternack Enterprises, Inc. (Infinite RF) (2)(3)(4)(11)
 
Capital Equipment
 
L + 5.00% (1.00% Floor)
 
5/27/2022
 
$
20,228

 
$
20,134

 
$
20,174

Premier Senior Marketing, LLC (2)(3)(4)(11)(13)
 
Banking, Finance, Insurance & Real Estate
 
L + 5.00% (1.00% Floor)
 
7/1/2022
 
11,675

 
11,606

 
11,628

PSI Services LLC (2)(3)(4)(7)(10)(11)(13)
 
Business Services
 
L + 5.00% (1.00% Floor)
 
1/20/2023
 
30,676

 
30,171

 
30,082

Q Holding Company (2)(3)(4)(13)
 
Automotive
 
L + 5.00% (1.00% Floor)
 
12/18/2021
 
17,277

 
17,227

 
17,277

QW Holding Corporation (Quala) (2)(3)(4)(7)(10)(11)(13)
 
Environmental Industries
 
L + 6.75% (1.00% Floor)
 
8/31/2022
 
11,453

 
10,879

 
10,933

Radiology Partners, Inc. (2)(3)(4)(7)(10)(12)
 
Healthcare & Pharmaceuticals
 
L + 5.75% (1.00% Floor)
 
12/4/2023
 
25,793

 
25,494

 
25,642

Restaurant Technologies, Inc. (2)(3)(4)(11)(13)
 
Retail
 
L + 4.75% (1.00% Floor)
 
11/23/2022
 
17,369

 
17,241

 
17,219

Sovos Brands Intermediate, Inc. (2)(3)(4)(7)(10)(13)
 
Beverage, Food & Tobacco
 
L + 4.50% (1.00% Floor)
 
7/18/2024
 
21,568

 
21,419

 
21,633

Superion (fka Ramundsen Public Sector, LLC) (2)(3)(4)(13)
 
Sovereign & Public Finance
 
L + 4.25% (1.00% Floor)
 
2/1/2024
 
3,970

 
3,955

 
4,000

Surgical Information Systems, LLC (2)(3)(4)(9)(11)(13)
 
High Tech Industries
 
L + 5.00% (1.00% Floor)
 
4/24/2023
 
30,000

 
29,728

 
30,075

Systems Maintenance Services Holding, Inc. (2)(3)(4)(11)(13)
 
High Tech Industries
 
L + 5.00% (1.00% Floor)
 
10/28/2023
 
24,255

 
24,126

 
20,617

T2 Systems Canada, Inc. (2)(3)(4)
 
Transportation: Consumer
 
L + 6.75% (1.00% Floor)
 
9/28/2022
 
2,673

 
2,617

 
2,634

T2 Systems, Inc. (2)(3)(4)(7)(10)(13)
 
Transportation: Consumer
 
L + 6.75% (1.00% Floor)
 
9/28/2022
 
15,929

 
15,577

 
15,679

Teaching Strategies, LLC (2)(3)(4)(7)(10)(11)(13)
 
Media: Advertising, Printing & Publishing
 
L + 4.75% (1.00% Floor)
 
2/27/2023
 
17,964

 
17,803

 
17,952

The Original Cakerie, Ltd. (Canada) (2)(3)(4)(7)(10)(11)
 
Beverage, Food & Tobacco
 
L + 5.00% (1.00% Floor)
 
7/20/2021
 
6,939

 
6,879

 
6,922

The Original Cakerie, Co. (Canada) (2)(3)(11)(13)
 
Beverage, Food & Tobacco
 
L + 5.50% (1.00% Floor)
 
7/20/2021
 
3,585

 
3,572

 
3,579

ThoughtWorks, Inc. (2)(3)(11)(13)
 
Business Services
 
L + 4.50% (1.00% Floor)
 
10/12/2024
 
8,000

 
7,980

 
8,032

U.S. Acute Care Solutions, LLC (2)(3)(4)(13)
 
Healthcare & Pharmaceuticals
 
L + 5.00% (1.00% Floor)
 
5/15/2021
 
32,030

 
31,808

 
31,537

U.S. TelePacific Holdings Corp. (2)(3)(4)(13)
 
Telecommunications
 
L + 5.00% (1.00% Floor)
 
5/2/2023
 
29,850

 
29,566

 
28,581

Valicor Environmental Services, LLC (2)(3)(4)(7)(10)(11)(13)
 
Environmental Industries
 
L + 5.00% (1.00% Floor)
 
6/1/2023
 
27,047

 
26,576

 
26,984

WIRB - Copernicus Group, Inc. (2)(3)(4)(13)
 
Healthcare & Pharmaceuticals
 
L + 5.00% (1.00% Floor)
 
8/12/2022
 
14,838

 
14,780

 
14,838

WRE Holding Corp. (2)(3)(4)(7)(10)(11)(13)
 
Environmental Industries
 
L + 4.75% (1.00% Floor)
 
1/3/2023
 
5,367

 
5,283

 
5,279

Zest Holdings, LLC (2)(3)(4)(11)
 
Durable Consumer Goods
 
L + 4.25% (1.00% Floor)
 
8/16/2023
 
19,152

 
19,107

 
19,272

Zywave, Inc. (2)(3)(4)(7)(10)(13)
 
High Tech Industries
 
L + 5.00% (1.00% Floor)
 
11/17/2022
 
17,663

 
17,508

 
17,663

First Lien Debt Total
 
 
 
 
 
 
 
 
 
$
977,682

 
$
978,718

 
 
 
 
 
 
 
 
 
 
 
 
 
Second Lien Debt (0.61% of fair value)
 
 
 
 
 
 
 
 
 
 
 
 
Paradigm Acquisition Corp. (2)(3)(12)(13)
 
Business Services
 
L + 8.50% (1.00% Floor)
 
