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Franklin BSP Lending Corp - Annual Report: 2017 (Form 10-K)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 814-00821
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
(Exact Name of Registrant as Specified in its Charter)

Maryland
 
27-2614444
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
9 West 57th Street, 49th Floor, Suite 4920
New York, New York
 
10019
(Address of Principal Executive Office)
 
(Zip Code)

(212) 588-6770
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered None N/A

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.
Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.
Yes o No x

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



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

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer o
 
Accelerated filer o
 
 
 
Non-accelerated filer x
 
Smaller reporting company o
 
 
 
 
 
Emerging growth company o
(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the exchange Act. o

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

    There is no established market for the Registrant’s shares of common stock.

There were 178,291,924 shares of the Registrant’s common stock outstanding as of March 21, 2018.

Documents Incorporated by Reference
Portions of the registrant’s definitive Proxy Statement relating to the registrant’s 2018 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year, are incorporated by reference in Part III of this Annual Report on Form 10-K as indicated herein.








BUSINESS DEVELOPMENT CORPORATION OF AMERICA
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017

TABLE OF CONTENTS
 
 
 
 
Page
PART I
  
PART II
  
PART III
  
PART IV
  


PART I

ITEM 1. BUSINESS

GENERAL
        
Business Development Corporation of America (“BDCA,” or the “Company,” which may also be referred to as “we,” “us,” or “our”) is an externally managed, non-diversified closed-end management investment company. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, we have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
We were incorporated in Maryland in May 2010 and commenced our initial public offering (the “IPO”) on January 25, 2011. As of December 31, 2017, we had approximately $2.7 billion of total assets.
We are externally managed by our investment adviser, BDCA Adviser, LLC (the “Adviser”), a subsidiary of Benefit Street Partners LLC (“BSP”), a leading credit-focused alternative asset management firm. We believe we benefit from the significant investment platform, personnel, scale and resources of our Adviser and BSP. Our investment activities are managed by the Adviser, and supervised by our board of directors, a majority of whom are independent of the Adviser and its affiliates. As a BDC, we are required to comply with certain regulatory requirements. See “Regulation” for discussion of BDC regulation and other regulatory considerations.
Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in senior secured loans, and to a lesser extent, mezzanine loans, unsecured loans and equity of predominantly private U.S. middle-market companies. We define middle market companies as those with annual revenues up to $1 billion, although we may invest in larger or smaller companies. We also purchase interests in loans or corporate bonds through secondary market transactions. As of December 31, 2017, 80.5% of our portfolio was invested in senior secured loans.
Senior secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in priority of payments and are generally secured by liens on the operating assets of a borrower which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. We may also invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles (“Collateralized Securities” or “CLOs”). For a discussion of the risks inherent in our portfolio investments, please see the discussion under Part I, Item 1A. “Risk Factors”.
We co-invest, subject to the conditions included in the exemptive order we received from the U.S. Securities and Exchange Commission (the “SEC”), with certain of our affiliates. See “Material Conflicts of Interests” below. We believe that such co-investments afford us additional investment opportunities and an ability to achieve greater diversification.
ABOUT OUR ADVISER AND BSP

BDCA Adviser, LLC, our investment adviser, is served by BSP’s origination, investment and portfolio management team. In total, BSP consists of over 90 investment professionals and over 150 total employees as of December 31, 2017. The Adviser, a Delaware limited liability company, is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The Adviser is a subsidiary of BSP, which is also registered as an investment adviser under the
Advisers Act.

BSP is a leading credit-focused alternative asset management firm with over $24 billion in assets under management as of February 28, 2018. Established in 2008, the BSP platform manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies, including high yield, levered loans, private/opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass BSP’s robust platform.
    
Our investment committee consists of Thomas Gahan, Chief Executive Officer of BSP, Michael Paasche, Senior
Managing Director of BSP, and Blair D. Faulstich, Senior Portfolio Manager for Private Debt, each with over 20 years of experience in the financial services industry and substantial experience in originating, underwriting and structuring credit investments.




1


MARKET OPPORTUNITY
    
We believe that there exists a unique opportunity for BDCs with experience in investing in middle market companies. In our view, middle market companies provide attractive current yields and significant downside protection.

Our current opportunity is highlighted by the following factors:
•
Large pool of uninvested private equity capital likely to seek additional capital to support private investments. We believe there remains a large pool of uninvested private equity capital available to middle market companies. We expect that private equity firms will be active investors in middle market companies and that these private equity firms will seek to supplement their equity investments with senior secured and mezzanine debt and equity co-investments from other sources, such as us.
•
Consolidation among commercial banks has reduced their focus on middle market businesses. The commercial banks in the United States, which have traditionally been the primary source of capital to middle market companies, have experienced consolidation, loan losses, and stricter regulatory scrutiny, which has led to a significant tightening of credit standards and substantially reduced loan volume to the middle market. Many financial institutions that have historically loaned to middle market companies have failed or been acquired, and we believe that larger financial institutions are now more focused on syndicated lending to larger corporations and are allocating capital to business lines that generate fee income and involve less balance sheet risk. We believe this market dynamic provides us with numerous opportunities to originate new debt and equity investments in middle market companies.
•
Refinancing activities will provide continued opportunities to extend capital to middle market companies. A significant volume of senior secured and mezzanine debt is expected to come due over the next several years. As companies seek to refinance their debt, we believe this will create new financing opportunities for us.
•
Lower default rates and higher recovery rates in the middle market. Default rates remain relatively low, with generally higher recovery rates in the middle market. Middle market companies are generally over-equitized as compared to large cap companies.
•
Favorable Pricing Environment in the Loan Market. Lower valuation levels in certain situations, combined with reduced liquidity in the secondary loan market, have created opportunities to acquire relatively high yielding senior and subordinated debt, both secured and unsecured, at potentially attractive prices.

BUSINESS STRATEGY

Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in first and second lien senior secured debt investments and mezzanine debt issued by middle market companies.

We have adopted the following business strategy to achieve our investment objectives:
•
Utilize the experience and expertise of the principals of our Adviser and BSP. Certain principals of our Adviser and BSP have a broad network of contacts with financial sponsors, commercial and investment banks and leaders within a number of industries that we believe produce significant proprietary investment opportunities outside the normal banking auction process.
•
Focus on middle market companies with stable cash flow. We believe that middle market lending is less competitive than the broadly syndicated loan market, and this is one factor that allows us to negotiate favorable investment terms. Such favorable terms include higher debt yields, more significant covenant protection and greater equity participation than typical of transactions involving larger companies. We generally invest in established companies with positive cash flow. We believe these companies possess better risk-adjusted return profiles than newer companies that are building management expertise or in the early stages of building a revenue base. These middle market companies represent a significant portion of the U.S. economy and often require substantial capital investment to grow their businesses.
•
Employ disciplined underwriting policies and rigorous portfolio management. We employ an extensive underwriting process that includes a review of the investment memo, competitive position, financial performance and industry dynamics of each potential portfolio company. In addition, we perform substantial due diligence on potential investments, and seek to invest with management teams and/or private equity sponsors who have proven capabilities in building value. As part of the monitoring process for portfolio companies, our Adviser analyzes monthly (if available), quarterly, and annual financial statements versus the previous periods and year, reviews financial projections, and may perform other procedures including meeting with management, attending board meetings and reviewing compliance certificates and covenants.
•
Focus on long-term credit performance and principal protection. We structure our customized loan investments on a relatively conservative basis with high cash yields, security interests (preferably first lien) where possible, cash origination

2


fees, and appropriate leverage levels. We seek strong deal protection for our customized debt investments, including default penalties, information rights, board observation rights, and affirmative, negative and financial covenants, such as lien protection and prohibitions against change of control. We believe these protections reduce our risk of capital loss.
•
Diversification. We seek to diversify our portfolio broadly among companies in a multitude of different industries, thereby reducing the concentration of credit risk in any one company or sector of the economy. We cannot guarantee that we will be successful in this effort.

DEAL ORIGINATION

Our Adviser and BSP have extensive relationships with private equity firms, competing lenders, loan syndication and trading desks, management teams, investment bankers, and other persons who we believe will continue to provide us with significant investment opportunities. We believe these relationships provide us with competitive advantages over other BDCs.

From time to time, we may receive referrals for new prospective investments from our portfolio companies as well as other participants in the capital markets.

INVESTMENT SELECTION

We strive to structure our debt investments with the maximum seniority and collateral that we can reasonably obtain while seeking to achieve our expectations for total returns on investments. We seek to structure our debt investments so that they often are collateralized by a first or second lien on the assets of the portfolio company. We seek to tailor the terms of our debt investments to the facts and circumstances of the transaction and prospective portfolio company, negotiating a structure that seeks to protect our rights and manage our risk while creating incentives for the portfolio company to achieve its business plan. A substantial source of our return is monthly or quarterly cash interest that we collect on our debt investments.
Our investment philosophy and portfolio construction involves:

•
Company-specific research and analysis; and
•
An emphasis on capital preservation, low volatility, diversification and minimization of downside risk.

The foundation of our investment philosophy is intensive credit investment analysis. We follow a rigorous selection process based on:

•
A comprehensive analysis of company creditworthiness, including a quantitative and qualitative assessment of the company’s business;
•
An evaluation of the management team and support from equity investors;
•
An assessment of the competitive landscape;
•
An analysis of business strategy and long-term industry trends; and
•
An in-depth examination of capital structure, financial results and financial projections.

We seek to identify those companies exhibiting superior fundamental risk-return profiles with a particular focus on investments with the following characteristics:

•
Established companies with a history of positive and stable operating cash flows. We seek to invest in established companies with sound historical financial performance. We typically focus on companies with a history of profitability.
•
Ability to exert meaningful influence. We target investment opportunities in which we will be the lead investor where we can add value through active participation. Our focus is typically on first lien investments.
•
Experienced management team. We will require that our portfolio companies have an experienced management team. We also seek to invest in companies that have a strong equity incentive program in place that properly aligns the interests of management with such company’s investors.
•
Strong franchises and sustainable competitive advantages. We seek to invest in companies with proven products and/ or services and strong regional or national operations.
•
Diverse customer bases and product offerings. We seek to invest in companies with diverse customer bases and product offerings.

While we believe that the criteria listed above are important in identifying and investing in companies, not all of these criteria will be met by each company in which we invest.


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INVESTMENT STRUCTURE
Once we have determined that a company is suitable for investment, we work with its management and its other capital providers to structure our investment in the company. We negotiate among these parties to agree on how our investment is expected to perform relative to the other capital in the company’s capital structure. We structure our investments as described below.

First Lien Loans.  When we structure investments in senior secured loans, we obtain security interests in the assets of the company as collateral in support of the repayment of such loans. This collateral may take the form of first-priority liens on the assets of the company.

Second Lien Loans.  We structure these investments as junior, secured loans. We obtain security interests in the assets of the company as collateral in support of the repayment of such loans. This collateral may take the form of second priority liens on the assets of the company.
Subordinated Loans.  We structure these investments as unsecured, subordinated loans that provide for relatively high, fixed interest rates that provide us with current interest income. Subordinated loans rank senior only to a company’s equity securities and rank junior to all of such company’s other indebtedness in priority of payment. These loans typically have interest-only payments (often representing a combination of cash pay and payment-in-kind (“PIK”) interest) in the early years. Subordinated loan investments are generally more volatile than secured loans and may involve a greater risk of loss of principal. In addition, the PIK feature of many subordinated loans, which effectively operates as negative amortization of loan principal, increases credit risk exposure over the life of the loan.
Warrants and Minority Equity Securities.  In some cases, we may purchase minority equity interests or receive
nominally priced warrants or options to buy a minority equity interest in the company in connection with a loan. This can allow us to achieve additional investment return from an equity interest. We may structure such warrants to include provisions protecting our rights as a minority-interest holder, as well as a “put,” or right to sell such securities back to the company, upon the occurrence of specified events.

INTENSIVE CREDIT ANALYSIS/DUE DILIGENCE
The disciplined process through which we make investment decisions with respect to a customized financing transaction involves extensive research into the target company, its industry, its growth prospects and its ability to withstand adverse conditions. If the investment team responsible for the transaction determines that an investment opportunity should be pursued, we engage in an intensive due diligence process. Though each transaction involves a somewhat different approach, the regular due diligence steps generally to be undertaken may include:
•
Meeting with senior management to understand the business more fully and evaluate the ability of the senior management team;
•
Checking management backgrounds and references;
•
Performing a detailed review of financial performance, earnings and potential for earnings growth;
•
Commissioning a quality of earnings report;
•
Visiting the headquarters and conducting other on site diligence;
•
Contacting customers and vendors to assess both business prospects and industry practices;
•
Conducting a competitive analysis, and comparing the company to its main competitors;
•
Researching industry and relevant publications to understand industry wide growth trends;
•
Assessing asset value and the ability of physical infrastructure and information systems to handle anticipated growth;
•
Investigating legal risks and financial and accounting systems;
•
Engaging third party experts and consultants to assist in the due diligence process; and
•
Building detailed projected financial models with an emphasis on downside scenarios.

PORTFOLIO MONITORING
With respect to customized financing transactions, our Adviser monitors our portfolio companies to determine if each company is meeting its business plan and to assess the appropriate course of action for each company.



4



We employ several methods of evaluating and monitoring the performance and value of our investments, which may include, but are not limited to, the following:
•
Assessment of success in adhering to the portfolio company’s business plan and compliance with covenants;
•
Regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;
•
Attendance at and participation in board meetings of the portfolio company (if available); and
•
Review of monthly (if available), quarterly, and annual financial statements and financial projections for the portfolio company.

PORTFOLIO ASSET QUALITY
Our Adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Adviser grades the credit risk of all debt investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio debt investment relative to the inherent risk at the time the original debt investment was made (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors.
 Loan Rating
 
Summary Description
1
  
Debt investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since the time of investment are favorable.
 
 
2
  
Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable. All investments are initially rated a “2”.

 
 
3
  
Performing debt investment requiring closer monitoring. Trends and risk factors show some deterioration.

 
 
4
  
Underperforming debt investment. Some loss of interest or dividend expected, but still expecting a positive return on investment. Trends and risk factors are negative.

 
 
5
  
Underperforming debt investment with expected loss of interest and some principal.

    
Our internal performance ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or represent or reflect any third-party assessment of any of our investments.

