First Eagle Alternative Capital BDC, Inc. - Quarter Report: 2013 March (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-Accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

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 March 31, 2013

¨	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 814-00789

THL CREDIT, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		27-0344947
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

100 Federal St., 31^st Floor, Boston, MA		02110
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: 800-454-4424

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, as amended, during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 ¨ No x

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding at May 6, 2013 was 26,315,202.

THL CREDIT, INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2013

Table of Contents


	INDEX	PAGE NO.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Assets and Liabilities as of March 31, 2013 (unaudited) and December 31, 2012		2

	Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012 (unaudited)		3

	Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2013 and 2012 (unaudited)		4

	Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (unaudited)		5

	Consolidated Schedules of Investments as of March 31, 2013 (unaudited) and December 31, 2012		6

	Notes to Consolidated Financial Statements (unaudited)		17

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		57

Item 4.	Controls and Procedures		57

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		57

Item 1A.	Risk Factors		57

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		58

Item 3.	Defaults Upon Senior Securities		58

Item 4.	Mine Safety Disclosures		58

Item 5.	Other Information		58

Item 6.	Exhibits		58

SIGNATURES			59

PART 1. FINANCIAL INFORMATION

In this Quarterly Report, “Company”, “we”, “us” and “our” refer to THL Credit, Inc. and its wholly owned subsidiaries unless the context states otherwise.

Item 1.

Financial Statements

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Assets and Liabilities


	March 31, 2013 (unaudited)			December 31, 2012
Assets:
Investments at fair value:
Non-controlled, non-affiliated investments (cost of $426,707,073 and $391,698,777, respectively)	$	431,046,940		$	394,339,072
Non-controlled, affiliated investments (cost of $11,355 and $10,062, respectively)		11,355			10,062

Total investments at fair value (cost of $426,718,428 and $391,708,839, respectively)		431,058,295			394,349,134
Cash		827,591			4,818,614
Deferred financing costs		4,803,052			3,817,044
Interest receivable		6,540,028			2,594,082
Due from affiliate		657,501			420,301
Receivable for paydown of investment		898,674			125,000
Prepaid expenses and other assets		174,829			134,319

Total assets	$	444,959,970		$	406,258,494

Liabilities:
Loans payable	$	89,850,000		$	50,000,000
Accrued incentive fees		3,258,933			3,277,937
Base management fees payable		1,523,469			1,514,422
Dividends payable		—			1,315,760
Interest rate derivative		911,473			1,053,221
Accrued expenses		713,986			739,149
Accrued credit facility fees and interest		272,977			115,013
Deferred tax liability		982,436			453,558
Accrued administrator expenses		8,454			304,491
Due to affiliate		23,186			—

Total liabilities		97,544,914			58,773,551
Net Assets:
Preferred stock, par value $.001 per share, 100,000,000 preferred shares authorized, no preferred shares issued and outstanding		—			—
Common stock, par value $.001 per share, 100,000,000 common shares authorized, 26,315,202 shares issued and outstanding at March 31, 2013 and December 31, 2012		26,315			26,315
Paid-in capital in excess of par		343,722,878			343,722,878
Net unrealized appreciation on investments, net of provision for taxes		3,357,432			2,186,737
Net unrealized depreciation on interest rate derivative		(911,473	)		(1,053,221	)
Interest rate derivative periodic interest payments, net		(283,644	)		(179,581	)
Accumulated net realized gain		348,548			348,548
Accumulated undistributed net investment income		1,155,000			2,433,267

Total net assets		347,415,056			347,484,943

Total liabilities and net assets	$	444,959,970		$	406,258,494

Net asset value per share	$	13.20		$	13.20

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)


	For the three months ended March 31,
	2013			2012
Investment Income:
From non-controlled, non-affiliated investments:
Interest income	$	13,889,640		$	10,150,323
Other income		34,630			68,934
From non-controlled, affiliated investments:
Other income		498,363			530,334

Total investment income		14,422,633			10,749,591
Expenses:
Incentive fees		2,311,768			1,426,248
Base management fees		1,523,469			1,039,310
Credit facility interest and fees		1,094,206			452,833
Administrator expenses		888,910			823,892
Amortization of deferred financing costs		495,942			211,630
Other general and administrative expenses		235,636			177,327
Professional fees		226,917			205,678
Directors’ fees		127,375			134,875
Insurance expenses		112,660			105,810

Total expenses		7,016,883			4,577,603

Net investment income		7,405,750			6,171,988
Interest rate derivative periodic interest payments, net		(104,063	)		—
Net change in unrealized appreciation on:
Non-controlled, non-affiliated investments		1,699,573			(465,010	)
Non-controlled, affiliated investments		—			(632	)

Net change in unrealized appreciation on investments		1,699,573			(465,642	)

Provision for taxes on unrealized appreciation on investments		(528,878	)		—
Net change in unrealized depreciation on interest rate derivative		141,748			—

Net increase in net assets resulting from operations	$	8,614,130		$	5,706,346

Net investment income per common share:
Basic and diluted	$	0.28		$	0.31
Net increase in net assets resulting from operations per common share:
Basic and diluted	$	0.33		$	0.28
Weighted average shares of common stock outstanding:
Basic and diluted		26,315,202			20,220,200

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets (unaudited)


	For the three months ended March 31,
	2013			2012
Increase in net assets from operations:
Net investment income	$	7,405,750		$	6,171,988
Interest rate derivative periodic interest payments, net		(104,063	)		—
Net change in unrealized appreciation on investments		1,699,573			(465,642	)
Provision for taxes on unrealized appreciation on investments		(528,878	)		—
Net change in unrealized depreciation on interest rate derivative		141,748			—

Net increase in net assets resulting from operations		8,614,130			5,706,346
Distributions to stockholders		(8,684,017	)		(6,874,868	)
Capital share transactions:
Reinvestment of dividends		—			13

Net increase in net assets from capital share transactions		—			13

Total decrease in net assets		(69,887	)		(1,168,509	)
Net assets at beginning of period		347,484,943			267,616,706

Net assets at end of period	$	347,415,056		$	266,448,197

Common shares outstanding at end of period		26,315,202			20,220,201

Capital share activity:
Shares issued from reinvestment of dividends		—			1

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)


	For the three months ended March 31,
	2013			2012
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	8,614,130		$	5,706,346
Adjustments to reconcile net increase in net assets resulting from operations to net cash used for by operating activities:
Net change in unrealized appreciation on investments		(1,699,573	)		465,642
Unrealized depreciation on interest rate derivative		(141,748	)		—
Purchases of investments		(59,418,165	)		(36,208,738	)
Proceeds from sale and paydown of investments		25,075,614			16,662,572
(Increase) in investments due to PIK		(1,002,426	)		(677,086	)
Amortization of deferred financing costs		495,942			211,630
Accretion of discounts on investments and other fees		(438,280	)		(752,865	)
(Increase) in interest receivable		(3,945,946	)		(1,180,686	)
Decrease (increase) in due from affiliate		(245,511	)		(1,785	)
(Increase) decrease in prepaid expenses and other assets		(40,510	)		(71,518	)
(Decrease) in accrued expenses		(156,919	)		(12,553	)
Increase in accrued credit facility fees and interest		157,964			312,988
Increase in deferred tax liability		528,878			—
Increase in base management fees payable		9,047			26,262
(Decrease) in accrued administrator expenses		(296,037	)		(338,569	)
(Decrease) in incentive fees payable		(19,004	)		(209,771	)
(Decrease) increase in dividends payable		(1,315,760	)		—
Increase (decrease) in due to affiliate		23,086			(20,597	)

Net cash used for operating activities		(33,815,218	)		(16,088,728	)
Cash flows from financing activities:
Borrowings under credit facility		107,700,000			25,300,000
Repayments under credit facility		(67,850,000	)		(5,800,000	)
Deferred offering costs paid		—			(26,019	)
Deferred financing costs paid		(1,341,788	)		—
Distributions paid to stockholders		(8,684,017	)		(6,874,855	)

Net cash provided by financing activities		29,824,195			12,599,126

Net decrease in cash		(3,991,023	)		(3,489,602	)
Cash, beginning of year		4,818,614			5,572,753

Cash, end of year	$	827,591		$	2,083,151

Supplemental Disclosure of Cash Flow Information:
Cash interest paid	$	598,800		$	68,047

Non-cash financing activities:

For the three months ended March 31, 2013 and 2012, 0 shares and 1 share, respectively, of common stock were issued in connection with dividend reinvestments of $0 and $13, respectively.

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited)

March 31, 2013


Portfolio company/Type of Investment⁽¹⁾	Industry	Yield⁽²⁾	Initial Acquisition Date		Maturity/ Dissolution Date		Principal⁽³⁾ No. of Shares / No. of Units		Cost		Fair Value
Non-controlled/non-affiliated investments—124.08% of net asset value
20-20 Technologies Inc.
Senior Secured Term Loan⁽⁴⁾	Business services	13.2%⁽⁵⁾(LIBOR + 11.00%)		9/12/12		9/12/17	$	13,912,500	$	13,593,314	$	13,703,813

										13,593,314		13,703,813
Adirondack Park CLO Ltd.
Subordinated Notes, Residual Interest⁽⁴⁾	Financial services	13.7%⁽²¹⁾		3/27/13		4/15/24	$	10,000,000		9,300,953		9,300,953

										9,300,953		9,300,953
AIM Media Texas Operating, LLC
Second Lien Loan	Media	16.0%⁽⁶⁾		6/21/12		6/21/17	$	9,712,500		9,495,296		9,615,375
Member interest⁽⁷⁾⁽⁸⁾				6/21/12		—		0.763636		763,636		900,000

										10,258,932		10,515,375
Airborne Tactical Advantage Company, LLC
Senior Secured Note	Aerospace &	11.0%		9/7/11		3/7/16	$	4,000,000		3,863,104		3,900,000
Class A Warrants⁽⁹⁾	defense			9/7/11		—		511,812		112,599		120,000

										3,975,703		4,020,000
C&K Market, Inc.
Senior Subordinated Note	Retail & grocery	16.0% (14.0% Cash and 2.0% PIK)		11/3/10		11/3/15	$	13,649,702		13,272,427		13,376,708
Warrant for Class B				11/3/10		—		156,552		349,000		—

										13,621,427		13,376,708
Country Pure Foods, LLC
Subordinated Term Loan	Food & beverage	15.0% (12.5% Cash and 2.5% PIK)		8/13/10		2/13/16	$	16,181,058		15,986,057		15,938,343

										15,986,057		15,938,343
Connecture, Inc.
Second Lien Term Loan	Business services	12.5% (LIBOR + 11.0%)		3/18/13		7/15/18	$	8,052,563		7,892,426		7,892,426

										7,892,426		7,892,426
CRS Reprocessing, LLC
Senior Secured Term Loan	Manufacturing	10.3% (LIBOR + 9.3%)		6/16/11		6/16/15	$	7,957,389		7,862,096		7,897,708

										7,862,096		7,897,708
Cydcor LLC
Senior Secured Term Loan	Business services	12.3% (LIBOR + 9.8%)		9/18/12		9/17/16	$	14,298,701		13,947,585		14,012,727

										13,947,585		14,012,727

(Continued on next page)

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) – (Continued)

March 31, 2013


Portfolio company/Type of Investment⁽¹⁾	Industry	Yield⁽²⁾	Initial Acquisition Date		Maturity/ Dissolution Date		Principal⁽²⁾ No. of Shares / No. of Units		Cost			Fair Value
Dr. Fresh, LLC
Subordinated Term Loan	Consumer products	14.0%⁽⁶⁾ (12.0% Cash and 2.0% PIK)		5/15/12		11/15/17	$	14,228,833		13,973,383			14,157,689

										13,973,383			14,157,689
Duff & Phelps Corporation
Tax Receivable Agreement Payment Rights⁽¹¹⁾	Financial services	16.8%⁽¹²⁾		6/1/12		12/31/29		—		12,261,736			12,261,736

										12,261,736			12,261,736
Embarcadero Technologies, Inc.
First Lien Term Loan	Business services	10.5% (LIBOR + 6.75%)⁽⁵⁾		2/15/13		12/28/17	$	11,821,021		11,647,442			11,647,442

										11,647,442			11,647,442
Express Courier International, Inc.
Secured Subordinated Term Loan	Business services	15.0% (PIK)⁽¹³⁾		1/17/12		7/17/16	$	7,663,957		7,549,413			6,514,363

										7,549,413			6,514,363
Firebirds International, LLC
Senior Secured Term Loan	Restaurants	10.5% (LIBOR + 9.0%)		5/17/11		5/17/16	$	8,200,000		8,087,482			8,241,000
Senior Secured Revolving Loan^{(14) (15)}		10.5% (LIBOR + 9.0%)		5/17/11		5/17/16		—		(62,506	)		—
Common stock⁽⁹⁾				5/17/11		—		1,906		190,600			230,000

										8,215,576			8,471,000
Food Processing Holdings, LLC
Senior Subordinated Note^(6)(16)	Food & beverage	15.0% (12.0% Cash and 3.0% PIK)		2/28/12		8/28/17	$	13,952,446		13,836,346			13,533,872
Class A Units⁽⁹⁾				4/20/10		—		162.44		163,268			181,000
Class B Units⁽⁹⁾				4/20/10		—		406.09		408,161			150,000

										14,407,775			13,864,872
Gold, Inc.
Subordinated Term Loan	Consumer products	15.0%⁽⁶⁾ (13.0% Cash and 2.0% PIK)		12/31/12		12/31/17	$	18,570,573		18,212,592			18,212,592

										18,212,592			18,212,592
Gryphon Partners 3.5, L.P.
Partnership interest	Financial services			11/20/12		12/21/18		—		1,195,014			1,899,782

										1,195,014			1,899,782
Harrison Gypsum, LLC
Senior Secured Term Loan	Industrials	10.5%⁽⁶⁾(LIBOR + 8.5% and 0.5% PIK)		12/21/12		12/21/17	$	25,130,094		24,769,935			24,769,935

										24,769,935			24,769,935

(Continued on next page)

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) – (Continued)

March 31, 2013


Portfolio company/Type of Investment⁽¹⁾	Industry	Yield⁽²⁾	Initial Acquisition Date		Maturity/ Dissolution Date		Principal⁽²⁾ No. of Shares / No. of Units		Cost			Fair Value
Hart InterCivic, Inc.
Senior Secured Term Loan	Election services	10.5% (LIBOR + 9.0%)		7/1/11		7/1/16	$	8,774,769		8,650,386			8,643,147
Senior Secured Revolving Loan^(10)(15)		10.5% (LIBOR + 9.0%)		7/1/11		7/1/16		—		(38,982	)		—

										8,611,404			8,643,147
HEALTHCAREfirst, Inc.
Senior Secured Term Loan	Business services	111.5%⁽⁵⁾(LIBOR + 10.0%)		8/31/12		8/30/17	$	9,750,000		9,483,509			9,457,500

										9,483,509			9,457,500
IMDS Corporation
Subordinated Term Loan	Healthcare, device manufacturing	15.5%⁽⁶⁾⁾ (12.5% Cash and 3.0% PIK)		5/2/12		11/2/17	$	13,365,594		13,077,409			12,496,830

										13,077,409			12,496,830
Jefferson Management Holdings, LLC
Member interest⁽⁷⁾⁽⁸⁾	Healthcare, dental services	N/A		4/20/10		—		1,393		1,393,309			1,270,000

										1,393,309			1,270,000
LCP Capital Fund LLC
Member interest^(8)(17)(18)	Financial services	12.6%⁽¹⁹⁾		4/20/10		2/15/15	$	8,354,033		8,354,033			8,354,033

										8,354,033			8,354,033
Loadmaster Derrick & Equipment, Inc.
Senior Secured Term Loan	Energy / Utilities	9.3% (LIBOR + 8.3%)		9/28/12		9/28/17	$	9,709,456		9,471,611			9,471,611
Senior Secured Revolving Loan⁽¹⁰⁾		9.3% (LIBOR + 8.3%)		9/28/12		9/28/17	$	290,485		290,485			290,485
Senior Secured Delayed Draw Term Loans		9.3% (LIBOR + 8.3%)		9/28/12		9/28/17		—		—			—

										9,762,096			9,762,096
Martex Fiber Southern Corp.
Subordinated Term Loan	Textiles	13.5%⁽⁶⁾ (12.0% Cash and 1.5% PIK)		4/30/12		10/31/19	$	8,788,634		8,668,182			8,612,861

										8,668,182			8,612,861
Octagon Income Note XIV, Ltd.
Income Notes, Residual Interest⁽⁴⁾	Financial Services	15.5%⁽²⁰⁾		12/19/12		1/15/24	$	10,000,000		9,422,449			9,422,449

										9,422,449			9,422,449

(Continued on next page)

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) – (Continued)

March 31, 2013


Portfolio company/Type of Investment⁽¹⁾	Industry	Yield⁽²⁾	Initial Acquisition Date		Maturity/ Dissolution Date		Principal⁽²⁾ No. of Shares / No. of Units		Cost		Fair Value
OEM Group, Inc.
Senior Secured Note	Manufacturing	15.0%⁽⁶⁾ (12.5% Cash and 2.5% PIK)		10/7/10		10/7/15	$	14,875,903		14,621,855		13,685,831
Warrant for Common										—		—

										14,621,855		13,685,831
Pinnacle Operating Corporation
Senior Secured Term Loan	Chemicals	11.5% (LIBOR + 10.3%)		11/26/12		5/15/19	$	10,000,000		9,526,706		9,700,000

										9,526,706		9,700,000
SeaStar Solutions (f.k.a. Marine Acquisition Corp)
Senior Subordinated Note	Manufacturing	13.5%⁽⁶⁾		9/18/12		5/18/17	$	16,500,000		16,160,753		16,335,000

										16,160,753		16,335,000
Sheplers, Inc.
Senior Secured (2^nd lien) Term Loan⁽⁷⁾	Retail & grocery	13.2% (LIBOR + 11.65%)		12/20/11		12/20/16	$	11,426,463		11,192,593		11,197,934
Mezzanine Loan⁽⁷⁾		17.0% (10.0% Cash and 7.0% PIK)		12/20/11		12/20/17	$	1,807,479		1,779,333		1,780,367

										12,971,926		12,978,301
Sheridan Square CLO, Ltd
Subordinated Notes, Residual Interest⁽⁴⁾	Financial services	13.2%⁽²²⁾		3/12/13		4/15/25	$	6,851,000		6,715,407		6,715,407

										6,715,407		6,715,407
Surgery Center Holdings, Inc.
Senior Subordinated Note	Healthcare,	15.0%		4/20/10		8/4/17	$	18,772,751		18,418,926		19,335,933
Member interest⁽⁸⁾⁽⁹⁾	ambulatory surgery centers							469,673		469,673		2,000,000

										18,888,599		21,335,933
The Studer Group, L.L.C.
Senior Subordinated Note	Healthcare, consulting	14.0% (12.0% Cash and 2.0% PIK)		9/29/11		3/29/17	$	12,518,145		12,323,557		12,518,145

										12,323,557		12,518,145
Trinity Services Group, Inc.
Senior Subordinated Note	Food & beverage	13.5%⁽⁶⁾ (12.0% Cash and 1.5% PIK)		3/29/12		9/29/17	$	14,196,437		14,014,308		14,125,454

										14,014,308		14,125,454
Tri Starr Management Services, Inc.
Senior Subordinated Note	Business services	15.0%⁽⁶⁾ (12.5% Cash and 2.5% PIK)		3/4/13		3/4/19	$	20,433,882		20,029,321		20,029,321


										20,029,321		20,029,321

(Continued on next page)

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) – (Continued)

March 31, 2013


Portfolio company/Type of Investment(1)	Industry	Yield⁽²⁾	Initial Acquisition Date		Maturity/ Dissolution Date		Principal(2) No. of Shares / No. of Units		Cost		Fair Value
Vision Solutions, Inc.
Second Lien Term Loan	Business services	9.5% (LIBOR + 8.0%)		3/31/11		7/23/17	$	11,625,000		11,550,567		11,625,000

										11,550,567		11,625,000
Washington Inventory Service
Senior Secured Term Loan	Business services	10.3% (LIBOR + 9.0%)		12/27/12		6/20/19	$	11,000,000		10,841,625		10,890,000

										10,841,625		10,890,000
YP Intermediate Holdings Corp.
Senior Secured Term Loan	Media, advertising	15.0% (12.0% Cash and 3.0% PIK)		5/8/12		5/8/17	$	1,657,168		1,618,606		1,657,168
Warrant for Member interest⁽⁷⁾⁽⁸⁾										93		2,975,000

										1,618,699		4,632,168

Non-controlled/non-affiliated investments—124.08% of net asset value									$	426,707,073	$	431,046,940
Non-controlled/affiliated investments—0.00% of net asset value
THL Credit Greenway Fund LLC
Member interest^(8)(18)	Financial services			1/27/11		1/14/21		—		10,024		10,024

										10,024		10,024
THL Credit Greenway Fund II LLC
Member interest^(8)(18)	Financial services			3/1/13				—		1,331		1,331

										1,331		1,331

Total investments—124.08% of net asset value									$	426,718,428	$	431,058,295


Derivative Instruments
Counterparty	Instrument	Interest Rate	Expiration Date		# of Contracts	Notional		Cost		Fair Value
ING Capital Markets, LLC	Interest Rate Swap – Pay Fixed/Receive Floating	1.1425%/LIBOR		5/10/17	1	$	50,000,000	$	—	$	(911,473	)

Total derivative instruments—(0.26)% of net asset value								$	—	$	(911,473	)

(Continued on next page)

See accompanying notes to these consolidated financial statements.