10/12/2025
 
$
4,800

 
$
4,753

 
$
4,792

Superion, LLC (fka Ramundsen Public Sector, LLC) (2)(3)(13)
 
Sovereign & Public Finance
 
L + 8.50% (1.00% Floor)
 
2/1/2025
 
200

 
198

 
202

Zywave, Inc. (2)(3)(13)
 
High Tech Industries
 
L + 9.00% (1.00% Floor)
 
11/17/2023
 
1,050

 
1,036

 
1,061

Second Lien Debt Total
 
 
 
 
 
 
 
 
 
$
5,987

 
$
6,055

Total Investments
 
 
 
 
 
 
 
 
 
$
983,669

 
$
984,773


78



(1)
Unless otherwise indicated, issuers of investments held by Credit Fund are domiciled in the United States. As of December 31, 2017, the geographical composition of investments as a percentage of fair value was 1.07% in Canada, 2.52% in the United Kingdom and 96.41% in the United States.
(2)
Variable rate loans to the portfolio companies bear interest at a rate that may be determined by reference to either LIBOR (“L”) or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate (“P”)), which generally resets quarterly. For each such loan, Credit Fund has provided the interest rate in effect as of December 31, 2017. As of December 31, 2017, all of Credit Fund’s LIBOR loans were indexed to the 90-day LIBOR rate at 1.69%, except for those loans as indicated in Notes 11 and 12 below.
(3)
Loan includes interest rate floor feature.
(4)
Denotes that all or a portion of the assets are owned by Credit Fund Sub. Credit Fund Sub has entered into the Credit Fund Sub Facility. The lenders of the Credit Fund Sub Facility have a first lien security interest in substantially all of the assets of Credit Fund Sub. Accordingly, such assets are not available to creditors of Credit Fund.
(5)
Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.
(6)
Fair value is determined in good faith by or under the direction of the board of managers of Credit Fund, pursuant to Credit Fund’s valuation policy, with the fair value of all investments determined using significant unobservable inputs, which is substantially similar to the valuation policy of the Company provided in “—Critical Accounting Policies—Fair Value Measurements.”
(7)
Denotes that all or a portion of the assets are owned by Credit Fund. Credit Fund has entered into the Credit Fund Facility. The lenders of the Credit Fund Facility have a first lien security interest in substantially all of the assets of Credit Fund. Accordingly, such assets are not available to creditors of Credit Fund Sub.
(8)
Credit Fund receives less than the stated interest rate of this loan as a result of an agreement among lenders. The interest rate reduction is 1.25% on EIP Merger Sub, LLC (Evolve IP). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.
(9)
In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, Credit Fund is entitled to receive additional interest as a result of an agreement among lenders as follows: EIP Merger Sub, LLC (Evolve IP) (3.97%) and Surgical Information Systems, LLC (1.01%). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.

79



(10)
As of December 31, 2017, Credit Fund had the following unfunded commitments to fund delayed draw and revolving senior secured loans:
First Lien Debt—unfunded delayed draw and revolving term loans commitments
 
Type
 
Unused Fee
 
Par/ Principal Amount
 
Fair Value
Advanced Instruments, LLC
 
Revolver
 
0.50
%
 
$
1,333

 
$

AQA Acquisition Holding, Inc.
 
Revolver
 
0.50
%
 
2,459

 

Borchers, Inc.
 
Revolver
 
0.50
%
 
1,935

 
(9
)
DecoPac, Inc.
 
Revolver
 
0.50
%
 
1,457

 

HMT Holding Inc.
 
Revolver
 
0.50
%
 
4,938

 
(43
)
Jensen Hughes, Inc.
 
Delayed Draw
 
1.00
%
 
1,180

 

Jensen Hughes, Inc.
 
Revolver
 
0.50
%
 
2,000

 

J.S. Held LLC
 
Delayed Draw
 
1.00
%
 
2,253

 
(7
)
North American Dental Management, LLC
 
Delayed Draw
 
1.00
%
 
13,354

 
(134
)
North American Dental Management, LLC
 
Revolver
 
0.50
%
 
2,727

 
(27
)
North Haven CA Holdings, Inc. (CoAdvantage)
 
Revolver
 
0.50
%
 
3,362

 
(12
)
PAI Holdco, Inc. (Parts Authority)
 
Delayed Draw
 
1.00
%
 
3,286

 
(8
)
PSI Services LLC
 
Revolver
 
0.50
%
 
302

 
(6
)
QW Holding Corporation (Quala)
 
Delayed Draw
 
1.00
%
 
7,515

 
(171
)
QW Holding Corporation (Quala)
 
Revolver
 
0.50
%
 
3,849

 
(88
)
Radiology Partners, Inc.
 
Delayed Draw
 
1.00
%
 
2,483

 
(12
)
Radiology Partners, Inc.
 
Revolver
 
0.50
%
 
1,725

 
(9
)
Sovos Brands Intermediate, Inc.
 
Revolver
 
0.50
%
 
3,378

 
9

T2 Systems, Inc.
 
Revolver
 
0.50
%
 
1,173

 
(17
)
Teaching Strategies, LLC
 
Revolver
 
0.50
%
 
1,900

 
(1
)
The Original Cakerie, Ltd. (Canada)
 
Revolver
 
0.50
%
 
1,665

 
(3
)
Valicor Environmental Services, LLC
 
Revolver
 
0.50
%
 
2,838

 
(6
)
WRE Holding Corp.
 
Delayed Draw
 
1.04
%
 
3,435

 
(32
)
WRE Holding Corp.
 
Revolver
 
0.50
%
 
748

 
(7
)
Zywave, Inc.
 