The weighted average risk ratings of our investments based on amortized cost were 2.32 and 2.18 as of December 31, 2017 and December 31, 2016, respectively. As of December 31, 2017, we had four portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $120.2 million, amortized cost of $97.6 million, and fair value of $21.0 million. These amounts represented 4.0%, 3.8% and 0.8% of our investment portfolio's total principal, amortized cost and fair value, respectively. We are currently evaluating potential value recovery alternatives for these investments. As of December 31, 2016, we had six portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $136.2 million, amortized cost of $127.6 million, and fair value of $51.2 million. These amounts represented 5.0%, 5.1% and 2.1% of our investment portfolio's total principal, amortized cost and fair value, respectively.










5


The following table shows the distribution of our investments on the 1 to 5 internal performance rating scale at fair value as of December 31, 2017 and 2016:

 
 
December 31, 2017
 
December 31, 2016
Internal Performance Rating
 
Investments at Fair Value
(in thousands)
 
Percentage of Total Investments
 
Investments at Fair Value
(in thousands)
 
Percentage of Total Investments
1
 
$
93,721

 
3.7
%
 
$
29,635

 
1.2
%
2
 
1,474,982

 
58.9
%
 
1,919,186

 
80.2
%
3
 
603,509

 
24.1
%
 
168,646

 
7.0
%
4
 
76,329

 
3.1
%
 
48,928

 
2.0
%
5
 
21,040

 
0.8
%
 
56,376

 
2.4
%
Not rated
 
233,942

 
9.4
%
 
171,312

 
7.2
%
Total
 
$
2,503,523

 
100.0
%
 
$
2,394,083

 
100.0
%

DETERMINATION OF NET ASSET VALUE

The Adviser, acting pursuant to delegated authority from, and under the oversight of our board of directors, assists the board of directors in its determination of the net asset value (“NAV”) of our investment portfolio each quarter. Securities for which market quotations are readily available are valued at the reported closing price on the valuation date. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by our board of directors. In connection with that determination, our Adviser facilitates the preparation, through the use each quarter of independent valuation firms, portfolio company valuations using relevant inputs, including but not limited to, indicative dealer quotes, values of like securities, the most recent portfolio company financial statements and forecasts.
We classify the fair value measurements of our assets and liabilities into a fair value hierarchy in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The guidance defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. With respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described below:
With respect to investments for which market quotations are not readily available, the Adviser undertakes a multi-step valuation process each quarter, as described below:
•
Each portfolio company or investment will be valued by the Adviser, with assistance from one or more independent valuation firms engaged by our board of directors or as noted below, with respect to investments in an investment fund;
•
The independent valuation firm(s) conduct independent appraisals and make an independent assessment of the value of each investment; and
•
The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser and independent valuation firm (to the extent applicable).

Determination of fair values involves subjective judgments and estimates. Accordingly, the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K (the “Annual Report”) refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations on our consolidated financial statements. Below is a description of factors that our board of directors may consider when valuing our debt and equity investments.
Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. We may also obtain quotes with respect to certain of our investments from pricing services or brokers or dealers in order to value assets. When doing so, we determine whether the quote obtained is readily available according to U.S.

6


generally accepted accounting principles (“U.S. GAAP”) to determine the fair value of the security. If determined to be readily available, we use the quote obtained.
Investments without a readily available market quotation are primarily valued using a market approach, an income approach, or both approaches, as appropriate. 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 amounts (for example, 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, 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, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.
For an investment in an investment fund that does not have a readily determinable fair value, we measure the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC Topic 946, Financial Services - Investment Companies, as of our measurement date.
For investments in Collateralized Securities, the Adviser models both the assets and liabilities of each Collateralized Securities' capital structure. The model uses a waterfall engine to store the collateral data, generate cash flows from the assets, and distribute the cash flows to the liability structure based on priority of payments. The cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, the Adviser considers broker quotations and/or comparable trade activity is considered as an input to determining fair value when available.

DETERMINATIONS IN CONNECTION WITH OFFERINGS

Although we are no longer offering shares of our common stock in a continuous public offering, we may, from time to time, elect to issue shares of our common stock in private placements. We are prohibited under the 1940 Act from selling our shares of common stock at a public offering price, after deducting selling commissions and dealer manager fees, that is below our net asset value per share unless we obtain prior board of directors and stockholder approval. On May 19, 2017, we received stockholder approval to sell shares of our common stock in an amount not to exceed 25% of our then-outstanding common stock immediately prior to each such sale at a price below our then-current NAV, subject to certain conditions. In connection with any issuance of our common stock, our board of directors or a committee thereof review the then current public offering price per share, if available, against the current estimated net asset value per share to ensure that we are not selling shares of our common stock at a price that, after deducting selling commissions and dealer manager fees, was below our net asset value per share. If shares are to be sold at a price below our net asset value per share pursuant to shareholder approval thereof, then a majority of our directors who have no financial interest in the sale and a majority of such directors who are not interested persons of us or the Adviser have determined that any such sale would be in our best interests and those of our stockholders.
In reviewing our offering price in connection with any closing, the board of directors or a committee thereof expects to consider the following factors, among others, in making such determination:
•
the net asset value of our common stock disclosed in the most recent periodic report we filed with the SEC;
•
our Adviser’s assessment of whether any material change in the net asset value of our common stock has occurred (including through the realization of net gains on the sale of our portfolio investments) from the period beginning on the date of the most recently disclosed net asset value to the period ending two days prior to the date of the closing on and sale of our common stock; and
•
the magnitude of the difference between the net asset value disclosed in the most recent periodic report we filed with the SEC and our Adviser’s assessment of any material change in the net asset value since the date of the most recently disclosed net asset value, and the offering price of the shares of our common stock at the date of closing.

Importantly, this determination requires that we calculate net asset value per share within 48 hours of each closing. In addition, it involves a determination by the board of directors or a committee thereof that we are not selling shares at a price that, after deducting selling commissions and dealer manager fees, is below the then current net asset value per share at the time at which the sale of shares is made. To the extent that there is even a remote possibility that we may issue shares of our common

7


stock at a price which, after deducting selling commissions and dealer manager fees, is below the then current net asset value per share, the board of directors or a committee thereof will elect either to postpone the closing until such time that there is no longer the possibility of the occurrence of such event or to undertake to change the offer price.

These processes and procedures are part of our compliance policies and procedures. We record all determinations described in this section, and these records are maintained with other records we are required to maintain under the 1940 Act.
INVESTMENT ADVISORY AND MANAGEMENT SERVICES AGREEMENT
Pursuant to the Investment Advisory and Management Services Agreement, as amended (the “Investment Advisory Agreement”), our Adviser oversees the management of our activities and is responsible for making investment decisions with respect to our portfolio.
Responsibilities of the Adviser
Subject to the overall supervision of our board of directors, our Adviser manages the day-to-day operations of, and provides investment advisory and management services to us. Under the terms of our Investment Advisory Agreement, our Adviser, among other things:
•
Determines the composition and allocation of our portfolio, the nature and timing of the changes in our portfolio and the manner of implementing such changes;
•
Identifies, evaluates and negotiates the structure of the investments we make;
•
Executes, monitors and services our investments;
•
Determines the securities and other assets that we will purchase, retain, or sell;
•
Performs due diligence on prospective portfolio companies; and
•
Provides us with such other investment advisory, research and related services as we may, from time to time, reasonably require for the investment of our funds.

Our Adviser’s services under the Investment Advisory Agreement are not exclusive, and they are free to furnish similar services to other entities so long as their services to us are not impaired.
Compensation of the Adviser
Pursuant to the Investment Advisory Agreement and for the investment advisory and management services provided thereunder, we pay our Adviser a base management fee and an incentive fee.
Base Management Fee
The base management fee is calculated at an annual rate of 1.5% of our average gross assets. The base management fee is payable quarterly in arrears. Average gross assets are calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters. All or any part of the base management fee not taken as to any quarter is deferred without interest and may be taken in such other quarter as the Adviser will determine. However, any deferred base management fee must be taken within three calendar years of the date on which such fee was first payable by us. The base management fee for any partial month or quarter is appropriately pro-rated.
Incentive Fees
The incentive fee consists of two parts. The first part is referred to as the incentive fee on income and it is calculated and payable quarterly in arrears based on our “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter. “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees, other than fees for providing managerial assistance, such as commitment, origination, structuring, diligence and consulting fees or other fees that the 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 the administration agreement with BSP and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. The payment of the incentive fee on income is subject to payment of a preferred return to investors each quarter, expressed as a quarterly rate of return on the value of our net assets at the end of the most recently completed calendar quarter,

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of 1.75% (7.00% annualized), subject to a “catch up” feature (as described below). The calculation of the incentive fee on income for each quarter is as follows:
•
No incentive fee on income is payable to the Adviser in any calendar quarter in which our Pre-Incentive Fee Net Investment Income does not exceed the preferred return rate of 1.75%, or 7.00% annualized (the “Preferred Return”), on net assets;
•
100% of our Pre-Incentive Fee Net Investment Income, if any, that exceeds the preferred return but is less than or equal to 2.1875% in any calendar quarter (8.75% annualized) is payable to the Adviser. This portion of our incentive fee on income is referred to as the “catch up” and is intended to provide the Adviser with an incentive fee of 20% on all of our Pre-Incentive Fee Net Investment Income when our Pre-Incentive Fee Net Investment Income reaches 2.1875% (8.75% annualized) in any calendar quarter; and
•
For any quarter in which our Pre-Incentive Fee Net Investment Income exceeds 2.1875% (8.75% annualized), the incentive fee on income equals 20% of the amount of our Pre-Incentive Fee Net Investment Income, as the Preferred Return and catch-up will have been achieved.

The second part of the incentive fee, referred to as the “incentive fee on capital gains during operations,” is an incentive fee on capital gains earned on liquidated investments from the portfolio during operations prior to our liquidation and is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, if earlier). This fee equals 20.0% of our incentive fee capital gains, which equals our realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.
Payment of our expenses
All investment professionals and staff of the Adviser and BSP, when and to the extent engaged in providing investment advisory and management services to us, and the compensation and routine overhead expenses of such personnel allocable to such services (including health insurance, 401(k) plan benefits, payroll taxes and other compensation related matters), are provided and paid for by the Adviser. We bear all other costs and expenses of our operations and transactions, including (without limitation) fees and expenses relating to:
•
expenses deemed to be “organization and offering expenses” of the Company for purposes of Conduct Rule 2310(a)(12) of the Financial Industry Regulatory Authority, or FINRA;
•
amounts paid to third parties for administrative services;
•
amounts paid to third party experts relating to the investigation and monitoring of our investments;
•
the cost of calculating our net asset value;
•
the cost of effecting sales and repurchases of shares of our common stock and other securities;
•
management and incentive fees payable pursuant to the Investment Advisory Agreement;
•
fees payable to third parties relating to, or associated with, making investments and valuing investments (including third-party valuation firms);
•
transfer agent and custodial fees;
•
fees and expenses associated with marketing efforts (including attendance at investment conferences and similar events);
•
federal and state registration fees;
•
any exchange listing fees;
•
federal, state, and local taxes;
•
independent directors’ fees and expenses;
•
brokerage commissions;
•
costs of proxy statements;
•
stockholders’ reports and notices;
•
costs of preparing government filings, including periodic and current reports with the SEC;
•
fidelity bond, liability insurance and other insurance premiums;
•
printing and mailing; and
•
independent accountants and outside legal costs.

We reimburse the Adviser for all of our expenses incurred by the Adviser as well as the actual cost of goods and services used for or by us and obtained from entities not affiliated with the Adviser. The Adviser may be reimbursed for the administrative services performed by it on our behalf; provided, however, the reimbursement shall be an amount equal to the lower of the Adviser’s actual cost or the amount we would be required to pay third parties for the provision of comparable administrative services in the same geographic location; and provided, further, that such costs are reasonably allocated to us on the basis of

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assets, revenues, time records or other method conforming with generally accepted accounting principles. No reimbursement shall be permitted for services for which the Adviser is entitled to compensation by way of a separate fee.
Duration and termination
The Adviser serves as our investment adviser pursuant to the Investment Advisory Agreement. The Investment Advisory Agreement was approved most recently by our shareholders effective November 1, 2016. Unless terminated earlier, it will remain in effect until November 2018 and then continue in effect from year to year if approved annually by our board of directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons. The Investment Advisory Agreement will automatically terminate in the event of its assignment. The Investment Advisory Agreement may be terminated by either party without penalty upon not less than 60 days’ written notice to the other. Any termination by us must be authorized either by our board of directors or by vote of our stockholders.
In determining to approve the Investment Advisory Agreement, our board of directors requested information from the Adviser that enabled it to evaluate a number of factors relevant to its determination. These factors included the nature, quality and extent of services performed by the Adviser, the Adviser’s ability to manage conflicts of interest effectively, our short and long-term performance, our costs, including as compared to comparable BDCs that engage in similar investing activities, the Adviser’s profitability, any economies of scale, and any other benefits of the relationship for the Adviser. Based on the information reviewed and the considerations detailed above, our board of directors, including all of our directors who are not interested persons of us or the Adviser, concluded that the investment advisory fee rates and terms are fair and reasonable in relation to the services provided and approved the Investment Advisory Agreement as being in the best interests of our stockholders.

Indemnification

The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, the Adviser and its officers, managers, partners, members (and their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Adviser’s services under the Investment Advisory Agreement or otherwise as our investment adviser.

ADMINISTRATION AGREEMENTS
On March 18, 2011, we entered into a fund administration servicing agreement and a fund accounting servicing agreement with U.S. Bancorp Fund Services, LLC (the “Administrator”). Our Administrator provides the administrative services, such as accounting, financial reporting, legal and compliance support and investor relations support, necessary for us to operate.
On November 1, 2016, we entered into an administration agreement with BSP (the “Administration Agreement”), pursuant to which BSP provides us with office facilities and administrative services. The Administration Agreement may be terminated by either party without penalty upon not less than 60 days’ written notice to the other.