(1)	All debt investments are income-producing. Equity and member interests are non-income-producing unless otherwise noted.

(2)	Variable interest rate investments bear interest in reference to LIBOR or ABR, which reset monthly or quarterly, subject to interest rate floors. Unless otherwise noted, for each debt investment we have provided the interest rate in effect as of December 31, 2012.

(3)	Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments.

(4)	Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.

(5)	Unitranche investment; yield reflected represents the effective yield earned on the investment.

(6)	At the option of the issuer, interest can be paid in cash or cash and PIK

(7)	Interest held by a wholly owned subsidiary of THL Credit, Inc.

(8)	Member interests of limited liability companies are the equity equivalents of the stock of corporations.

(9)	Equity ownership may be held in shares or units of companies related to the portfolio company.

(10)	Issuer pays 0.5% unfunded commitment fee on facility.

(11)	Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.

(12)	Income-producing security with no stated coupon; yield from initial investment through March 31, 2013 was approximately 16.8%.

(13)	Issuer will pay 15% PIK until April 1, 2013, 13.0% cash interest thereafter.

(14)	Issuer pays 0.25% unfunded commitment fee on revolving loan quarterly.

(15)	The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.

(16)	Interest held in companies related to the portfolio company.

(17)

The Company’s investment in LCP Capital Fund LLC is in the form of membership interests and its contributed capital is maintained in a collateral account held by a custodian and acts as collateral for certain credit default swaps for the Series 2005-1 equity interest. See Note 2 in the Notes to the Consolidated Financial Statements.

(18)	Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.

(19)	Income producing security with no stated coupon; cash yield for the three months ended March 31, 2013 was approximately 12.6%.

(20)	Income producing security with no stated coupon; cash yield for the three months ended March 31, 2013 was approximately 15.5%.

(21)	Income producing security with no stated coupon; cash yield for the three months ended March 31, 2013 was approximately 13.7%.

(22)	Income producing security with no stated coupon; cash yield for the three months ended March 31, 2013 was approximately 13.2%.

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

December 31, 2012


Portfolio company/Type of Investment⁽¹⁾	Industry	Yield⁽²⁾	Initial Acquisition Date		Maturity/ Dissolution Date		Principal⁽³⁾ No. of Shares / No. of Units		Cost		Fair Value
Non-controlled/non-affiliated investments—113.49% of net asset value
20-20 Technologies Inc.
Senior Secured Term Loan⁽⁴⁾	Business services	13.2%⁽⁵⁾(LIBOR + 11.00%)		9/12/12		9/12/17	$	14,000,000	$	13,665,832	$	13,665,832

										13,665,832		13,665,832
AIM Media Texas Operating, LLC
Second Lien Loan	Media	16.0%⁽⁶⁾		6/21/12		6/21/17	$	9,975,000		9,742,841		9,775,500
Member interest⁽⁷⁾⁽⁸⁾				6/21/12		—		0.763636		763,636		763,636

										10,506,477		10,539,136
Airborne Tactical Advantage Company, LLC
Senior Secured Note	Aerospace & defense	11.0%		9/7/11		3/7/16	$	4,000,000		3,853,669		3,900,000
Class A Warrants⁽⁹⁾				9/7/11		—		511,812		112,599		120,000
Senior Secured Delayed Draw Term Loans⁽¹⁰⁾		11.0%		9/7/11		3/7/13		—		—		—

										3,966,268		4,020,000
C&K Market, Inc.
Senior Subordinated Note	Retail & grocery	16.0% (14.0% Cash and 2.0% PIK)		11/3/10		11/3/15	$	13,581,793		13,176,297		13,479,930
Warrant for Class B				11/3/10		—		156,552		349,000		350,000

										13,525,297		13,829,930
Country Pure Foods, LLC
Subordinated Term Loan	Food & beverage	15.0% (12.5% Cash and 2.5% PIK)		8/13/10		2/13/16	$	16,079,445		15,871,240		15,757,856

										15,871,240		15,757,856
CRS Reprocessing, LLC
Senior Secured Term Loan	Manufacturing	10.3% (LIBOR + 9.3%)		6/16/11		6/16/15	$	8,437,945		8,326,829		8,374,660

										8,326,829		8,374,660
Cydcor LLC
Senior Secured Term Loan	Business services	12.3% (LIBOR + 9.8%)		9/18/12		9/17/16	$	14,649,351		14,269,640		14,269,640

										14,269,640		14,269,640
Dr. Fresh, LLC
Subordinated Term Loan	Consumer products	14.0%⁽⁶⁾ (12.0% Cash and 2.0% PIK)		5/15/12		11/15/17	$	14,158,043		13,892,964		13,945,673

										13,892,964		13,945,673

(Continued on next page)

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments – (Continued)

December 31, 2012


Portfolio company/Type of Investment⁽¹⁾	Industry	Yield⁽²⁾	Initial Acquisition Date		Maturity/ Dissolution Date		Principal⁽²⁾ No. of Shares / No. of Units		Cost			Fair Value
Duff & Phelps Corporation
Tax Receivable Agreement Payment Rights⁽¹¹⁾	Financial services	16.4%⁽¹²⁾		6/1/12		12/31/29		—		12,261,736			12,261,736

										12,261,736			12,261,736
Express Courier International, Inc.
Secured Subordinated Term Loan	Business services	15.0%(PIK)⁽¹³⁾		1/17/12		7/17/16	$	7,478,972		7,358,487			6,357,126

										7,358,487			6,357,126
Firebirds International, LLC
Senior Secured Term Loan	Restaurants	10.5% (LIBOR + 9.0%)		5/17/11		5/17/16	$	8,200,000		8,080,047			8,200,000
Senior Secured Revolving Loan^{(14) (15)}		10.5% (LIBOR + 9.0%)		5/17/11		5/17/16		—		(67,433	)		—
Common stock⁽⁹⁾				5/17/11		—		1,906		190,600			215,000

										8,203,214			8,415,000
Food Processing Holdings, LLC
Senior Subordinated Note^(6)(16)	Food & beverage	15.0% (12.0% Cash and 3.0% PIK)		2/28/12		8/28/17	$	13,847,436		13,726,839			13,397,394
Class A Units⁽⁹⁾				4/20/10		—		162.44		163,268			181,000
Class B Units⁽⁹⁾				4/20/10		—		406.09		408,161			150,000

										14,298,268			13,728,394
Gold, Inc.
Subordinated Term Loan	Consumer products	15.0%⁽⁶⁾ (13.0% Cash and 2.0% PIK)		12/31/12		12/31/17	$	36,800,000		36,064,283			36,064,283

										36,064,283			36,064,283
Gryphon Partners 3.5, L.P.
Partnership interest	Financial services			11/20/12		12/21/18		—		1,195,014			1,895,014

										1,195,014			1,895,014
Harrison Gypsum, LLC
Senior Secured Term Loan	Industrials	10.5%⁽⁶⁾(LIBOR + 8.5% and 0.5% PIK)		12/21/12		12/21/17	$	25,380,000		25,001,091			25,001,091

										25,001,091			25,001,091
Hart InterCivic, Inc.
Senior Secured Term Loan	Election services	10.5% (LIBOR + 9.0%)		7/1/11		7/1/16	$	9,594,834		9,450,127			9,498,885
Senior Secured Revolving Loan^(10)(15)		10.5% (LIBOR + 9.0%)		7/1/11		7/1/16		—		(41,938	)		—

										9,408,189			9,498,885
HEALTHCAREfirst, Inc.
Senior Secured Term Loan	Business services	11.5%⁽⁵⁾(LIBOR + 10.0%)		8/31/12		8/30/17	$	9,875,000		9,593,834			9,593,834

										9,593,834			9,593,834

(Continued on next page)

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments – (Continued)

December 31, 2012


Portfolio company/Type of Investment⁽¹⁾	Industry	Yield⁽²⁾	Initial Acquisition Date		Maturity/ Dissolution Date		Principal⁽²⁾ No. of Shares / No. of Units		Cost		Fair Value
IMDS Corporation
Subordinated Term Loan	Healthcare, device manufacturing	15.5%⁽⁶⁾⁾ (12.5% Cash and 3.0% PIK)		5/2/12		11/2/17	$	13,266,098		12,967,476		12,403,802

										12,967,476		12,403,802
Jefferson Management Holdings, LLC
Member interest⁽⁷⁾⁽⁸⁾	Healthcare, dental services	N/A		4/20/10		—		1,393		1,393,309		1,388,500

										1,393,309		1,388,500
LCP Capital Fund LLC
Member interest^(8)(17)(18)	Financial services	16.2%⁽¹⁹⁾		4/20/10		2/15/15	$	8,354,033		8,354,033		8,354,033

										8,354,033		8,354,033
Loadmaster Derrick & Equipment, Inc.
Senior Secured Term Loan	Energy / Utilities	9.3% (LIBOR + 8.3%)		9/28/12		9/28/17	$	9,709,456		9,461,653		9,461,653
Senior Secured Revolving Loan⁽¹⁰⁾		9.3% (LIBOR + 8.3%)		9/28/12		9/28/17	$	290,485		290,485		290,485
Senior Secured Delayed Draw Term Loans		9.3% (LIBOR + 8.3%)		9/28/12		9/28/17		—		—		—

										9,752,138		9,752,138
Marine Acquisition Corp. (Teleflex Marine)
Senior Subordinated Note	Manufacturing	13.5%⁽⁶⁾		9/18/12		5/18/17	$	16,500,000		16,145,801		16,170,000

										16,145,801		16,170,000
Martex Fiber Southern Corp.
Subordinated Term Loan	Textiles	13.5%⁽⁶⁾ (12.0% Cash and 1.5% PIK)		4/30/12		10/31/19	$	8,755,800		8,632,700		8,580,684

										8,632,700		8,580,684
Octagon Income Note XIV, Ltd.
Income Notes, Residual Interest⁽⁴⁾	Financial Services	15.5%⁽²⁰⁾		12/19/12		1/15/24	$	10,000,000		9,400,000		9,400,000

										9,400,000		9,400,000
OEM Group, Inc.
Senior Secured Note	Manufacturing	15.0%⁽⁶⁾ (12.5% Cash and 2.5% PIK)		10/7/10		10/7/15	$	14,783,506		14,509,705		13,600,826
Warrant for Common										—		—

										14,509,705		13,600,826
Pinnacle Operating Corporation
Senior Secured Term Loan	Chemicals	11.5% (LIBOR + 10.3%)		11/26/12		5/15/19	$	10,000,000		9,507,630		9,507,630

										9,507,630		9,507,630

(Continued on next page)

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments – (Continued)

December 31, 2012


Portfolio company/Type of Investment⁽¹⁾	Industry	Yield⁽²⁾	Initial Acquisition Date		Maturity/ Dissolution Date		Principal⁽²⁾ No. of Shares / No. of Units		Cost		Fair Value
Sheplers, Inc.
Senior Secured (2^nd lien) Term Loan⁽⁷⁾	Retail & grocery	13.2% (LIBOR + 11.65%)		12/20/11		12/20/16	$	11,426,463		11,181,930		11,369,331
Mezzanine Loan⁽⁷⁾		17.0% (10.0% Cash and 7.0% PIK)		12/20/11		12/20/17	$	1,776,476		1,747,347		1,767,593

										12,929,277		13,136,924
Surgery Center Holdings, Inc.
Senior Subordinated Note	Healthcare,	15.0%		4/20/10		8/4/17	$	18,772,751		18,404,850		18,960,478
Member interest⁽⁸⁾⁽⁹⁾	ambulatory surgery centers							469,673		469,673		1,850,000

										18,874,523		20,810,478
The Studer Group, L.L.C.
Senior Subordinated Note	Healthcare, consulting	14.0% (12.0% Cash and 2.0% PIK)		9/29/11		3/29/17	$	12,454,488		12,251,181		12,361,080

										12,251,181		12,361,080
Trinity Services Group, Inc.
Senior Subordinated Note	Food & beverage	13.5%⁽⁶⁾ (12.0% Cash and 1.5% PIK)		3/29/12		9/29/17	$	14,143,399		13,954,176		14,072,682

										13,954,176		14,072,682
Vision Solutions, Inc.
Second Lien Term Loan	Business services	9.5% (LIBOR + 8.0%)		3/31/11		7/23/17	$	11,625,000		11,547,123		11,625,000

										11,547,123		11,625,000
Washington Inventory Service
Senior Secured Term Loan	Business services	10.3% (LIBOR + 9.0%)		12/27/12		6/20/19	$	11,000,000		10,835,379		10,835,379

										10,835,379		10,835,379
YP Intermediate Holdings Corp.
Senior Secured Term Loan	Media, advertising	15.0% (12.0% Cash and 3.0% PIK)		5/8/12		5/8/17	$	3,321,826		3,235,570		3,321,826
Warrant for Member interest⁽⁷⁾⁽⁸⁾										93		1,800,000

										3,235,663		5,121,826

Non-controlled/non-affiliated investments—113.49% of net asset value									$	391,698,777	$	394,339,072

(Continued on next page)

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

December 31, 2012

Portfolio company/Type of Investment(1)

Industry

Yield⁽²⁾

Initial
Acquisition
Date

Maturity/
Dissolution
Date

Principal(2)
No. of Shares /
No. of Units

Cost

Fair Value

Non-controlled/affiliated investment—0.00% of net asset value

THL Credit Greenway Fund LLC

Member interest^(8)(18)

Financial services

1/27/11

1/14/21

—

10,062

Total investments—113.49% of net asset value

391,708,839

394,349,134


Derivative Instruments
Counterparty	Instrument	Interest Rate	Expiration Date		# of Contracts	Notional		Cost		Fair Value
ING Capital Markets, LLC	Interest Rate Swap – Pay Fixed/Receive Floating	1.1425%/LIBOR		5/10/17	1	$	50,000,000	$	—	$	(1,053,221	)

Total derivative instruments—(0.30)% of net asset value								$	—	$	(1,053,221	)

(1)	All debt investments are income-producing. Equity and member interests are non-income-producing unless otherwise noted.

(2)	Variable interest rate investments bear interest in reference to LIBOR or ABR, which reset monthly or quarterly, subject to interest rate floors. Unless otherwise noted, for each debt investment we have provided the interest rate in effect as of December 31, 2012.

(3)	Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments.

(4)	Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.

(5)	Unitranche investment; yield reflected represents the effective yield earned on the investment.

(6)	At the option of the issuer, interest can be paid in cash or cash and PIK

(7)	Interest held by a wholly owned subsidiary of THL Credit, Inc.

(8)	Member interests of limited liability companies are the equity equivalents of the stock of corporations.

(9)	Equity ownership may be held in shares or units of companies related to the portfolio company.

(10)	Issuer pays 0.5% unfunded commitment fee on facility.

(11)	Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.

(12)	Income-producing security with no stated coupon; yield from initial investment through December 31, 2012 was approximately 16.4%.

(13)	Issuer will pay 15% PIK until April 1, 2013, 13.0% cash interest thereafter.

(14)	Issuer pays 0.25% unfunded commitment fee on revolving loan quarterly.

(15)	The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.

(16)	Interest held in companies related to the portfolio company.

(17)

(18)	Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.

(19)	Income producing security with no stated coupon; cash yield for the three months ended December 31, 2012 was approximately 16.2%.

(20)	Income producing security with no stated coupon; cash yield for the three months ended December 31, 2012 was approximately 15.5%.

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2013

1. Organization

THL Credit, Inc., or the Company, was organized as a Delaware corporation on May 26, 2009. The Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, or 1940 Act. The Company has elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, or the Code, as amended. In 2009, the Company was treated for tax purposes as a corporation. The Company’s investment objective is to generate both current income and capital appreciation, primarily through privately negotiated investments in debt and equity securities of middle-market companies.

The Company was initially funded on July 23, 2009, issuing 6,700 shares of common stock at an aggregate purchase price of $100,500 to THL Credit Opportunities, L.P., an affiliate of THL Credit Advisors LLC, or the Advisor. While the Company incurred certain costs in connection with an anticipated initial public offering, which ultimately would have been borne by the Advisor had the offering not closed; the Company did not formally commence principal operations until the completion of the offering on April 21, 2010, as described below.