Revolver
 
0.50
%
 
1,163

 

Total unfunded commitments
 
 
 
 
 
$
72,458

 
$
(583
)
(11)
As of December 31, 2017, this LIBOR loan was indexed to the 30-day LIBOR rate at 1.56%.
(12)
As of December 31, 2017, this LIBOR loan was indexed to the 180-day LIBOR rate at 1.84%.
(13)
Denotes that all or a portion of the assets are owned by the 2017-1 Issuer and secure the notes issued in connection with the 2017-1 Debt Securitization. Accordingly, such assets are not available to creditors of Credit Fund or Credit Fund Sub.
Below is certain summarized consolidated financial information for Credit Fund as of June 30, 2018 and December 31, 2017, respectively. Credit Fund commenced operations in May 2016.
 
 
June 30, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
Selected Consolidated Balance Sheet Information
 
 
 
 
ASSETS
 
 
 
 
Investments, at fair value (amortized cost of $1,134,999 and $983,669, respectively)
 
$
1,136,216

 
$
984,773

Cash and other assets
 
56,319

 
26,441

Total assets
 
$
1,192,535

 
$
1,011,214

LIABILITIES AND MEMBERS’ EQUITY
 
 
 
 
Secured borrowings
 
$
450,950

 
$
377,686

2017-1 Notes payable, net of unamortized debt issuance costs of $1,949 and $2,051, respectively
 
347,250

 
348,938

Mezzanine loans
 
114,000

 
85,750

Other liabilities
 
92,325

 
25,308

Subordinated loans and members’ equity
 
188,010

 
173,532

Liabilities and members’ equity
 
$
1,192,535

 
$
1,011,214


80



 
 
For the three month periods ended
 
For the six month periods ended
 
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
 
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
(unaudited)
Selected Consolidated Statement of Operations Information:
 
 
 
 
 
 
 
 
Total investment income
 
$
20,480

 
$
10,706

 
$
38,391

 
$
18,888

Expenses
 
 
 
 
 
 
 
 
Interest and credit facility expenses
 
13,101

 
6,922

 
23,757

 
12,395

Other expenses
 
380

 
367

 
769

 
685

Total expenses
 
13,481

 
7,289

 
24,526

 
13,080

Net investment income (loss)
 
6,999

 
3,417

 
13,865

 
5,808

Net realized gain (loss) on investments
 

 

 

 

Net change in unrealized appreciation (depreciation) on investments
 
(2,922
)
 
450

 
113

 
1,187

Net increase (decrease) resulting from operations
 
$
4,077

 
$
3,867

 
$
13,978

 
$
6,995

Debt
Credit Fund Facility
On June 24, 2016, Credit Fund entered into the Credit Fund Facility with the Company pursuant to which Credit Fund may from time to time request mezzanine loans from us, which was subsequently amended on June 5, 2017, October 2, 2017, November 3, 2017, June 22, 2018 and June 29, 2018. The maximum principal amount of the Credit Fund Facility is $175,000. The maturity date of the Credit Fund Facility is June 22, 2018. Amounts borrowed under the Credit Fund Facility bear interest at a rate of LIBOR plus 9.00%.
During the three month periods ended June 30, 2018 and 2017, there were mezzanine loan borrowings of $25,300 and $38,500, respectively, and repayments of $18,900 and $11,444, respectively, under the Credit Fund Facility. During the six month periods ended June 30, 2018 and 2017, there were mezzanine loan borrowings of $47,150 and $84,160, respectively, and repayments of $18,900 and $33,444, respectively, under the Credit Fund Facility. As of June 30, 2018 and December 31, 2017, there were $114,000 and $85,750 in mezzanine loans outstanding, respectively.
Credit Fund Sub Facility
On June 24, 2016, Credit Fund Sub closed on the Credit Fund Sub Facility with lenders, which was subsequently amended on May 31, 2017 and October 27, 2017. The Credit Fund Sub Facility provides for secured borrowings during the applicable revolving period up to an amount equal to $640,000. The facility is secured by a first lien security interest in substantially all of the portfolio investments held by Credit Fund Sub. The maturity date of the Credit Fund Sub Facility is May 22, 2023. Amounts borrowed under the Credit Fund Sub Facility bear interest at a rate of LIBOR plus 2.50%.
During the three month periods ended June 30, 2018 and 2017, there were secured borrowings of $41,300 and $178,570, respectively, and repayments of $20,966 and $0, respectively, under the Credit Fund Sub Facility. During the six month periods ended June 30, 2018 and 2017, there were secured borrowings of $109,265 and $297,405, respectively, and repayments of $36,001 and $0, respectively, under the Credit Fund Sub Facility. As of June 30, 2018 and December 31, 2017, there was $450,950 and $377,686 in secured borrowings outstanding, respectively.
2017-1 Notes
On December 19, 2017, Credit Fund completed a $399,900 term debt securitization (the “2017-1 Debt Securitization”). The notes offered in the 2017-1 Debt Securitization (the “2017-1 Notes”) were issued by the 2017-1 Issuer, a wholly owned and consolidated subsidiary of Credit Fund, and are secured by a diversified portfolio of the 2017-1 Issuer consisting primarily of first and second lien senior secured loans. The 2017-1 Debt Securitization was executed through a private placement of the 2017-1 Notes, consisting of $231,700 of Aaa/AAA Class A-1 Notes, which bear interest at the three-month LIBOR plus 1.17%; $48,300 of Aa2/AA Class A-2 Notes, which bear interest at the three-month LIBOR plus 1.50%; $15,000 of A2/A Class B-1 Notes, which bear interest at the three-month LIBOR plus 2.25%; $9,000 of A2/A Class B-2 Notes which bear interest at 4.30%; $22,900 of Baa2/BBB Class C Notes which bear interest at the three-month LIBOR plus 3.20%; and $25,100 of Ba2/BB Class D Notes which bear interest at the three-month LIBOR plus 6.38%. The 2017-1 Notes are scheduled to mature on January 15, 2028. Credit Fund received 100% of the preferred interests issued by the 2017-1 Issuer (the “2017-1 Issuer Preferred Interests”) on the closing date of the 2017-1 Debt Securitization in exchange for Credit Fund’s contribution to the 2017-1 Issuer of the initial closing date loan portfolio. The 2017-1 Issuer Preferred Interests do not bear interest and had a nominal value of $47,900 at closing.

