Crescent Capital BDC, Inc. - Quarter Report: 2015 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2015

 

OR

 

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

 

For the transition period from          to

 

Commission file number 000-55380

 

 

Crescent Capital BDC, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Registrant’s Telephone Number, Including Area Code: (310) 235-5900

 

Not applicable

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  o  No  x

 

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

 

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

 

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes  o  No  x

 

The number of shares of the Registrant’s common stock, $.001 par value per share, outstanding at August 14, 2015 was 2,850,600.

 

 

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CRESENT CAPITAL BDC, INC.

 

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2015

 

Table of Contents

 

		INDEX		PAGE NO.
PART I.		FINANCIAL INFORMATION		2
Item 1.		Financial Statements		2
		Statement of Assets and Liabilities as of June 30, 2015 (Unaudited)		2
		Statements of Operations for the three months ended June 30, 2015 (Unaudited) and for the period from February 5, 2015 (Inception) to June 30, 2015 (Unaudited)		3
		Statement of Changes in Net Assets for the period from February 5, 2015 (Inception) to June 30, 2015 (Unaudited)		4
		Statement of Cash Flows for the period from February 5, 2015 (Inception) to June 30, 2015 (Unaudited)		5
		Schedule of Investments as of June 30, 2015 (Unaudited)		6
		Notes to Financial Statements (Unaudited)		8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.		Controls and Procedures		27
PART II.		OTHER INFORMATION		27
Item 1.		Legal Proceedings		27
Item 1A.		Risk Factors		27
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 3.		Defaults Upon Senior Securities		27
Item 4.		[Reserved]		27
Item 5.		Other Information		27
Item 6.		Exhibits		28

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current or prospective portfolio investments, our industry, our beliefs, and our assumptions. We believe that it is important to communicate our future expectations to our investors. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

 

The factors listed under “Risk Factors” in Amendment No. 2 to our Form 10 registration statement filed with the Securities and Exchange Commission (the “SEC”) on June 5, 2015, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The occurrence of the events described in these risk factors and elsewhere in this report could have a material adverse effect on our business, results of operation and financial position. The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

 

·                  Potential fluctuation in quarterly operating results

·                  Potential impact of economic recessions or downturns

·                  Adverse developments in the credit markets

·                  Operation in a highly competitive market for investment opportunities

·                  Regulations governing our operation as a business development company

·                  Financing investments with borrowed money

·                  Lack of liquidity in investments

·                  Defaults by portfolio companies

·                  Uncertainty as to the value of certain portfolio investments

·                  Potential resignation of the Advisor and or the Administrator

·                  Changes in interest rates may affect our cost of capital and net investment income

·                  Potential adverse effects of price declines and illiquidity in the corporate debt markets

·                  Risks associated with original issue discount (“OID”) and payment-in-kind (“PIK”) interest income

·                  Risks regarding distributions

·                  Potential adverse effects of new or modified laws and regulations

 

Although we believe that the assumptions on which these forward-looking statements are based upon are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The safe harbor provisions of Section 21E of the 1934 Act, which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this report because we are an investment company.

 

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Crescent Capital BDC, Inc.

 

Statement of Assets and Liabilities

 

		As of June 30, 2015 (Unaudited)
Assets
Investments, at fair value (cost of $15,040,206)		$	15,029,179
Cash and cash equivalents		500,000
Receivable for common stock issued		26,500,000
Deferred financing costs		401,503
Prepaid expenses and other assets		112,935
Total assets		$	42,543,617
Liabilities
Payable for investments purchased		$	15,040,206
Management fees payable		7,909
Due to Advisor		337,458
Directors’ fees payable		4,799
Interest and credit facility expense payable		833
Accrued expenses and other liabilities		292,016
Total liabilities		$	15,683,221
Commitments and Contingencies (Note 7)
Net Assets
Common stock, par value $0.001 per share (13,000,000 shares authorized, 1,350,000 shares issued and outstanding as of June 30, 2015)		$	1,350
Paid-in capital in excess of par value		26,937,364
Accumulated undistributed net investment income (loss)		(67,291		)
Net unrealized appreciation (depreciation) on investments		(11,027		)
Total Net Assets		$	26,860,396
Total Liabilities and Net Assets		$	42,543,617
Net asset value per share		$	19.90

 

See accompanying notes.

 

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Crescent Capital BDC, Inc.

 

Statements of Operations

 

		For the three months ended June 30, 2015 (1) (Unaudited)			For the period from February 5, 2015 (inception) to June 30, 2015 (1) (Unaudited)
Expenses:
Management fees		$	7,909		$	7,909
Directors’ fees		4,799			4,799
Interest and credit facility expenses		3,039			3,039
Organization expenses		43,809			43,809
Other general and administrative expenses		7,735			7,735
Total expenses		67,291			67,291
Net investment loss		(67,291		)	(67,291		)
Net unrealized gains (losses) on investments:
Net change in unrealized appreciation (depreciation) on investments		(11,027		)	(11,027		)
Net unrealized gains (losses) on investments		(11,027		)	(11,027		)
Net decrease in net assets resulting from operations		$	(78,318	)	$	(78,318	)
Per Common Share Data:
Earnings per share (basic and diluted):		$	(4.95	)	$	(7.65	)
Net investment loss per share (basic and diluted):		$	(4.25	)	$	(6.57	)
Weighted average shares outstanding (basic and diluted):		15,824			10,240
Distributions declared per share:		$	—		$	—

 

(1)           The Company was formed on February 5, 2015 and commenced operations on June 26, 2015.