On April 20, 2010, in anticipation of completing an initial public offering and formally commencing principal operations, the Company entered into a purchase and sale agreement with THL Credit Opportunities, L.P. and THL Credit Partners BDC Holdings, L.P., or BDC Holdings, an affiliate of the Company, to effectuate the sale by THL Credit Opportunities, L.P. to the Company of certain securities valued at $62,107,449, as determined by the Company’s board of directors, and on the same day issued 4,140,496 shares of common stock to BDC Holdings valued at $15.00 per share, pursuant to such agreement, in exchange for the aforementioned securities. Subsequently, the Company filed an election to be regulated as a BDC.

On April 21, 2010, the Company completed its initial public offering, formally commencing principal operations, and sold 9,000,000 shares of its common stock through a group of underwriters at a price of $13.00 per share, less an underwriting discount and commissions totaling $0.8125 per share. Concurrently, the Company sold 6,307,692 shares of its common stock to BDC Holdings at $13.00 per share, the sale of which was not subject to an underwriting discount and commission. On April 27, 2010, the Company closed the sale of the aforementioned 15,307,692 shares and received $190,683,947 of net proceeds, which includes an underwriting discount and offering expenses.

On May 26, 2010, the underwriters exercised their over-allotment option under the underwriting agreement and elected to purchase an additional 337,000 shares of common stock at $13.00 per share resulting in additional net proceeds of $3,891,850, which includes an underwriting discount and offering expenses.

On September 25, 2012, the Company closed a public equity offering selling 6,095,000 shares of its common stock through a group of underwriters at a price of $14.09 per share, less an underwriting discount and offering expenses, and received $81,656,591 in proceeds.

The Company has established wholly owned subsidiaries, THL Credit AIM Media Holdings Inc., THL Credit Holdings, Inc. and THL Credit YP Holdings Inc, which are structured as Delaware entities, or tax blockers, to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass-through entities). Tax blockers are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of portfolio companies.

The Company has a wholly owned subsidiary, THL Corporate Finance, Inc., which serves as the administrative agent on certain investment transactions.

THL Credit SBIC, LP, or SBIC LP, and its general partner, THL Credit SBIC GP, LLC, or SBIC GP, were organized in Delaware on August 25, 2011 as a limited partnership and limited liability company, respectively. On January 16, 2013, the Company withdrew its application with the Investment Division of the U.S. Small Business Administration, or SBA, to license a small business investment company, or SBIC. Both the SBIC LP and SBIC GP remain consolidated wholly owned subsidiaries of the Company.

2. Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. In accordance with Article 6 of Regulation S-X under the Securities Act of

1933, as amended, and the Securities and Exchange Act of 1934, as amended, the Company generally will not consolidate its interest in any company other than in investment company subsidiaries and controlled operating companies substantially all of whose business consists of providing services to the Company.

The accompanying consolidated financial statements of the Company have been presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and 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 financial results included herein contain all adjustments, consisting solely of normal accruals, considered necessary for the fair presentation of financial statements for interim period included herein. The current period’s results of operations are not necessarily indicative of the operating results to be expected for the period ended December 31, 2013. The financial results of our portfolio companies are not consolidated in the financial statements. The accounting records of the Company are maintained in U.S. dollars.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Changes in the economic environment, financial markets, credit worthiness of our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ and these differences could be material.

Cash

Cash consists of funds held in demand deposit accounts at several financial institutions and, at certain times, balances may exceed the Federal Deposit Insurance Corporation insured limit and is therefore subject to credit risk. There were no cash equivalents as of March 31, 2013 and December 31, 2012.

Deferred Financing Costs

Deferred financing costs consist of fees and expenses paid in connection with the closing of credit facilities and are capitalized at the time of payment. Deferred financing costs are amortized using the straight line method over the term of the credit facilities.

Deferred Offering Costs

Deferred offering costs consist of fees and expenses incurred in connection with the offer and sale of the Company’s common stock, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a shelf registration statement. These costs are capitalized when incurred and recognized as a reduction of offering proceeds when the offering becomes effective.

Interest Rate Derivative

The Company recognizes derivatives as either interest rate derivative assets or liabilities at fair value on its Consolidated Statements of Assets and Liabilities with valuation changes and interest rate payments recorded as net change in unrealized appreciation (depreciation) on interest rate derivative and interest rate derivative periodic interest payments, net, respectively, on the Consolidated Statements of Operations. See also the disclosure in Note 7, Interest Rate Derivative.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of the Company’s long-term obligations are disclosed in Note 6, Credit Facility.

Valuation of Investments

Investments, for which market quotations are readily available, are valued using market quotations, which are generally obtained from an independent pricing service or one or more broker-dealers or market makers. Debt and equity securities, for which market quotations are not readily available, are valued at fair value as determined in good faith by the Company’s board of directors. Because we expect that there will not be a readily available market value for many of the investments in the Company’s portfolio, it is expected that many of the Company’s portfolio investments’ values will be determined in good faith by the Company’s board of directors in accordance with a documented valuation policy that has been reviewed and approved by our board of directors in accordance with GAAP. 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 differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

With respect to investments for which market quotations are not readily available, the Company’s board of directors undertakes a multi-step valuation process each quarter, as described below:

•

the Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment;

•

preliminary valuation conclusions are then documented and discussed with senior management of the Advisor;

•

to the extent determined by the audit committee of the Company’s board of directors, independent valuation firms engaged by the Company conduct independent appraisals and review the Advisor’s preliminary valuations in light of their own independent assessment;

•

the audit committee of our board of directors reviews the preliminary valuations of the Advisor and independent valuation firms and, if necessary, responds and supplements the valuation recommendation of the independent valuation firm to reflect any comments; and

•

our board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Advisor, the respective independent valuation firms and the audit committee.

The types of factors that the Company may take into account in fair value pricing our investments include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. The Company utilizes an income approach to value its debt investments and a combination of income and market approaches to value its equity investments. With respect to unquoted securities, the Advisor and the Company’s board of directors, in consultation with the Company’s independent third party valuation firm, values each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors, which valuation is then approved by the board of directors. For debt investments, the Company determines the fair value primarily using an income, or yield, approach that analyzes the discounted cash flows of interest and principal for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of each portfolio investments. The Company’s estimate of the expected repayment date is generally the legal maturity date of the instrument. The yield analysis considers changes in leverage levels, credit quality, portfolio company performance and other factors.

The Company values its interest rate derivative agreement using an income approach that analyzes the discounted cash flows associated with the interest rate derivative agreement. Significant inputs to the discounted cash flows methodology include the forward interest rate yield curves in effect as of the end of the measurement period and an evaluation of the counterparty’s credit risk.

The Company values its residual interest investments in collateralized loan obligations using an income approach that analyzes the discounted cash flows of our residual interest. Significant inputs to the discounted cash flows methodology include the risk associated with the underlying investments and the expected term of the collateralized loan obligation.

The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future cash flows or earnings to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company’s investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, the current investment performance rating, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, transaction comparables, our principal market as the reporting entity and enterprise values, among other factors.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2—Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by management.

The Company considers whether the volume and level of activity for the asset or liability have significantly decreased and identifies transactions that are not orderly in determining fair value. Accordingly, if the Company determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.

The Company has adopted the authoritative guidance under GAAP for estimating the fair value of investments in investment companies that have calculated net asset value per share in accordance with the specialized accounting guidance for Investment Companies. Accordingly, in circumstances in which net asset value per share of an investment is determinative of fair value, the Company estimates the fair value of an investment in an investment company using the net asset value per share of the investment (or its equivalent) without further adjustment, if the net asset value per share of the investment is determined in accordance with the specialized accounting guidance for investment companies as of the reporting entity’s measurement date.

Investment Risk

The value of investments will generally fluctuate with, among other things, changes in prevailing interest rates, federal tax rates, counterparty risk, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition of the issuer. During periods of limited liquidity and higher price volatility, the Company’s ability to dispose of investments at a price and time that the Company deems advantageous may be impaired. The extent of this exposure is reflected in the carrying value of these financial assets and recorded in the Consolidated Statements of Assets and Liabilities.

Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the issuer. The value of lower-quality debt securities often fluctuates in response to company, political, or economic developments and can decline significantly over short periods of time or during periods of general or regional economic difficulty. Lower-quality debt securities can be thinly traded or have restrictions on resale, making them difficult to sell at an acceptable price. The default rate for lower-quality debt securities is likely to be higher during economic recessions or periods of high interest rates.

The following is a summary of the industry classification in which the Company invests as of March 31, 2013:


Industry:	Cost		Fair Value		% of Net Assets
Aerospace & defense	$	3,975,703	$	4,020,000		1.16	%
Business services		106,535,202		105,772,592		30.44	%
Chemicals		9,526,706		9,700,000		2.79	%
Consumer products		32,185,975		32,370,281		9.32	%
Election services		8,611,404		8,643,147		2.49	%
Energy / Utilities		9,762,096		9,762,096		2.81	%
Financial services		47,260,947		47,965,715		13.81	%
Food & beverage		44,408,140		43,928,669		12.64	%
Healthcare, ambulatory surgery centers		18,888,599		21,335,933		6.14	%
Healthcare, consulting		12,323,557		12,518,145		3.60	%
Healthcare, dental services		1,393,309		1,270,000		0.37	%
Healthcare, device manufacturing		13,077,409		12,496,830		3.60	%
Industrials		24,769,935		24,769,935		7.13	%
Manufacturing		38,644,704		37,918,539		10.91	%
Media		10,258,932		10,515,375		3.03	%
Media, advertising		1,618,699		4,632,168		1.33	%
Restaurants		8,215,576		8,471,000		2.44	%
Retail & grocery		26,593,353		26,355,009		7.59	%
Textiles		8,668,182		8,612,861		2.48	%

Total investments	$	426,718,428	$	431,058,295		124.08	%

The following is a summary of the geographical concentration of our investment portfolio as of March 31, 2013:


Region:	Cost		Fair Value		% of Net Assets
International	$	13,593,314	$	13,703,813		3.94	%
Midwest		70,356,767		70,499,278		20.29	%
Northeast		74,763,436		74,708,115		21.50	%
Northwest		13,621,427		13,376,708		3.85	%
Southeast		100,282,432		104,944,031		30.22	%
Southwest		72,732,844		71,381,118		20.55	%
West		81,368,208		82,445,232		23.73	%

Total investments	$	426,718,428	$	431,058,295		124.08	%

The following is a summary of the industry classification in which the Company invests as of December 31, 2012:


Industry:	Cost		Fair Value		% of Net Assets
Aerospace & defense	$	3,966,268	$	4,020,000		1.16	%
Business services		67,270,295		66,346,811		19.09	%
Chemicals		9,507,630		9,507,630		2.74	%
Consumer products		49,957,247		50,009,956		14.39	%
Election services		9,408,189		9,498,885		2.73	%
Energy / Utilities		9,752,138		9,752,138		2.81	%
Financial services		31,220,845		31,920,845		9.19	%
Food & beverage		44,123,684		43,558,932		12.54	%
Healthcare, ambulatory surgery centers		18,874,523		20,810,478		5.99	%
Healthcare, consulting		12,251,181		12,361,080		3.56	%
Healthcare, dental services		1,393,309		1,388,500		0.40	%
Healthcare, device manufacturing		12,967,476		12,403,802		3.57	%
Industrials		25,001,091		25,001,091		7.19	%
Manufacturing		38,982,335		38,145,486		10.98	%
Media		10,506,477		10,539,136		3.03	%
Media, advertising		3,235,663		5,121,826		1.47	%
Restaurants		8,203,214		8,415,000		2.42	%
Retail & grocery		26,454,574		26,966,854		7.76	%
Textiles		8,632,700		8,580,684		2.47	%

Total investments	$	391,708,839	$	394,349,134		113.49	%

The following is a summary of the geographical concentration of our investment portfolio as of December 31, 2012:


Region:	Cost		Fair Value		% of Net Assets
International	$	13,665,832	$	13,665,832		3.93	%
Midwest		62,866,981		63,033,274		18.14	%
Northeast		38,658,531		38,606,515		11.11	%
Northwest		13,525,297		13,829,930		3.98	%
Southeast		101,401,548		104,146,354		29.98	%
Southwest		73,786,247		72,432,240		20.84	%
West		87,804,403		88,634,989		25.51	%

Total investments	$	391,708,839	$	394,349,134		113.49	%

The following is a summary of the levels within the fair value hierarchy in which the Company invests as of March 31, 2013:


Description:	Fair Value			Level 1		Level 2			Level 3
First lien secured debt	$	112,035,368		$	—	$	—		$	112,035,368
Second lien debt		76,263,734			—		—			76,263,734
Subordinated debt		186,967,478			—		—			186,967,478
Investments in funds		10,265,170			—		—			10,265,170
Equity investments		7,826,000			—		—			7,826,000
Investment in payment rights		12,261,736			—		—			12,261,736
CLO residual interests		25,438,809								25,438,809

Total investments	$	431,058,295		$	—	$	—		$	431,058,295

Interest rate derivative		(911,743	)		—		(911,743	)		—

Total liability at fair value	$	(911,743	)	$	—	$	(911,743	)	$	—

The following is a summary of the levels within the fair value hierarchy in which the Company invests as of December 31, 2012:


Description:	Fair Value			Level 1		Level 2			Level 3
First lien secured debt	$	102,256,080		$	—	$	—		$	102,256,080
Second lien debt		70,035,492			—		—			70,035,492
Subordinated debt		183,318,581			—		—			183,318,581
Investments in funds		10,259,109			—		—			10,259,109
Equity investments		6,818,136			—		—			6,818,136
Investment in payment rights		12,261,736			—		—			12,261,736
CLO residual interest		9,400,000								9,400,000

Total investments	$	394,349,134		$	—	$	—		$	394,349,134

Interest rate derivative		(1,053,221	)		—		(1,053,221	)		—

Total liability at fair value	$	(1,053,221	)	$	—	$	(1,053,221	)	$	—

The following table rolls forward the changes in fair value during the three months ended March 31, 2013 for investments classified within Level 3:


	First lien secured debt			Second lien debt			Subord inated debt			Investments in funds			Equity investments		Investment in payment rights		CLO residual interests		Totals
Beginning balance, January 1, 2013	$	102,256,080		$	70,035,492		$	183,318,581		$	10,259,109		$	6,818,136	$	12,261,736	$	9,400,000	$	394,349,134
Purchases		15,525,000			7,891,512			19,986,342			1,331			—		—		16,013,980		59,418,165
Sales and repayments		(6,032,834	)		(1,951,578	)		(17,864,833	)		(38	)		—		—		—		(25,849,283	)
Unrealized appreciation (depreciation)⁽¹⁾		97,664			48,746			540,531			4,768			1,007,864		—		—		1,699,573
Net amortization of premiums, discounts and fees		153,839			122,748			136,864			—			—		—		24,829		438,280
PIK		35,619			116,814			849,993			—			—		—		—		1,002,426

Ending balance, March 31, 2013	$	112,035,368		$	76,263,734		$	186,967,478		$	10,265,170		$	7,826,000	$	12,261,736	$	25,438,809	$	431,058,295

Net change in unrealized appreciation from investments still held as of the reporting date⁽¹⁾	$	97,664		$	48,746		$	540,531		$	4,768		$	1,007,864	$	—	$	—	$	1,699,573

(1)	All unrealized appreciation (depreciation) in the table above is reflected in the accompanying Consolidated Statements of Operations.

The following table rolls forward the changes in fair value during the three months ended March 31, 2012 for investments classified within Level 3:


	First lien debt			Second lien debt			Subordinated debt			Investments in funds			Equity investments			Totals
Beginning balance, January 1, 2012	$	89,488,235		$	60,124,938		$	101,841,744		$	12,011,496		$	3,526,919		$	266,993,332
Purchases		2,586,250			—			33,620,500			1,988			—			36,208,738
Sales and repayments		(315,521	)		(3,777,778	)		(12,569,273	)		—			—			(16,662,572	)
Unrealized appreciation (depreciation)⁽¹⁾		(32,376	)		91,612			(478,437	)		(632	)		(45,809	)		(465,642	)
Net amortization of premiums, discounts and fees		103,461			98,757			550,647			—			—			752,865
PIK		60,977			91,086			525,023			—			—			677,086

Ending balance, March 31, 2012	$	91,891,026		$	56,628,615		$	123,490,204		$	12,012,852		$	3,481,110		$	287,503,807

Net change in unrealized appreciation from investments still held as of the reporting date⁽¹⁾	$	(32,376	)	$	91,612		$	(40,467	)	$	(632	)	$	(45,809	)	$	(27,672	)

(1)	All unrealized appreciation (depreciation) in the table above is reflected in the accompanying Consolidated Statements of Operations.

The following provides quantitative information about Level 3 fair value measurements as of March 31, 2013:


Description:	Fair Value		Valuation Technique	Unobservable Inputs	Range (Average) ⁽¹⁾
First lien secured debt	$	112,035,368	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	11% - 13% (12%)
Second lien debt		76,263,734	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	14% - 15% (14%)
Subordinated debt		186,967,478	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	15% - 17% (16%)
Investments in funds		10,265,170	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	12%
			Net asset value, as a practical expedient	Net asset value	N/A
Equity investments		7,826,000	Market comparable companies (market approach)	EBITDA multiple	4.6 – 5.2 (4.9)
Investment in payment rights⁽²⁾		12,261,736	Discounted cash flows (income approach)	Weighted average cost of capital (WACC) and federal tax rates	17%
CLO residual interests		25,438,809	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	14%

Total investments	$	431,058,295

(1)	Ranges were determined using a weighted average based upon the fair value of the investments in each investment category.

(2)	Investment in a tax receivable agreement, or TRA, payment rights

The primary significant unobservable input used in the fair value measurement of the Company’s debt securities (first lien secured debt, second lien debt and subordinated debt), including income-producing investments in funds, payment rights and CLO residual interests is the weighted average cost of capital, or WACC. Significant increases (decreases) in the WACC in isolation would result in a significantly lower (higher) fair value measurement. In determining the WACC, for the income, or yield, approach, the Company considers current market yields and multiples, portfolio company performance, leverage levels, credit quality, among other factors, including federal tax rates, in its analysis. In the case of the TRA and CLO residual interests, the Company considers the risk associated with the underlying investments and the expected term of the investment. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate WACC to use in the income approach.

The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the EBITDA multiple, or the Multiple. Significant increases (decreases) in the Multiple in isolation would result in a significantly higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current market trading and/or transaction multiples, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate Multiple to use in the market approach.

Investment in Tax Receivable Agreement Payment Rights

In June 2012, the Company invested in a TRA that entitles it to certain payment rights, or TRA Payment Rights, from Duff & Phelps Corporation, or Duff & Phelps. The TRA transfers the economic value of certain tax deductions, or tax benefits, taken by Duff & Phelps to the Company and entitles the Company to a stream of payments to be received. The TRA payment right is, in effect, a subordinated claim on the issuing company which can be valued based on the credit risk of the issuer, which includes projected future earnings, the liquidity of the underlying payment right, risk of tax law changes, the effective tax rate and any other factors which might impact the value of the payment right.