81



FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We generate 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 Facilities, as well as through securitization of a portion of our existing investments.
The SPV closed on May 24, 2013 on the SPV Credit Facility, which was subsequently amended on June 30, 2014, June 19, 2015, June 9, 2016 and May 26, 2017. The SPV 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 SPV 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 SPV Credit Facility, including adequate collateral to support such borrowings. The SPV Credit Facility imposes financial and operating covenants on us and the SPV that restrict our and its business activities. Continued compliance with these covenants will depend on many factors, some of which are beyond our control.
We closed on March 21, 2014 on the Credit Facility, which was subsequently amended on January 8, 2015, May 25, 2016 and March 22, 2017. The maximum principal amount of the Credit Facility is $413,000, subject to availability under the Credit 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 Credit Facility. Proceeds of the Credit Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Credit Facility may be increased, subject to certain conditions, to $550,000 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 Credit Facility includes a $20,000 limit for swingline loans and a $5,000 limit for letters of credit. Subject to certain exceptions, the Credit Facility is secured by a first lien security interest in substantially all of the portfolio investments held by the Company. The Credit 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 SPV will remain in compliance, there are no assurances that we or the SPV will continue to comply with the covenants in the Credit Facility and SPV Credit Facility, as applicable. Failure to comply with these covenants could result in a default under the Credit Facility and/or the SPV Credit Facility that, if we or the SPV were unable to obtain a waiver from the applicable lenders, could result in the immediate acceleration of the amounts due under the Credit Facility and/or the SPV Credit Facility, and thereby have a material adverse impact on our business, financial condition and results of operations.
For more information on the SPV Credit Facility and the Credit Facility, see Note 6 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, we completed 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 us, and are secured by a diversified portfolio of the 2015-1 Issuer 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 $160,000 of Aaa/AAA Class A-1A Notes, which bear interest at the three-month London Interbank Offered Rate (“LIBOR”) plus 1.85%; $40,000 of Aaa/AAA Class A-1B Notes, which bear interest at the three-month LIBOR plus 1.75% for the first 24 months and the three-month LIBOR plus 2.05% thereafter; $27,000 of Aaa/AAA Class A-1C Notes, which bear interest at 3.75%; and $46,000 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. We received 100% of the preferred interests issued by the 2015-1 Issuer (the “2015-1 Issuer Preferred Interests”) on the closing date of the 2015-1 Debt Securitization in exchange for our contribution to the 2015-1 Issuer of the initial closing date loan portfolio. The 2015-1 Issuer Preferred Interests do not bear interest and had a nominal value of $125,900 at closing. In connection with the contribution, we have 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 consolidated financial statements included in Part I, Item 1 of this Form 10-Q. The 2015-1 Issuer Preferred Interests were

82



eliminated in consolidation. For more information on the 2015-1 Notes, see Note 7 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.
As of June 30, 2018 and December 31, 2017, the Company had $27,928 and $32,039, respectively, in cash and cash equivalents. The Facilities consisted of the following as of June 30, 2018 and December 31, 2017:
 
June 30, 2018
 
Total Facility
 
Borrowings Outstanding
 
Unused Portion (1)
 
Amount Available (2)
SPV Credit Facility
$
400,000

 
$
255,605

 
$
144,395

 
$
43,162

Credit Facility
413,000

 
329,500

 
83,500

 
83,500

Total
$
813,000

 
$
585,105

 
$
227,895

 
$
126,662

 
December 31, 2017
 
Total Facility
 
Borrowings Outstanding
 
Unused Portion (1)
 
Amount Available (2)
SPV Credit Facility
$
400,000

 
$
287,393

 
$
112,607

 
$
27,147

Credit Facility
413,000

 
275,500

 
137,500

 
137,500

Total
$
813,000

 
$
562,893

 
$
250,107

 
$
164,647

(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 and subject to compliance with applicable covenants and financial ratios.

The following were the carrying values (before debt issuance costs) and fair values of the Company’s 2015-1 Notes as of June 30, 2018 and December 31, 2017:
 
June 30, 2018
 
December 31, 2017
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Aaa/AAA Class A-1A Notes
$
160,000

 
$
160,000

 
$
160,000

 
$
160,064

Aaa/AAA Class A-1B Notes
40,000

 
40,000

 
40,000

 
40,020

Aaa/AAA Class A-1C Notes
27,000

 
27,000

 
27,000

 
27,014

Aa2 Class A-2 Notes
46,000

 
46,000

 
46,000

 
46,027

Total
$
273,000

 
$
273,000


$
273,000

 
$
273,125


As of June 30, 2018 and December 31, 2017, we had a combined $858,105 and $800,865, respectively, of outstanding consolidated indebtedness under our Facilities and 2015-1 Notes. Our annualized interest cost as of June 30, 2018 and December 31, 2017, was 3.98% and 3.52%, excluding fees (such as fees on undrawn amounts and amortization of upfront fees).
Equity Activity
On June 9, 2017, in connection with the NFIC Acquisition, the Company issued 434,233 shares of common stock valued at approximately $8,046. See Note 13 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q for additional information regarding the NFIC Acquisition.
On June 19, 2017, we closed our IPO, issuing 9,454,200 shares of our common stock (including shares issued pursuant to the exercise of the underwriters’ over-allotment option on July 5, 2017) at a public offering price of $18.50 per share. Net of underwriting costs, we received cash proceeds of $169,488. Shares of common stock of TCG BDC began trading on the NASDAQ Global Select Market under the symbol “CGBD” on June 14, 2017. Upon the completion of the IPO, uncalled capital commitments payable to the Company by the Company’s pre-IPO investors were automatically reduced to zero.
Shares issued as of June 30, 2018 and December 31, 2017 were 62,568,651 and 62,207,603, respectively.