 

See accompanying notes.

 

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Crescent Capital BDC, Inc.

 

Statement of Changes in Net Assets

 

		For the period from February 5, 2015 (inception) to June 30, 2015(1) (Unaudited)
Increase (decrease) in net assets resulting from operations:
Net investment loss		$	(67,291	)
Net change in unrealized appreciation (depreciation) on investments		(11,027		)
Net decrease in net assets resulting from operations		(78,318		)
Capital transactions:
Issuance of common stock		27,500,000
Equity offering costs		(61,286		)
Redemption of common stock		(500,000		)
Net increase in net assets resulting from capital transactions		26,938,714
Total increase in net assets		26,860,396
Net assets at beginning of period		—
Net assets at end of period		$	26,860,396
Accumulated undistributed net investment loss		$	(67,291	)
Changes in Shares
Common stock, at beginning of period		—
Issuance of common stock		1,351,000
Redemption of common stock		(1,000		)
Common stock, at end of period		1,350,000

 

(1)           The Company was formed on February 5, 2015 and commenced operations on June 26, 2015.

 

See accompanying notes.

 

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Crescent Capital BDC, Inc.

 

Statement of Cash Flows

 

		For the period from February 5, 2015 (inception) to June 30, 2015(1) (Unaudited)
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations		$	(78,318	)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities:
Purchases of investments		(15,040,206		)
Net change in unrealized (appreciation) depreciation on investments		11,027
Amortization of deferred financing costs		2,206
Increase (decrease) in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other assets		(112,935		)
Increase (decrease) in payable for investments purchased		15,040,206
Increase (decrease) in management fees payable		7,909
Increase (decrease) in due to Advisor		(22,124		)
Increase (decrease) in directors’ fees payable		4,799
Increase (decrease) in interest and credit facility expense payable		833
Increase (decrease) in accrued expenses and other liabilities		186,603
Net cash provided by (used for) operating activities		—
Cash flows from financing activities:
Issuance of common stock		1,000,000
Redemption of common stock		(500,000		)
Net cash provided by (used for) financing activities		500,000
Net increase (decrease) in cash		500,000
Cash, beginning of period		—
Cash, end of period		$	500,000
Supplemental and non-cash financing activities:
Receivable for common stock sold		$	26,500,000
Accrued but unpaid deferred financing costs		$	403,709
Accrued but unpaid offering costs		$	61,286

 

(1)           The Company was formed on February 5, 2015 and commenced operations on June 26, 2015.

 

See accompanying notes.

 

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CRESCENT CAPITAL BDC, INC.

Schedule of Investments (Unaudited)

June 30, 2015

 