Through the TRA, the Company is entitled to receive an annual tax benefit payment based upon 85% of the savings from certain deductions along with interest. The payments that the Company is entitled to receive result from cash savings, if any, in U.S. federal, state or local income tax that Duff & Phelps realizes (i) from the tax savings derived from the goodwill and other intangibles created in connection with the Duff & Phelps initial public offering (ii) from other income tax deductions. These tax benefit payments will continue until the relevant deductions are fully utilized, which is projected to be 17 years. Pursuant to the TRA, the Company maintains the right to enforce Duff & Phelps payment obligations as a transferee of the TRA contract. If Duff & Phelps chooses to pre-pay and terminate the TRA, the Company will be entitled to the present value of the expected future TRA payments. If Duff & Phelps breaches any material obligation than all obligations are accelerated and calculated as if an early termination occurred. Failure to make a payment is a breach of a material obligation if the failure occurs for more than three months.

The projected annual tax benefit payment will be accrued on a quarterly basis and paid annually. The payment will be allocated between a reduction in the cost basis of the investment and interest income based upon an amortization schedule. Based upon the characteristics of the investment, the Company has chosen to categorize the investment in the TRA payment rights as investment in payment rights in the fair value hierarchy. The valuation will be based principally on a discounted cash flow analysis of projected future cash flow streams assuming an appropriate discount rate, which will among other things consider other transactions in the market, the current credit environment, performance of Duff & Phelps and the length of the remaining payment stream

Investment in Funds

The Company does not have the ability to redeem its investment in funds but distributions are expected to be received until the dissolution of the funds, which is anticipated to be between 2013 and 2021, as the underlying investments are expected to be liquidated.

Greenway

On January 14, 2011, THL Credit Greenway Fund LLC, or Greenway, was formed as a Delaware limited liability company. Greenway is a portfolio company of the Company. Greenway is a closed-end investment fund which provides for no liquidity or redemption options and is not readily marketable. Greenway operates under a limited liability agreement dated January 19, 2011, or the Agreement. Greenway will continue in existence until January 14, 2021, subject to earlier termination pursuant to certain terms of the Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Agreement. Greenway had a two year investment period.

Greenway has $150,000,000 of capital committed by affiliates of a single institutional investor, and is managed by the Company through the investment professionals that serve on the Company’s investment committee. The Company’s capital commitment to Greenway is $15,000. As of March 31, 2013, and December 31, 2012, all of the capital had been called by Greenway. As of March 31, 2013 and December 31, 2012, the value of the Company’s interest in Greenway was $10,024 and $10,062, respectively, and is reflected in the Consolidated Schedules of Investments.

As manager of Greenway, the Company acts as the investment adviser to Greenway and is entitled to receive certain fees. As a result, Greenway is classified as an affiliate of the Company. For the three months ended March 31, 2013 and 2012, the Company earned $474,035 and $530,334 in fees related to Greenway, respectively, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of March 31, 2013 and December 31, 2012, $500,356 and $402,116 of fees related to Greenway, respectively, were included in Due from affiliate on the Consolidated Statements of Assets and Liabilities.

Greenway invests in securities similar to those of the Company pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway and the Company. However, the Company has the discretion to invest in other securities.

Greenway II

On January 31, 2013, THL Credit Greenway Fund II, LLC, or Greenway II, was formed as a Delaware limited liability company. Greenway II, is a portfolio company of the Company. Greenway II is a closed-end investment fund which provides for no liquidity or redemption options and is not readily marketable. Greenway II operates under a limited liability agreement dated February 11, 2013. Greenway II will continue in existence for eight years from the final closing date, subject to earlier termination pursuant to certain terms of the Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Agreement. Greenway II has a two year investment period.

Greenway II had its first closing on February 11, 2013, of which the Company had a nominal commitment. Greenway II is managed by the Company through the investment professionals that serve on the Company’s investment committee. As of March 31, 2013, the value of the Company’s interest in Greenway was $1,331 and is reflected in the Consolidated Schedules of Investments.

As manager of Greenway II, the Company acts as the investment adviser to Greenway II and is entitled to receive certain fees. As a result, Greenway II is classified as an affiliate of the Company. For the three months ended March 31, 2013, the Company earned $24,328 in fees related to Greenway II, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of March 31, 2013, $24,328 of fees related to Greenway II, respectively, were included in Due from affiliate on the Consolidated Statements of Assets and Liabilities.

Greenway II invests in securities similar to those of the Company pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway II and the Company. However, the Company has the discretion to invest in other securities.

LCP Capital Fund LLC

The Company has invested in a membership interest of LCP Capital Fund LLC, or LCP, a private investment company that was organized to participate in investment opportunities that arise when a special purpose entity, or SPE, or sponsor thereof, needs to raise capital to achieve ratings, regulatory, accounting, tax, or other objectives. LCP is a closed investment vehicle which provides for no liquidity or redemption options and is not readily marketable. LCP is managed by an unaffiliated third party. As of March 31, 2013 and December 31, 2012, the Company has contributed $12,000,000 of capital in the form of membership interests in LCP, which is invested in an underlying SPE referred to as Series 2005-01. On May 1, 2012, the Company received $3,645,967 in connection with a reduction in its commitment pursuant to the governing documents, which is related to the notional amount of the underlying credit default swaps. The Company’s exposure is limited to the amount of its remaining contributed capital. As of March 31, 2013, the value of the Company’s interest in LCP was $8,354,033, and is reflected in the Consolidated Schedules of Investments.

The Company’s contributed capital in LCP is maintained in a collateral account held by a third-party custodian, who is neither affiliated with the Company nor with LCP, and acts as collateral on certain credit default swaps for the Series 2005-01 for which LCP receives fixed premium payments throughout the year, adjusted for expenses incurred by LCP. The SPE purchases assets on a non-recourse basis and LCP agrees to reimburse the SPE up to a specified amount for potential losses. LCP holds the contributed cash invested for an SPE transaction in a segregated account that secures the payment obligation of LCP. The Company expects to receive distributions from LCP on a quarterly basis. Such distributions are reflected in the Company’s Consolidated Statements of Operations as interest income in the period earned. LCP has a remaining life of 18 years; however, it is currently expected that Series 2005-01 will terminate on February 15, 2015, if not extended prior to this date pursuant to the terms of Series 2005-1 SPE. Regardless of the date of dissolution, LCP has the right to receive amounts held in the collateral account if there is an event of default under LCP’s operative agreements. LCP may have other series which will have investments in other SPEs to which the Company will not be exposed.

CLO residual interests

Interest income from the Company’s CLO residual interests is recorded based upon an estimation of an effective yield to expected maturity using anticipated cash flows with any remaining amount recorded to the cost basis of the investment. The Company monitors the anticipated cash flows from its CLO residual interests and will adjust its effective yield periodically.

Security Transactions, Payment-in-Kind, Income Recognition, Realized/Unrealized Gains or Losses

Security transactions are recorded on a trade-date basis. The Company measures realized gains or losses 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. The Company reports changes in fair value of investments that are measured at fair value as a component of net change in unrealized appreciation on investments in the Consolidated Statements of Operations. The Company reports changes in fair value of the interest rate derivative that is measured at fair value as a component of net change in unrealized appreciation or depreciation on interest rate derivative in the Consolidated Statements of Operations.

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that the Company expects to collect such amounts. Dividend income is recognized on the ex-dividend date. Original issue discount, principally representing the estimated fair value of detachable equity or warrants obtained in conjunction with the acquisition of debt securities, and market discount or premium are capitalized and accreted or amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion/amortization of discounts and premiums and upfront loan origination fees.

The Company has investments in its portfolio which contain a contractual paid-in-kind, or PIK, interest provision. PIK interest is computed at the contractual rate specified in each investment agreement, is added to the principal balance of the investment, and is recorded as income. The Company will cease accruing PIK interest if there is insufficient value to support the accrual or if it does not expect amounts to be collectible. To maintain the Company’s status as a RIC, PIK interest income, which is considered investment company taxable income, must be paid out to stockholders in the form of dividends even though the Company has not yet collected the cash. Amounts necessary to pay these dividends may come from available cash.

The following shows a rollforward of PIK income activity for the three months ended March 31, 2013 and for the year ended December 31, 2012:


Accumulated PIK balance at December 31, 2011	$	3,488,036
PIK income capitalized/receivable		4,124,150
PIK received in cash from prepayments		(1,804,847	)

Accumulated PIK balance at December 31, 2012	$	5,807,339
PIK income capitalized/receivable		1,091,468

Accumulated PIK balance at March 31, 2013	$	6,898,807

Interest income from the Company’s TRA and CLO residual interests is recorded based upon an estimation of an effective yield to expected maturity using anticipated cash flows with any remaining amount recorded to the cost basis of the investment. The Company monitors the anticipated cash flows from its CLO residual interests and will adjust its effective yield periodically as needed.

The Company capitalizes and amortizes upfront loan origination fees received in connection with the closing of investments. The unearned income from such fees is accreted into interest income over the contractual life of the loan based on the effective interest method. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees, and unamortized discounts are recorded as interest income.

In certain investment transactions, the Company may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned. The Company had no income from advisory services for the three months ended March 31, 2013 and 2012, respectively.

Other income includes commitment fees, fees related to the management of Greenway, amendment fees and unused commitment fees associated with investments in portfolio companies.

Expenses are recorded on an accrual basis.

Revolving and Unfunded Delayed Draw Loans

For the Company’s investments in revolving and delayed draw loans, the cost basis of the investments purchased is adjusted for the cash received for the discount on the total balance committed. The fair value is also adjusted for price appreciation or depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative value until it is offset by the future amounts called and funded.

Income Taxes, Including Excise Tax

The Company has elected to be taxed as a RIC under Subchapter M of the Code and currently qualifies, and intends to continue to qualify each year, as a RIC under the Code.

In order to qualify for favorable tax treatment as a RIC, the Company is required to distribute annually to its stockholders at least 90% of its investment company taxable income, as defined by the Code. To avoid a 4% excise tax on undistributed earnings, we are required to distribute each calendar year the sum of (i) 98% of our ordinary income for such calendar year (ii) 98.2% of our net capital gains for the one-year period ending October 31 of that calendar year (iii) any income recognized, but not distributed, in preceding years and on which we paid no federal income tax. The Company, at its discretion, may choose not to distribute all of its taxable income for the calendar year and pay a non-deductible 4% excise tax on this income. If the Company chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, the Company accrues excise taxes on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate. The annual effective excise tax rate is determined by dividing the estimated annual excise tax by the estimated annual taxable income. See also the disclosure in Note 9, Dividends, for a summary of the dividends paid. For the three months ended March 31, 2013 and 2012, the Company did not incur any excise tax expense.

Certain consolidated subsidiaries of the Company are subject to U.S. federal and state income taxes. These taxable entities are not consolidated with the Company for income tax purposes and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the three months ended March 31, 2013 and 2012, the Company recognized a provision for tax on unrealized appreciation of $528,878, and $0, respectively, for consolidated subsidiaries in the Consolidated Statements of Operations. As of March 31, 2013 and December 31, 2012, $982,436 and $453,558, respectively, were included in deferred tax liability on the Consolidated Statements of Assets and Liabilities relating to deferred tax on unrealized appreciation on investments. The provision relates to two individual subsidiaries of the Company.

The Company follows the provisions under the authoritative guidance on accounting for and disclosure of uncertainty in tax positions. The provisions require management to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions not meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. There are no unrecognized tax benefits or obligations in the accompanying consolidated financial statements. Although the Company files federal and state tax returns, the Company’s major tax jurisdiction is federal. The Company’s inception-to-date federal tax years remain subject to examination by taxing authorities.

Dividends

Dividends and distributions to stockholders are recorded on the applicable record date. The amount to be paid out as a dividend is determined by the Company’s board of directors on a quarterly basis. Net realized capital gains, if any, are generally distributed at least annually out of assets legally available for such distributions, although the Company may decide to retain such capital gains for investment.

Capital transactions in connection with the Company’s dividend reinvestment plan are recorded when shares are issued.

3. Related Party Transactions

On February 27, 2013, the Company’s investment management agreement was re-approved by its board of directors, including a majority of our directors who are not interested persons of the Company. Under the investment management agreement, the Advisor, subject to the overall supervision of the Company’s board of directors, manages the day-to-day operations of, and provides investment advisory services to the Company.

The Advisor receives a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.

The base management fee is calculated at an annual rate of 1.5% of the Company’s gross assets payable quarterly in arrears on a calendar quarter basis. For purposes of calculating the base management fee, “gross assets” is determined as the value of the Company’s assets without deduction for any liabilities. The base management fee is calculated based on the value of the Company’s gross assets at the end of the most recently completed calendar quarter, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.

For the three months ended March 31, 2013 and 2012, the Company incurred base management fees payable to the Advisor of $1,523,469, and $1,039,310, respectively. As of March 31, 2012 and December 31, 2012, $1,523,469 and $1,514,422, respectively, was payable to the Advisor.

The incentive fee has two components, ordinary income and capital gains, as follows:

The ordinary income component is calculated, and payable, quarterly in arrears based on the Company’s preincentive fee net investment income for the immediately preceding calendar quarter, subject to a cumulative total return requirement and to deferral of non-cash amounts. The preincentive fee net investment income, which is expressed as a rate of return on the value of the Company’s net assets attributable to the Company’s common stock, for the immediately preceding calendar quarter, will have a 2.0% (which is 8.0% annualized) hurdle rate (also referred to as “minimum income level”). Preincentive fee net investment income means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the Company’s administration agreement (discussed below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral of non-cash interest. Preincentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. The Advisor receives no incentive fee for any calendar quarter in which the Company’s preincentive fee net investment income does not exceed the minimum income level. Subject to the cumulative total return requirement described below, the Advisor receives 100% of the Company’s preincentive fee net investment income for any calendar quarter with respect to that portion of the preincentive net investment income for such quarter, if any, that exceeds the minimum income level but is less than 2.5% (which is 10.0% annualized) of net assets (also referred to as the “catch-up” provision) and 20.0% of the Company’s preincentive fee net investment income for such calendar quarter, if any, greater than 2.5% (10.0% annualized) of net assets. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of the Company’s preincentive fee net investment income is payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. In other words, any ordinary income incentive fee that is payable in a calendar quarter is limited to the lesser of (i) 20% of the amount by which the Company’s preincentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum of preincentive fee net investment income, base management fees, realized gains and losses and unrealized appreciation and depreciation of the Company for the then current and 11 preceding calendar quarters. In addition, the Advisor is not paid the portion of such incentive fee that is attributable to deferred interest until the Company actually receives such interest in cash.

For the three months March 31, 2013 and 2012, the Company incurred $1,943,504 and $1,519,647, respectively, of incentive fees related to ordinary income.

The second component of the incentive fee (capital gains incentive fee) is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement, as of the termination date). This component is equal to 20.0% of the Company’s cumulative aggregate realized capital gains from inception through the end of that calendar year, computed net of the cumulative aggregate realized capital losses and cumulative aggregate unrealized capital depreciation through the end of such year. The aggregate amount of any previously paid capital gains incentive fees is subtracted from such capital gains incentive fee calculated. The capital gains incentive fee payable to the Company’s Advisor under the investment management agreement as of March 31, 2013 and December 31, 2012 was $0 and $34,723, respectively.

As of March 31, 2013 and December 31, 2012, $1,794,356 and $2,330,759, respectively, of such incentive fees are currently payable to the Advisor. For the three months ended March 31, 2013, $149,147 of incentive fees incurred by the Company were generated from deferred interest (i.e. PIK and certain discount accretion) and are not payable until such amounts are received in cash.

GAAP requires that the incentive fee accrual considers the cumulative aggregate unrealized capital appreciation or depreciation of investments or other financial instruments, such as an interest rate derivative, in the calculation, as an incentive fee would be payable if such unrealized capital appreciation or depreciation were realized, even though such unrealized capital appreciation or depreciation is not permitted to be considered in calculating the fee actually payable under the investment management agreement. For accounting purposes in accordance with GAAP only, in order to reflect the potential incentive fee that would be payable for a given period as if all unrealized gains or losses were realized, the Company has accrued incentive fees of $685,408 and $317,144 as of March 31, 2013 and December 31, 2012, respectively, based upon unrealized appreciation or depreciation of investments and the interest rate derivative for that period (in accordance with the terms of the investment management agreement). There can be no assurance that such unrealized appreciation or depreciation will be realized in the future. Accordingly, such fee, as calculated and accrued would not necessarily be payable under the investment management agreement, and may never be paid based upon the computation of incentive fees in subsequent periods.

The Company has also entered into an administration agreement with the Advisor under which the Advisor will provide administrative services to the Company. Under the administration agreement, the Advisor performs, or oversees the performance of administrative services necessary for the operation of the Company, which include, among other things, being responsible for the financial records which the Company is required to maintain and preparing reports to the Company’s stockholders and reports filed with the SEC. In addition, the Advisor assists in determining and publishing the Company’s net asset value, oversees the preparation and filing of the Company’s tax returns and the printing and dissemination of reports to the Company’s stockholders, and generally oversees the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. The Company will reimburse the Advisor for its allocable portion of the costs and expenses incurred by the Advisor for overhead in performance by the Advisor of its duties under the administration agreement and the investment management agreement, including facilities, office equipment and our allocable portion of cost of compensation and related expenses of our chief financial officer and chief compliance officer and their respective staffs, as well as any costs and expenses incurred by the Advisor relating to any administrative or operating services provided by the Advisor to the Company. Such costs are reflected as administrator expenses in the accompanying Consolidated Statements of Operations. Under the administration agreement, the Advisor provides, on behalf of the Company, managerial assistance to those portfolio companies to which the Company is required to provide such assistance. To the extent that our Advisor outsources any of its functions, the Company pays the fees associated with such functions on a direct basis without profit to the Advisor.

For the three months ended March 31, 2013 and 2012, the Company incurred administrator expenses of $888,910, and $823,892, respectively. As of March 31, 2013 and December 31, 2012, $8,454 and $304,491, respectively, was payable to the Advisor.

The Company and the Advisor have entered into a license agreement with THL Partners, L.P., or THL Partners, under which THL Partners has granted to the Company and the Advisor a non-exclusive, personal, revocable, worldwide, non-transferable license to use the trade name and service mark THL, which is a proprietary mark of THL Partners, for specified purposes in connection with the Company’s and the Advisor’s respective businesses. This license agreement is royalty-free, which means the Company is not charged a fee for its use of the trade name and service mark THL. The license agreement is terminable either in its entirety or with respect to the Company or the Advisor by THL Partners at any time in its sole discretion upon 60 days prior written notice, and is also terminable with respect to either the Company or the Advisor by THL Partners in the case of certain events of non-compliance. After the expiration of its first one year term, the entire license agreement is terminable by either the Company or the Advisor at the Company or its sole discretion upon 60 days prior written notice. Upon termination of the license agreement, the Company and the Advisor must cease to use the name and mark THL, including any use in the Company’s respective legal names, filings, listings and other uses that may require the Company to withdraw or replace the Company’s names and marks. Other than with respect to the limited rights contained in the license agreement, the Company and the Advisor have no right to use, or other rights in respect of, the THL name and mark. The Company is an entity operated independently from THL Partners, and third parties who deal with the Company have no recourse against THL Partners.