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The following table summarizes activity in the number of shares of our common stock outstanding during the six month periods ended June 30, 2018 and 2017:
 
For the six month periods ended
 
June 30, 2018
 
June 30, 2017
Shares outstanding, beginning of period
62,207,603

 
41,702,318

Common stock issued

 
19,692,360

Reinvestment of dividends
361,048

 
10,970

Shares outstanding, end of period
62,568,651

 
61,405,648

Contractual Obligations
A summary of our significant contractual payment obligations was as follows as of June 30, 2018 and December 31, 2017:
 
 
SPV Credit Facility and Credit Facility
 
2015-1 Notes
Payment Due by Period
 
June 30, 2018
 
December 31, 2017
 
June 30, 2018
 
December 31, 2017
Less than 1 Year
 
$

 
$

 
$

 
$

1-3 Years
 

 

 

 

3-5 Years
 
585,105

 
562,893

 

 

More than 5 Years
 

 

 
273,000

 
273,000

Total
 
$
585,105

 
$
562,893

 
$
273,000

 
$
273,000

As of June 30, 2018 and December 31, 2017, $255,605 and $287,393, respectively, of secured borrowings were outstanding under the SPV Credit Facility, $329,500 and $275,500, respectively, were outstanding under the Credit Facility and $273,000 of 2015-1 Notes were outstanding. For the three month and six month periods ended June 30, 2018, we incurred $8,709 and $16,524, respectively, of interest expense and $294 and $582, respectively, of unused commitment fees. For the three month and six month periods ended June 30, 2017, we incurred $5,738 and $10,772, respectively, of interest expense and $324 and $616, respectively, of unused commitment fees.
OFF BALANCE SHEET ARRANGEMENTS
In the ordinary course of our business, we enter into contracts or agreements that contain indemnifications or warranties. Future events could occur which may give rise to liabilities arising from these provisions against us. We believe 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, 2018 and December 31, 2017 included in Part I, Item 1 of this Form 10-Q for any such exposure.
We have in the past and may in the future become obligated to fund commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments.
We had the following unfunded commitments to fund delayed draw and revolving senior secured loans as of the indicated dates:
 
Principal Amount as of
 
June 30, 2018
 
December 31, 2017
Unfunded delayed draw commitments
$
112,170

 
$
78,991

Unfunded revolving term loan commitments
52,578

 
39,383

Total unfunded commitments
$
164,748

 
$
118,374

Pursuant to an undertaking by us in connection with the 2015-1 Debt Securitization, we 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, 2018 and December 31, 2017, we were in compliance with this undertaking.
DIVIDENDS AND DISTRIBUTIONS TO COMMON STOCKHOLDERS

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Prior to July 5, 2017, we had an “opt in” dividend reinvestment plan. Effective on July 5, 2017, we converted our “opt in” dividend reinvestment plan to an “opt out” dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, other than those stockholders who have “opted out” of the plan. As a result of adopting the plan, if our Board of Directors authorizes, and we declare, a cash dividend or distribution, our stockholders who have not elected to “opt out” of our dividend reinvestment plan will have their cash dividends or distributions automatically reinvested in additional shares of our common stock, rather than receiving cash. Each registered stockholder may elect to have such stockholder’s dividends and distributions distributed in cash rather than participate in the plan. For any registered stockholder that does not so elect, distributions on such stockholder’s shares will be reinvested by State Street Bank and Trust Company, our plan administrator, in additional shares. The number of shares to be issued to the stockholder will be determined based on the total dollar amount of the cash distribution payable, net of applicable withholding taxes. We intend 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 on the relevant valuation date. If the market value per share is less than the net asset value per share on the relevant valuation date, the plan administrator would implement the plan through the purchase of common stock on behalf of participants in the open market, unless we instruct the plan administrator otherwise.
The following table summarizes our dividends declared during the two most recent fiscal years and the current fiscal year to-date:
Date Declared
 
Record Date
 
Payment Date
 
Per Share Amount
 
2016
 
 
 
 
 
 
 
March 10, 2016
 
March 14, 2016
 
April 22, 2016
 
$
0.40

 
June 8, 2016
 
June 8, 2016
 
July 22, 2016
 
$
0.40

 
September 28, 2016
 
September 28, 2016
 
October 24, 2016
 
$
0.40

 
December 29, 2016
 
December 29, 2016
 
January 24, 2017
 
$
0.41

 
December 29, 2016
 
December 29, 2016
 
January 24, 2017
 
$
0.07

(1) 
Total
 
 
 
 
 
$
1.68

 
2017
 
 
 
 
 
 
 
March 20, 2017
 
March 20, 2017
 
April 24, 2017
 
$
0.41

 
June 20, 2017
 
June 30, 2017
 
July 18, 2017
 
$
0.37

 
August 7, 2017
 
September 29, 2017
 
October 18, 2017
 
$
0.37

 
November 7, 2017
 
December 29, 2017
 
January 17, 2018
 
$
0.37

 
December 13, 2017
 
December 29, 2017
 
January 17, 2018
 
$
0.12

(1) 
Total
 
 
 
 
 
$
1.64

 
2018
 
 
 
 
 
 
 
March 29, 2018
 
March 29, 2018
 
April 17, 2018
 
$
0.37

 
May 2, 2018
 
June 29, 2018
 
July 17, 2018
 
$
0.37

 
August 6, 2018
 
September 28, 2018
 
October 17, 2018
 
$
0.37

 
Total
 
 
 