		Investment Type		Spread Above Index *		Interest Rate		Maturity Date		Principal/ Par Amount			Cost			Percentage of Net Assets **		Fair Value
Investments(1)
United States
Debt Investments
Building & Development
GYP Holdings III Corp.(2)		Senior Secured First Lien		L + 375		4.75	%	04/2021		$	500,000		$	487,500		1.8	%	$	485,000
Business Equipment & Services
Acosta Holdco, Inc.(2)		Senior Secured First Lien		L + 325		4.25	%	09/2021		500,000			500,000			1.9		499,142
Advantage Sales & Marketing, Inc.(2)		Senior Secured Second Lien		L + 650		7.50	%	07/2022		250,000			252,500			0.9		251,979
Advantage Sales & Marketing, Inc.(2)		Senior Secured First Lien		L + 325		4.25	%	07/2021		500,000			500,000			1.8		498,403
Brand Energy & Infrastructure Services, Inc.(2)		Senior Secured First Lien		L + 375		4.75	%	11/2020		500,000			490,000			1.8		489,465
Brickman Group Ltd. LLC(2)		Senior Secured Second Lien		L + 650		7.50	%	12/2021		500,000			502,500			1.9		502,710
Epicor Software Corporation(2)		Senior Secured First Lien		L + 375		4.75	%	05/2022		500,000			499,375			1.9		499,597
William Morris Endeavor Entertainment, LLC(2)		Senior Secured Second Lien		L + 725		8.25	%	05/2022		250,000			243,750			0.9		244,583
										3,000,000			2,988,125			11.1		2,985,879
Containers & Glass Products
Onex Wizard US Acquisition Inc.(2)		Senior Secured First Lien		L + 325		4.25	%	03/2022		500,000			500,000			1.9		500,358
Electronics/Electrical
Asurion, LLC(2)		Senior Secured Second Lien		L + 750		8.50	%	03/2021		250,000			255,625			0.9		254,610
Compuware Corporation(2)		Senior Secured First Lien		L + 525		6.25	%	12/2021		500,000			489,375			1.8		489,532
Dell International LLC(2)		Senior Secured First Lien		L + 325		4.00	%	04/2020		500,000			500,000			1.9		500,847
Informatica- Italics Merger Sub LLC(2)		Senior Secured First Lien		L + 350		4.50	%	05/2022		600,000			600,000			2.2		599,814
SkillSoft Corporation(2)		Senior Secured First Lien		L + 475		5.75	%	04/2021		500,000			488,750			1.8		487,188
SS&C Technologies Inc.(2)		Senior Secured First Lien		L + 325		4.00	%	06/2022		204,036			203,016			0.8		204,419
SS&C Technologies Inc.(2)		Senior Secured First Lien		L + 325		4.00	%	06/2022		45,964			45,734			0.2		46,051
The Active Network, Inc.(2)		Senior Secured First Lien		L + 450		5.50	%	11/2020		709,804			702,706			2.6		702,706
										3,309,804			3,285,206			12.2		3,285,167
Health Care
Concentra, Inc.(2)		Senior Secured First Lien		L + 300		4.00	%	04/2022		500,000			500,000			1.9		500,000
Onex Carestream Finance LP(2)		Senior Secured First Lien		L + 400		5.00	%	06/2019		500,000			500,000			1.9		500,275
Onex Carestream Finance LP(2)		Senior Secured Second Lien		L + 850		9.50	%	12/2019		250,000			250,000			0.9		249,063

 

See accompanying notes.

 

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CRESCENT CAPITAL BDC, INC.

Schedule of Investments (Unaudited)

June 30, 2015

 

		Investment Type		Spread Above Index *		Interest Rate		Maturity Date		Principal/ Par Amount			Cost			Percentage of Net Assets **		Fair Value
Ortho-Clinical Diagnostics, Inc.(2)		Senior Secured First Lien		L + 375		4.75	%	06/2021		500,000			490,000			1.8		491,072
										1,750,000			1,740,000			6.5		1,740,410
Industrial Equipment
Silver II US Holdings, LLC(2)		Senior Secured First Lien		L + 300		4.00	%	12/2019		500,000			485,000			1.8		483,750
Lodging & Casinos
Scientific Games International, Inc.(2)		Senior Secured First Lien		L + 500		6.00	%	10/2021		500,000			500,000			1.9		500,378
Nonferrous Metals/Minerals
Fairmount Minerals LTD(2)		Senior Secured First Lien		L + 350		4.50	%	09/2019		500,000			475,625			1.8		475,470
Murray Energy Corporation(2)		Senior Secured First Lien		L + 650		7.50	%	04/2020			500,000			467,500		1.7	%		464,687
										1,000,000			943,125			3.5		940,157
Oil & Gas
McJunkin Red Man Corporation(2)		Senior Secured First Lien		L + 400		5.00	%	11/2019		500,000			498,125			1.9		496,980
Radio & Television
Clear Channel Communications, Inc.(2)		Senior Secured Second Lien		L + 675		6.94	%	01/2019		500,000			464,375			1.7		463,240
Retailers (except Food & Drug)
Academy, Ltd.(2)		Senior Secured First Lien		L + 400		5.00	%	06/2022		500,000			500,625			1.9		500,625
Dollar Tree, Inc.(2)		Senior Secured First Lien		L + 275		3.50	%	07/2022		500,000			500,625			1.9		500,575
J.C. Penney Corporation, Inc.(2)		Senior Secured First Lien		L + 500		6.00	%	05/2018		650,000			650,000			2.4		649,535
PetSmart, Inc.(2)		Senior Secured First Lien		L + 325		4.25	%	03/2022		500,000			500,000			1.8		499,625
										2,150,000			2,151,250			8.0		2,150,360
Telecommunications
Birch Communications, Inc.(2)		Senior Secured First Lien		L + 675		7.75	%	07/2020		500,000			501,250			1.9		501,875
Utilities
Panda Sherman Power, LLC(2)		Senior Secured First Lien		L + 750		9.00	%	09/2018		500,000			496,250			1.8		495,625
Total Debt Investments United States										$	15,209,804		$	15,040,206		56.0	%	$	15,029,179
Total United States													$	15,040,206		56.0	%	$	15,029,179
Total Investments													$	15,040,206		56.0	%	$	15,029,179

 

*                   The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and which reset daily, quarterly or semiannually.  For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect at June 30, 2015. Certain investments are subject to a LIBOR or Prime interest rate floor.  For fixed rate loans, a spread above a reference rate is not applicable.