Due to and from Affiliates

The Advisor paid certain other general and administrative expenses on behalf of the Company. As of March 31, 2013 and December 31, 2012, $23,186 and $0, respectively, of expenses were included in Due to affiliate on the Consolidated Statements of Assets and Liabilities.

As manager of Greenway and Greenway II, the Company acts as the investment adviser to Greenway and Greenway II and is entitled to receive certain fees. As a result, Greenway and Greenway II are classified affiliates of the Company. As of March 31, 2013 and December 31, 2012, $634,283 and $411,119 of total fees and expenses related to Greenway and Greenway II, respectively, were included in Due from affiliate on the Consolidated Statements of Assets and Liabilities.

Affiliated Stockholders

BDC Holdings owns 2,047,720 shares, or 7.78%, of the Company’s common stock as of March 31, 2013, compared 4,047,720 shares, or 15.38%, as of December 31, 2012.

4. Realized Gains and Losses on Investments

The Company did not recognize any realized gains and losses for the three months ended March 31, 2013 and 2012.

5. Net Increase in Net Assets Per Share Resulting from Operations

The following information sets forth the computation of basic and diluted net increase in net assets per share resulting from operations:


	For the three months ended March 31,
	2013		2012
Numerator—net increase in net assets resulting from operations:	$	8,614,130	$	5,706,346
Denominator—basic and diluted weighted average common shares:		26,315,202		20,220,200
Basic and diluted net increase in net assets per common share resulting from operations:	$	0.33	$	0.28

Diluted net increase in net assets per share resulting from operations equals basic net increase in net assets per share resulting from operations for each period because there were no common stock equivalents outstanding during the above periods.

6. Credit Facility

On March 15, 2013, the Company entered into an amendment, or the Revolving Loan Amendment, to its existing revolving credit agreement, or Revolving Facility, and entered into an amendment, or the Term Loan Amendment, to its term loan agreement credit facility, or Term Loan Facility, and together with the Revolving Facility, the Facilities, with ING Capital LLC. These amendments modified the existing Facilities

The Revolver Loan Amendment revised the Revolving Facility, dated May 10, 2012, to among other things, increase the amount available for borrowing under the Revolving Facility from $140,000,000 to $170,000,000 and extend the maturity date from May 2016 to May 2017 (with a one year term out period beginning in May 2016). The Revolver Amendment also changes the interest rate of the Revolving Facility to (i) when the facility is more than or equal to 35% drawn and the step-down condition is satisfied, LIBOR plus 2.75%, (ii) when the facility is more than or equal to 35% drawn and the step-down condition is not satisfied, LIBOR plus 3.00%, (iii) when the facility is less than 35% drawn and the step-down condition is satisfied, LIBOR plus 2.75%, and (iv) when the facility is less than 35% drawn and the step-down condition is not satisfied, LIBOR plus 3.25%. The non-use fee is 1.00% annually if the Company uses 35% or less of the Revolving Facility and 0.50% annually if the Company uses more than 35% of the Revolving Facility.

The Term Loan Amendment revised the Term Loan Facility, dated May 10, 2012, to increase the $50,000,000 senior secured term loan, or Term Loan, to $70,000,000 and extend the maturity date from May 2017 to May 2018. The Term Loan bears interest at LIBOR plus 4.00% (with no LIBOR Floor) and has substantially similar terms to the Company’s existing Revolving Facility (as amended by the Amendment).

Each of the Facilities includes an accordion feature permitting the Company to expand the Facilities, if certain conditions are satisfied; provided, however, that the aggregate amount of the Facilities, collectively, is capped at $400,000,000.

The Facilities generally require payment of interest on a quarterly basis for ABR loans, and at the end of the applicable interest period for Eurocurrency loans bearing interest at LIBOR. All outstanding principal is due upon each maturity date. The Facilities also require a mandatory prepayment of interest and principal upon certain customary triggering events (including, without limitation, the disposition of assets or the issuance of certain securities).

Borrowings under the Facilities are subject to, among other things, a minimum borrowing/collateral base. The Facilities have certain collateral requirements and/or financial covenants, including covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain investments, (c) limitations on certain restricted payments, (d) limitations on the creation or existence of agreements that prohibit liens on certain properties of the Company and its subsidiaries, and (e) compliance with certain financial maintenance standards including (i) minimum stockholders’ equity, (ii) a ratio of total assets (less total liabilities not represented by senior securities) to the aggregate amount of senior securities representing indebtedness, of the Company and its subsidiaries, of not less than 2.25:1.0, (iii) minimum liquidity, (iv) minimum net worth, and (v) a consolidated interest coverage ratio. In addition to the financial maintenance standards, described in the preceding sentence, borrowings under the Facilities (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Company’s portfolio.

The Facilities’ documents also include default provisions such as the failure to make timely payments under the Facilities, the occurrence of a change in control, and the failure by the Company to materially perform under the operative agreements governing the Facilities, which, if not complied with, could, at the option of the lenders under the Facilities, accelerate repayment under the Facilities, thereby materially and adversely affecting the Company’s liquidity, financial condition and results of operations. Each loan originated under the Revolving Facility is subject to the satisfaction of certain conditions. The Company cannot be assured that it will be able to borrow funds under the Revolving Facility at any particular time or at all. The Company is currently in compliance with all financial covenants under the Facilities.

For the three months ended March 31, 2013, the Company borrowed $107,700,000 and made $67,850,000 of repayments under the Facilities. For the three months ended March 31, 2012, the Company borrowed $25,300,000 and made $5,800,000 of repayments under the Facilities. As of March 31, 2013 and December 31, 2012, there were $89,850,000 and $50,000,000 of borrowings outstanding at a weighted average interest rate of 4.0478% and 4.2110%, respectively. As of March 31, 2013 and December 31, 2012, the carrying amount of the Company’s outstanding Facilities approximated fair value. The fair values of the Company’s Facilities are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s Facilities are estimated based upon market interest rates and entities with similar credit risk. As of March 31, 2013 and December 31, 2012, the Facilities would be deemed to be level 3 of the fair value hierarchy.

Interest expense and related fees of $1,094,206 and $452,833 were incurred in connection with the Facilities during the three months ended March 31, 2013 and 2012, respectively.

In accordance with the 1940 Act, with certain exceptions, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. The asset coverage as of March 31, 2013 is in excess of 200%.

7. Interest Rate Derivative

On May 10, 2012, the Company entered into a five-year interest rate swap agreement, or swap agreement, with ING Capital Markets, LLC in connection with its Term Loan Borrowing. Under the swap agreement, with a notional value of $50,000,000, the Company pays a fixed rate of 1.1425% and receives a floating rate based upon the current three-month LIBOR rate. The Company entered into the swap agreement to manage interest rate risk and not for speculative purposes.

The Company uses an income approach using a discounted cash flow methodology to value the interest rate derivative. Significant inputs to the discounted cash flows methodology include the forward interest rate yield curves in effect as of the end of the measurement period and an evaluation of the counterparty’s credit risk.

The Company records the change in valuation of the swap agreement in unrealized appreciation (depreciation) as of each measurement period. When the quarterly interest rate swap amounts are paid or received under the swap agreement, the amounts are recorded as a realized gain (loss).

The Company recognized a realized loss for the three months of $104,063, which is reflected as interest rate derivative periodic interest payments, net on the Consolidated Statements of Operations.

For the three months ended March 31, 2013, the Company recognized $141,748 of net change in unrealized depreciation from the swap agreement, which is listed under net change in unrealized depreciation on interest rate derivative in the Consolidated Statements of Operations. As of March 31, 2013 and December 31 2012, the Company’s fair value of its swap agreement is $911,473 and $1,053,221, respectively, which is listed as an interest rate derivative liability on the Consolidated Statements of Assets and Liabilities.

8. Commitments and Contingencies

From time to time, the Company, or the Advisor, may become party to legal proceedings in the ordinary course of business, including proceedings related to the enforcement of our rights under contracts with our portfolio companies. Neither the Company, nor the Advisor, is currently subject to any material legal proceedings.

Unfunded commitments to provide funds to portfolio companies are not reflected on the Company’s balance sheet. The Company’s unfunded commitments may be significant from time to time. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the on-balance sheet financial instruments that the Company holds. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company intends to use cash flow from normal and early principal repayments and proceeds from borrowings and offerings to fund these commitments.

As of March 31, 2013 and December 31, 2012, the Company has the following unfunded commitments to portfolio companies (in millions):


	As of
	March 31, 2013		December 31, 2012
Unfunded revolving commitments	$	11,709,515	$	10,909,515
Unfunded delayed draw and capital expenditure facilities		8,000,000		12,000,000
Unfunded commitments to investments in funds		3,979,986		3,979,986

Total unfunded commitments	$	23,689,501	$	26,889,501

9. Dividends

The Company has elected to be taxed as a regulated investment company under Subchapter M of the Code. In order to maintain its status as a regulated investment company, it is required to distribute at least 90% of its investment company taxable income. To avoid a 4% excise tax on undistributed earnings, the Company is required to distribute each calendar year the sum of (i) 98% of its ordinary income for such calendar year (ii) 98.2% of its net capital gains for the one-year period ending October 31 of that calendar year (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no federal income tax. The Company intends to make distributions to stockholders on a quarterly basis of substantially all of its net investment income. In addition, although the Company intends to make distributions of net realized capital gains, if any, at least annually, out of assets legally available for such distributions, it may in the future decide to retain such capital gains for investment.

In addition, the Company may be limited in its ability to make distributions due to the BDC asset coverage test for borrowings applicable to the Company as a BDC under the 1940 Act.

The following table summarizes the Company’s dividends declared and paid or to be paid on all shares:


Date Declared	Record Date	Payment Date	Amount Per Share
August 5, 2010	September 2, 2010	September 30, 2010	$	0.05
November 4, 2010	November 30, 2010	December 28, 2010	$	0.10
December 14, 2010	December 31, 2010	January 28, 2011	$	0.15
March 10, 2011	March 25, 2011	March 31, 2011	$	0.23
May 5, 2011	June 15, 2011	June 30, 2011	$	0.25
July 28, 2011	September 15, 2011	September 30, 2011	$	0.26
October 27, 2011	December 15, 2011	December 30, 2011	$	0.28
March 6, 2012	March 20, 2012	March 30, 2012	$	0.29
March 6, 2012	March 20, 2012	March 30, 2012	$	0.05
May 2, 2012	June 15, 2012	June 29, 2012	$	0.30
July 26, 2012	September 14, 2012	September 28, 2012	$	0.32
November 2, 2012	December 14, 2012	December 28, 2012	$	0.33
December 20, 2012	December 31, 2012	January 28, 2013	$	0.05
February 27, 2013	March 15, 2013	March 29, 2013	$	0.33
May 2, 2013	June 14, 2013	June 28, 2013	$	0.34

On May 2, 2013, the Company’s board of directors declared a dividend of $0.34 per share, payable on June 28, 2013 to stockholders of record at the close of business on June 14, 2013.

The Company may not be able to achieve operating results that will allow it to make distributions at a specific level or to increase the amount of these distributions from time to time. If the Company does not distribute a certain percentage of its income annually, it will suffer adverse tax consequences, including possible loss of its status as a regulated investment company. The Company cannot assure stockholders that they will receive any distributions at a particular level.

We maintain an “opt in” dividend reinvestment plan for our common stockholders. As a result, unless stockholders specifically elect to have their dividends automatically reinvested in additional shares of common stock, stockholders will receive all such dividends in cash. With respect to our dividends and distributions paid to stockholders during the three months ended March 31, 2013 and 2012, dividends reinvested pursuant to our dividend reinvestment plan totaled $0 and $13, respectively.

Under the terms of our dividend reinvestment plan, dividends will primarily be paid in newly issued shares of common stock. However, the Company reserves the right to purchase shares in the open market in connection with the implementation of the plan. This feature of the plan means that, under certain circumstances, we may issue shares of our common stock at a price below net asset value per share, which could cause our stockholders to experience dilution.

Distributions in excess of our current and accumulated profits and earnings would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our distributions will be made annually as of the end of our fiscal year based upon our taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full year. If the Company had determined the tax attributes of its 2013 distributions as of March 31, 2013, 100% would be from ordinary income. There can be no certainty to stockholders that this determination is representative of what the tax attributes of the Company’s 2013 distributions to stockholders will actually be. Each year, a statement on Form 1099-DIV identifying the source of the distribution will be mailed to our stockholders.

10. Financial Highlights


	For the three months ended March 31,
	2013			2012
Per Share Data:
Net asset value, beginning of period	$	13.20		$	13.24
Net investment income⁽¹⁾		0.28			0.31
Net change in unrealized appreciation of investments⁽¹⁾⁽²⁾		0.06			(0.03	)
Provision for taxes on unrealized appreciation on investments⁽¹⁾		(0.02	)		—
Net change in unrealized depreciation of interest rate derivative⁽¹⁾		0.01			—

Net increase in net assets resulting from operations⁽³⁾		0.33			0.28
Distributions to stockholders		(0.33	)		(0.34	)

Net asset value, end of period	$	13.20		$	13.18

Per share market value at end of period	$	14.98		$	12.86
Total return⁽⁴⁾⁽⁵⁾		1.28	%		8.08	%
Shares outstanding at end of period		26,315,202			20,220,201
Ratio/Supplemental Data:
Net assets at end of period	$	347,415,056		$	266,448,197
Ratio of operating expenses to average net assets⁽⁶⁾		8.19	%		6.88	%
Ratio of net investment income to average net assets⁽⁶⁾		8.64	%		9.27	%
Portfolio turnover⁽⁵⁾		6.26	%		6.10	%

(1)	Calculated based on weighted average common shares outstanding.

(2)	Net change in unrealized appreciation of investments includes the effect of rounding on a per share basis.

(3)	Includes the cumulative effect of rounding.

(4)	Total return is based on the change in market price per share during the period. Total return takes into account dividends and distributions, if any, reinvested in accordance with the Company’s dividend reinvestment plan.

(5)	Not annualized.

(6)	Annualized.

11. Subsequent Events

On April 11, 2013, the Company received $19,335,933 in proceeds in connection with the realization of a subordinated debt investment in one of its portfolio companies, which included a prepayment premium. In addition, the Company received $1,157,363 in dividend proceeds from its equity holdings in the portfolio company. The Company subsequently closed on a $15,000,000 second lien investment in the portfolio company on April 19, 2013.

On May 2, 2013, the Company’s board of directors declared a dividend of $0.34 per share, payable on June 28, 2013 to stockholders of record at the close of business on June 14, 2013.

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

The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report, and other statements that we may make, may contain forward-looking statements with respect to future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” or similar expressions.

Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to factors previously identified elsewhere in this filing, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

•

the introduction, withdrawal, success and timing of business initiatives and strategies;

•

changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in the value of our assets;

•

the relative and absolute investment performance and operations of our investment adviser;

•

the impact of increased competition;

•

the impact of future acquisitions and divestitures;

•

the unfavorable resolution of legal proceedings;

•

our business prospects and the prospects of our portfolio companies;

•

the impact, extent and timing of technological changes and the adequacy of intellectual property protection;

•

the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or THL Credit Advisors LLC, the Advisor;

•

the ability of the Advisor to identify suitable investments for us and to monitor and administer our investments;

•

our contractual arrangements and relationships with third parties;

•

any future financings by us;

•

the ability of the Advisor to attract and retain highly talented professionals;

•

fluctuations in foreign currency exchange rates; and

•

the impact of changes to tax legislation and, generally, our tax position.

Overview

THL Credit, Inc., or the Company, was organized as a Delaware corporation on May 26, 2009 and initially funded on July 23, 2009. We commenced principal operations on April 21, 2010. Our investment objective is to generate both current income and capital appreciation, primarily through the origination of privately negotiated investments in debt and equity securities in middle market companies.

We are a direct lender to middle-market companies and invest in subordinated, or mezzanine, debt and second lien secured debt, which may include an associated equity component such as warrants, preferred stock or other similar securities. We may also selectively invest in first lien secured loans that generally have structures with higher interest rates, which include unitranche investments, or loan structures that combine characteristics of traditional first lien senior secured as well as second lien and subordinated loans. In certain instances we will also make direct equity investments, including equity investments into or through funds, and we may also selectively invest in more broadly syndicated first lien secured loans from time to time.

We are an externally managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company, or BDC, under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. Government securities and high-quality debt investments that mature in one year or less.

As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized in the United States.

On April 21, 2010, we completed our initial public offering, formally commencing principal operations, and sold 9,000,000 shares of our common stock through a group of underwriters at a price of $13.00 per share, less an underwriting discount and commissions totaling $0.8125 per share. Concurrently, we sold 6,307,692 shares of our common stock to THL Credit Partners BDC Holdings, L.P., or BDC Holdings, at $13.00 per share that was not subject to an underwriting discount and commission. We received $190.7 million of total net proceeds for the aforementioned offerings, which includes an underwriting discount and offering expenses. Since May 2011, BDC Holdings distributed an aggregate of 8.8 million shares of our common stock held by BDC Holdings to its partners. As of March 31, 2013, BDC Holdings owns 8% of our common stock.

On September 25, 2012, we closed on a public equity offering selling 6,095,000 shares of our common stock through a group of underwriters at a price of $14.09 per share, less an underwriting discount and offering expenses, and received $81.7 million in proceeds.

We have elected to be treated for tax purposes as a regulated investment company, or RIC, under Subchapter M of the Code. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. Pursuant to these elections, we generally will not have to pay corporate-level income taxes on any income we distribute to our stockholders.

Portfolio Composition and Investment Activity

Portfolio Composition

We completed the three months ended March 31, 2013 with $431.1 million (at fair value), which represents a $36.8 million, or 9.3% increase from the $394.3 million (at fair value) as of December 31, 2012. We also increased our portfolio to forty companies, including THL Credit Greenway Fund LLC, or Greenway, and THL Credit Greenway Fund II LLC, or Greenway II, as of March 31, 2013, from thirty-four companies, including Greenway, as of December 31, 2012.

At March 31, 2013, our average portfolio company investment, exclusive of Greenway and Greenway II, at amortized cost and fair value was approximately $11.2 million and $11.3 million, respectively and our largest portfolio company investment by amortized cost and fair value was approximately $24.8 million and $24.8 million, respectively. At December 31, 2012, our average portfolio company investment at amortized cost and fair value was approximately $11.9 million and $11.9 million, respectively and our largest portfolio company investment by amortized cost and fair value was approximately $36.1 million and $36.1 million, respectively.

At March 31, 2013, 45.4% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 54.6% bore interest at fixed rates. At December 31, 2012, 43.3% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 56.7% bore interest at fixed rates.