 
 
$
1.11

 
(1)
Represents a special dividend.
ASSET COVERAGE
In accordance with the Investment Company Act, a BDC is only allowed to borrow amounts such that its “asset coverage,” as defined in the Investment Company Act, satisfies the minimum asset coverage ratio specified in the Investment Company Act after such borrowing. “Asset coverage” generally refers to a company’s total assets, less all liabilities and indebtedness not represented by “senior securities,” as defined in the Investment Company Act, divided by total senior securities representing indebtedness and, if applicable, preferred stock. “Senior securities” for this purpose includes borrowings from banks or other lenders, debt securities and preferred stock.
Prior to March 23, 2018, BDCs were required to maintain a minimum asset coverage ratio of 200%. On March 23, 2018, an amendment to Section 61(a) of the Investment Company Act was signed into law to permit BDCs to reduce the minimum asset coverage ratio from 200% to 150%, so long as certain approval and disclosure requirements are satisfied. Under the 200% minimum asset coverage ratio, BDCs are permitted to borrow up to one dollar for investment purposes for every one dollar of

85



investor equity, and under the 150% minimum asset coverage ratio, BDCs are permitted to borrow up to two dollars for investment purposes for every one dollar of investor equity. In other words, Section 61(a) of the 1940 Act, as amended, permits BDCs to potentially increase their debt-to-equity ratio from a maximum of 1 to 1 to a maximum of 2 to 1.
On April 9, 2018 and June 6, 2018, the Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the Investment Company Act), and the stockholders of the Company, respectively, approved the application to the Company of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the 1940 Act. As a result, the minimum asset coverage ratio applicable to the Company was reduced from 200% to 150%, effective as of June 7, 2018, the first day after the Company's 2018 Annual Meeting.
As of June 30, 2018 and December 31, 2017, the Company had total senior securities of $858,105 and $800,865, respectively, consisting of secured borrowings under the Facilities and the 2015-1 Notes, and had asset coverage ratios of 230.73% and 234.86%, respectively. For a discussion of the principal risk factors associated with these senior securities, see Part II, Item 1A of this Form 10‑Q.
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, 2017.
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 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 other than Credit Fund 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:

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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, 2018 and December 31, 2017.
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 1—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 included in Level 1 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 2—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 3—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 included in this category generally include investments in privately-held entities 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.

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The Company generally uses the following framework when determining the fair value of investments that are categorized as Level 3:
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 debt securities may also be valued using 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.
Investments in Credit Fund’s subordinated loan and member’s interest are valued using the net asset value of the Company’s ownership interest in the funds and investments in Credit Fund’s mezzanine loans are valued using discounted cash flow analysis with expected repayment rate of principal and interest.
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, indicative quotes and comparable EBITDA multiples. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in indicative quotes or comparable EBITDA multiples 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.
The carrying values of the secured borrowings and 2015-1 Notes approximate their respective fair values and are categorized as Level 3 within the hierarchy. Secured borrowings 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 fair value determination of the Company’s 2015-1 Notes was based on the market quotation(s) received from broker/dealer(s). These fair value measurements were based on significant inputs not observable and thus represent Level 3 measurements as defined in the accounting guidance for fair value measurement.
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 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

88



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 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 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 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 investments 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 and upfront fees received that are deemed to be an adjustment to yield, 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. Such income is included in interest income in the Consolidated Statements of Operations included in Part I, Item 1 of this Form 10-Q.
Dividend Income
Dividend income from the investment fund is recorded on the record date for the investment fund to the extent that such amounts are payable by the investment fund and are expected to be collected.
Other Income
Other income may include income such as consent, waiver, amendment, syndication and prepayment fees associated with the Company’s investment activities as well as any fees for managerial assistance services rendered by the Company to the portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive fees for guaranteeing the outstanding debt of a portfolio company. Such fees are 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
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.
Income Taxes
For federal income tax purposes, the Company 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, the Company must meet certain

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minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then the Company 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 the Company 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, the Company 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, the Company is subject to a 4% nondeductible federal excise tax on undistributed income unless the Company 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 the Company that is subject to corporate income tax is considered to have been distributed. The Company 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 SPVs and the 2015-1 Issuer are disregarded entities for tax purposes and are consolidated with the tax return of the Company.
Dividends and Distributions to Common Stockholders
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.

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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 our 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
As of June 30, 2018, on a fair value basis, approximately 0.8% of our debt investments bear interest at a fixed rate and approximately 99.2% of our debt investments bear interest at a floating rate, which primarily are subject to interest rate floors. Interest rates on the investments held within our portfolio of investments are typically based on floating LIBOR, with many of these investments also having a LIBOR floor. Additionally, our 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 our settled portfolio of debt investments held as of June 30, 2018 and December 31, 2017, excluding structured finance obligations and Credit Fund. These hypothetical calculations are based on a model of the settled debt investments in our portfolio, excluding Credit Fund, held as of June 30, 2018 and December 31, 2017, 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 and 2015-1 Notes as of June 30, 2018 and December 31, 2017 and based on the terms of our Facilities and 2015-1 Notes. Interest expense on our Facilities and 2015-1 Notes is calculated using the interest rate as of June 30, 2018 and December 31, 2017, 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.
We regularly measure exposure to interest rate risk. We assess interest rate risk and manage 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, 2018 and December 31, 2017, the following table shows the annual impact on net investment income of base rate changes in interest rates for our settled debt investments (considering interest rate floors for variable rate instruments), excluding Credit Fund, and outstanding secured borrowings and 2015-1 Notes assuming no changes in our investment and borrowing structure:
 