**              Percentage is based on net assets of $26,860,396 as of June 30, 2015.

(1)             All positions held are non-controlled/non-affiliated investments as defined by the Investment Company Act of 1940, as amended (“1940 Act”). Non-controlled/non-affiliated investments are investments that are neither controlled investments nor affiliated investments.

(2)             Position or portion thereof unsettled as of June 30, 2015.

 

See accompanying notes.

 

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CRESCENT CAPITAL BDC, INC.

 

NOTES TO FINANCIAL STATEMENTS

June 30, 2015 (Unaudited)

 

Note 1. Organization and Basis of Presentation

 

Crescent Capital BDC, Inc. (the “Company”) was formed on February 5, 2015 (“Inception”) as a Delaware corporation structured as an externally managed, closed-end, non-diversified management investment company. The Company commenced investment operations on June 26, 2015 (“Commencement”). The Company has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, the Company has elected to be treated for U.S. federal income tax purposes as a regulated investment company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code). As a RIC, the Company will not be taxed on its income to the extent that it distributes such income each year and satisfies other applicable income tax requirements.

 

The Company is managed by CBDC Advisors, LLC (the “Advisor”), an investment adviser that is registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended. CBDC Administration, LLC (the “Administrator”) provides the administrative services necessary for the Company to operate. Company management consists of investment and administrative professionals from the Advisor and Administrator along with the Company’s Board of Directors (the “Board”). The Advisor directs and executes the investment operations and capital raising activities of the Company subject to oversight from the Board, which sets the broad policies of the Company. The Board has delegated investment management of the Company’s investment assets to the Advisor.  The Board consists of five directors, three of whom are independent.

 

The Company’s primary investment objective is to maximize the total return to the Company’s stockholders in the form of current income and capital appreciation through debt and related equity investments.  The Company will seek to achieve its investment objectives by originating and investing primarily in secured debt (including senior secured, unitranche and second lien debt) and unsecured debt (including senior unsecured and subordinated debt), as well as related equity securities of private U.S. middle-market companies.

 

Basis of Presentation

 

The Company’s functional currency is United States dollars and these financial statements have been prepared in that currency. The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to Regulation S-X.

 

The Company is an investment company and, therefore, applies the specialized accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services — Investment Companies.

 

Fiscal Year End

 

The Company’s fiscal year ends on December 31.

 

Note 2. Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of the financial statements in conformity with GAAP requires management to make certain estimates and assumptions that may affect the amounts reported in the financial statements and accompanying notes. These financial statements reflect adjustments that in the opinion of the Company are necessary for the fair statement of the results for the periods presented. Although management believes that the estimates and assumptions are reasonable, changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.

 

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Additionally, the accompanying financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited interim financial results included herein contain all adjustments and reclassifications that are necessary for the fair presentation of financial statements for the periods included herein. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2015.

 

Cash and Cash Equivalents

 

Cash and cash equivalents may consist of demand deposits and highly liquid investments (e.g., money market funds, U.S. Treasury notes, and similar type instruments) with original maturities of three months or less. Cash and cash equivalents other than money market mutual funds, are carried at cost plus accrued interest, which approximates fair value. Money market mutual funds are carried at their net asset value, which approximates fair value. The Company deposits its cash and cash equivalents with highly-rated banking corporations and, at times, cash deposits may exceed the insured limits under applicable law.

 

Investment Transactions

 

Investments purchased on a secondary basis are recorded on the trade date. Loan originations are recorded on the date of the binding commitment, which is generally the funding date. Realized gains or losses are recorded on the First In, First Out (“FIFO”) method as the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments written off during the period, net of recoveries. The net change in unrealized gains or losses primarily reflects the change in investment values as of the last business day of the reporting period and also includes the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.

 

Investments at Fair Value

 

Investments for which market quotations are readily available are typically valued at those market quotations. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by the Board, based on, among other things, the input of the Advisor, the Company’s Audit Committee and independent third-party valuation firms engaged at the direction of the Board.

 

The Board oversees and supervises a multi-step valuation process, which includes, among other procedures, the following:

 

·                  The valuation process begins with each investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the portfolio management team.

·                  The Advisor’s management reviews the preliminary valuations with the investment professionals. Agreed upon valuation recommendations are presented to the Audit Committee.

·                  The Audit Committee reviews the valuations presented and recommends values for each investment to the Board.

·                  The Board reviews the recommended valuations and determines the fair value of each investment; valuations that are not based on readily available market quotations are valued in good faith based on, among other things, the input of the Advisor, Audit Committee and, where applicable, other third parties.

 

The Company currently conducts this valuation process on a quarterly basis.

 

In connection with debt and equity securities that are valued at fair value in good faith by the Board, the Board will engage independent third-party valuation firms to perform certain limited procedures that the Board has identified.