COMPLIANCE
We, along with our Adviser, have adopted and implemented written policies and procedures reasonably designed to prevent violations of the federal securities laws, and our board of directors is required to review these compliance policies and procedures annually to assess their adequacy and the effectiveness of their implementation. Guy Talarico, our Chief Compliance Officer, is the Chief Executive Officer of Alaric Compliance Services, LLC, and serves as our Chief Compliance Officer under the terms of an agreement between BDCA and Alaric Compliance Services, LLC.
COMPETITION
Our primary competition in providing financing for acquisitions, buyouts and recapitalizations of middle market companies will include other BDCs, public and private buyout and other private equity funds, commercial and investment banks, commercial financing companies, and, to the extent they provide an alternative form of financing, hedge funds. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds as well as access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to

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consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC. We expect to use the industry information of the Adviser’s investment professionals, to which we have access, to assess investment risks and determine appropriate pricing for our investments in portfolio companies. In addition, we expect that our relationships and those of the Adviser and BSP will enable us to discover, and compete effectively for, financing opportunities with attractive middle market companies in the industries in which we seek to invest.
STAFFING
We do not currently have any employees and do not expect to have any employees in the foreseeable future. The services necessary for the operation of our business are provided to us by our officers and the employees of our Adviser and BSP and our Administrator pursuant to the terms of the Investment Advisory Agreement and the servicing agreements that we have entered into with our Administrator.
REGULATION
We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates, principal underwriters and the affiliates of those affiliates or underwriters. The 1940 Act also requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by a majority of our outstanding voting securities. The 1940 Act defines “a majority of the outstanding voting securities” as the lesser of (i) 67% or more of the voting securities present at a meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy or (ii) 50% of our voting securities.
We are generally not able to issue and sell our common stock at a price below net asset value per share. See “Item 1A. Risk Factors - Risks Related to Business Development Companies - Regulations governing our operation as a BDC and RIC will affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.” We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then current net asset value of our common stock if our board of directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale. In addition, we may generally issue new shares of our common stock at a price below net asset value in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances.
As a BDC, we may be examined periodically by the SEC for compliance with the 1940 Act. Our Adviser is a registered investment adviser and is also subject to examination by the SEC.
We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misconduct, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
Asset Coverage

We are only allowed to borrow money such that our asset coverage, which, as defined in the 1940 Act, measures the ratio of total assets less total liabilities not represented by senior securities to total borrowings, equals at least 200% after such borrowing, with certain limited exceptions. We may use borrowed funds, known as “leverage,” to make investments and to attempt to increase returns to our stockholders by reducing our overall cost of capital. We currently have credit facilities with Wells Fargo, Citi, JP Morgan Securities LLC and UBS and have sold $250.0 million in aggregate principal of unsecured notes.

Qualifying assets
As a BDC, we are required to comply with certain regulatory requirements. For instance, we have to invest at least 70% of our total assets in “qualifying assets,” including securities of U.S. operating companies whose securities are not listed on a national securities exchange, U.S. operating companies with listed securities that have equity market capitalizations of less than $250 million, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less.

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Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are any of the following:
1.Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which:

a.
is organized under the laws of, and has its principal place of business in, the United States;
b.
is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and
c.
satisfies any of the following:
i.
does not have any class of securities that is traded on a national securities exchange;
ii.
has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million;
iii.
is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio company; or
iv.
is a small and solvent company having total assets of not more than $4.0 million and capital and surplus of not less than $2.0 million
2.Securities of any eligible portfolio company that we control.
3.Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.
4.Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.
5.Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.
6.Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.

In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above.
Temporary investments

Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC for federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our Adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Significant managerial assistance to portfolio companies

A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in “Regulation-Qualifying assets” above. BDCs generally must offer to make available to the issuer of the securities significant managerial assistance, except in circumstances where either (i) the BDC controls such issuer of securities or (ii) the BDC purchases such securities in conjunction with one or more other persons acting together and one of the other persons in the group makes available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees,

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offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

Indebtedness and Senior Securities

We are permitted, under specified conditions, to issue multiple classes of debt and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must make provision to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, See “Item 1A. Risk Factors - Risks Related to Business Development Companies - Regulations governing our operation as a BDC and RIC will affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.”

Code of Ethics

We have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements.

Our code of ethics is posted on our website at http://www.bdcofamerica.com and was filed with the SEC as an exhibit to the registration statement. You may read and copy the code of ethics at the SEC’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the code of ethics is available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. You may obtain copies of the code of ethics, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549.
Election to be Taxed as a RIC

We have elected to be treated as a RIC under Subchapter M of the Code commencing with our taxable year ended December 31, 2011, and intend to qualify annually thereafter as a RIC. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income that we distribute to our stockholders from our taxable earnings and profits. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, in order to obtain RIC tax treatment, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss, (the “Annual Distribution Requirement”). Even if we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax on our undistributed taxable income and could be subject to U.S. federal excise, state, local and foreign taxes.

In order to qualify to be treated as a RIC for U.S. federal income tax purposes, we must, among other things: qualify to be treated as a BDC or be registered as a management investment company under the 1940 Act at all times during each taxable year; meet the Annual Distribution Requirement; derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or other securities or currencies. or other income derived with respect to our business of investing in such stock, securities or currencies and net income derived from an interest in a “qualified publicly traded partnership” as defined in the Code (the “90% Income Test”); and diversify our holdings so that at the end of each quarter of the taxable year: (i) at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified publicly traded partnership”); and (ii) no more than 25% of the value of our assets is invested in the securities, other than U.S. Government securities or securities of other RICs, (i) of one issuer (ii) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) of one or more “qualified publicly traded partnerships,” or the Diversification Tests.
Provided that we continue to qualify as a RIC and satisfy the Annual Distribution Requirement, we will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain (which generally is defined as net long-term capital gain in excess of net short-term capital loss) that we timely distribute to stockholders. We will

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be subject to U.S. federal income tax at the regular corporate rates on any income or capital gain not distributed (or deemed distributed) to our stockholders.
We will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income of RICs unless we distribute in a timely manner an amount at least equal to the sum of: (1) 98% of our ordinary income for each calendar year; (2) 98.2% of our capital gain net income for the one-year period ending October 31 in that calendar year; and (3) any income recognized, but not distributed, in preceding years and on which we paid no U.S. federal income tax.
We have also formed and expect to continue to form consolidated subsidiaries (the “Consolidated Holding Companies”). These Consolidated Holding Companies enable us to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code. See “Regulation” for discussion of BDC regulation and other regulatory considerations.
Proxy Voting Policies and Procedures
We delegate our proxy voting responsibility to our Adviser. The proxy voting policies and procedures that our Adviser follows are set forth below and are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act. The guidelines will be reviewed periodically by our Adviser and our non-interested directors, and, accordingly, are subject to change.
As an investment adviser registered under the Advisers Act, our Adviser has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, it recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its clients.
Our Adviser will vote proxies relating to our securities in the best interest of its clients’ stockholders. It will review on a case-by-case basis each proposal submitted for a stockholder vote to determine its impact on the portfolio securities held by its clients. Although our Adviser will generally vote against proposals that may have a negative impact on its clients’ portfolio securities, it may vote for such a proposal if there exists compelling long-term reasons to do so.
The proxy voting decisions of our Adviser are made by the senior officers who are responsible for monitoring each of its clients’ investments. To ensure that its vote is not the product of a conflict of interest, it will require that: (a) anyone involved in the decision-making process disclose to its chief compliance officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (b) employees involved in the decision making process or vote administration are prohibited from revealing how our Adviser intends to vote on a proposal in order to reduce any attempted influence from interested parties.
You may obtain information, without charge, regarding how we voted proxies with respect to our portfolio securities by making a written request for proxy voting information to: Chief Financial Officer, 9 West 57th Street, 49th Floor, Suite 4920, New York, NY 10019.
MATERIAL CONFLICTS OF INTEREST
Investment Advisory Agreement
We entered into an Investment Advisory Agreement on November 1, 2016 under which the Adviser, 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 Adviser and its affiliates also provide investment advisory services to other funds that have investment mandates that are similar, in whole and in part, with ours. The Adviser and its affiliates serve as investment adviser or sub-adviser to private funds and registered open-end funds, and serves as an investment adviser to a public real estate investment trust. The Adviser’s policies are designed to manage and mitigate the conflicts of interest associated with the allocation of investment opportunities pursuant to the SEC exemptive order. See “Co-Investment Relief”. In addition, any affiliated fund currently formed or formed in the future and managed by the Adviser or its affiliates may have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. However, in certain instances due to regulatory, tax, investment, or other restrictions, certain investment opportunities may not be appropriate for either us or other funds managed by the Adviser or its affiliates.

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Administration Agreement
On July 19, 2016, American Realty Capital II Advisors, LLC, the former parent of the Adviser, entered into a membership interest purchase agreement with a subsidiary of BSP, pursuant to which such subsidiary acquired all of the outstanding limited liability company interests of the Adviser (the “Transaction”).

In connection with the closing of the Transaction, we terminated our previous administration agreement and entered into a new administration agreement with BSP on November 1, 2016. In connection with the Administration Agreement, BSP will provide us with office facilities and administrative services.

Co-Investment Relief
The 1940 Act generally prohibits BDCs from entering into negotiated co-investments with affiliates absent an order from the SEC. The SEC staff has granted us exemptive relief that allows us to enter into certain negotiated co-investment transactions alongside other funds managed by the Adviser or its affiliates (“Affiliated Funds”) in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). Pursuant to the Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our eligible directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.
Transactions with Affiliates
On November 7, 2016, we issued approximately 1.2 million shares of our common stock to an affiliate of BSP. The affiliate purchased $10.0 million of our common stock based on our net asset value per share as of September 30, 2016 in a private placement in reliance on Section 4(a)(2) of the Securities Act.
AVAILABLE INFORMATION
We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102. In addition, the SEC maintains an Internet website that contains reports, proxy and information statements and other information filed electronically by us with the SEC at http:// www.sec.gov. Our Internet address is http://www.bdcofamerica.com. We make available free of charge on our Internet website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. Before making an investment in the Company, you should carefully consider the following risk factors. The risks and uncertainties set forth below are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial may also impair our business operations. If any of the following risks were to occur, our business, financial condition or could be materially adversely affected. In such case, the net asset value of our common stock could decline, and you may lose all or part of your investment.

Risks Relating to Our Business and Structure
Global economic, political and market conditions may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability.

The current worldwide financial market situation, as well as various social and political tensions in the United States (“U.S.”) and around the world, may contribute to increased market volatility, may have long-term effects on the U.S. and worldwide financial markets, and may cause economic uncertainties or deterioration in the U.S. and worldwide. The U.S. and global capital markets experienced extreme volatility and disruption during the economic downturn that began in mid-2007, and the U.S. economy

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was in a recession for several consecutive calendar quarters during the same period. In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt, which created concerns about the ability of certain nations to continue to service their sovereign debt obligations. Risks resulting from such debt crisis, including any austerity measures taken in exchange for bailout of certain nations, and any future debt crisis in Europe or any similar crisis elsewhere could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in certain countries and the financial condition of financial institutions generally. In June 2016, the United Kingdom (“U.K.”) held a referendum in which voters approved an exit from the European Union (“Brexit”), and, accordingly, on February 1, 2017, the U.K. Parliament voted in favor of allowing the U.K. government to begin the formal process of Brexit. Brexit created political and economic uncertainty and instability in the global markets (including currency and credit markets), and especially in the United Kingdom and the European Union, and this uncertainty and instability may last indefinitely. There is continued concern about national-level support for the Euro and the accompanying coordination of fiscal and wage policy among European Economic and Monetary Union member countries. In addition, the fiscal and monetary policies of foreign nations, such as Russia and China, and volatility in the Chinese stock markets and global markets for commodities may have a severe impact on the worldwide and U.S. financial markets.

As a result of the 2016 U.S. election, the Republican Party currently controls both the executive and legislative branches of government, which increases the likelihood that legislation may be adopted that could significantly affect the regulation of U.S. financial markets. Areas subject to potential change, amendment or repeal include the Dodd-Frank Wall Street Reform and Consumer Protection Act and the authority of the Federal Reserve and the Financial Stability Oversight Council. The U.S. may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the U.S. We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the U.S. Such actions could have a significant adverse effect on our business, financial condition and results of operations. We cannot predict the effects of these or similar events in the future on the U.S. economy and securities markets or on our investments. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.

Future disruptions or instability in capital markets could negatively impact our ability to raise capital, and have a material adverse effect on our business, financial condition and results of operations.

From time to time, the global capital markets may experience periods of disruption and instability, which could materially and adversely impact the broader financial and credit markets and reduce the availability to us of debt and equity capital. For example, between 2008 and 2009, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the repricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions. In particular, the financial services sector was negatively impacted by significant write-offs as the value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest. We believe that such value declines were exacerbated by widespread forced liquidations as leveraged holders of financial assets, faced with declining prices, were compelled to sell to meet margin requirements and maintain compliance with applicable capital standards. Such forced liquidations also impaired or eliminated many investors and investment vehicles, leading to a decline in the supply of capital for investment and depressed pricing levels for many assets. These events significantly diminished overall confidence in the debt and equity markets, engendered unprecedented declines in the values of certain assets, caused extreme economic uncertainty and significantly reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. While market conditions have experienced relative stability in recent years, there have been continuing periods of volatility and there can be no assurance that adverse market conditions will not repeat themselves in the future.

Future volatility and dislocation in the capital markets could create a challenging environment in which to raise or access capital. For example, the re-appearance of market conditions similar to those experienced from 2008 through 2009 for any substantial length of time could make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms. Significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity) and impairments of the market values or fair market values of our investments, even if unrealized, must be reflected in our consolidated financial statements for the applicable period, which could result in significant reductions to our net asset value for the period. With certain limited exceptions, we are only allowed to borrow amounts or issue debt securities if our asset coverage, complies with the threshold set forth in the 1940 Act (currently at least 200% immediately after such borrowing). Equity capital may also be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset value without first obtaining approval for such issuance from our stockholders and our independent directors. If we are unable to raise capital or refinance existing debt on acceptable terms, then we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies. Significant changes in the capital markets may also

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affect the pace of our investment activity and the potential for liquidity events involving our investments. Thus, the illiquidity of our investments may make it difficult for us to sell such investments to access capital if required, and as a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes.
Uncertainty with respect to the financial stability of the United States and several countries in the European Union (“EU”) could have a significant adverse effect on our business, financial condition and results of operations.

In August 2011, Standard & Poor Financial Services LLC’s Ratings Services (“S&P”) lowered its long-term sovereign credit rating on the U.S. from “AAA” to “AA +,” which was affirmed by S&P in June 2013. Moody’s Investor Service, Inc. and Fitch Ratings, Inc. have also warned that they may downgrade the U.S. federal government’s credit rating. In addition, the economic downturn and the significant government interventions into the financial markets and fiscal stimulus spending over the last several years have contributed to significantly increased U.S. budget deficits. Recent U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the U.S. In the future, the U.S. government may not be able to meet its debt payments unless the federal debt ceiling is raised. On February 9, 2018, the federal debt limit was suspended until March 1, 2019. If, prior to such date, legislation increasing the debt ceiling is not enacted and the debt ceiling is reached, the U.S. federal government may stop or delay making payments on its obligations, which could negatively impact the U.S. economy and our portfolio companies. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions, further downgrades or warnings by S&P or other rating agencies, and the U.S. government’s credit and deficit concerns in general, including issues around the federal debt ceiling, could cause interest rates and borrowing costs to rise, which may negatively impact both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms.