The weighted average yield of the debt and income-producing investments in our portfolio at their current cost was 13.7% at March 31, 2013 as compared to 13.9% at December 31, 2012. The weighted average yield on our debt securities at their current cost was 13.6% at March 31, 2013 as compared to 13.7% at December 31, 2012. Yields are computed using interest rates and dividend yields as of the balance sheet date and include amortization of upfront loan origination fees, original issue discount and market premium or discount. Yields exclude common equity investments, preferred equity investments, and cash.

Our portfolio companies, in which we have debt investments, currently have an average EBITDA of approximately $23 million, excluding one portfolio company with EBITDA levels not representative of a typical portfolio company, based on the latest available financial information provided by the portfolio companies. Our weighted average attachment point in the capital structure of our portfolio companies is approximately 3.9 times EBITDA based on the latest available financial information.

The following table summarizes the amortized cost and fair value of investments as of March 31, 2013 (in millions).


Description:	Amortized Cost		Percentage of Total			Fair Value ⁽¹⁾		Percentage of Total
First lien secured debt	$	111.6		26.1	%	$	112.0		26.0	%
Second lien debt		76.7		18.0	%		76.3		17.7	%
Subordinated debt		187.3		43.9	%		187.0		43.4	%
Investments in funds		9.5		2.2	%		10.3		2.4	%
Equity investments		3.9		0.9	%		7.8		1.8	%
Investment in payment rights		12.3		2.9	%		12.3		2.8	%
CLO residual interests		25.4		6.0	%		25.4		5.9	%

Total investments	$	426.8		100.0	%	$	431.1		100.0	%

The following table summarizes the amortized cost and fair value of investments as of December 31, 2012 (in millions).


Description:	Amortized Cost		Percentage of Total			Fair Value ⁽¹⁾		Percentage of Total
First lien secured debt	$	101.8		26.0	%	$	102.2		26.0	%
Second lien debt		70.6		18.0	%		70.0		17.8	%
Subordinated debt		184.1		47.1	%		183.3		46.5	%
Investments in funds		9.6		2.4	%		10.3		2.6	%
Equity investments		3.9		1.0	%		6.8		1.7	%
Investment in payment rights		12.3		3.1	%		12.3		3.1	%
CLO residual interest		9.4		2.4	%		9.4		2.4	%

Total investments	$	391.7		100.0	%	$	394.3		100.0	%

(1)

All investments are categorized as Level 3 in the fair value hierarchy.

The following is a summary of the industry classification in which the Company invests as of March 31, 2013 (in millions).


Industry:	Cost		Fair Value		% of Net Assets
Aerospace & defense	$	4.0	$	4.0		1.16	%
Business services		106.4		105.8		30.44	%
Chemicals		9.5		9.7		2.79	%
Consumer products		32.2		32.4		9.32	%
Election services		8.6		8.6		2.49	%
Energy / Utilities		9.8		9.8		2.81	%
Financial services		47.2		48.0		13.81	%
Food & beverage		44.4		43.9		12.64	%
Healthcare, ambulatory surgery centers		18.9		21.3		6.14	%
Healthcare, consulting		12.3		12.5		3.60	%
Healthcare, dental services		1.4		1.3		0.37	%
Healthcare, device manufacturing		13.1		12.5		3.60	%
Industrials		24.8		24.8		7.13	%
Manufacturing		38.7		37.9		10.91	%
Media		10.3		10.5		3.03	%
Media, advertising		1.6		4.6		1.33	%
Restaurants		8.2		8.5		2.44	%
Retail & grocery		26.6		26.4		7.59	%
Textiles		8.7		8.6		2.48	%

Total investments	$	426.7	$	431.1		124.08	%

The following is a summary of the industry classification in which the Company invests as of December 31, 2012 (in millions).


Industry:	Cost		Fair Value		% of Net Assets
Aerospace & defense	$	4.0	$	4.0		1.16	%
Business services		67.2		66.3		19.09	%
Chemicals		9.5		9.5		2.74	%
Consumer products		50.0		50.0		14.39	%
Election services		9.4		9.5		2.73	%
Energy / utilities		9.8		9.8		2.81	%
Financial services		31.2		31.9		9.19	%
Food & beverage		44.1		43.6		12.54	%
Healthcare, ambulatory surgery centers		18.8		20.8		5.99	%
Healthcare, consulting		12.3		12.4		3.56	%
Healthcare, dental services		1.4		1.4		0.40	%
Healthcare, device manufacturing		13.0		12.4		3.57	%
Industrials		25.0		25.0		7.19	%
Manufacturing		39.0		38.1		10.98	%
Media		10.5		10.5		3.03	%
Media, advertising		3.2		5.1		1.47	%
Restaurants		8.2		8.4		2.42	%
Retail & grocery		26.5		27.0		7.76	%
Textiles		8.6		8.6		2.47	%

Total investments	$	391.7	$	394.3		113.49	%

Investment Activity

The following is a summary of our investment activity, presented on a cost basis, for the three months ended March 31, 2013 and 2012 (in millions).


	Three months ended March 31,
	2013			2012
New portfolio investments^(a)	$	55.7		$	20.3
Existing portfolio investments
Follow-on investments		—			13.4
Delayed draw and revolver investments		0.7			2.5

Total existing portfolio investments		0.7			15.9

Total portfolio investment activity	$	56.4		$	36.2

Number of new portfolio investments		5			2
Number of existing portfolio investments		1			3

First lien secured debt^(a)	$	12.5		$	2.6
Second lien debt		7.9			—
Subordinated debt		20.0			33.6
Investments in funds		—			—
CLO residual interests		16.0			—

Total portfolio investments	$	56.4		$	36.2

Weighted average yield of new debt investments		13.4	%		13.9	%
Weighted average yield, including all new income-producing investments		13.4	%		13.9	%

(a)	Net of amounts sold following an initial investment as a co-investment as anticipated at time of closing.

The following is a summary of the proceeds received from prepayments and sales of our investments (in millions).


	Three Months Ended 31,
Investment	2013		2012
20-20 Technologies Inc.	$	0.1	$	—
AIM Media Texas Operating, LLC		0.3		—
Charming Charlie, Inc.		—		3.8
Chuy’s Opco, Inc.		—		0.0
CRS Reprocessing, LLC		0.5		—
Cydcor LLC		0.4		—
Embarcadero Technologies, Inc.^(a)		3.1		—
Food Processing Holdings, LLC		—		12.6
Gold, Inc.^(b)		17.8		—
Hart InterCivic, Inc.		0.8		—
Harrison Gypsum, LLC		0.3		—
HEALTHCAREfirst, Inc.		0.1		—
Loadmaster Derrick & Equipment, Inc.		0.8		—
Purple Communications, Inc.		—		0.3
YP Intermediate Holdings Corp.		1.7		—

Total ^(c)	$	25.9	$	16.7

(a)	Proceeds include $3.0 million sold, as anticipated at the time of closing.

(b)	Proceeds sold, as anticipated, at the time of closing.

(c)	For the three month periods ended March 31, 2013 and 2012, proceeds included $0 and $0.1 million, respectively, of prepayment premiums.

The frequency or volume of any prepayments may fluctuate significantly from period to period. The increase between the March 31, 2013 and 2012 amounts are primarily the result of the partial sale of Gold, Inc. to THL Credit Greenway II LLC and outside investors.

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

Investment Risk

The value of our investments will generally fluctuate with, among other things, changes in prevailing interest rates, federal tax rates, counterparty risk, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition of the issuer. During periods of limited liquidity and higher price volatility, our ability to dispose of investments at a price and time that we deem advantageous may be impaired.

Investment in Funds

We do not have the ability to redeem our investment in funds but distributions are expected to be received until the dissolution of the funds, which is anticipated to be between 2013 and 2021, as the underlying investments are expected to be liquidated.

Greenway

redemption options and is not readily marketable. Greenway operates under a limited liability agreement dated January 19, 2011, or the Agreement. Greenway will continue in existence until January 14, 2021, subject to earlier termination pursuant to certain terms of the Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Agreement. Greenway had a two year investment period.

Greenway has $150 million of capital committed by affiliates of a single institutional investor, and is managed by the Company through the investment professionals that serve on the Company’s investment committee. The Company’s capital commitment to Greenway is $0.01 million. As of March 31, 2013 and December 31, 2012, all of the capital had been called by Greenway. As of March 31, 2013 and December 31, 2012, the value of the Company’s interest in Greenway was $0.01 million and $0.01 million, respectively, and is reflected in the Consolidated Schedules of Investments.

As manager of Greenway, the Company acts as the investment adviser to Greenway and is entitled to receive certain fees. As a result, Greenway is classified as an affiliate of the Company. For the three months ended March 31, 2013 and 2012, the Company earned $0.5 million and $0.5 million in fees related to Greenway, respectively, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of March 31, 2013 and December 31, 2012, $0.5 million and $0.4 million of fees related to Greenway, respectively, were included in Due from affiliate on the Consolidated Statements of Assets and Liabilities.

Greenway II

Greenway II had its first closing on February 11, 2013, of which the Company had a nominal commitment. Greenway II is managed by the Company through the investment professionals that serve on our investment committee. As of March 31, 2013, the value of the Company’s interest in Greenway was $0.001 million and is reflected in the Consolidated Schedules of Investments.

As manager of Greenway II, the Company acts as the investment adviser to Greenway II and is entitled to receive certain fees. As a result, Greenway II is classified as an affiliate of the Company. For the three months ended March 31, 2013, the Company earned $0.02 million in fees related to Greenway II, respectively, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of March 31, 2013, $0.02 million of fees related to Greenway II were included in Due from affiliate on the Consolidated Statements of Assets and Liabilities.

Greenway II invests in securities similar to those of the Company pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway and the Company. However, the Company has the discretion to invest in other securities.

LCP Capital Fund LLC

We have invested in a membership interest of LCP Capital Fund LLC, or LCP, a private investment company that was organized to participate in investment opportunities that arise when a special purpose entity, or SPE, or sponsor thereof, needs to raise capital to achieve ratings, regulatory, accounting, tax, or other objectives. LCP is a closed investment vehicle which provides for no liquidity or redemption options and is not readily marketable. LCP is managed by an unaffiliated third party. As of March 31, 2013 and December 31, 2012, we had contributed $12.0 million of capital in the form of membership interests in LCP, which is invested in an underlying SPE referred to as Series 2005-01. On May 1, 2012, we received $3.6 million in connection with a reduction in its commitment pursuant to the governing documents, which is related to the notional amount of the underlying credit default swaps. Our exposure is limited to the amount of its remaining contributed capital. As of March 31, 2013 and December 31, 2012, the value of our interest in LCP was $8.4 million, and is reflected in the Consolidated Schedules of Investments.

Our contributed capital in LCP is maintained in a collateral account held by a third-party custodian, who is neither affiliated with us nor with LCP, and acts as collateral on certain credit default swaps for the Series 2005-01 for which LCP receives fixed premium payments throughout the year, adjusted for expenses incurred by LCP. The SPE purchases assets on a non-recourse basis and LCP agrees to reimburse the SPE up to a specified amount for potential losses. LCP holds the contributed cash invested for an SPE transaction in a segregated account that secures the payment obligation of LCP. We expect to receive distributions from LCP on a quarterly basis. Such distributions are reflected in our Consolidated Statements of Operations as interest income in the period earned. LCP has a remaining life of 18 years; however, it is currently expected that Series 2005-01 will terminate on February 15, 2015, if not extended prior to this date pursuant to the terms of Series 2005-1 SPE. Regardless of the date of dissolution, LCP has the right to receive amounts held in the collateral account if there is an event of default under LCP’s operative agreements. LCP may have other series which will have investments in other SPEs to which we will not be exposed.

CLO residual interests

Interest income from our CLO residual interests is recorded based upon an estimation of an effective yield to expected maturity using anticipated cash flows with any remaining amount recorded to the cost basis of the investment. We monitor the anticipated cash flows from our CLO residual interests and will adjust its effective yield periodically.

Investment in Tax Receivable Agreement Payment Rights

In June 2012, we invested in a TRA that entitles us to certain payment rights, or TRA Payment Rights, from Duff & Phelps Corporation, or Duff & Phelps. The TRA transfers the economic value of certain tax deductions, or tax benefits, taken by Duff & Phelps to us and entitles us to a stream of payments to be received. The TRA payment right is, in effect, a subordinated claim on the issuing company which can be valued based on the credit risk of the issuer, which includes projected future earnings, the liquidity of the underlying payment right, risk of tax law changes, the effective tax rate and any other factors which might impact the value of the payment right.

Through the TRA, we are entitled to receive an annual tax benefit payment based upon 85% of the savings from certain deductions along with interest. The payments that we are entitled to receive result from cash savings, if any, in U.S. federal, state or local income tax that Duff & Phelps realizes (i) from the tax savings derived from the goodwill and other intangibles created in connection with the Duff & Phelps initial public offering (ii) from other income tax deductions. These tax benefit payments will continue until the relevant deductions are fully utilized, which is projected to be 17 years. Pursuant to the TRA, we maintain the right to enforce Duff & Phelps payment obligations as a transferee of the TRA contract. If Duff & Phelps chooses to pre-pay and terminate the TRA, we will be entitled to the present value of the expected future TRA payments. If Duff & Phelps breaches any material obligation than all obligations are accelerated and calculated as if an early termination occurred. Failure to make a payment is a breach of a material obligation if the failure occurs for more than three months.

The projected annual tax benefit payment will be accrued on a quarterly basis and paid annually. The payment will be allocated between a reduction in the cost basis of the investment and interest income based upon an amortization schedule. Based upon the characteristics of the investment, we have chosen to categorize the investment in the TRA payment rights as investment in payment rights in the fair value hierarchy. The valuation will be based principally on a discounted cash flow analysis of projected future cash flow streams assuming an appropriate discount rate, which will among other things consider other transactions in the market, the current credit environment, performance of Duff & Phelps and the length of the remaining payment stream.

Asset Quality

We view active portfolio monitoring as a vital part of our investment process. We consider board observation rights, regular dialogue with company management and sponsors, and detailed internally generated monitoring reports to be critical to our performance. We have developed a monitoring template that promotes compliance with these standards and that is used as a tool by the Advisor’s investment committee to assess investment performance relative to plan. In addition, our portfolio companies may rely on us to provide financial and capital market expertise and may view us as a value-added resource.

As part of the monitoring process, the Advisor assesses the risk profile of each of our investments and assigns each investment a score of a 1, 2, 3, 4 or 5

The revised investment performance scores, or IPS, are as follows:

1 – The portfolio company is performing above our underwriting expectations.

2 – The portfolio company is performing as expected at the time of underwriting. All new investments are initially scored a 2.

3 – The portfolio company is operating below our underwriting expectations, and requires closer monitoring. The company may be out of compliance with financial covenants, however, principal or interest payments are generally not past due.

4 – The portfolio company is performing materially below our underwriting expectations and returns on our investment are likely to be impaired. Principal or interest payments may be past due, however, full recovery of principal and interest payments are expected.

5 – The portfolio company is performing substantially below expectations and the risk of the investment has increased substantially. The company is in payment default and the principal and interest payments are not expected to be repaid in full.

For any investment receiving a score of a 3 or lower, our manager increases its level of focus and prepares regular updates for the investment committee summarizing current operating results, material impending events and recommended actions.

The Advisor monitors and, when appropriate, changes the investment scores assigned to each investment in our portfolio. In connection with our investment valuation process, the Advisor and board of directors review these investment scores on a quarterly basis. Our average investment score was 2.05 and 2.12 at March 31, 2013 and December 31, 2012, respectively. The following is a distribution of the investment scores of our portfolio companies at March 31, 2013 (in millions):


	March 31, 2013					December 31, 2012
Investment Score	Investments at Fair Value		% of Total Portfolio			Investments at Fair Value		% of Total Portfolio
1^(a)	$	38.8		9.0	%	$	20.0		5.1	%
2^(b)		332.4		77.1	%		312.5		79.2	%
3^(c)		53.4		12.4	%		55.5		14.1	%
4^(d)		6.5		1.5	%		6.4		1.6	%
5		—		—			—		—

Total	$	431.1		100.0	%	$	394.3		100.0	%

(a)	As of March 31, 2013 and December 31, 2012, Investment Score “1” included $9.9 million and $8.2 million, respectively, of loans to companies in which we also hold equity securities.

(b)	As of March 31, 2013 and December 31, 2012, Investment Score “2” included $32.9 million and $49.4 million, respectively, of loans to companies in which we also hold equity securities.

(c)	As of March 31, 2013 and December 31, 2012, Investment Score “3” included $40.6 million and $27.0 million, respectively, of loans to companies in which we also hold equity securities.

(d)	As of March 31, 2013 and December 31, 2012, Investment Score “4” included no loans to companies in which we also hold equity securities.

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, we may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. As of March 31, 2013 and December 31, 2012, we had no loans on non-accrual.

Results of Operations

The principal measure of our financial performance is net increase (decrease) in net assets resulting from operations, which includes net investment income (loss), net realized gain (loss), net unrealized appreciation (depreciation) and interest rate derivative periodic interest payments, net. Net investment income (loss) is the difference between our income from interest, dividends, fees and other investment income and our operating expenses. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost. Net unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio. Net unrealized appreciation (depreciation) on interest rate derivative is the net change in the fair value of the interest rate derivative agreement. Interest rate derivative periodic interest payments, net are the difference between the proceeds received or the amounts paid on the interest rate derivative.

Comparison of the Three Months Ended March 31, 2013 and 2012

Investment Income

We generate revenues primarily in the form of interest on the debt and other income-producing securities we hold. Income-producing securities include investments in funds, investment in payment rights and collateralized loan obligation, or CLO, residual interests. Our investments in fixed income instruments generally have an expected maturity of five to seven years, and typically bear

interest at a fixed or floating rate. Interest on our debt securities is generally payable quarterly. Payments of principal of our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt instruments and preferred stock investments may defer payments of dividends or pay interest in-kind, or PIK. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. In addition, we may generate revenue in the form of fees from the management of Greenway, prepayment premiums, commitment, loan origination, structuring or due diligence fees, fees for providing significant managerial assistance and consulting fees.

The following shows the breakdown of investment income for the three months ended March 31, 2013 and 2012 (in millions):


	Three months ended March 31,
	2013		2012
Interest income on debt securities
Cash interest on debt securities	$	11.2	$	7.9
PIK interest		1.1		0.8
Prepayment premiums		—		0.1
Accretion of discounts and other fees		0.4		0.8

Total interest on debt securities		12.7		9.6
Interest income on income-producing securities		1.2		0.5
Fees related to Greenway and Greenway II		0.5		0.5
Other income		0.0		0.1

Total	$	14.4	$	10.7

The following shows a rollforward of PIK income activity for the three months ended March 31, 2013 and for the year ended December 31, 2012 (in millions):


Accumulated PIK balance at December 31, 2011	$	3.5
PIK income capitalized/receivable		4.1
PIK received in cash from prepayments		(1.8	)

Accumulated PIK balance at December 31, 2012	$	5.8
PIK income capitalized/receivable		1.1

Accumulated PIK balance at March 31, 2013	$	6.9

The increases in investment income from the respective periods were due to the growth in the overall investment portfolio.