 

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The Company applies Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurement (ASC 820), as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC 820, these levels are summarized below:

 

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

 

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

 

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

 

In addition to using the above inputs in investment valuations, the Company applies the valuation policy approved by its Board that is consistent with ASC 820. Consistent with the valuation policy, the Company evaluates the source of inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When a security is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), the Company subjects those prices to various criteria in making the determination as to whether a particular investment would qualify for classification as a Level 2 or Level 3 investment. For example, the Company reviews pricing methodologies provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs. Some additional factors considered include the number of prices obtained as well as an assessment as to their quality. Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur. There were no transfers between levels during the period from June 26, 2015 (Commencement) through June 30, 2015.

 

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences 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 gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein. See Note 4. Investments and Note 5. Fair Value of Financial Instruments for additional information on the Company’s investment portfolio.

 

Equity Offering and Organization Expenses

 

The Company has agreed to repay the Advisor for initial organization costs and equity offering costs incurred prior to the commencement of its operations up to a maximum of $1.5 million on a pro rata basis over the first $350 million of invested capital not to exceed 3 years from the initial capital commitment. To the extent such costs relate to equity offerings, these costs are charged as a reduction of capital upon the issuance of common shares. To the extent such costs relate to organization costs, these costs are expensed in the statement of operations upon the issuance of common shares. The Advisor is responsible for organization and private equity offerings costs in excess of $1.5 million.

 

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Debt Issuance Costs

 

The Company records expenses related to issuance of debt obligations as deferred financing costs. These expenses are deferred and amortized using the effective yield method, or straight-line method for revolving credit facilities, over the stated maturity life of the obligation.

 

Interest and Dividend Income Recognition

 

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

 

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

 

Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or upon being called by the issuer. PIK is recorded as interest or dividend income, as applicable. If at any point the Company believes PIK is not expected to be realized, the investment generating PIK will be placed on non-accrual status. Accrued PIK interest or dividends are generally reversed through interest or dividend income, respectively, when an investment is placed on non-accrual status.

 

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management may determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of June 30, 2015, no loans had been placed on non-accrual status by the Company.

 

Other Income

 

From time to time, the Company may receive fees for services provided to portfolio companies by the Advisor. These fees are generally only available to the Company as a result of closing investments, are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. Other fees, including certain amendment fees, prepayment fees and commitment fees on broken deals, are recognized as earned. The services that the Advisor provides vary by investment, but generally include syndication, structuring or diligence fees, and fees for providing managerial assistance to our portfolio companies.

 

In certain instances where the Company is invited to participate as a co-lender in a transaction and does not provide significant services in connection with the investment, all or a portion of any loan fees received by the Company in such situations will be deferred and amortized over the investment’s life using the effective yield method.

 

Income Taxes

 

The Company has elected to be treated as a BDC under the 1940 Act. The Company also has elected to be treated as a RIC under the Internal Revenue Code. So long as the Company maintains its status as a RIC, it will generally not pay corporate-level U.S. federal income or excise taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. As a result, any tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the financial statements of the Company.

 

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The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof.

 

As of June 30, 2015, all tax years of the Company since the commencement of operations on June 26, 2015 remain subject to examination by federal tax authorities. No such examinations are currently pending.

 

In order for the Company not to be subject to federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its ordinary income (taking into account certain deferrals and elections), (ii) 98.2% of its net capital gains from the current year and (iii) any undistributed ordinary income and net capital gains from preceding years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% excise tax on this income. If the Company chooses to do so, this generally would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income as required.

 

The Company intends to comply with the applicable provisions of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all federal income taxes. Accordingly, no provision for income taxes is required in the financial statements.

 

Dividends and Distributions

 

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

 

The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions the Company declares in cash on behalf of the Company’s stockholders for those stockholders electing not to receive cash. As a result, if the Board authorizes, and the Company declares, a cash dividend, then the Company’s stockholders who have “opted in” to the Company’s dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend.

 

New Accounting Standards

 

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15 (“ASU 2014-15”), “Presentation of Financial Statements — Going Concern (Subtopic 205 — 40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Since this guidance is primarily around certain disclosures to the financial statements, the Company anticipates no impact on our financial position, results of operations or cash flows from adopting this standard. The Company is currently assessing the additional disclosure requirements, if any, of ASU 2014-15. ASU 2014-15 is effective for the annual period ending after December 31, 2016 and for annual periods and interim periods thereafter, with early adoption permitted.

 

In May 2014, the FASB issued ASU 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers (Topic 606).” The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016 and interim periods therein. The Company is currently evaluating the impact of adopting this ASU on its financial statements.

 

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In April 2015, FASB issued ASU 2015-03(“ASU 2015-03”), “Simplifying the Presentation of Debt Issuance Cost.”  The new guidance is to simplify presentation of debt issuance costs and require that debt issuance costs be presented in the Statement of Assets and Liabilities as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. ASU 2015-03 is effective for financial statements issued for fiscal years that begin after December 15, 2015. At this time, management is evaluating the implications of ASU 2015-03 and its impact to financial statements.