In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy, Portugal and Spain, which created concerns about the ability of these nations to continue to service their sovereign debt obligations. In January 2012, S&P lowered its long-term sovereign credit rating for France, Italy, Spain and six other European countries, which has negatively impacted global markets and economic conditions. In addition, in April 2012, S&P further lowered its long-term sovereign credit rating for Spain. While the financial stability of such countries has improved, risks resulting from any future debt crisis in Europe or any similar crisis could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these countries and the financial condition of U.S. and European financial institutions. Market disruptions in Europe, including the increased cost of funding for certain governments and financial institutions, could negatively impact the global economy, and there can be no assurance that assistance packages will be available, or if available, will be sufficient to stabilize countries and markets in Europe. To the extent uncertainty regarding any economic recovery in Europe negatively impacts consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, or other credit factors, our business, financial condition and results of operations could be significantly and adversely affected.

It is unclear how increased regulatory oversight and changes in the method for determining London Inter-bank Offered Rate ("LIBOR") may affect the value of the financial obligations to be held or issued by us that are linked to LIBOR, or how such changes could affect our results of operations or financial condition.

As a result of concerns about the accuracy of the calculation of LIBOR, a number of British Bankers’ Association, or BBA, member banks entered into settlements with certain regulators and law enforcement agencies with respect to the alleged manipulation of LIBOR, and there are ongoing investigations by regulators and governmental authorities in various jurisdictions. Following a review of LIBOR conducted at the request of the U.K. government, on September 28, 2012, recommendations for reforming the setting and governing of LIBOR were released, which are referred to as the Wheatley Review. The Wheatley Review made a number of recommendations for changes with respect to LIBOR, including the introduction of S-5 statutory regulation of LIBOR, the transfer of responsibility for LIBOR from the BBA to an independent administrator, changes to the method of the compilation of lending rates and new regulatory oversight and enforcement mechanisms for rate-setting and a reduction in the number of currencies and tenors for which LIBOR is published. Based on the Wheatley Review and on a subsequent public and governmental consultation process, on March 25, 2013, the U.K. Financial Services Authority (“FCA”) published final rules for the U.K. Financial Conduct Authority’s regulation and supervision of LIBOR, which are referred to as the FCA Rules. In particular, the FCA Rules include requirements that (1) an independent LIBOR administrator monitor and survey LIBOR submissions to identify breaches of practice standards and/or potentially manipulative behavior, and (2) firms submitting data to LIBOR establish and maintain a clear conflicts of interest policy and appropriate systems and controls. The FCA Rules took effect on April 2, 2013. It is uncertain what additional regulatory changes or what changes, if any, in the method of determining LIBOR may be required or made by the U.K. government or other governmental or regulatory authorities. Accordingly, uncertainty as to the nature of such changes may adversely affect the market for or value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations. On July 27,

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2017, the Chief Executive of the FCA announced that LIBOR would be phased out of use after the calendar year ending 2021. It is uncertain what the effect of such phase out will be on financial instruments that utilize LIBOR or what the form any replacement index will take. The process of phasing out LIBOR, in addition to, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.

The amount of any distributions we pay is uncertain. Our distributions to our stockholders may exceed our earnings. Therefore, portions of the distributions that we pay may represent a return of capital to you which will lower your tax basis in your shares and reduce the amount of funds we have for investment in targeted assets. We may not be able to pay you distributions, and our distributions may not grow over time.

We intend to declare distributions quarterly and pay distributions on a monthly basis. We will pay these distributions to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a targeted level of distributions or year-to-year increases in distributions. Our ability to pay distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described in this Annual Report. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC can limit our ability to pay distributions. All distributions will be paid at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our board of directors may deem relevant from time-to-time. We cannot assure you that we will pay distributions to our stockholders in the future. In the event that we encounter delays in locating suitable investment opportunities, we may pay all or a substantial portion of our distributions from the proceeds of our offerings of our common stock or from borrowings in anticipation of future cash flow, which may constitute a return of your capital and will lower your tax basis in your shares. Distributions from the proceeds of our offerings of common stock or from borrowings also could reduce the amount of capital we ultimately invest in interests of portfolio companies. We have not established any limit on the extent to which we may use borrowings, if any, or proceeds from our public offering to fund distributions (which may reduce the amount of capital we ultimately invest in assets). There can be no assurance that we will be able to sustain distributions at any particular level or at all.

Price declines in the large corporate leveraged loan market may adversely affect the fair value of debt securities we hold, reducing our net asset value through increased net unrealized depreciation.

Prior to the onset of the financial crisis, CLOs, a type of leveraged investment vehicle holding corporate loans, hedge funds and other highly leveraged investment vehicles, comprised a substantial portion of the market for purchasing and holding senior secured and second lien secured loans. As the secondary market pricing of the loans underlying these portfolios deteriorated during the fourth quarter of 2008, it is our understanding that many investors, as a result of their generally high degrees of leverage, were forced to raise cash by selling their interests in performing loans in order to satisfy margin requirements or the equivalent of margin requirements imposed by their lenders. This resulted in a forced deleveraging cycle of price declines, compulsory sales, and further price declines, with widespread redemption requests and other constraints resulting from the credit crisis generating further selling pressure. While prices have appreciated measurably in recent years, conditions in the large corporate leveraged loan market may experience similar disruptions or distortions in the future, which may cause pricing levels to decline similarly or be volatile. As a result, we may suffer unrealized depreciation and could incur realized losses in connection with the sale of debt securities we hold, which could have a material adverse impact on our business, financial condition and results of operations.

Our ability to achieve our investment objective depends on our Adviser’s and its affiliates’ ability to manage and support our investment process. If our Adviser were to lose any members of its senior management team, our ability to achieve our investment objective could be significantly harmed.

We are externally managed and depend upon the investment expertise, diligence, skill and network of business contacts of our Adviser. We also depend, to a significant extent, on our Adviser’s access to the investment professionals and the information and deal flow generated by such investment professionals in the course of its investment and portfolio management activities. Our Adviser evaluates, negotiates, structures, closes, monitors and services our investments. Our success depends to a significant extent on the continued service and coordination of our Adviser, including its key professionals. The departure of a significant number of our Adviser’s or its affiliates’ key professionals could have a materially adverse effect on our ability to achieve our investment objective. Additionally, changes in ownership or management practices, the occurrence of adverse events affecting our Adviser or its affiliates or other companies advised by our Adviser and its affiliates could create adverse publicity and adversely affect us and our relationship with investment banks, business brokers, loan syndication and trading desks and other investment counterparties. In addition, we can offer no assurance that our Adviser will remain our investment adviser or that we will continue to have access to our Adviser’s or its affiliates’ investment professionals or their information and deal flow.

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Because our business model depends to a significant extent upon relationships with investment banks, business brokers, loan syndication and trading desks, and commercial banks, the inability of our Adviser to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.

Our Adviser depends on its relationship with private equity firms, investment banks, business brokers, loan syndication and trading desks, and commercial banks, and we will rely to a significant extent upon these relationships to provide us with potential investment opportunities. If our Adviser fails to maintain its existing relationships or develop new relationships with other sponsors or sources of investment opportunities, we will not be able to grow our investment portfolio. In addition, individuals with whom our Adviser’s professionals have relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us.

We may face increasing competition for investment opportunities, which could delay deployment of our capital, reduce returns and result in losses.

We will compete for investments with other BDCs and investment funds (including private equity funds and mezzanine funds), as well as traditional financial services companies such as commercial banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds, also make investments in middle market private U.S. companies. As a result of these new entrants, competition for investment opportunities in private U.S. companies may intensify. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do. We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. If we are forced to match our competitors’ pricing, terms and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. We believe a significant part of our competitive advantage stems from the fact that the market for investments in private U.S. companies is underserved by traditional commercial banks and other financial sources. A significant increase in the number and/or the size of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on us as a BDC.

Our business and operations could be negatively affected if we become subject to any securities litigation or stockholder activism, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Stockholder activism, which could take many forms or arise in a variety of situations, has been increasing in the BDC space recently. While we are currently not subject to any securities litigation or stockholder activism, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of securities litigation or stockholder activism. Securities litigation and stockholder activism, including potential proxy contests, could result in substantial costs and divert the attention of management and our board of directors’ attention and resources from our business. Additionally, such securities litigation and stockholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and stockholder activism matters. Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and stockholder activism.

A significant portion of our investment portfolio is recorded at fair value as determined in good faith by our board of directors and, as a result, there is and will be uncertainty as to the value of our portfolio investments.

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there are no readily available market quotations, at fair value, as determined by our board of directors. However, the majority of our investments are not publicly traded or actively traded on a secondary market. As a result, we value these securities quarterly at fair value as determined in good faith by our board of directors.

The determination of fair value, and thus the amount of unrealized losses we may incur in any year, is to a degree subjective, and our Adviser has a conflict of interest in providing input to the board of directors in making this determination. We expect to value our securities quarterly at fair value as determined in good faith by our board of directors based on input from our Adviser

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and at such other times as may be required to comply with the requirements of the 1940 Act. Our board of directors may utilize the services of an independent third-party valuation firm to aid it in determining the fair value of any securities. The types of factors that may be considered in determining the fair value of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments on indebtedness and its earnings, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow, current market interest rates and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, the valuations may fluctuate significantly over short periods of time due to changes in current market conditions. The determinations of fair value by our board of directors may differ materially from the values that would have been used if an active market and market quotations existed for these investments. Our net asset value could be adversely affected if the determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such investments. See “Item 1. Business - Determination of Net Asset Value.”
Our board of directors may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.

Our board of directors has the authority to modify or waive our current operating policies, investment criteria and strategies without prior notice and without stockholder approval if it determines that doing so will be in the best interests of stockholders. We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, net asset value, operating results and value of our stock. However, the effects might be adverse, which could negatively impact our ability to pay you distributions and cause you to lose all or part of your investment. Moreover, we have significant flexibility in investing the net proceeds of our offering and may use the net proceeds from our offering in ways with which our stockholders may not agree or for purposes other than those contemplated at the time of our offering.

If we internalize our management functions, your interest in us could be diluted, and we could incur other significant costs and face other significant risks associated with being self-managed.

Our board of directors may decide in the future to internalize our management functions. If we do so, we may elect to negotiate to acquire our Adviser’s assets and personnel. At this time, we cannot anticipate the form or amount of consideration or other terms relating to any such internalization transaction. Such consideration could take many forms, including cash payments, promissory notes and shares of our common stock. The payment of such consideration could result in dilution of your interests as a stockholder and could reduce the earnings per share attributable to your investment.

In addition, while we would no longer bear the costs of the various fees and expenses we expect to pay to our Adviser under the Investment Advisory Agreement, we would incur the compensation and benefits costs of our officers and other employees and consultants that we now expect will be paid by our Adviser or its affiliates. We cannot reasonably estimate the amount of fees we would save or the costs we would incur if we became self-managed. If the expenses we assume as a result of an internalization are higher than the expenses we avoid paying to our Adviser, our earnings per share would be lower as a result of the internalization than they otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders and the value of our shares. As currently organized, we will not have any employees. If we elect to internalize our operations, we would employ personnel and would be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances.

Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.

We and our portfolio companies are subject to regulation at the local, state and federal level. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and our stockholders, potentially with retroactive effect.
Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy to avail ourselves of new or different opportunities. Such changes could result in material differences to the strategies and plans set forth in this Annual Report on Form 10-K and may result in our investment focus shifting from the areas of expertise of our Adviser to other types of investments in which our Adviser may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment.

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Efforts to comply with the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance with the Sarbanes-Oxley Act may adversely affect us.

We are subject to the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) and the related rules and regulations promulgated by the SEC. Under current SEC rules, our management is required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder. We are required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. This process requires us to incur significant additional expenses and diverts management’s time and attention. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations and we may not be able to ensure that the process is effective or that our internal control over financial reporting is or will be effective in a timely manner. In the event that we are unable to maintain or achieve compliance with the Sarbanes-Oxley Act and related rules, we may be adversely affected.

We may experience fluctuations in our quarterly results.

We may experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, variations in the interest rates on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods.

Terrorist attacks, acts of war or natural disasters may impact our portfolio companies and harm our business, operating results and financial condition.

Terrorist acts, acts of war or natural disasters may disrupt our operations, as well as the operations of our portfolio companies. Such acts have created, and continue to create, economic and political uncertainties and have contributed to recent global economic instability. Future terrorist activities, military or security operations, or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact our portfolio companies and, in turn, could have a material adverse impact on our business, operating results and financial condition. Losses from terrorist attacks and natural disasters are generally uninsurable.

We depend upon information systems, and systems failures could significantly disrupt our business, which may, in turn, negatively affect the value of our common stock and our ability to pay distributions.

We depend upon the communications and information systems of the Adviser and its affiliates as well as certain other third-party service providers. We, and our third-party service providers, are susceptible to operational and information security risks. While our third-party service providers have procedures in place with respect to information security, their technologies may become the target of cyber attacks or information security breaches that could result in the unauthorized gathering, monitoring, release, misuse, loss or destruction of our and/or our stockholders’ confidential and other information, or otherwise disrupt our operations or those of our third-party service providers. Disruptions or failures in the physical infrastructure or operating systems that our third-party service providers, cyber attacks or security breaches of the networks, systems or devices that our third-party service providers use to service our operations, or disruption or failures in the movement of information between service providers could disrupt and impact the service providers’ and our operations, potentially resulting in financial losses, the inability of our stockholders to transact business and of us to process transactions, inability to calculate our NAV, misstated or unreliable financial data, violations of applicable privacy and other laws, regulatory fines, penalties, litigation costs, increased insurance premiums, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Our third-party service providers’ policies and procedures with respect to information security have been established to seek to identify and mitigate the types of risk to which we and our third-party service providers are subject. As with any risk management system, there are inherent limitations to these policies and procedures as there may exist, or develop in the future, risks that have not been anticipated or identified. There can be no assurance that we or our third-party service providers will not suffer losses relating to information security breaches (including cyber attacks) or other disruptions to information systems in the future.

Our business could suffer in the event our Adviser or any other party that provides us with services essential to our operations experiences system failures or cyber-incidents or a deficiency in cybersecurity.

Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for the internal information technology systems of our Adviser and other parties that provide us with services essential to our operations, these systems are vulnerable to damage from any number of sources, including computer viruses, unauthorized access, energy

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blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business.
A cyber-incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of information resources. More specifically, a cyber-incident is an intentional attack or an unintentional event that can result in third parties gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As reliance on technology in our industry has increased, so have the risks posed to the systems of our Adviser and other parties that provide us with services essential to our operations, both internal and those that have been outsourced. In addition, the risk of a cyber-incident, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted attacks and intrusions evolve and generally are not recognized until launched against a target. In some cases such attacks and intrusions are designed not to be detected and, in fact, may not be detected.
The remediation costs and lost revenues experienced by a victim of a cyber-incident may be significant and significant resources may be required to repair system damage, protect against the threat of future security breaches or to alleviate problems caused by any breaches, including reputational harm, loss of revenues and litigation. In addition, a security breach or other significant disruption involving the information technology networks and related systems of our Adviser or any other party that provides us with services essential to our operations could:
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result in misstated financial reports, violations of loan covenants, missed reporting deadlines;
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affect our ability to properly monitor our compliance with the rules and regulations regarding our qualification as a RIC;
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result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
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result in liability to us for claims by stockholders and third-parties;
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require significant management attention and resources to remedy any damages that result; or
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adversely impact our reputation among investors.

Although our Adviser and other parties that provide us with services essential to our operations intend to continue to implement industry-standard security measures, there can be no assurance that those measures will be sufficient, and any material adverse effect experienced by our Adviser and other parties that provide us with services essential to our operations could, in turn, have an adverse impact on us.
To the extent that our Adviser serves as a “joint bookrunner” in connection with the underwriting of a loan or other security to be acquired, it may be subject to underwriter liability under the federal securities laws. This liability can be managed principally through the exercise of due diligence regarding any such offering. In addition, if it acts as joint bookrunner for a loan or other securities offering and is not successful in syndicating the loan or offering, our Adviser may acquire a larger amount of the subject securities than it had planned, and it may be required to hold such loan or security for a longer period than it had anticipated.

It could be determined that our Adviser is serving as a joint bookrunner in connection with offerings of loans or other securities in connection with providing investment advisory services to us in connection with our ongoing operations and the management of our portfolio. A joint bookrunner is one of multiple lead managers of a securities issuance which syndicates the issuance of securities with other bookrunners and syndicate firms to lower the risk of selling the security for each syndicate member. In acting as a joint bookrunner, our Adviser may be required to perform due diligence on certain offerings before they are syndicated and sold, subjecting our Adviser to underwriter liabilities under federal securities laws in connection with the offer and sale of such securities. Furthermore, in leading an underwriting syndicate, our Adviser, in acting as a joint bookrunner, could be obligated to sell a large portion of an offering of securities should it be unable to put together a substantial enough underwriting syndicate, perhaps obligating it to hold such security for a longer period of time than it had originally anticipated. By being deemed a joint bookrunner, our Adviser would be obligated to perform duties for other lenders or investors while still managing our portfolio, thus reducing the amount of time it allocates to us and subjecting it to potential liabilities and financial obligations.

We could potentially be involved in litigation arising out of our operations in the normal course of business.

We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of any current legal proceedings cannot at this time be predicted with certainty, we do not expect

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any current matters will materially affect our financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings will have a material adverse effect on our financial condition or results of operations in any future reporting period.


Risks Related to our Adviser and its Affiliates

We may be obligated to pay our Adviser incentive compensation even if we incur a net loss due to a decline in the value of our portfolio.

The Investment Advisory Agreement entitles our Adviser to receive incentive compensation on income regardless of any capital losses. In such case, we may be required to pay our Adviser incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or if we incur a net loss for that quarter.

We expect that any incentive fee payable by us that relates to our net investment income may be computed and paid on income that may include interest that has been accrued but not yet received. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously included in the calculation of the incentive fee will become uncollectible. Pursuant to the Investment Advisory Agreement, our Adviser will not be under any obligation to reimburse us for any part of the incentive fee it received that was based on accrued income that we never received as a result of a default by an entity on the debt instrument that resulted in the accrual of such income, and such circumstances would result in our paying an incentive fee on income we never received.

Moreover, to the extent that we are required to recognize in our taxable income such interest income that has been accrued but not yet paid, our payment of incentive fees to the Adviser on such income may make it difficult to meet (or may further amplify existing difficulties in meeting) the Annual Distribution Requirement necessary to maintain RIC tax treatment under the Code. As a result, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. Federal income tax. For additional discussion regarding the tax implications of a RIC, see “Risk Factors - We may be subject to corporate-level U.S. federal taxes if we fail to maintain our qualification as a RIC.”

The time and resources that individuals and the executive officers of our Adviser devote to us may be diverted and we may face additional competition due to the fact that neither our Adviser nor its affiliates are prohibited from raising money for or managing another entity that makes the same types of investments that we target.

Affiliates and executive officers of the Adviser currently manage other investment entities and are not prohibited from raising money for and managing future investment entities that make the same types of investments as those we target. As a result, the time and resources that the executive officers and individuals employed by the Adviser and its affiliates devote to us may be diverted, and during times of intense activity in other areas of business, they may devote less time and resources to our business than is necessary or appropriate.

There are significant potential conflicts of interest that could impact our investment returns.

We pay management and incentive fees to our Adviser and reimburse our Adviser for certain expenses it incurs on our behalf. In addition, investors in our common stock invest on a gross basis and receive distributions on a net basis after expenses, resulting in a lower rate of return than one might achieve through direct investments.

The part of the incentive fee payable by us that relates to our pre-incentive fee net investment income is computed and paid on income that may include interest that is accrued but not yet received in cash. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible.

Our fee structure may induce our Adviser to make speculative investments or incur debt.

The incentive fee payable by us to our Adviser may create an incentive for it to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The way in which this incentive fee is determined may encourage the Adviser to use leverage to increase the return on our investments. In addition, the fact that our management fee is payable based upon our gross assets, which would include any borrowings for investment purposes, may encourage our Adviser to use leverage to make additional investments. Under certain circumstances, the use of leverage may

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increase the likelihood of default, which would disfavor holders of our common stock. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns.

In selecting and structuring investments appropriate for us, our Adviser will consider our investment and tax objectives and those of our stockholders as a whole, not the investment, tax or other objectives of any stockholder individually.

Our stockholders may have conflicting investment, tax and other objectives with respect to their investments in us. The conflicting interests of individual stockholders may relate to or arise from, among other things, the nature of our investments, the structure or the acquisition of our investments, and the timing of the disposition of our investments. As a consequence, conflicts of interest may arise in connection with decisions made by our Adviser, including with respect to the nature or structuring of our investments, that may be more beneficial for one stockholder than for another stockholder, especially with respect to stockholders’ individual tax situations.

Our Adviser can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.

Our Adviser has the right to resign under the Investment Advisory Agreement at any time upon not less than 60 days’ written notice, whether we have found a replacement or not. If our Adviser were to resign, we may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our business, financial condition, results of operations and cash flows as well as our ability to pay distributions are likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our Adviser and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows.

Our Administrator can resign on 60 days’ notice, and we may not be able to find a suitable replacement, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.

Our Administrator has the right to resign under the New Administration Agreement at any time upon not less than 60 days’ written notice, whether we have found a replacement or not. If our Administrator resigns, we may not be able to find a new administrator or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and administrative activities is likely to suffer if we are unable to identify and reach an agreement with a service provider or individuals with the expertise possessed by our Administrator. Even if we are able to retain a comparable service provider or individuals to perform such services, whether internal or external, their integration into our business and lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows.

Risks Related to Business Development Companies

Our failure to invest a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status as a BDC.

As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. See “Item 1. Business - Regulation.” Therefore, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets. We may also be required to re-classify investments previously identified as qualifying assets as non-qualifying assets due to a change in the underlying business, a change in law or regulation, or for other reasons. Similarly, these rules could prevent us from making additional investments in existing portfolio companies, which could result in the dilution of our position, or could require us either to dispose of investments at an inopportune time or to refrain from making additional investments to comply with the 1940 Act. If we were forced to sell non-qualifying investments in our portfolio for compliance purposes, the proceeds from such sales could be significantly less than the current value of such investments.


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Failure to maintain our status as a BDC would reduce our operating flexibility.

If we do not remain a BDC, we might be regulated as a registered closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility.

Regulations governing our operation as a BDC and RIC will affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.

We may need to access the capital markets periodically to raise cash to fund new investments. We may also issue “senior securities,” including borrowing money from banks or other financial institutions, in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence or issuance. Our ability to issue different types of securities is also limited. Compliance with these requirements may unfavorably limit our investment opportunities and reduce our ability compared to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend. As a BDC, therefore, we intend to continuously issue equity at a rate more frequent than our privately owned competitors, which may lead to greater stockholder dilution.

We have incurred leverage to generate capital to make additional investments. If the value of our assets declines, we may be unable to satisfy the asset coverage test under the 1940 Act, which could prohibit us from paying distributions and could prevent us from being subject to tax as a RIC. If we cannot satisfy the asset coverage test, we may be required to sell a portion of our investments and, depending on the nature of our debt financing, repay a portion of our indebtedness at a time when such sales and repayments may be disadvantageous.

Under the 1940 Act, we generally are prohibited from issuing or selling our common stock at a price per share, after deducting selling commissions and dealer manager fees, that is below net asset value per share, which may be a disadvantage as compared to other public companies. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if (1) our board of directors and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and (2) our stockholders in general, as well as those stockholders that are not affiliated with us approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closely approximates the fair value of such securities.

Our ability to enter into transactions with our affiliates is restricted.

The 1940 Act generally prohibits BDCs from entering into negotiated co-investments with affiliates absent an order from the SEC. Unless otherwise provided in the allocation policy, if an investment opportunity is appropriate for both us and other investment funds, the investment opportunity requires more than the price to be negotiated and cannot be effected pursuant to the terms of our Order, the investment opportunity will be made available to the other investment fund or us on an alternating basis based on the date of closing of each such investment opportunity and each fund’s available capital. As a result, the Adviser and/or its affiliates may face conflicts in allocating investment opportunities between us and such other entities. Although the Adviser and its affiliates will endeavor to allocate investment opportunities in a fair and equitable manner and consistent with applicable allocation procedures, it is possible that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by the Adviser or its affiliates.

On August 5, 2015, we received exemptive relief from the SEC that permits us greater flexibility to negotiate the terms of co-investments if our board of directors determines that it would be advantageous for us to co-invest with other accounts sponsored or managed by the Adviser or its affiliates in a manner consistent with our investment objectives, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Under the terms of this exemptive relief, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our eligible directors is required to make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment strategies and policies. We believe that co-investment by us and accounts sponsored or managed by the Adviser and its affiliates affords us additional investment opportunities and an ability to achieve greater diversification.

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We are uncertain of our sources for funding our future capital needs; if we cannot obtain debt or equity financing on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected.

The net proceeds from the sale of shares of our common stock will be used for our investment opportunities, operating expenses and for payment of various fees and expenses such as management fees, incentive fees and other fees. Any working capital reserves we maintain may not be sufficient for investment purposes, and we may require debt or equity financing to operate. In order to maintain our RIC tax treatment we must distribute to our stockholders on a timely basis generally an amount equal to at least 90% of our investment company taxable income, determined without regard to any deduction for dividends paid, and the amounts of such distributions will therefore not be available to fund investment originations or to repay maturing debt. In addition, with certain limited exceptions, we are only allowed to borrow amounts or issue debt securities or preferred stock, which we refer to collectively as “senior securities,” such that our asset coverage, as calculated pursuant to the 1940 Act, equals at least 200% immediately after such borrowing, which, in certain circumstances, may restrict our ability to borrow or issue debt securities or preferred stock. Accordingly, in the event that we develop a need for additional capital in the future for investments or for any other reason, these sources of funding may not be available to us. Consequently, if we cannot obtain debt or equity financing on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected. As a result, we would be less able to achieve portfolio diversification and our investment objective, which may negatively impact our results of operations and reduce our ability to pay distributions to our stockholders.

Risks Related to Our Investments

Our investments in portfolio companies may be risky, and we could lose all or part of our investment.

We invest primarily in first and second lien senior secured loans and mezzanine debt and selected equity investments issued by middle market companies.

First and Second Lien Senior Secured Loans. When we make senior secured loans, we will generally take a security interest in the available assets of these portfolio companies, including the equity interests of their subsidiaries. We expect this security interest to help mitigate the risk that we will not be repaid. However, there is a risk that the collateral securing our loans may decrease in value over time or lose its entire value, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. Also, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Finally, applicable bankruptcy laws may adversely impact the timing and methods used by us to liquidate collateral securing our loans, which could adversely affect the collectability of such loans. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.

Mezzanine Debt. Our mezzanine debt investments will generally be subordinated to senior loans and will generally be unsecured. This may result in a heightened level of risk and volatility or a loss of principal which could lead to the loss of our entire investment.

These investments may involve additional risks that could adversely affect our investment returns. To the extent interest payments associated with such debt are deferred, such debt may be subject to greater fluctuations in valuations, and such debt could subject us and our stockholders to non-cash income. Since we will not receive any principal repayments prior to the maturity of some of our mezzanine debt investments, such investments will be of greater risk than amortizing loans.

Equity Investments. We expect to make selected equity investments, such as direct equity investments, including controlling investments, warrants or other equity securities. In addition, when we invest in first and second lien senior loans or mezzanine debt, we may acquire warrants to purchase equity securities. Our goal is ultimately to dispose of these equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We intend to seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer. We may be unable to exercise these put rights for the consideration provided in our investment documents if the issuer is in financial distress.


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More generally, investing in private companies involves a number of significant risks, including that they: may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment; have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and changing market conditions, as well as general economic downturns; are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers and directors and employees of our Adviser may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies; and may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

We invest primarily in first and second lien senior secured loans, mezzanine debt, preferred equity and common equity issued by middle market companies. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.

Even though we intend to generally structure our directly-originated investments as senior loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. In situations where a bankruptcy carries a high degree of political significance, our legal rights may be subordinated to other creditors. We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control over the borrower.

Second priority liens on collateral securing our loans may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.

A portion of our loans are secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by us under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before we receive anything. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors.

There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against our remaining assets, if any.

The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with more senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of enforcement proceedings

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against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.

We generally will not control our portfolio companies.

We generally will not control our portfolio companies, even though we may have board representation or board observation rights, and our debt agreements may contain certain restrictive covenants. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors. Due to the lack of liquidity for our investments in non-traded companies, we may not be able to dispose of our interests in our portfolio companies as readily as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.