In certain investment transactions, we may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned. We had no income from advisory services for the three months ended March 31, 2013 and 2012.

Expenses

Our primary operating expenses include the payment of base management fees, an incentive fee, and expenses reimbursable under the investment management agreement and the allocable portion of overhead under the administration agreement (“administrator expenses”). The base management fee compensates the Advisor for work in identifying, evaluating, negotiating, closing and monitoring our investments. Our investment management agreement and administration agreement provides that we will reimburse the Advisor for costs and expenses incurred by the Advisor for facilities, office equipment and utilities allocable to the performance by the Advisor of its duties under the agreements, as well as any costs and expenses incurred by the Advisor relating to any administrative or operating services provided by the Advisor to us. We bear all other costs and expenses of our operations and transactions.

Operating expenses totaled $7.0 million and $4.6 million for the three months ended March 31, 2013 and 2012, respectively, and consisted of base management fees, incentive fees, administrator expenses, and other expenses including fees related to our credit facility, professional fees, insurance expenses, directors’ fees, and other general and administrative expenses. The increase in operating expenses was due primarily to the increase in base management fees, incentive fee and credit facility expenses, including one-time amortization expenses related to deferred financing costs associated with an amendment, for the respective periods due to growth in the portfolio expenses and use of the credit facility.

The base management fees for the three months ended March 31, 2013 and 2012 were $1.5 million and $1.0 million, respectively, as provided for in the investment management agreement. The incentive fees incurred for the years ended March 31,

2013 and 2012 were $2.3 million and $1.4 million and such amounts include the effect of unrealized appreciation or depreciation of $0.4 million and $(0.1) million, respectively. There can be no assurance that such unrealized appreciation or depreciation will be realized in the future. Accordingly, such fee, as calculated and accrued is currently not, and would not necessarily be, payable under the investment management agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. The accrued incentive fee related to capital gains may differ from the actual incentive fee that may be paid to the Advisor depending on whether we are ultimately able to generate a net realized capital gain. The increase in base management fees and incentive fee expenses for the respective periods is due to the growth in both the portfolio and net investment income.

For the three months ended March 31, 2013 and 2012, fees and expenses related to our credit facility, including amortization of deferred financing costs, were $1.6 million and $0.7 million, respectively. Borrowings under the credit facility were $107.7 million and $25.3 million, respectively, for the three months ended March 31, 2013 and 2012. Repayments under the credit facility were $67.9 million and $5.8 million, respectively, for the three months ended March 31, 2013 and 2012. As of March 31, 2013 and December 31, 2012, there were $89.9 million and $50.0 million of borrowings outstanding at a weighted average interest rate of 4.0478% and 4.2110%, respectively. The increase in expenses related to the credit facility is due principally to the average level of borrowings in connection with investment activity and amortization of deferred financing costs, including one-time amortization expenses related to deferred financing costs associated with an amendment.

Administrator expenses for the three months ended March 31, 2013 and 2012 totaled $0.8 million and $0.8 million, respectively. Expenses for professional fees, insurance expenses, directors’ fees, and other general and administrative expense for the three months ended March 31, 2013 and 2012 totaled $0.8 million and $0.7 million, respectively.

We expect certain of our operating expenses, including administrator expenses, professional fees and other general and administrative expenses to decline as a percentage of our total assets during periods of growth and increase as a percentage of our total assets during periods of asset declines.

Net Investment Income

Net investment income was $7.4 million, or $0.28 per common share based on a weighted average of 26,315,202 common shares outstanding for the three months ended March 31, 2013, as compared to $6.2 million, or $0.31 per common share based on a weighted average of 20,220,200 common shares outstanding for the three months ended March 31, 2012.

The increase in net investment income is primarily attributable to the growth in the portfolio and an increase in prepayment activity.

Net Realized Gains and Losses on Investments

We did not recognize any realized gains or losses on our portfolio investments during the three months ended March 31, 2013 and 2012.

Net Change in Unrealized Appreciation of Investments

Net change in unrealized appreciation primarily reflects the change in portfolio investment values during the reporting period, including the reversal or previously recorded appreciation or depreciation when gains or losses are realized.

Net change in unrealized appreciation on investments totaled $1.7 million and $(0.5) million for the three months ended March 31, 2013 and 2012, respectively. The change in unrealized appreciation on our investments was driven primarily by changes in the capital market conditions and in the financial performance of certain portfolio companies.

The following shows the breakdown in the changes in unrealized appreciation of investments for the three months ended March 31, 2013 and 2012 (in millions):


	Three Months ended March 31,
	2013			2012
Gross unrealized appreciation on investments	$	2.8		$	0.1
Gross unrealized depreciation on investments		(1.1	)		(0.2	)
Reversal of prior period net unrealized appreciation upon a realization		—			(0.4	)

Total	$	1.7		$	(0.5	)

Provision for Taxes on Unrealized Appreciation on Investments

Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable entities are not consolidated with the Company for income tax purposes and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the three months ended March 31, 2013, the Company recognized a provision for tax on unrealized appreciation of $0.5 million for two consolidated subsidiaries. For the three months ended March 31, 2012, the Company did not recognize a provision for tax on unrealized appreciation.

Realized and Unrealized Gain (Loss) of Interest Rate Derivative

The interest rate derivative was entered into on May 10, 2012. Unrealized depreciation reflects the value of the interest rate derivative agreement during the reporting period. The net change of unrealized depreciation on interest rate derivative totaled $0.1 million for the three months ended March 31, 2013 and was due to capital markets changes impacting interest rate swap spreads.

We measure realized gains or losses on the interest rate derivative based upon the difference between the proceeds received or the amount paid on the interest rate derivative. We recognized a realized loss for the three months ended March 31, 2013 of $0.1 million as interest rate derivative periodic interest payments, net.

Net Increase in Net Assets Resulting from Operations

Net increase in net assets resulting from operations totaled $8.6 million, or $0.33 per common share based on a weighted average of 26,315,202 common shares for the three months ended March 31, 2013, as compared to $5.7 million, or $0.28 per common share based on a weighted average of 20,220,200 common shares outstanding, for the three months ended March 31, 2012.

The increase in net assets resulting from operations is due to the continued growth in net investment income, which is a result of growing our portfolio.

Financial condition, liquidity and capital resources

Cash Flows from Operating and Financing Activities

Our liquidity and capital resources are derived from our revolving credit agreement, or Revolving Facility, and senior secured term loan credit facility, or Term Loan Facility, equity raises and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies, payment of dividends to the holders of our common stock and payments of fees and other operating expenses we incur. We have used, and expect to continue to use, our borrowings and the proceeds from the turnover in our portfolio and from public and private offerings of securities to finance our investment objectives, to the extent permitted by the 1940 Act.

We may raise additional equity or debt capital through both registered offerings off a shelf registration statement and private offerings of securities, by securitizing a portion of our investments or borrowings. To the extent we determine to raise additional equity through an offering of our common stock at a price below net asset value, existing investors will experience dilution. During our 2012 Annual Stockholder Meeting held on June 7, 2012, our stockholders authorized us, with the approval of our Board of Directors, to sell up to 25% of our outstanding common stock at a price below our then current net asset value per share and to offer and issue debt with warrants or debt convertible into shares of our common stock at an exercise or conversion price that will not be less than the fair market value per share but may be below the then current net asset value per share. There can be no assurance that these capital resources will be available. We are seeking stockholder approval of these proposals again at our 2013 Annual Stockholder Meeting.

On March 15, 2013, we closed an additional $50 million of commitments to our Facilities, which brings the aggregate size to $240 million of commitments. As of March 31, 2013, we had a total of $89.9 million outstanding on our credit facilities, including $70.0 million outstanding under our Term Loan Facility and $19.9 million outstanding under the Revolving Facility. The total amount outstanding had a weighted average interest rate of 4.0478%. We borrowed $87.7 million under our Revolving Facility and $20.0 million under our Term Loan Facility for the three months ended March 31, 2013 and repaid $67.9 million funds on our Revolving Facility from proceeds received from the term loan and investment income. As of March 31, 2012, we borrowed $25.3 million and repaid $5.8 million under our Revolving Facility during the three months ended March 31, 2012.

Our operating activities used cash of $33.8 million and $16.1 million for the three months ended March 31, 2013 and 2012, respectively, primarily in connection with the purchase of portfolio investments. For three months ended March 31, 2013, our

financing activities provided cash of $39.9 million from net borrowings and used cash of $8.7 million for distributions to stockholders and $1.3 million for the payment of financing costs. For the three months ended March 31, 2012, our financing activities provided cash of $19.5 million from net borrowings and used cash of $6.9 million for distributions to stockholders.

As of March 31, 2013 and December 31, 2012, we had cash of $0.8 million and $4.8 million, respectively. We had no cash equivalents as of March 31, 2013 and December 31, 2012.

We believe cash balances, our Revolving Facility capacity and any proceeds generated from the sale or pay down of investments provides us with ample liquidity to acquit our pipeline for the coming quarters.

Credit Facility

On March 15, 2013, we entered into an amendment, or the Revolving Loan Amendment, to our existing revolving credit agreement, or Revolving Facility, and entered into an amendment, or the Term Loan Amendment, to our term loan agreement credit facility, or Term Loan Facility, and together with the Revolving Facility, the Facilities, with ING Capital LLC.

The Revolver Loan Amendment revised the Revolving Facility, dated May 10, 2012, to among other things, increase the amount available for borrowing under the Revolving Facility from $140.0 million to $170.0 million and extend the maturity date from May 2016 to May 2017 (with a one year term out period beginning in May 2016). The Revolver Amendment also changes the interest rate of the Revolving Facility to (i) when the facility is more than or equal to 35% drawn and the step-down condition is satisfied, LIBOR plus 2.75%, (ii) when the facility is more than or equal to 35% drawn and the step-down condition is not satisfied, LIBOR plus 3.00%, (iii) when the facility is less than 35% drawn and the step-down condition is satisfied, LIBOR plus 2.75%, and (iv) when the facility is less than 35% drawn and the step-down condition is not satisfied, LIBOR plus 3.25%. The non-use fee is 1.00% annually if we use 35% or less of the Revolving Facility and 0.50% annually if we use more than 35% of the Revolving Facility.

The Term Loan Amendment revised the Term Loan Facility, dated May 10, 2012, to increase the $50.0 million senior secured term loan, or Term Loan, to $70.0 million and extend the maturity date from May 2017 to May 2018. The Term Loan bears interest at LIBOR plus 4.00% (with no LIBOR Floor) and has substantially similar terms to our existing Revolving Facility (as amended by the Amendment).

Each of the Facilities includes an accordion feature permitting us to expand the Facilities, if certain conditions are satisfied; provided, however, that the aggregate amount of the Facilities, collectively, is capped at $400.0 million.

Borrowings under the Facilities are subject to, among other things, a minimum borrowing/collateral base. The Facilities have certain collateral requirements and/or financial covenants, including covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain investments, (c) limitations on certain restricted payments, (d) limitations on the creation or existence of agreements that prohibit liens on certain properties of ours and our subsidiaries, and (e) compliance with certain financial maintenance standards including (i) minimum stockholders’ equity, (ii) a ratio of total assets (less total liabilities not represented by senior securities) to the aggregate amount of senior securities representing indebtedness, of us and our subsidiaries, of not less than 2.25:1.0, (iii) minimum liquidity, (iv) minimum net worth, and (v) a consolidated interest coverage ratio. In addition to the financial maintenance standards, described in the preceding sentence, borrowings under the Facilities (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in our portfolio.

materially and adversely affecting our liquidity, financial condition and results of operations. Each loan originated under the Revolving Facility is subject to the satisfaction of certain conditions. We cannot be assured that we will be able to borrow funds under the Revolving Facility at any particular time or at all. We are currently in compliance with all financial covenants under the Facilities.

For the three months ended March 31, 2013, we borrowed $107.7 million and made $67.9 million of repayments under the Facilities. For the three months ended March 31, 2012, we borrowed $25.3 million and made $5.8 million of repayments under the Facilities. As of March 31, 2013 and December 31, 2012, there were $89.9 million and $50.0 million of borrowings outstanding at a weighted average interest rate of 4.0478% and 4.2110%, respectively. The fair values of our Facilities are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of our Facilities are estimated based upon market interest rates and entities with similar credit risk. As of March 31, 2013 and December 31, 2012, the Facilities would be deemed to be level 3 of the fair value hierarchy.

Interest expense and related fees of $1.1 million and $0.5 million were incurred in connection with the Facilities during the three months ended March 31, 2013 and 2012, respectively.

Interest Rate Derivative

On May 10, 2012, we entered into a five-year interest rate swap agreement, or swap agreement, with ING Capital Markets, LLC in connection with its Term Loan Borrowing. Under the swap agreement, with a notional value of $50 million, we pay a fixed rate of 1.1425% and receive a floating rate based upon the current three-month LIBOR rate. We entered into the swap agreement to manage interest rate risk and not for speculative purposes.

We use an income approach using a discounted cash flow methodology to value the interest rate derivative. Significant inputs to the discounted cash flows methodology include the forward interest rate yield curves in effect as of the end of the measurement period and an evaluation of the counterparty’s credit risk.

We record the change in valuation of the swap agreement in unrealized appreciation (depreciation) as of each measurement period. When the quarterly swap amounts are paid or received under the swap agreement, the amounts are recorded as a realized gain (loss).

For the three months ended March 31, 2013, we recognized $0.1 million of realized loss from the swap agreement, which is reflected as interest rate derivative periodic interest payments, net in the Consolidated Statements of Operations.

For the three months ended March 31, 2013, we recognized $0.1 million of net change in unrealized depreciation from the swap agreement, which is listed under net change in unrealized depreciation on interest rate derivative in the Consolidated Statements of Operations. As of March 31, 2013 and December 31, 2012, our fair value of the swap agreement is $(0.9) million and $(1.1) million, respectively, which is listed as an interest rate derivative liability on the Consolidated Statements of Assets and Liabilities.

Commitments and Contingencies

From time to time, we, or the Advisor, may become party to legal proceedings in the ordinary course of business, including proceedings related to the enforcement of our rights under contracts with our portfolio companies. Neither we, nor the Advisor, are currently subject to any material legal proceedings.

Unfunded commitments to provide funds to portfolio companies are not reflected on our balance sheet. Our unfunded commitments may be significant from time to time. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the on-balance sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We intend to use cash flow from normal and early principal repayments and proceeds from borrowings and offerings to fund these commitments.

As of March 31, 2013 and December 31, 2012, we have the following unfunded commitments to portfolio companies (in millions):


	As of
	March 31, 2013		December 31, 2012
Unfunded revolving commitments	$	11.7	$	10.9
Unfunded delayed draw and capital expenditure facilities		8.0		12.0
Unfunded commitments to investments in funds		4.0		4.0

Total unfunded commitments	$	23.7	$	26.9

Dividends

We have elected to be taxed as a regulated investment company under Subchapter M of the Code. In order to maintain our status as a regulated investment company, we are required to distribute at least 90% of our investment company taxable income. To avoid a 4% excise tax on undistributed earnings, we are required to distribute each calendar year the sum of (i) 98% of our ordinary income for such calendar year (ii) 98.2% of our net capital gains for the one-year period ending October 31 of that calendar year (iii) any income recognized, but not distributed, in preceding years and on which we paid no federal income tax. We intend to make distributions to stockholders on a quarterly basis of substantially all of our net investment income. Although we intend to make distributions of net realized capital gains, if any, at least annually, out of assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. In addition, the extent and timing of special dividends, if any, will be determined by our board of directors and will largely be driven by portfolio specific events and tax considerations at the time.

In addition, we may be limited in our ability to make distributions due to the BDC asset coverage test for borrowings applicable to us as a BDC under the 1940 Act.

The following table summarizes our dividends declared and paid or to be paid on all shares:


Date Declared	Record Date	Payment Date	Amount Per Share
August 5, 2010	September 2, 2010	September 30, 2010	$	0.05
November 4, 2010	November 30, 2010	December 28, 2010	$	0.10
December 14, 2010	December 31, 2010	January 28, 2011	$	0.15
March 10, 2011	March 25, 2011	March 31, 2011	$	0.23
May 5, 2011	June 15, 2011	June 30, 2011	$	0.25
July 28, 2011	September 15, 2011	September 30, 2011	$	0.26
October 27, 2011	December 15, 2011	December 30, 2011	$	0.28
March 6, 2012	March 20, 2012	March 30, 2012	$	0.29
March 6, 2012	March 20, 2012	March 30, 2012	$	0.05
May 2, 2012	June 15, 2012	June 29, 2012	$	0.30
July 26, 2012	September 14, 2012	September 28, 2012	$	0.32
November 2, 2012	December 14, 2012	December 28, 2012	$	0.33
December 20, 2012	December 31, 2012	January 28, 2013	$	0.05
February 27, 2013	March 15, 2013	March 29, 2013	$	0.33
May 2, 2013	June 14, 2013	June 28, 2013	$	0.34

On May 2, 2013, our board of directors declared a dividend of $0.34 per share, payable on June 28, 2013 to stockholders of record at the close of business on June 14, 2013.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of our status as a regulated investment company. We cannot assure stockholders that they will receive any distributions at a particular level. We maintain an “opt in” dividend reinvestment plan for our common stockholders. As a result, unless stockholders specifically elect to have their dividends automatically reinvested in additional shares of common stock, stockholders will receive all such dividends in cash. Under the terms of our dividend reinvestment plan, dividends will primarily be paid in newly issued shares of common stock. However, we reserve the right to purchase shares in the open market in connection with the implementation of the plan. This feature of the plan means that, under certain circumstances, we may issue shares of our common stock at a price below net asset value per share, which could cause our stockholders to experience dilution.

Distributions in excess of our current and accumulated profits and earnings would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our distributions will be made annually as of the end of our fiscal year based upon our taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full year. If we had determined the tax attributes of our 2013 distributions as of March 31, 2013, 100% would be from ordinary income. There can be no certainty to stockholders that this determination is representative of what the tax attributes of our 2013 distributions to stockholders will actually be. Each year, a statement on Form 1099-DIV identifying the source of the distribution will be mailed to our stockholders.

Contractual obligations

We have entered into a contract with the Advisor to provide investment advisory services. Payments for investment advisory services under the investment management agreement in future periods will be equal to (a) an annual base management fee of 1.5% of our gross assets and (b) an incentive fee based on our performance. In addition, under our administration agreement, the Advisor will be reimbursed for administrative services incurred on our behalf. See description below under Related Party Transactions.

The following table shows our contractual obligations as of March 31, 2013 (in millions):


	Payments due by period
Contractual Obligations⁽¹⁾	Total		Less than 1 year		1 - 3years		3 - 5 years		After 5 years
Term Loan Facility	$	70.0		—		—	$	70.0		—

⁽¹⁾	Excludes commitments to extend credit to our portfolio companies.