 

Note 3. Agreements and Related Party Transactions

 

Administration Agreement

 

On June 2, 2015, the Company entered into the Administration Agreement with the Administrator. Under the terms of the Administration Agreement, the Administrator provides administrative services to the Company. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Administrator under the terms of the Administration Agreement. In addition, the Administrator is permitted to delegate its duties under the Administration Agreement to affiliates or third parties. To the extent the Administrator outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis, without incremental profit to the Administrator.

 

For the period from June 26, 2015 (Commencement) through June 30, 2015, the Company incurred expenses of $5,748, which is included in other general and administrative expenses on the Statement of Operations, under the terms of the Administration Agreement, of which $5,748 was payable at June 30, 2015.

 

Unless earlier terminated as described below, the Administration Agreement will remain in effect until June 2, 2017, and may be extended subject to required approvals. The Administration Agreement may be terminated by either party without penalty on 60 days’ written notice to the other party.

 

No person who is an officer, director or employee of the Administrator or its affiliates and who serves as a director of the Company receives any compensation from the Company for his or her services as a director. However, the Company reimburses the Administrator (or its affiliates) for an allocable portion of the compensation paid by the Administrator or its affiliates to the Company’s Chief Compliance Officer, Chief Financial Officer, and other professionals who spend time on such related activities (based on the percentage of time those individuals devote, on an estimated basis, to the business and affairs of the Company). The allocable portion of the compensation for these officers and other professionals are included in the administration expenses paid to Administrator. Directors who are not affiliated with the Administrator or its affiliates receive compensation for their services and reimbursement of expenses incurred to attend meetings.

 

On June 5, 2015, the Company entered into sub-administration, accounting, transfer agent, and custodian agreements with State Street Bank and Trust Company (SSB) to perform certain administrative, custodian, transfer agent and other services on behalf of the Company. The sub-administration agreements with SSB have an initial term of three years ending June 5, 2018. The Company does not reimburse the Administrator for any services for which it pays a separate sub-administrator and custodian fee to SSB. For the period from June 26, 2015 (Commencement) through June 30, 2015, the Company incurred expenses of $422, which is included in other general and administrative expenses on the Statement of Operations, under the terms of the sub-administration agreements, of which $422 was payable at June 30, 2015.

 

Investment Advisory Agreement

 

On June 2, 2015, the Company entered into the Investment Advisory Agreement with the Advisor. Under the terms of the Investment Advisory Agreement, the Advisor will provide investment advisory services to the Company. The Advisor’s services under the Investment Advisory Agreement are not exclusive, and the Advisor is free to furnish similar or other services to others so long as its services to the Company are not impaired. Under the terms of the Investment Advisory Agreement, the Company will pay the Advisor the Base Management Fee as discussed below and may also pay certain Incentive Fees as discussed below.

 

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The Base Management Fee will be calculated and payable quarterly in arrears at an annual rate of 1.5% of our gross assets, including assets acquired through the incurrence of debt but excluding any cash and cash equivalents. The Base Management Fee is calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.

 

The Advisor, however, has agreed to waive its right to receive management fees in excess of the sum of (i) 0.25% of the aggregate committed but undrawn capital and (ii) 0.75% of the aggregate gross assets excluding cash and cash equivalents (including capital drawn to pay the Company’s expenses) during any period prior to a qualified initial public offering, as defined by the Investment Advisory Agreement (“Qualified IPO”). The Advisor will not be permitted to recoup any waived amounts at any time and the waiver agreement may only be modified or terminated prior to a Qualified IPO with the approval of the Board. For purposes of the Investment Advisory Agreement, cash equivalents means U.S. government securities and commercial paper maturing within one year of purchase.

 

For the period from June 26, 2015 (Commencement) through June 30, 2015, the Company incurred management fees of $7,909, of which $7,909 was payable at June 30, 2015.

 

The Incentive Fees will consist of two parts. The first part, the income incentive fee, will be calculated and payable quarterly in arrears and (a) equals 100% of the excess of our pre-incentive fee net investment income for the immediately preceding calendar quarter, over a preferred return of 1.5% per quarter (6% annualized) (the “Hurdle”), and a “catch-up” feature, until the Advisor has received, (i) prior to a Qualified IPO, 15%, or (ii) after a Qualified IPO, 17.5%, of the pre-incentive fee net investment income for the current quarter up to the “catch-up” and (b) (i) prior to a Qualified IPO, 15% or (ii) after a Qualified IPO, 17.5%, of all remaining pre-incentive fee net investment income above the “catch-up.”