Our investments in a portfolio company, whether debt, equity, or a combination thereof, may lead to our receiving material non-public information (“MNPI”) or obtaining ‘control’ of the target company. Our ability to exit an investment where we have MNPI or control could be limited and could result in a realized loss on the investment.

If we receive MNPI, or a controlling interest in a portfolio company, our ability to divest ourselves from a debt or equity investment could be restricted. Causes of such restriction could include market factors, such as liquidity in a private stock, or limited trading volume in a public company’s securities, or regulatory factors, such as the receipt of MNPI or insider blackout periods, where we are under legal obligation not to sell. Additionally, we may choose not to take certain actions to protect a debt investment in a control investment portfolio company. As a result, we could experience a decrease in the value of our portfolio company holdings and potentially incur a realized loss on the investment.

Economic recessions or downturns could impair our portfolio companies and harm our operating results.

Many of the portfolio companies in which we may invest may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. Therefore, our non-performing assets are likely to increase, and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of any collateral securing our senior secured or second lien secured loans. A prolonged recession may further decrease the value of such collateral and result in losses of value in our portfolio and a decrease in our revenues, net income, assets and net worth. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing investments and harm our operating results.

In addition, while we believe that these conditions also afford attractive opportunities to make investments, future financial market uncertainty could lead to further financial market disruptions and could further adversely impact our ability to obtain financing and the value of our investments.

The effect of global climate change may impact the operations of our portfolio companies.

There may be evidence of global climate change. Climate change creates physical and financial risk and some of our portfolio companies may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity. To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and magnitude of any changes. Increases in the cost of energy could adversely affect the cost of operations of our portfolio companies if the use of energy products or services is material to their business. A decrease in energy use due to weather changes may affect some of our portfolio companies’ financial condition, through decreased revenues. Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stresses, including service interruptions. Energy companies could also be affected by the potential for lawsuits against or taxes or other regulatory costs imposed on greenhouse gas emitters, based on links drawn between greenhouse gas emissions and climate change.

In December 2015 the United Nations, of which the U.S. is a member, adopted a climate accord (the “Paris Agreement”) with the long-term goal of limiting global warming and the short-term goal of significantly reducing greenhouse gas emissions. The U.S. subsequently ratified the Paris Agreement, and it entered into force on November 4, 2016. In June 2017, the U.S. announced an intention to withdraw from the agreement, but the earliest effective withdrawal date for the U.S. under the Paris Agreement is November 2020. As a result, some of our portfolio companies may become subject to new or strengthened regulations or legislation which could increase their operating costs and/or decrease their revenues. Increased environmental regulation and the resulting

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regulatory compliance costs may also make it difficult for our portfolio companies to expand their businesses into non-U.S. countries, which could result in decreased capital resources and financial outlook for our portfolio companies.

Defaults by our portfolio companies will harm our operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company.

An investment strategy focused primarily on privately-held companies presents certain challenges, including the lack of available information about these companies.

We intend to invest in corporate debt of middle market companies, including privately-held companies. Investments in private companies pose certain incremental risks as compared to investments in public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress. Second, the investments themselves tend to be less liquid. As such, we may have difficulty exiting an investment promptly or at a desired price prior to maturity or outside of a normal amortization schedule. Finally, little public information generally exists about private companies. Further, these companies may not have third-party debt ratings or audited financial statements. We must therefore rely on the ability of our Adviser to obtain adequate information through due diligence to evaluate the creditworthiness and potential returns from investing in these companies. These companies and their financial information will generally not be subject to the Sarbanes-Oxley Act and other rules that govern public companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. As a result, the relative lack of liquidity and the potential diminished capital resources of our target portfolio companies may affect our investment returns.

The disposition of our investments may result in contingent liabilities.

A significant portion of our investments involve private securities. In connection with the disposition of an investment in private securities, we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to potential liabilities. These arrangements may result in contingent liabilities that ultimately result in funding obligations that we must satisfy through our return of payments previously paid to us.

The lack of liquidity in our investments may adversely affect our business.

We invest in companies whose securities are typically not publicly traded, and whose securities will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to achieve liquidity in our investments in the near-term. We expect that our investments will generally be subject to contractual or legal restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments. The illiquidity of most of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.

Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.

We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid, and we could experience significant delays in reinvesting these amounts. Alternative future investments in new portfolio companies may also be at lower yields than the debt that was repaid and will, in any case, require additional Adviser time. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments, net of prepayment fees, could negatively impact our return on equity.


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We may not have the funds or ability to make additional investments in our portfolio companies.

We may not have the funds or ability to make additional investments in our portfolio companies. After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to increase our investment through the exercise of a warrant to purchase common stock. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Any decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation or may reduce the expected return on the investment.

We may concentrate our investments in companies in a particular industry or industries.

In the event we concentrate our investments in companies in a particular industry or industries, any adverse conditions that disproportionately impact that industry or industries may have a magnified adverse effect on our operating results.

We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.

We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. To the extent that we assume large positions in the securities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond our asset diversification requirements as a RIC under the Code, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.

Our financial results may be affected adversely if one or more of our significant equity or junior debt investments in a CLO vehicle defaults on its payment obligations or fails to perform as we expect.

We expect that a portion of its portfolio will consist of equity and junior debt investments in CLOs, which involve a number of significant risks. CLOs are typically highly leveraged up to approximately 10 times, and therefore the junior debt and equity tranches in which we will invest in are subject to a higher risk of total loss. In particular, investors in CLOs indirectly bear risks of the underlying debt investments held by such CLOs. We may have the right to receive payments only from the CLOs, and does not have direct rights against the issuer or the entity that sold the assets to be securitized. Although it is difficult to predict whether the prices of indices and securities underlying CLOs will rise or fall, these prices, and therefore, the prices of the CLOs, will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally.

The investments we make in CLOs are thinly traded or have only a limited trading market. CLO securities are typically privately offered and sold, in the primary and secondary markets. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLOs carry additional risks, including, but not limited to: (i) the possibility that distributions from the underlying loans will not be adequate to make interest or other payments; (ii) the quality of the underlying loans may decline in value or default; and (iii) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO or unexpected investment results. Further, our investments in equity and junior debt tranches of CLOs are subordinate to the senior debt tranches thereof.

Investments in structured vehicles, including equity and junior debt instruments issued by CLOs, involve risks, including credit risk and market risk. Changes in interest rates and credit quality may cause significant price fluctuations. Additionally, changes in the underlying loans held by a CLO may cause payments on the instruments we hold to be reduced, either temporarily or permanently. Structured investments, particularly the subordinated interests in which we invest, are less liquid than many other types of securities and may be more volatile than the loans underlying the CLOs in which we invest.

CLO investments are subject to interest rate risk.

A majority of the assets in a CLO’s portfolio are floating rate loans which are sensitive to interest rate levels and volatility. Although CLOs are generally structured to mitigate the risk of interest rate mismatch, there may be some difference between the timing of interest rate resets on these floating rate loans and liabilities of a CLO. Such a mismatch in timing could have a negative effect on the amount of funds distributed to CLO equity. In addition, CLOs may not be able to enter into hedge agreements, even if it may otherwise be in the best interests of the CLO to hedge such interest rate risk. Furthermore, in the event of a significant

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rising interest rate environment and/or economic downturn, loan defaults may increase and result in credit losses that may adversely affect the CLO investments held by the Company.

CLOs typically will have no significant assets other than their underlying loans; payments on CLO investments are and will be payable solely from the cash flows from such loans.

CLOs typically will have no significant assets other than their underlying loans. Accordingly, payments on Collateralized Securities are and will be payable solely from the cash flows from such underlying loans, net of all management fees and other expenses. Payments to us as a holder of Collateralized Securities are subject to payments received on the underlying loans. This means that relatively small numbers of defaults of underlying loans may adversely impact our returns.

Collateralized Securities are exposed to leveraged credit risk.

We may be in a subordinated position with respect to realized losses on the loans in CLOs. The leveraged nature of CLOs, in particular, magnifies the adverse impact of loan defaults. Collateralized Securities represent a leveraged investment with respect to the underlying loans. Therefore, changes in the market value of Collateralized Securities could be greater than the change in the market value of the underlying loans, which are subject to credit, liquidity and interest rate risk.

There is the potential for interruption and deferral of cash flow from CLO investments.

If certain minimum collateral value ratios and/or interest coverage ratios are not met by a CLO, primarily due to loan defaults, then cash flow that otherwise would have been available to pay distributions to us on our CLO investments may instead be used to redeem any senior notes or to purchase additional loans, until the ratios again exceed the minimum required levels or any senior notes are repaid in full. This could result in an elimination, reduction or deferral in the distribution and/or principal paid to the holders of such Collateralized Securities, which would adversely impact our returns.

The inability of a CLO collateral manager to reinvest the proceeds of the prepayment of loans may adversely affect us.

There can be no assurance that for any CLO investment, in the event that any of the loans of a CLO underlying such investment are prepaid, the CLO collateral manager will be able to reinvest such proceeds in new loans with equivalent investment returns. If the CLO collateral manager cannot reinvest in new loans with equivalent investment returns, the interest proceeds available to pay interest on the rated liabilities and investments may be adversely affected.

Collateralized Securities are subject to prepayments and calls, increasing re-investment risk.

Collateralized Securities and/or the underlying loans may be prepaid more quickly than expected, which could have an adverse impact on our value. Prepayment rates are influenced by changes in interest rates and a variety of economic, geographic and other factors beyond our control, and consequently cannot be predicted with certainty. In addition, for a CLO collateral manager there is often a strong incentive to refinance well performing portfolios once the senior tranches amortize. The yield to maturity of the investments will depend on the amount and timing of payments of principal on the loans and the price paid for the securities. Such yield may be adversely affected by a higher or lower than anticipated rate of prepayments of the debt.

Furthermore, Collateralized Securities generally do not contain optional call provisions, other than a call at the option of the holders of the equity tranches for the senior notes and the junior secured notes to be paid in full after the expiration of an initial period in the deal (referred to as the “non-call period”).

The exercise of the call option is by the relevant percentage (usually a majority) of the holders of the equity tranches and, therefore, where we do not hold the relevant percentage we will not be able to control the timing of the exercise of the call option. The equity tranches also generally have a call at any time based on certain tax event triggers. In any event, the call can only be exercised by the holders of equity tranches if they can demonstrate (in accordance with the detailed provisions in the transaction) that the senior notes and junior secured notes will be paid in full if the call is exercised.

Early prepayments and/or the exercise of a call option other than at our request may also give rise to increased re-investment risk with respect to certain investments, as we may realize excess cash earlier than expected. If we are unable to reinvest such cash in a new investment with an expected rate of return at least equal to that of the investment repaid, this may reduce our net income and, consequently, could have an adverse impact on our ability to pay dividends.


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Loans of CLOs may be sold and replaced, resulting in a loss to us.

The loans underlying Collateralized Securities may be sold and replacement collateral purchased within the parameters set out in the relevant CLO indenture between the CLO and the CLO trustee and those parameters may typically only be amended, modified or waived by the agreement of a majority of the holders of the senior notes and/or the junior secured notes and/or the equity tranche once the CLO has been established. If these transactions result in a net loss, the magnitude of the loss from the perspective of the equity tranche would be increased by the leveraged nature of the investment.

Risks Relating to Debt Financing

We have sold unsecured notes and have entered into revolving credit facilities with Citi, UBS and Wells Fargo that contain various covenants which, if not complied with, could accelerate repayment under the Credit Facilities, thereby materially and adversely affecting our liquidity, financial condition, results of operations and our ability to pay distributions to our stockholders.

The agreements governing certain of our and our special purpose financing subsidiaries’ financing arrangements require us and our subsidiaries to comply with certain financial and operational covenants. These covenants require us and our subsidiaries to, among other things, maintain certain financial ratios, including asset coverage and minimum stockholders’ equity. Compliance with these covenants depends on many factors, some of which are beyond our and their control. In the event of deterioration in the capital markets and pricing levels subsequent to this period, net unrealized depreciation in our and our subsidiaries’ portfolios may increase in the future and could result in non-compliance with certain covenants, or our taking actions which could disrupt our business and impact our ability to meet our investment objective. For example, the agreements governing one or more of our credit facilities require applicable special purpose vehicles (“SPVs”) to comply with certain operational covenants, including maintaining eligible assets with an aggregate value equal to or exceeding a specified multiple of the borrowings under the credit facility, and a decline in the value of assets owned by the SPV could result in our being required to contribute additional assets to the SPV.

There can be no assurance that we and our subsidiaries will continue to comply with the covenants under our financing arrangements. Failure to comply with these covenants could result in a default. If we and our subsidiaries were unable to obtain a waiver from the debt holders, such a default could accelerate repayment under any or all of our and their debt instruments and thereby force us to liquidate investments at a disadvantageous time and/or at a price which could result in losses, or allow our lenders to sell assets pledged as collateral under our financing arrangements in order to satisfy amounts due thereunder. These occurrences could have a material adverse impact on our liquidity, financial condition, results of operations and ability to pay distributions. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Financial Condition, Liquidity and Capital Resources” for a more detailed discussion of the terms of debt financings.

Because we borrow money, the potential for gain or loss on amounts invested in us will be magnified and may increase the risk of investing in us.

At December 31, 2017, we had approximately $1,041.1 million of debt financing. The use of borrowings, also known as leverage, increases the volatility of investments by magnifying the potential for gain or loss on invested equity capital. Because we use leverage to partially finance our investments, through borrowing from banks and other lenders, you will experience increased risks of investing in our common stock. If the value of our assets increases, leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause our net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock distribution payments. Leverage is generally considered a speculative investment technique.

Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below. The calculation assumes (i) $2.9 billion in total assets, (ii) a weighted average cost of funds of 3.96%, (iii) $1,332.5 million in debt outstanding (i.e., assumes that the $250.0 million principal amount of Unsecured Notes and 2022 Notes sold, the full $1,032.5 million available to us under the revolving credit facilities we have with Wells Fargo, Citi, and UBS, and the full $50.0 million available to us under the JPMC PB Account is outstanding) and (iv) $1.5 billion in stockholders’ equity. In order to compute the “Corresponding return to stockholders,” the “Assumed Return on Our Portfolio (net of expenses)” is multiplied by the assumed total assets to obtain an assumed return to us. From this amount, the interest expense is calculated by multiplying the assumed weighted average cost of funds by the assumed debt outstanding, and the product is

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subtracted from the assumed return to us in order to determine the return available to stockholders. The return available to stockholders is then divided by our stockholders’ equity to determine the “Corresponding return to stockholders.” Actual interest payments may be different.