We entered into an interest rate derivative to manage interest rate risk. We record the change in valuation of the swap agreement in unrealized appreciation (depreciation) as of each measurement period. When the quarterly interest rate swap amounts are paid or received under the swap agreement, the amounts are recorded as a realized gain (loss). Further discussion of the interest rate derivative is included in Note 1 “Significant Accounting Policies” and Note 7 “Interest Rate Derivative” in the “Notes to Consolidated Financial Statements”.

Off-Balance sheet arrangements

We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.

Related Party Transactions

Investment Management and Administration Agreements

On February 27, 2013, our investment management agreement with the Advisor was re-approved by our Board of Directors. Under the investment management agreement, the Advisor, subject to the overall supervision of our board of directors, manages the day-to-day operations of, and provides investment advisory services to us.

The Advisor receives a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.

The base management fee is calculated at an annual rate of 1.5% of our gross assets payable quarterly in arrears on a calendar quarter basis. For purposes of calculating the base management fee, “gross assets” is determined as the value of our assets without deduction for any liabilities. The base management fee is calculated based on the value of our gross assets at the end of the most recently completed calendar quarter, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.

For the three months ended March 31, 2013 and 2012, we incurred base management fees payable to the Advisor of $1.5 million, and $1.0 million, respectively. As of March 31, 2013 and December 31, 2012, $1.5 million and $1.5 million, respectively, was payable to the Advisor.

The incentive fee has two components, ordinary income and capital gains, as follows:

The ordinary income component is calculated, and payable, quarterly in arrears based on our preincentive fee net investment income for the immediately preceding calendar quarter, subject to a cumulative total return requirement and to deferral of non-cash

amounts. The preincentive fee net investment income, which is expressed as a rate of return on the value of our net assets attributable to our common stock, for the immediately preceding calendar quarter, will have a 2.0% (which is 8.0% annualized) hurdle rate (also referred to as “minimum income level”). Preincentive fee net investment income means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under our administration agreement (discussed below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral of non-cash interest. Preincentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash. The Advisor receives no incentive fee for any calendar quarter in which our preincentive fee net investment income does not exceed the minimum income level. Subject to the cumulative total return requirement described below, the Advisor receives 100% of our preincentive fee net investment income for any calendar quarter with respect to that portion of the preincentive net investment income for such quarter, if any, that exceeds the minimum income level but is less than 2.5% (which is 10.0% annualized) of net assets (also referred to as the “catch-up” provision) and 20.0% of our preincentive fee net investment income for such calendar quarter, if any, greater than 2.5% (10.0% annualized) of net assets. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of our preincentive fee net investment income is payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. In other words, any ordinary income incentive fee that is payable in a calendar quarter is limited to the lesser of (i) 20% of the amount by which our preincentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum of our preincentive fee net investment income, base management fees, realized gains and losses and unrealized appreciation and depreciation for the then current and 11 preceding calendar quarters. In addition, the Advisor is not paid the portion of such incentive fee that is attributable to deferred interest until we actually receive such interest in cash.

For the three months March 31, 2013 and 2012, we incurred $1.9 million and $1.5 million, respectively, of incentive fees related to ordinary income.

The second component of the incentive fee (capital gains incentive fee) is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement, as of the termination date). This component is equal to 20.0% of our cumulative aggregate realized capital gains from inception through the end of that calendar year, computed net of the cumulative aggregate realized capital losses and cumulative aggregate unrealized capital depreciation through the end of such year. The aggregate amount of any previously paid capital gains incentive fees is subtracted from such capital gains incentive fee calculated. The capital gains incentive fee payable to our Advisor under the investment management agreement as of March 31, 2013 and December 31, 2012 was $0 and $0.03 million, respectively.

As of March 31, 2013 and December 31, 2012, $1.8 million and $2.3 million, respectively, of such incentive fees are currently payable to the Advisor. For the three months ended March 31, 2013, $0.1 million of incentive fees incurred by us for the three months ended March 31, 2013 were generated from deferred interest (i.e. PIK and certain discount accretion) and are not payable until such amounts are received in cash.

GAAP requires that the incentive fee accrual considers the cumulative aggregate unrealized capital appreciation or depreciation of investments or other financial instruments, such as an interest rate derivative, in the calculation, as an incentive fee would be payable if such unrealized capital appreciation or depreciation were realized, even though such unrealized capital appreciation or depreciation is not permitted to be considered in calculating the fee actually payable under the investment management agreement. For accounting purposes in accordance with GAAP only, in order to reflect the potential incentive fee that would be payable for a given period as if all unrealized gains or losses were realized, we have accrued incentive fees of $0.7 million and $0.3 million as of March 31, 2013 and December 31, 2012, respectively, based upon unrealized appreciation or depreciation of investments and the interest rate derivative for that period (in accordance with the terms of the investment management agreement). There can be no assurance that such unrealized appreciation or depreciation will be realized in the future. Accordingly, such fee, as calculated and accrued would not necessarily be payable under the investment management agreement, and may never be paid based upon the computation of incentive fees in subsequent periods.

We have also entered into an administration agreement with the Advisor under which the Advisor will provide administrative services to us. Under the administration agreement, the Advisor performs, or oversees the performance of administrative services necessary for our operation, which include, among other things, being responsible for the financial records which we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, the Advisor assists in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services

rendered to us by others. We will reimburse the Advisor for our allocable portion of the costs and expenses incurred by the Advisor for overhead in performance by the Advisor of its duties under the administration agreement and the investment management agreement, including facilities, office equipment and our allocable portion of cost of compensation and related expenses of our chief financial officer and chief compliance officer and their respective staffs, as well as any costs and expenses incurred by the Advisor relating to any administrative or operating services provided to us by the Advisor. Such costs are reflected as Administrator expenses in the accompanying Consolidated Statements of Operations. Under the administration agreement, the Advisor provides, on our behalf, managerial assistance to those portfolio companies to which the Company is required to provide such assistance. To the extent that our Advisor outsources any of its functions, the Company pays the fees associated with such functions on a direct basis without profit to the Advisor.

For the three months ended March 31, 2013 and 2012 we incurred administrator expenses payable to the Advisor of $0.8 million and $0.8 million, respectively. As of March 31, 2013 and December 31, 2012, $0.01 million and $0.3 million, respectively, was payable to the Advisor.

License Agreement

We and the Advisor have entered into a license agreement with THL Partners under which THL Partners has granted to us and the Advisor a non-exclusive, personal, revocable worldwide non-transferable license to use the trade name and service mark THL, which is a proprietary mark of THL Partners, for specified purposes in connection with our respective businesses. This license agreement is royalty-free, which means we are not charged a fee for our use of the trade name and service mark THL. The license agreement is terminable either in its entirety or with respect to us or the Advisor by THL Partners at any time in its sole discretion upon 60 days prior written notice, and is also terminable with respect to either us or the Advisor by THL Partners in the case of certain events of non-compliance. After the expiration of its first one year term, the entire license agreement is terminable by either us or the Advisor at our or its sole discretion upon 60 days prior written notice. Upon termination of the license agreement, we and the Advisor must cease to use the name and mark THL, including any use in our respective legal names, filings, listings and other uses that may require us to withdraw or replace our names and marks. Other than with respect to the limited rights contained in the license agreement, we and the Advisor have no right to use, or other rights in respect of, the THL name and mark. We are an entity operated independently from THL Partners, and third parties who deal with us have no recourse against THL Partners.

Due to and from Affiliates

The Advisor paid certain other general and administrative expenses on our behalf. As of March 31, 2013, $0.02 million of expenses were included in Due to affiliate on the Consolidated Statements of Assets and Liabilities. There were no amounts due to affiliate as of December 31, 2012.

As manager of Greenway and Greenway II, we act as the investment adviser to Greenway and Greenway II and are entitled to receive certain fees. As a result, Greenway and Greenway II are classified as an affiliate of us. As of March 31, 2013 and December 31, 2012, $0.6 million and $0.4 million of fees and expenses related to Greenway and Greenway II, respectively, were included in Due from affiliate on the Consolidated Statements of Assets and Liabilities.

Managed Funds

Greenway

On January 14, 2011, Greenway was formed as a Delaware limited liability company. Greenway is a portfolio company of the Company. Greenway is a closed-end investment fund which provides for no liquidity or redemption options and is not readily marketable. Greenway operates under a limited liability agreement dated January 19, 2011. Greenway will continue in existence until January 14, 2021, subject to earlier termination pursuant to certain terms of the Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Agreement. Greenway had a two year investment period.

Greenway has $150.0 million of capital committed by affiliates of a single institutional investor, and is managed by the Company. through the investment professionals that serve on our investment committee. Our capital commitment to Greenway is $0.0 million. As of March 31, 2013 and December 31, 2012, all of the capital had been called by Greenway. As of March 31, 2013 and December 31, 2012, the value of the investment in Greenway was $0.01 million and $0.01 million, respectively, and is reflected in the Consolidated Schedules of Investments.

As manager of Greenway, we act as the investment adviser to Greenway and are entitled to receive certain fees. As a result, Greenway is classified as an affiliate of the Company. For the three months ended March 31, 2013, and 2012, we earned $0.5 million and $0.5 million in fees related to Greenway, respectively, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of March 31, 2013 and December 31, 2012, $0.5 million and $0.4 million, respectively, of fees related to Greenway were included in Due from affiliate on the Consolidated Statements of Assets and Liabilities.

Greenway invests in securities similar to those of ours pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway and us. However, we have the discretion to invest in other securities.

Greenway II

Greenway II had its first closing on February 11, 2013, of which the Company had a nominal commitment. Greenway II is managed by the Company through the investment professionals that serve on our investment committee. As of March 31, 2013, the value of the Company’s interest in Greenway was $0.001 million and is reflected in the Consolidated Schedules of Investments.

As manager of Greenway II, the Company acts as the investment adviser to Greenway II and is entitled to receive certain fees. As a result, Greenway II is classified as an affiliate of the Company. For the three months ended March 31, 2013, the Company earned $0.02 million in fees related to Greenway II, respectively, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of March 31, 2013, $0.02 million of fees related to Greenway II, respectively, were included in Due from affiliate on the Consolidated Statements of Assets and Liabilities.

Greenway II invests in securities similar to those of the Company pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway and the Company. However, the Company has the discretion to invest in other securities.

Affiliated Stockholders

BDC Holdings owns 2,047,720 shares, or 7.78%, of our common stock as of March 31, 2013, compared with 4,047,720 shares, or 15.38%, as of December 31, 2012.

Critical accounting policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management 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. In addition to the discussion below, the Company’s significant accounting policies are further described in the notes to the consolidated financial statements.

Valuation of Portfolio Investments

As a BDC, we generally invest in illiquid securities including debt and equity investments of middle-market companies. Investments for which market quotations are readily available are valued using market quotations, which are generally obtained from an independent pricing service or one or more broker-dealers or market makers. Debt and equity securities for which market quotations are not readily available are valued at fair value as determined in good faith by our board of directors. Because we expect that there will not be a readily available market value for many of the investments in our portfolio, it is expected that many of our portfolio investments’ values will be determined in good faith by our board of directors in accordance with a documented valuation policy that has been reviewed and approved by our board of directors in accordance with GAAP. 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 differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below:

•

our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment;

•

preliminary valuation conclusions are then documented and discussed with senior management of the Advisor;

•

to the extent determined by the audit committee of our board of directors, independent valuation firms engaged by us conduct independent appraisals and review the Advisor’s preliminary valuations in light of their own independent assessment;

•

The types of factors that we may take into account in fair value pricing our investments include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. We utilize an income approach to value our debt investments and a combination of income and market approaches to value our equity investments. With respect to unquoted securities, the Advisor and our board of directors, in consultation with our independent third party valuation firm, values each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors, which valuation is then approved by our board of directors. For debt investments, we determine the fair value primarily using an income, or yield, approach that analyzes the discounted cash flows of interest and principal for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of each portfolio investments. Our estimate of the expected repayment date is generally the legal maturity date of the instrument. The yield analysis considers changes in leverage levels, credit quality, portfolio company performance and other factors.

We value our interest rate derivative agreement using an income approach that analyzes the discounted cash flows associated with the interest rate derivative agreement. Significant inputs to the discounted cash flows methodology include the forward interest rate yield curves in effect as of the end of the measurement period and an evaluation of the counterparty’s credit risk.

We value our CLO residual interest investments in collateralized loan obligations using an income approach that analyzes the projected discounted cash flows of our residual interest. Significant inputs to the discounted cash flows methodology include the risk associated with the underlying investments and the expected term of the collateralized loan obligation.

The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future cash flows or earnings to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, the current investment performance rating, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, transaction comparables, our principal market as the reporting entity and enterprise values, among other factors.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, we disclose the fair value of our investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2—Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

We consider whether the volume and level of activity for the asset or liability have significantly decreased and identifies transactions that are not orderly in determining fair value. Accordingly, if we determine that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.

We have adopted the authoritative guidance under GAAP for estimating the fair value of investments in investment companies that have calculated net asset value per share in accordance with the specialized accounting guidance for Investment Companies. Accordingly, in circumstances in which net asset value per share of an investment is determinative of fair value, we estimate the fair value of an investment in an investment company using the net asset value per share of the investment (or its equivalent) without further adjustment, if the net asset value per share of the investment is determined in accordance with the specialized accounting guidance for investment companies as of the reporting entity’s measurement date.

Revenue Recognition

We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt investments with contractual PIK interest which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity we will cease accruing PIK interest if there is insufficient value to support the accrual or if it does not expect amounts to be collectible. We do not accrue as a receivable interest on loans and debt investments if we determine that it is probable that we will not be able to collect such interest. Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, we may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. As of March 31, 2013 and December 31, 2012, we did not have any loans on non-accrual status. Upfront loan origination fees, original issue discount and market discount or premium are capitalized, and we then amortize such amounts as interest income using the effective yield method. We record prepayment premiums on loans and debt investments as interest income. Interest income from our investment in TRA and CLO residual interest investments are recorded based upon an estimation of an effective yield to expected maturity using anticipated cash flows with any remaining amount recorded to the cost basis of the investment. We monitor the anticipated cash flows from our TRA and CLO residual interest investments and will adjust our effective yield periodically.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

We measure realized gains or losses 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. We measure realized gains or losses on the interest rate derivative based upon the difference between the proceeds received or the amounts paid on the interest rate derivative. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values or value of the interest rate derivative during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Federal Income Taxes, including excise tax

We operate so as to maintain our status as a RIC under Subchapter M of the Code and intend to continue to do so. Accordingly, we are not subject to federal income tax on the portion of our taxable income and gains distributed to stockholders. In order to qualify for favorable tax treatment as a RIC, we are required to distribute annually to our stockholders at least 90% of our investment company taxable income, as defined by the Code. To avoid a 4% federal excise tax, we must distribute each calendar year the sum of (i) 98% of our ordinary income for each such calendar year, and (ii) 98.2% of our net capital gains for the one-year period ending October 31 of that calendar year, and (iii) any income recognized, but not distributed, in preceding years and on which we paid no federal income tax. We may choose not to distribute all of our taxable income for the calendar year and pay a non-deductible 4% excise tax on this income. If we choose to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, the Company accrues excise taxes on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate. We will accrue excise tax on undistributed taxable income as required. Please refer to “Dividends” above for a summary of the distributions made in 2012.

Certain consolidated subsidiaries are subject to U.S. federal and state income taxes. These taxable entities are not consolidated for income tax purposes and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the three months ended March 31, 2013 and 2012, we recognized a provision for tax on unrealized appreciation of $0.5 million for consolidated subsidiaries in the Consolidated Statements of Operations. We did not recognize a provision for tax on unrealized appreciation during the three months ended March 31, 2012. As of March 31, 2013 and December 31, 2012 $1.0 million and $0.5 million, respectively, were included in deferred tax liability on the Consolidated Statements of Assets and Liabilities relating to deferred tax on unrealized appreciation on investments. The provision relates to two individual subsidiaries of the Company.

Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

Recent Developments

On April 11, 2013, we received $19.3 million in proceeds in connection with the realization of a subordinated debt investment in one of our portfolio companies, which included a prepayment premium. In addition, we received $1.2 million in dividend proceeds from our equity holdings in the portfolio company. We subsequently closed on a $15.0 million second lien investment in the portfolio company on April 19, 2013.

On May 2, 2013, our board of directors declared a dividend of $0.34 per share, payable on June 28, 2013 to stockholders of record at the close of business on June 14, 2013.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. As of March 31, 2013, 50.0%, or eighteen, of the debt investments in our portfolio bore interest at fixed rates. Eighteen of the debt investments in our portfolio have interest rate floors, which have effectively converted the debt investments to fixed rate loans in the current interest rate environment. In the future, we expect other debt investments in our portfolio will have floating rates. Our borrowings as well as the amount we receive under the interest rate derivative agreement are based upon floating rates. Assuming that the Consolidated Statement of Assets and Liabilities as of March 31, 2013 were to remain constant and no actions were taken to alter the existing interest rate sensitivity, a hypothetical one percent increase in LIBOR would decrease our net investment income by $0.9 million. A hypothetical decrease in LIBOR would not affect our net income, again, due to the aforementioned floors in place. Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase in net assets resulting from operations, or net income. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by this estimate. We currently hedge against interest rate fluctuations by using an interest rate swap whereby we pay a fixed rate of 1.1425% and receive three-month LIBOR. In the future, we may use other standard hedging instruments such as futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, under the supervision and with the participation of our management, conducted an evaluation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

We are not a defendant in any material pending legal proceeding, and no such material proceedings are known to be contemplated. However, from time to time, we may be party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under the contracts with our portfolio companies.

Item 1A.

Risk Factors

Important risk factors that could cause results or events to differ from current expectations are described in “Risks” of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 4, 2013.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

We issued a total of 0 shares and 1 share of common stock under our dividend reinvestment plan during the three months ended March 31, 2013 and 2012, respectively. The issuance was not subject to the registration requirements of the Securities Act of 1933, as amended. The aggregate price for the shares of common stock issued under the dividend reinvestment plan during the three months ended March 31, 2013 and 2012 was approximately $0 and $13, respectively.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

Listed below are the exhibits that are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):



10.1		Amendment No. 3 to Senior Secured Revolving Credit Agreement, dated as of March 15, 2013, among THL Credit, Inc. as borrower, the subsidiaries of THL Credit, Inc. party thereto, the lenders from time to time party thereto and ING Capital LLC as administrative agent (Incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on March 20, 2013).

10.2		Amendment No. 2 to Senior Secured Term Loan Credit Agreement, dated as of March 15, 2013, among THL Credit Inc. as borrower, the subsidiaries of THL Credit, Inc. party thereto, the lenders party thereto, and ING Capital LLC as administrative agent (Incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on March 20, 2013).

11		Computation of Per Share Earnings (included in the notes to the consolidated financial statements contained in this report).

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

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

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

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).*

(*)	Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	THL CREDIT, INC.

Date: May 6, 2013	By:	/S/ JAMES K. HUNT
		James K. Hunt
		Chief Executive Officer

Date: May 6, 2013	By:	/S/ TERRENCE W. OLSON
		Terrence W. Olson
		Chief Financial Officer