 

The second part, the capital gains incentive fee, will be determined and payable in arrears as of the end of each fiscal year (or upon a Qualified IPO or termination of the Investment Advisory Agreement), (i) prior to a Qualified IPO, 15.0%, or (ii) after a Qualified IPO, 17.5% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of the fiscal year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. If a Qualified IPO occurs on a date other than the first day of a calendar quarter, the income incentive fee shall be calculated for such calendar quarter at a weighted rate calculated based on the fee rates applicable before and after a Qualified IPO based on the number of days in such calendar quarter before and after a Qualified IPO. If a Qualified IPO occurs on a date other than the first day of a fiscal year, a capital gains incentive fee shall be calculated as of the day before the Qualified IPO, with such capital gains incentive fee paid to the Advisor following the end of the fiscal year in which the Qualified IPO occurred. For the avoidance of doubt, such capital gains incentive fee shall be equal to 15.0% of the Company’s realized capital gains on a cumulative basis from inception through the day before the Qualified IPO, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. Following a Qualified IPO, solely for the purposes of calculating the capital gains incentive fee, the Company will be deemed to have previously paid capital gains incentive fees prior to a Qualified IPO equal to the product obtained by multiplying (a) the actual aggregate amount of previously paid capital gains incentive fees for all periods prior to a Qualified IPO by (b) the percentage obtained by dividing (x) 17.5% by (y) 15.0%. In the event that the Investment Advisory Agreement shall terminate as of a date that is not a fiscal year end, the termination date shall be treated as though it were a fiscal year end for purposes of calculating and paying a capital gains incentive fee.

 

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 each calendar quarter, minus operating expenses for such quarter (including the base management fee, expenses payable under the Administration Agreement and any interest expense and distributions paid on any issued and outstanding debt or preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as market discount, OID, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities), accrued income that we have 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. Pre-incentive fee net investment income will be compared to a “Hurdle Amount” equal to the product of (i) the Hurdle rate of 1.50% per quarter (6.00% annualized) and (ii) our net assets, at the end of the immediately preceding calendar quarter, subject to a “catch-up” provision incurred at the end of each calendar quarter. Our net pre-incentive fee investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 1.5% Base Management Fee.

 

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From time to time, the Advisor may pay amounts owed by the Company to third-party providers of goods or services, including the Board, and the Company will subsequently reimburse the Advisor for such amounts paid on its behalf. Amounts payable to the Advisor are settled in the normal course of business without formal payment terms.

 

A portion of the outstanding shares of the Company’s common stock are owned by Crescent Capital Group LP (“CCG LP”).  CCG LP is also the majority member of the Advisor and sole member of the Administrator. The Company has entered into a license agreement with CCG LP under which CCG LP granted the Company a non-exclusive, royalty-free license to use the name “Crescent Capital”.  The Advisor has entered into a resource sharing agreement with CCG LP. CCG LP will provide the Advisor with the resources necessary for the Advisor to fulfill its obligations under the Investment Advisory Agreement.

 

Directors Fees

 

Each of the Company’s independent directors receive (i) an annual fee of $75,000, and (ii) $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each regular Board meeting and $500 each special meeting. The Company’s independent directors also receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with each committee meeting attended. The Chairman of the Audit Committee receives an additional annual fee of $7,500. The Chairperson of the Nominating and Corporate Governance Committee and the Compensation Committee receive an additional annual fee of $2,500 and $2,500, respectively. The Company has obtained directors’ and officers’ liability insurance on behalf of the Company’s directors and officers. For the period from June 26, 2015 (Commencement) through June 30, 2015, the Company recorded directors’ fees of $4,799, of which $4,799 was payable at June 30, 2015.

 

Note 4. Investments

 

The Company’s investments at any time may include securities and other financial instruments or other assets of any sort, including, without limitation, corporate and government bonds, convertible securities, collateralized loan obligations, term loans, trade claims, equity securities, privately negotiated securities, direct placements, working interests, warrants and investment derivatives (such as credit default swaps, recovery swaps, total return swaps, options, forward contracts, and futures) (all of the foregoing collectively referred to in these financial statements as “investments”).

 

Under the 1940 Act, the Company is required to separately identify non-controlled investments where it owns 5% or more of a portfolio company’s outstanding voting securities as investments in “affiliated” companies and/or had the power to exercise control over the management or policies of such portfolio company. In addition, under the 1940 Act, the Company is required to separately identify investments where it owns more than 25% of a portfolio company’s outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company as investments in “controlled” companies. Detailed information with respect to the Company’s non-controlled, non-affiliated; non-controlled, affiliated; and controlled affiliated investments is contained in the accompanying financial statements, including the schedule of investments. The information in the tables below is presented on an aggregate portfolio basis, without regard to whether they are non-controlled non-affiliated, non-controlled affiliated or controlled affiliated investments. As of June 30, 2015, all investments held are non-controlled/non-affiliated investments.

 

Certain Risk Factors

 

In the ordinary course of business, the Company manages a variety of risks including market risk and liquidity risk. The Company identifies, measures and monitors risk through various control mechanisms, including trading limits and diversifying exposures and activities across a variety of instruments, markets and counterparties.

 

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Market risk is the risk of potential adverse changes to the value of financial instruments because of changes in market conditions, including as a result of changes in the credit quality of a particular issuer, credit spreads, interest rates, and other movements and volatility in security prices or commodities. In particular, the Company may invest in issuers that are experiencing or have experienced financial or business difficulties (including difficulties resulting from the initiation or prospect of significant litigation or bankruptcy proceedings), which involves significant risks. The Company manages its exposure to market risk through the use of risk management strategies and various analytical monitoring techniques.