Assumed Return on Our Portfolio (net of expenses)
 
(10)%
 
(5)%
 
- %
 
5%
 
10%
Corresponding return to stockholders (1)
 
(22.90)%
 
(13.22)%
 
(3.53)%
 
6.15%
 
15.84%
___________________
(1) In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our December 31, 2017 total assets of at least 1.82%.

As of December 31, 2017, the Wells Fargo Facility provided for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis, due May 18, 2022, the Citi Credit Facility provided for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis, due May 28, 2020, as amended on November 28, 2017, the UBS Credit Facility provided for borrowings in an aggregate principal amount of up to $232.5 million on a committed basis, due April 7, 2018, the JPMC PB Account provided for borrowings in an aggregate principal amount of up to $50.0 million, with such amount dependent on the price, credit quality and diversity of the pool of assets held within the account, with no set repayment date, the 2020 Unsecured Notes provided borrowings in an aggregate principal amount of $100.0 million, due September 1, 2020 and the 2022 Unsecured Notes provided borrowings in an aggregate principal amount of $150.0 million, due December 30, 2022. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for more information about these financing arrangements.

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

General interest rate fluctuations and changes in credit spreads on floating rate loans may have a substantial negative impact on our investments and investment opportunities and, accordingly, may have a material adverse effect on our rate of return on invested capital, our net investment income, our net asset value and the market price of our common stock.

The majority of our debt investments have, and are expected to have, variable interest rates that reset periodically based on benchmarks such as LIBOR, so an increase in interest rates from their historically low present levels may make it more difficult for our portfolio companies to service their obligations under our debt investments and increase defaults even where our investment income increases. In addition, any such increase in interest rates would make it more expensive to use debt to finance our investments. Any decrease in credit spreads on debt that pays a floating rate of return would have an impact on the income generation of our floating rate assets. Trading prices for debt that pays a fixed rate of return tend to fall as interest rates rise. Trading prices tend to fluctuate more for fixed rate securities that have longer maturities. Although we have no policy governing the maturities of our investments, under current market conditions we expect that we will invest in a portfolio of debt generally having maturities of up to seven years. This means that we will be subject to greater risk (other things being equal) than an entity investing solely in shorter-term securities.

In addition, because we borrow to fund a portion of our investments, a portion of our net investment income will depend upon the difference between the interest rate at which we borrow funds and the interest rate at which we invest these funds. Portions of our investment portfolio and our borrowings have floating rate components. As a result, a significant change in market interest rates could have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds could increase, which would reduce our net investment income. We may hedge against such interest rate fluctuations by using standard hedging instruments such as interest rate swap agreements, futures, options and forward contracts, subject to applicable legal requirements, including all necessary registrations (or exemptions from registration) with the Commodity Futures Trading Commission. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged borrowings. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations.

We are subject to risks associated with our debt securitization/repurchase agreement financing facility.

On April 7, 2015 (the “Closing Date”), we and our wholly-owned, special-purpose financing subsidiary, BDCA Helvetica Funding, Ltd., or Helvetica Funding, entered into a debt securitization and repurchase agreement financing facility with UBS AG, London Branch pursuant to which up to $150.0 million was initially made available to us to fund investments and for other general corporate purposes. The financing transaction with UBS is structured initially as a debt securitization (the “Debt Securitization”) by Helvetica Funding, and is followed by a repurchase transaction (the “Repurchase Transaction”) between us and UBS, and collectively with the Debt Securitization, the UBS Facility. The UBS Facility was subsequently amended on July 10, 2015 (the

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“First Upsize Date”), to increase the amount of debt available to us under the UBS Facility from $150.0 million to $210.0 million (the “First Upsize”). On June 6, 2016 (the “Second Upsize Date”), the UBS Facility was again amended to increase the amount of debt available from $210.0 million to $232.5 million (the “Second Upsize”). In addition, the Second Upsize increased the cost of the financing by increasing the applicable spread from 3.90% to 4.05% per annum. Pricing under the Repurchase Transaction is based on three-month LIBOR plus the spread of 4.05% per annum for the relevant period. The Second Upsize also relaxed the limitations on second lien and unsecured loan assets by increasing the permissible percentage of second lien and unsecured loan assets from 60% to 70% and eliminating the requirement that 40% of the loan asset pool had to consist of senior secured loan assets. Generally, under the Debt Securitization, we transfer existing loan investments to Helvetica Funding, which is established solely for the purpose of holding income producing assets and related investments, and issuing debt secured by loan assets. We complete the borrowing by receiving all of the notes issued by Helvetica Funding, transferring all such notes to UBS under a repurchase agreement between us and UBS and receiving cash from UBS under such Repurchase Transaction. Pursuant to the terms of the collateral management agreement (the “Collateral Management Agreement”), we also serve as the collateral manager of the loan assets securing the notes.

Pursuant to the Debt Securitization, loan assets in our portfolio may be sold and/or contributed by us from time to time to Helvetica Funding pursuant to a master loan purchase agreement, dated as of April 7, 2015, between us and Helvetica Funding (the “Loan Purchase Agreement”), and the terms of other transaction documents for the UBS Facility (the “Transaction Documents”). Helvetica Funding is also able to use available principal collections received from the loan assets to acquire loan assets directly. The loan assets held by Helvetica Funding secure the obligations of Helvetica Funding under the notes issued by Helvetica Funding. On the Closing Date, Helvetica Funding issued $300.0 million in notes, on the First Upsize Date, Helvetica Funding issued $120.0 million in notes, and on the Second Upsize Date, Helvetica Funding issued $69.5 million in notes (collectively the “Helvetica Notes”), pursuant to an indenture with US Bank, as amended and restated on the First Upsize Date and was again amended and restated on the Second Upsize Date, or collectively the Helvetica Indenture. Pursuant to the Helvetica Indenture, the aggregate principal amount of Helvetica Notes that may be issued by Helvetica Funding is $489.5 million. We purchased all of the Helvetica Notes issued by Helvetica Funding at a purchase price equal to their par value. All principal and any unpaid interest on all of the Helvetica Notes will be due and payable on the same stated maturity date of April 7, 2025. The Helvetica Notes do not have a stated interest rate. Instead, after payment of administrative fees and expenses under the Helvetica Indenture, interest on the Helvetica Notes is paid from and to the extent of any remaining interest payments received from the loan assets themselves. Principal payments received on the loan assets are either invested in eligible investments under the Helvetica Indenture, available to be used for redemption of the Helvetica Notes or available to Helvetica Funding to be utilized to acquire additional loan assets to secure the Helvetica Notes. Pursuant to the Transaction Documents, on the Closing Date we made an equity investment in Helvetica Funding in an amount equal to $0.1 million. We are required under the Transaction Documents to invest additional amounts from time to time to pay administrative costs and expenses under the Transaction Documents whenever the balance of funds available is or, after giving effect to a payment, will be less than $0.1 million.

We, in turn, have entered into a Repurchase Transaction with UBS pursuant to the terms of a global master repurchase agreement and related annex, dated as of March 31, 2015, and a confirmation related thereto, dated as of the Closing Date, which confirmation was as amended and restated for the First Upsize and was amended and restated for the Second Upsize, collectively referred to herein as the Repurchase Agreement. Pursuant to the Repurchase Agreement, UBS purchased the Helvetica Notes held by us on the Closing Date and on the date of the First Upsize for an aggregate purchase price equal to 50% of the principal amount of Helvetica Notes. The Helvetica Notes purchased by UBS on the Second Upsize Date were purchased at a lower purchase price of 47.5%. Under the Repurchase Agreement, on the Closing Date we sold $300.0 million of Helvetica Notes to UBS for $150.0 million, on the First Upsize Date we sold $120.0 million of Helvetica Notes to UBS for $60.0 million and on the Second Upsize Date we sold $69.5 million of Helvetica Notes to UBS for $22.5 million. Under the Repurchase Agreement, the scheduled repurchase date for all Helvetica Notes is April 7, 2018 (the “Scheduled Repurchase Date”), the date on which we must pay to UBS all the repurchase price outstanding for all of the Helvetica Notes and all other outstanding amounts owed to UBS under the Repurchase Agreement. We intend to use the proceeds of the offering of 2022 Notes to, among other things, repay the UBS Credit Facility. Under the terms of the Repurchase Agreement, we are required to maintain at all times overcollateralization for the repurchase obligations at a rate over two times the aggregate outstanding purchase price. The overcollateralization rate was increased from 50% to 52.5% in connection with the Second Upsize. In order for all Helvetica Notes to meet the new overcollateralization rate, the repurchase price for all Helvetica Notes were adjusted as follows: (a) with regard to the Helvetica Notes sold on the Closing Date, the repurchase price was reduced from $150.0 million to $142.5 million, (b) with regard to the Helvetica Notes sold on the First Upsize Date, the repurchase price was reduced from $60.0 million to $57.0 million, and (c) with regard to the Helvetica Notes sold on the Second Upside Date, the repurchase price was increased from $22.5 million to $33.0 million (the $10.5 million increase in price for these Helvetica Notes represents the total decrease in repurchase price necessary to bring the Helvetica Notes sold on the Closing Date and the First Upsize Date in line with the 52.5% overcollateralization requirement). Overcollateralization is maintained through margin call provisions in the Repurchase Agreement. Margin calls may not be made on us until the margin deficit initially exceeds 10% of the aggregate outstanding principal amount of the Helvetica Notes and, thereafter, margin calls may be made on us anytime the margin deficit exceeds 5% of the aggregate outstanding principal amount of the Helvetica Notes.

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The formula for calculating the overcollateralization and margin maintenance was changed in the Second Upsize. Those changes may result in an increased frequency of margin deficits that we would need to satisfy. Under the Repurchase Agreement, we are entitled to receive all interest payments and all redemption payments on the Helvetica Notes. However, we are obligated to pay UBS monthly transaction fees. Until our obligations under the Repurchase Agreement are satisfied, UBS is entitled to exercise all voting rights with respect to the Helvetica Notes. There are mandatory and voluntary prepayment provisions in the Repurchase Agreement. A mandatory prepayment event occurs if there is an event of default and acceleration under the Transaction Documents related to Helvetica Funding or UBS is subject to a regulatory event and exercises its option to require an early repurchase date. We may also voluntarily prepay the outstanding purchase price under the Repurchase Agreement in whole or in part but only to the extent there has been a redemption of the Helvetica Notes and such voluntary prepayment is limited to 50% of the redemption amount. Any mandatory prepayment (other than a UBS regulatory event) and any voluntary prepayment requires the payment by us of a breakage fee, equal to the present value of the transaction fee payable to UBS from the prepayment date to the Scheduled Repurchase Date.

As a result of this UBS Facility, we are subject to certain risks, including those set forth below.

Our equity investment in Helvetica Funding is subordinated to the debt obligations of Helvetica Funding.

Any dividends or other payments in respect of our equity interest in Helvetica Funding are subordinated in priority of payment to the Helvetica Notes. In addition, Helvetica Funding is subject to certain payment restrictions set forth in the Helvetica Indenture in respect of our equity interest.

We will receive cash distributions based on our investment in Helvetica Funding only if and when the Helvetica Notes are paid in full. We cannot assure you that distributions on the loan assets held by Helvetica Funding will be sufficient to make any distributions to us or that the yield on our investment in Helvetica Funding will meet our expectations.

Our equity investment in Helvetica Funding is unsecured and ranks behind all of the creditors, known or unknown, of Helvetica Funding, including the holders of the Helvetica Notes. Consequently, if the value of Helvetica Funding’s loan assets decrease as a result of conditions in the credit markets, defaulted loans, capital gains and losses on the loan assets, prepayments, changes in interest rates generally and/or other market or industry factors, the value of our equity investment in Helvetica Funding could be reduced. Accordingly, our investment in Helvetica Funding may not produce a profit and may be subject to a loss in an amount up to the entire amount of such equity investment.

In addition, if the value of Helvetica Funding’s loan assets decrease and Helvetica Funding is unable to make any required payments under the Helvetica Indenture, the Repurchase Agreement and/or other Transaction Documents, we may, in turn, be required to contribute additional capital contributions to Helvetica Funding, satisfy margin calls under the Repurchase Agreement, sell or dispose of loan assets and/or contribute additional loan assets to the Debt Securitization.

Our equity investment in Helvetica Funding has a high degree of leverage.

The maximum aggregate principal amount of Helvetica Notes permitted to be issued by Helvetica Funding under the Helvetica Indenture is $489.5 million. Our current equity investment in Helvetica Funding is $0.1 million The market value of our equity investment in Helvetica Funding may be significantly affected by a variety of factors, including changes in the market value of the loan assets held by Helvetica Funding, changes in distributions on the assets held by Helvetica Funding, defaults and recoveries on those loan assets, capital gains and losses on those loan assets, prepayments on those loan assets and other risks associated with those loan assets. Our investment in Helvetica Funding may not produce a profit and may be subject to a loss in an amount up to the entire amount of such equity investment. The leveraged nature of our equity investment may magnify the adverse impact of any loss on our equity investment.

The interests of UBS, as the holder of the Helvetica Notes, may not be aligned with our interests, and we will not have control over remedies in respect of the Helvetica Notes.

The Helvetica Notes rank senior in right of payment to any equity securities issued by Helvetica Funding. As a result, there are circumstances in which the interests of UBS, as the holder of the Helvetica Notes, may not be aligned with our interests. For example, under the terms of the Helvetica Notes, UBS has the right to receive payments of principal and interest prior to Helvetica Funding making any distributions or dividends to holders of its equity securities.

For as long as the Helvetica Notes remain outstanding, UBS has the right to act in certain circumstances with respect to the portfolio of loan assets that secure the obligations of Helvetica Funding under the Helvetica Notes in ways that may benefit their interests but not ours, including by exercising remedies or directing the Helvetica Indenture trustee to declare events of default

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under or accelerate the Helvetica Notes in accordance with the terms of the Helvetica Indenture. UBS has no obligation to consider any possible adverse effect that actions taken may have on our equity interests. For example, upon the occurrence of an event of default with respect to the Helvetica Notes, the trustee, which is currently U.S. Bank, may declare the outstanding principal amount of all of the Helvetica Notes, together with any accrued interest thereon, to be immediately due and payable. This would have the effect of accelerating the outstanding principal amount of the Helvetica Notes and triggering a repayment obligation on the part of Helvetica Funding. Helvetica Funding may not have proceeds sufficient to make required payments on the Helvetica Notes and make any distributions to us. Any failure of Helvetica Funding to make distributions on the equity interests we hold could have a material adverse effect on our business, financial condition, results of operations and cash flows, and may result in our inability to make distributions to our stockholders in amounts sufficient to maintain our qualification as a RIC, or at all.