As of June 30, 2018
 
As of December 31, 2017
Basis Point Change
Interest Income
 
Interest Expense
 
Net Investment Income
 
Interest Income
 
Interest Expense
 
Net Investment Income
Up 300 basis points
$
50,923

 
$
(24,933
)
 
$
25,990

 
$
52,780

 
$
(24,325
)
 
$
28,455

Up 200 basis points
$
33,439

 
$
(16,622
)
 
$
16,817

 
$
35,187

 
$
(16,217
)
 
$
18,970

Up 100 basis points
$
16,974

 
$
(8,311
)
 
$
8,663

 
$
17,593

 
$
(8,108
)
 
$
9,485

Down 100 basis points
$
(16,845
)
 
$
8,311

 
$
(8,534
)
 
$
(9,663
)
 
$
8,108

 
$
(1,555
)
Down 200 basis points
$
(19,933
)
 
$
16,622

 
$
(3,311
)
 
$
(9,850
)
 
$
13,380

 
$
3,530

Down 300 basis points
$
(20,130
)
 
$
18,604

 
$
(1,526
)
 
$
(10,038
)
 
$
13,380

 
$
3,342


91



Item 4. Controls and Procedures.
Evaluation of Disclosure 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 Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer (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 Chief Executive Officer and our Chief Financial Officer 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.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal control over financial reporting during the three month period ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 11 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.
Item 1A. Risk Factors.
Except for 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, 2017. For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 27, 2018, which is accessible on the SEC’s website at sec.gov.
New Legislation allows us to incur additional leverage.
Prior to March 23, 2018, under the Investment Company Act, a BDC generally was not permitted to incur borrowings, issue debt securities or issue preferred stock unless immediately after the borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 200%. On March 23, 2018, an amendment to Section 61(a) of the 1940 Act was signed into law to permit BDCs to reduce the minimum asset coverage ratio from 200% to 150%, so long as certain approval and disclosure requirements are satisfied. Under the 200% minimum asset coverage ratio, BDCs are permitted to borrow up to one dollar for investment purposes for every one dollar of investor equity, and under the 150% minimum asset coverage ratio, BDCs are permitted to borrow up to two dollars for investment purposes for every one dollar of investor equity. In other words, Section 61(a) of the 1940 Act, as amended, permits BDCs to potentially increase their debt-to-equity ratio from a maximum of 1 to 1 to a maximum of 2 to 1.
On April 9, 2018 and June 6, 2018, the Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the Investment Company Act), and the stockholders of the Company, respectively, approved the application to the Company of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the 1940 Act. As a result, the minimum asset coverage ratio applicable to the Company was reduced from 200% to 150%, effective as of June 7, 2018, the first day after the Company's 2018 Annual Meeting.
As a result, we may incur additional indebtedness in the future and you may face increased investment risk.
Contractual asset coverage limitations under the Facilities may limit the Company’s ability to incur additional leverage.
The Facilities include financial covenants that require the Company and the SPV to maintain a 200% minimum asset coverage ratio. We plan to seek amendments to the Facilities to lower the minimum asset coverage ratio to 150%. We cannot assure you that we will be able to negotiate a change to the Facilities to allow it and/or the SPV to incur additional leverage or that any such amendment will be available to the Company and/or the SPV on favorable terms. An inability on the part of the Company and/or the SPV to amend the contractual asset coverage limitation and access additional leverage could limit our ability to take advantage of the benefits described above under “-New Legislation allows us to incur additional leverage”. Amendments to the Facilities to reduce the asset coverage limitation in the Facilities may result in the lenders demanding higher interest rates being applied to the borrowings under the Facilities, which, in turn, would increase our borrowing costs and limit the benefits of increased leverage.
In addition, pursuant to Section 61(a)(2)(C)(ii), the principal risk factors associated with the Company’s senior securities are set forth below. However, since the Company already uses leverage in optimizing its investment portfolio, the principal risk factors associated with the Company’s senior securities do not represent material changes to the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2017.
Regulations governing our operation as a BDC affect our ability to, and the way in which we will, raise additional capital. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.
We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the Investment Company Act. In addition,

93



we may seek to securitize certain of our loans. Under the provisions of the Investment Company Act, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset coverage ratio, as defined in the Investment Company Act, equals at least 150% of total assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test, which may prohibit us from paying dividends and could prevent us from maintaining our status as a RIC or may prohibit us from repurchasing shares of our common stock. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Accordingly, any failure to satisfy this test could have a material adverse effect on our business, financial condition or results of operations. As of June 30, 2018, our asset coverage calculated in accordance with the Investment Company Act was 230.73%. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, our common stockholders would also be exposed to typical risks associated with increased leverage, including an increased risk of loss resulting from increased indebtedness.
If we issue preferred stock, the preferred stock would rank “senior” to common stock in our capital structure, preferred stockholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in their best interest.
We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us.
As part of our business strategy, we, including through our wholly owned subsidiaries, borrow money from time to time, and may in the future issue additional senior debt securities to banks, insurance companies and other lenders. Holders of these loans or senior securities would have fixed-dollar claims on our assets that are superior to the claims of our stockholders. If the value of our assets decreases, leverage will cause our NAV to decline more sharply than it otherwise would have without leverage. Similarly, any decrease in our income would cause our net income to decline more sharply than it would have if we had not borrowed. This decline could negatively affect our ability to make dividend payments on our common stock.
Our ability to service our borrowings depends largely on our financial performance and is subject to prevailing economic conditions and competitive pressures. In addition, our management fees are payable based on our gross assets, including assets acquired through the use of leverage (but excluding cash and any temporary investments in cash-equivalents), which may give our Investment Adviser an incentive to use leverage to make additional investments. The amount of leverage that we employ will depend on our Investment Adviser’s and our Board’s assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.  
In addition to having fixed-dollar claims on our assets that are superior to the claims of our common stockholders, obligations to lenders may be secured by a first priority security interest in our portfolio of investments and cash. In the case of a liquidation event, those lenders would receive proceeds to the extent of their security interest before any distributions are made to our stockholders. In addition, as the holder of the Preferred Interests of the 2015-1 Issuer (i.e., the subordinated class of the 2015-1 Securitization), we may be required to absorb losses with respect to the 2015-1 Debt Securitization.
Our Facilities and the 2015-1 Notes impose financial and operating covenants that restrict our business activities, remedies on default and similar matters. As of June 30, 2018, we were in material compliance with the operating and financial covenants of our Facilities and the 2015-1 Notes. However, our continued compliance with these covenants depends on many factors, some of which are beyond our control. Accordingly, although we believe we will continue to be in compliance, we cannot assure you that we will continue to comply with the covenants in our Facilities and the 2015-1 Notes. Failure to comply with these covenants could result in a default. If we were unable to obtain a waiver of a default from the lenders or holders of that indebtedness, as applicable, those lenders or holders could accelerate repayment under that indebtedness, which may result in cross-acceleration of other indebtedness. An acceleration could have a material adverse impact on our business, financial condition and results of operations. Lastly, we may be unable to obtain additional leverage, which would, in turn, affect our return on capital.
As of June 30, 2018, we had a combined $858.1 million of outstanding consolidated indebtedness under our Facilities and 2015-1 Notes. Our annualized interest cost as of June 30, 2018, was 4.39%, excluding fees (such as fees on undrawn amounts and amortization of upfront fees). Since we generally pay interest at a floating rate on our Facilities and 2015-1 Notes, an increase in interest rates will generally increase our borrowing costs.