 

The Company’s assets may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately.

 

Investments at fair value consisted of the following at June 30, 2015:

 

Investment Type		Cost			Fair Value			Percentage of Net Assets
Senior Secured First Lien		$	13,071,456		$	13,062,994		48.63	%
Senior Secured Second Lien		1,968,750			1,966,185			7.32	%
Total Investments		$	15,040,206		$	15,029,179		55.95	%

 

The industry composition of Investments at fair value at June 30, 2015 is as follows:

 

Industry		Cost			Fair Value			Percentage of Net Assets
Building & Development		$	487,500		$	485,000		1.81	%
Business Equipment & Services		2,988,125			2,985,879			11.12	%
Containers & Glass Products		500,000			500,358			1.86	%
Electronics/Electrical		3,285,206			3,285,167			12.23	%
Health Care		1,740,000			1,740,410			6.48	%
Industrial Equipment		485,000			483,750			1.80	%
Lodging & Casinos		500,000			500,378			1.86	%
Nonferrous Metals/Minerals		943,125			940,157			3.50	%
Oil & Gas		498,125			496,980			1.85	%
Radio & Television		464,375			463,240			1.72	%
Retailers (except Food & Drug)		2,151,250			2,150,360			8.01	%
Telecommunications		501,250			501,875			1.87	%
Utilities		496,250			495,625			1.84	%
Total Investments		$	15,040,206		$	15,029,179		55.95	%

 

The geographic composition of Investments at fair value at June 30, 2015 is as follows:

 

Geographic Region		Cost			Fair Value			% of Net Assets
United States		$	15,040,206		$	15,029,179		55.95	%
Total Investments		$	15,040,206		$	15,029,179		55.95	%

 

Note 5. Fair Value of Financial Instruments

 

Investments

 

The following table presents fair value measurements of investments as of June 30, 2015:

 

		Level 1		Level 2			Level 3		Total
Senior Secured First Lien		—		$	13,062,994		—		$	13,062,994
Senior Secured Second Lien		—		1,966,185			—		1,966,185
Total Investments		—		$	15,029,179		—		$	15,029,179

 

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Financial Instruments Not Carried at Fair Value

 

Debt

 

The fair value of the Company’s revolving credit facility, which is categorized as Level 3 within the fair value hierarchy, as of June 30, 2015, approximates its carrying value as the outstanding balances are callable at carrying value.

 

Other Financial Assets and Liabilities

 

The carrying amounts of the Company’s assets and liabilities, other than investments at fair value, approximate fair value due to their short maturities or their close proximity of the originations to the measurement date.

 

Note 6. Debt

 

On June 29, 2015, the Company entered into a revolving credit facility (the “Credit Facility”) with various lenders. Natixis, New York Branch, one of the lenders, also serves as administrative agent under the Credit Facility. The Credit Facility has an aggregate committed amount of $75 million.

 

The Company’s obligations to the lenders are secured by a first priority security interest in the unused capital commitments (See Note 7. Commitments, Contingencies and Indemnifications) and substantially the entire portfolio of investments and cash. The Credit Facility contains certain covenants, including, but not limited to maintaining an asset coverage ratio of total assets to total borrowings of at least 2 to 1. As of June 30, 2015, the Company was in compliance with these covenants.

 

Borrowings under the Credit Facility bear interest at either (i) London Interbank Offered Rate (“LIBOR”) plus a 1.45% margin with no LIBOR floor or (ii) at lenders’ cost of funds plus a 1.45% margin. The Company pays a fee of 0.20% per annum on committed but undrawn amounts under the Credit Facility. Interest is payable monthly in arrears. Any amounts borrowed under the Credit Facility, and all accrued and unpaid interest, will be due and payable, on June 29, 2016.

 

Costs of $403,709 were incurred in connection with obtaining the Credit Facility, which have been recorded as deferred financing costs on the Statement of Assets and Liabilities and are being amortized over the life of the Credit Facility on a straight-line basis.

 

In accordance with the Investment Company Act, with certain exceptions, the Company is only allowed to borrow amounts such that its asset coverage ratio, as defined in the 1940 Act, is at least 2 to 1 after such borrowing. As of June 30, 2015, there were no outstanding borrowings under the Credit Facility. Summary information regarding the Credit Facility is as follows:

 

		For the three months ended June 30, 2015 (1) (Unaudited)			For the period from February 5, 2015 (Inception) to June 30, 2015 (1) (Unaudited)
Borrowing interest expense		$	—		$	—
Facility fees		833			833
Amortization of financing costs		2,206			2,206
Total		$	3,039		$	3,039
Weighted average interest rate		—		%	—		%
Average outstanding balance		$	—		$	—

 

(1)         The Company was formed on February 5, 2015 and commenced operations on June 26, 2015.

 

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