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The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns on our portfolio, net of expenses. The calculations in the table below are hypothetical, and actual returns may be higher or lower than those appearing in the table below.
 
Effects of Leverage Based on the Actual Amount of Borrowings Incurred by the Company as of June 30, 2018
Assumed annual returns on the Company’s portfolio (net of expenses)
(10)%
(5)%
0%
5%
10%
Corresponding return to common stockholder (1)
(21.47)%
(12.41)%
(3.36)%
5.69%
14.75%
(1)
As of June 30, 2018, the Company had (i) $2.0 billion in total assets (ii) $858.1 million in outstanding indebtedness, (iii) $1.1 billion in net assets and (iv) a weighted average interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 4.39%.
Based on outstanding indebtedness of $858.1 million as of June 30, 2018, and the weighted average effective annual interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 4.39% as of that date, the Company’s investment portfolio at fair value would have had to produce an annual return of approximately 1.9% to cover annual interest payments on the outstanding debt.
Our indebtedness could adversely affect our business, financial conditions or results of operations.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our credit facilities or otherwise in an amount sufficient to enable us to repay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before it matures. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets or seeking additional equity. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or on terms that would not be disadvantageous to our stockholders or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements.
Our fee structure may induce our Investment Adviser to pursue speculative investments and incur leverage, and investors may bear the cost of multiple levels of fees and expenses.
The incentive fees payable by us to our Investment Adviser may create an incentive for our Investment Adviser to pursue investments on our behalf that are riskier or more speculative than would be the case in the absence of such compensation arrangement. The incentive fees payable to our Investment Adviser are calculated based on a percentage of our return on invested capital. This may encourage our Investment Adviser to use leverage to increase the return on our investments. In particular, a portion of the incentive fees payable to the Investment Adviser is calculated based on the Company’s pre-incentive fee net investment income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, subject to a “hurdle rate” of 1.50% per quarter (6% annualized) and a “catch-up rate” of 1.82% per quarter (7.28% annualized). See Note 4 to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q. Accordingly, an increase in leverage may make it easier for the Company to meet or exceed the hurdle rate applicable to the income-based incentive fee and may result in an increase in the amount of income-based incentive fee payable to the Investment Adviser.
Under certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of our securities. In addition, our Investment Adviser receives the incentive fees based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fees based on income, there is no hurdle rate applicable to the portion of the incentive fees based on net capital gains. As a result, our Investment Adviser may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.
The “catch-up” portion of the incentive fees may encourage our Investment Adviser to accelerate or defer interest payable by portfolio companies from one calendar quarter to another, potentially resulting in fluctuations in timing and dividend amounts.

95



Moreover, because the base management fees payable to our Investment Adviser are payable based on our gross assets, including those assets acquired through the use of leverage, our Investment Adviser has a financial incentive to incur leverage which may not be consistent with our stockholders’ interests.
We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to the extent we so invest, bear our ratable share of any such investment company’s expenses, including management and performance fees. We also remain obligated to pay management and incentive fees to our Investment Adviser with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of our stockholders bears his or her share of the management and incentive fees of our Investment Adviser as well as indirectly bearing the management and performance fees and other expenses of any investment companies in which we invest.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We did not sell any equity securities during the period covered in this report that were not registered under the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
On August 6, 2018, the Board of Directors approved a one-third (0.50%) reduction in the 1.50% annual base management fee rate charged by the Investment Adviser on assets financed using leverage in excess of 1.0x debt to equity. Effective July 1, 2018, the reduced annual fee of 1.00% applies to the average value of the Company's gross assets as of the end of the two most recently completed calendar quarters that exceeds the product of (i) 200% and (ii) the average value of the Company's net asset value at the end of the two most recently completed calendar quarters.
Item 6. Exhibits.
  
 
 
 
  
 
 
 
  
 
 
 
  
* Filed herewith

96



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.
 
 
TCG BDC, INC.
 
 
 
Dated: August 7, 2018
By
  
/s/ Thomas M. Hennigan
 
 
  
Thomas M. Hennigan
Chief Financial Officer
(principal financial officer)

97