Helvetica Funding’s loan assets may fail to meet certain eligibility criteria and/or become defaulted assets, which would have an adverse effect on us.

The loan assets must at all times satisfy certain loan eligibility criteria set forth in the Helvetica Indenture and certain other eligibility criteria and portfolio concentration limits set forth in the Repurchase Agreement. If any such eligibility criteria are not satisfied under the Helvetica Indenture or a loan asset becomes a defaulted obligation, the loan asset must be removed from the collateral and sold. In addition, if any such event occurs under the Helvetica Indenture, or the eligibility criteria or portfolio concentration limits set forth in the Repurchase Agreement are not satisfied, the market value of any such loan asset is treated as zero under the Repurchase Agreement. If the market value of a loan asset is zero, it will likely result in a margin call under the Repurchase Agreement if the threshold amount is satisfied. In order to avoid or satisfy a margin deficit, we may be required to contribute additional loan assets to Helvetica Funding, sell or dispose of assets or make additional borrowings to satisfy the obligations under the Helvetica Indenture and Repurchase Agreement. This could have a material adverse effect on our business, financial condition, results of operations and cash flows, and may result in our inability to make distributions to our stockholders in amounts sufficient to maintain our qualification as a RIC, or at all.

The market value of the loan assets may decline causing us to commit additional capital in order to meet certain margin posting, which would have an adverse effect on the timing of payments to us.

If at any time during the term of the UBS Facility the market value of the Helvetica Notes (measured by reference to the market value of Helvetica Funding’s portfolio of loan assets and other collateral) declines and is less than the required margin amount under the Repurchase Agreement and such deficiency exceeds the applicable threshold, we will be required to post cash collateral with UBS to correct such deficiency. The likelihood of us needing to satisfy a margin deficit is now greater with the increase in the overcollateralization percentage to 52.5%. In such event, in order to satisfy this requirement, we may be required to contribute additional loan assets to Helvetica Funding, sell or dispose of assets or make additional borrowings. This could have a material adverse effect on our business, financial condition, results of operations and cash flows, and may result in our inability to make distributions to our stockholders in amounts sufficient to maintain our qualification as a RIC, or at all.

Restructurings of investments held by Helvetica Funding, if any, may decrease their value and reduce the value of our equity interest in Helvetica Funding.

As collateral manager, subject to certain material actions that require the consent of UBS, we have authority to direct and supervise the investment and reinvestment of the loan assets held by Helvetica Funding, which may require from time to time the execution of amendments, waivers, modifications and other changes to the investment documentation in accordance with the related investment management agreement we have entered into with Helvetica Funding. During periods of economic uncertainty and recession, the necessity for amendments, waivers, modifications and restructurings of investments may increase. Such amendments, waivers, modifications and other restructurings may change the terms of the investments and, in some cases, may result in Helvetica Funding holding loan assets that do not meet certain specified criteria for the investments made by it, and also could adversely impact the market value of such investments and thereby the market value of the Helvetica Notes, which in turn could adversely impact our ability to meet margin calls. Any amendment, waiver, modification or other restructuring that affects the market value of the loan assets underlying the Helvetica Notes, and therefore reduces our ability to meet margin calls under the Repurchase Agreement, will make it more likely that Helvetica Funding will need to retain assets, including cash, to increase the market value of the loan assets underlying the Helvetica Notes and for us to post cash collateral with UBS in an amount equal to the related margin deficit after giving effect to the applicable threshold. Any such use of cash by Helvetica Funding would reduce distributions available to us or delay the timing of distributions to us.

We may not receive cash from Helvetica Funding.

We receive cash from Helvetica Funding only to the extent that Helvetica Funding makes distributions to us. Helvetica Funding may make distributions to us, in turn, only to the extent permitted by the Helvetica Indenture. The Helvetica Indenture

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generally provides that distributions by Helvetica Funding may not be made unless all amounts then due and owing with respect to the Helvetica Notes have been paid in full. If we do not receive cash from Helvetica Funding, we may be unable to make distributions to our stockholders in amounts sufficient to maintain our qualification as a RIC, or at all. We also could be forced to sell investments in our portfolio at less than their fair value in order to continue making such distributions.

We are subject to the credit risk of UBS.

If UBS fails to sell the Helvetica Notes back to us at the end of the applicable period, our recourse will be limited to an unsecured claim against UBS for the difference between the value of such Helvetica Notes at such time and the net amount that would be owing by us to UBS had UBS performed under the UBS Facility. The ability of UBS to satisfy such a claim will be subject to UBS’s creditworthiness at that time.

No market for the resale of the Helvetica Notes exists.

If we are the holder of the Helvetica Notes, no market for resale of the Helvetica Notes exists. The Helvetica Notes are highly illiquid, not suitable for short-term trading, no secondary market is likely to develop and the Helvetica Notes are a highly-leveraged investment in a portfolio consisting primarily of loan assets. These factors may expose the Helvetica Notes to disproportionately large losses.

Payments on the Helvetica Notes depend on the performance of the loan asset portfolio.

Payments on the Helvetica Notes are not guaranteed, but are dependent on the performance of the loan assets and other assets or investments held by Helvetica Funding. Due to the structure of the transaction and the performance of the loan assets and other assets or investments held by Helvetica Funding, it is possible that payments on the Helvetica Notes may be deferred, reduced or eliminated entirely. The holders of the Helvetica Notes are not entitled to a stated return on their investment and Helvetica Funding will have no significant assets other than the loan assets. Payments on the Helvetica Notes will be payable solely from and to the extent of the available proceeds from the loan assets and other assets of Helvetica Funding, in accordance with the priority of payments established under the Helvetica Indenture. If the payments on the Helvetica Notes are insufficient or non-existent, this would impact our ability to pay the amounts owed by us under the Helvetica Indenture, the Repurchase Agreement and other Transaction Documents. In such event, in order to satisfy the payment obligations, we may be required to contribute additional loan assets to Helvetica Funding, sell or dispose of assets or make additional borrowings. This could have a material adverse effect on our business, financial condition, results of operations and cash flows, and may result in our inability to make distributions to our stockholders in amounts sufficient to maintain our qualification as a RIC, or at all.

Events of default by us or Helvetica Funding may result in the sale of the loan asset portfolio at prices less than fair market value.

An event of default by us under the Repurchase Agreement is an event of default under the Helvetica Indenture and other Transaction Documents. Likewise, an event of default by the Helvetica Funding under the Helvetica Indenture results in an event of default under the Transaction Documents and a mandatory repayment of the aggregate outstanding purchase price under the Repurchase Agreement, which repurchase requires payment by us of the breakage fee. A default by us under the Helvetica Indenture can also result in an event of default under the Transaction Documents. Also, if there is cause for our removal as collateral manager under the Collateral Management Agreement, besides being removed as the day to day asset manager of the loan assets, such cause for removal also triggers events of default under the Helvetica Indenture, the other Transaction Documents and the Repurchase Agreement. Upon the occurrence of any of these or other events of default and the acceleration of the indebtedness under the Helvetica Indenture, the portfolio of loan assets is required to be sold or disposed of in accordance with the Helvetica Indenture. If the loan assets are sold under these circumstances due to any such defaults, the value of the loan assets may be sold for less than fair market value. As a result, we may be required to contribute additional capital to Helvetica Funding, sell or dispose of assets or make additional borrowings to satisfy the obligations under the Helvetica Indenture, the Repurchase Agreement and the other Transaction Documents. This could have a material adverse effect on our business, financial condition, results of operations and cash flows, and may result in our inability to make distributions to our stockholders in amounts sufficient to maintain our qualification as a RIC, or at all.


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Risks Relating to Our Corporate Structure and Common Stock

As a result of certain limitations in our share repurchase program, you will have limited opportunities to sell your shares and, to the extent you are able to sell your shares under the program, you may not be able to recover the amount of your investment in our shares.

We intend to conduct tender offers pursuant to our share repurchase program on a semi-annual basis. The share repurchase program includes numerous restrictions that limit your ability to sell your shares and should not be relied upon as a method to sell your shares promptly or at a desired price. We intend to limit the number of shares repurchased pursuant to our proposed share repurchase program as follows: (1) we currently intend to limit the number of shares to be repurchased during any calendar year to the number of shares we can repurchase with the proceeds we receive from the sale of shares of our common stock under our distribution reinvestment plan; at the discretion of our board of directors, we may also use cash on hand, cash available from borrowings and cash from liquidation of securities investments as of the end of the applicable period to repurchase shares; (2) we will not repurchase shares in any calendar year in excess of 10% of the weighted average number of shares outstanding in the prior calendar year; (3) unless you tender all of your shares, you must tender at least 25% of the amount of shares you have purchased in the offering and must maintain a minimum balance of $1,000 subsequent to submitting a portion of your shares for repurchase by us; and (4) to the extent that the number of shares put to us for repurchase exceeds the number of shares that we are able to purchase, we will repurchase shares on a pro rata basis, not on a first-come, first-served basis. Further, we will have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions under federal law or Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. These limits may prevent us from accommodating all repurchase requests made in any year.

Our board of directors may amend, suspend or terminate the repurchase program upon 30 days’ notice. We will notify you of such developments (1) in the quarterly reports mentioned above or (2) by means of a separate mailing to you, accompanied by disclosure in a current or periodic report under the Exchange Act.

The timing of our repurchase offers pursuant to our share repurchase program may be at a time that is disadvantageous to our stockholders.

When we make semi-annual repurchase offers pursuant to the share repurchase program, we may offer to repurchase shares at a price that is lower than the price you paid for shares in our offering. As a result, to the extent you have the ability to sell your shares to us as part of our share repurchase program, the price at which you may sell your shares, may be lower than what you paid in connection with your purchase of shares in our offering.

In addition, in the event you choose to participate in our share repurchase program, you will be required to provide us with notice of your intent to participate prior to knowing what the repurchase price per share will be on the repurchase date. Although you will have the ability to withdraw your repurchase request prior to the repurchase date, to the extent you seek to sell your shares to us as part of our periodic share repurchase program, you will be required to do so without knowledge of what the repurchase price of our shares will be on the repurchase date.

Under the terms of our charter, our board of directors is authorized to issue shares of preferred stock with rights and privileges superior to common stockholders without common stockholder approval.

Under the terms of our charter, our board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. The board of directors has discretion to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series of preferred stock.

Every issuance of preferred stock will be required to comply with the requirements of the 1940 Act, including among other things, that (1) immediately after issuance and before any distribution is made with respect to our common stock and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets after deducting the amount of such distribution or purchase price, as the case may be, and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if distributions on such preferred stock are in arrears by two years or more. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock.


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Your interest in us will be diluted if we issue additional shares, which could reduce the overall value of your investment.

Potential investors in this offering do not have preemptive rights to any shares we issue in the future. Our charter authorizes us to issue shares of common stock. Pursuant to our charter, a majority of our entire board of directors may amend our charter from time to time to increase or decrease the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series without stockholder approval. After your purchase in this offering, our board of directors may elect to sell additional shares in this or any follow-on public offerings, issue equity interests in private offerings or issue share-based awards to our independent directors or employees of our Adviser. To the extent we issue additional equity interests after your purchase in this offering, your percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our investments, you may also experience dilution in the book value and fair value of your shares.

Certain provisions of our charter and bylaws as well as provisions of the Maryland General Corporation Law could deter takeover attempts and have an adverse impact on the value of our common stock.

Our charter and bylaws, as well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third party from attempting to acquire us. Under the Maryland General Corporation Law, “control shares” acquired in a “control share acquisition” have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquiror, by officers or by employees who are directors of the corporation. Our bylaws contain a provision exempting us from the Maryland Control Share Acquisition Act under the Maryland General Corporation Law any and all acquisitions by any person of our shares of stock. Our board of directors may amend the bylaws to remove that exemption in whole or in part without stockholder approval. The Maryland Control Share Acquisition Act (if we amend our bylaws to be subject to that Act) may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Under the Maryland General Corporation Law, specified “business combinations,” including mergers, consolidations, share exchanges, or, in circumstances specified in the statute, asset transfers or issuances or reclassifications of equity securities, between a Maryland corporation and any person who owns 10% or more of the voting power of the corporation’s outstanding voting stock, and certain other parties (each an “interested stockholder”), or an affiliate of the interested stockholder, are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Thereafter any of the specified business combinations must be approved by two super majority votes of the stockholders unless, among other conditions, the corporation’s common stockholders receive a minimum price for their shares.

Under the Maryland General Corporation Law, certain statutory provisions permit a corporation that is subject to the Exchange Act and that has at least three independent directors to be subject to certain corporate governance provisions notwithstanding any contrary provision in the corporation’s charter and bylaws. Among other provisions, a board of directors may classify itself without the vote of stockholders. Further, the board of directors, by electing into certain statutory provisions and notwithstanding any contrary provision in the charter or bylaws, may (i) provide that a special meeting of stockholders will be called only at the request of stockholders entitled to cast at least a majority of the votes entitled to be cast at the meeting, (ii) reserve for itself the right to fix the number of directors, and (iii) retain for itself the exclusive power to fill vacancies created by the death, removal or resignation of a director. A corporation may be prohibited by its charter or by resolution of its board of directors from electing to be subject to any of the provisions of the statute. We are not prohibited from implementing any or all of the provisions.

Additionally, our board of directors may, without stockholder action, authorize the issuance of shares of stock in one or more classes or series, including preferred stock; and our board of directors may, without stockholder action, amend our charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue. These provisions may inhibit a change of control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the value of our common stock.

We are not obligated to complete a liquidity event by a specified date; therefore, it will be difficult for you to sell your shares.

We intend to explore a potential liquidity event for our stockholders between five to seven years following the completion of our offering stage. We expect that our board of directors, in the exercise of the requisite standard of care applicable to directors under Maryland law, will determine to pursue a liquidity event when it believes that then-current market conditions are favorable for a liquidity event, and that such a transaction is in our best interests. A liquidity event could include (1) the sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation, (2) a listing of our shares on a national securities exchange, or (3) a merger or another transaction approved by our board of directors in which our stockholders will receive cash or shares of a publicly traded company. However, there can be no assurance that we will complete a liquidity event within such time or at all. If we do not successfully complete a liquidity event, liquidity for your shares will be limited to our share repurchase program which we have no obligation to maintain.


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Our shares will not be listed on an exchange or quoted through a quotation system for the foreseeable future, if ever. Therefore, you will have limited liquidity and may not receive a full return of your invested capital if you sell your shares.

Our shares are illiquid assets for which there is not expected to be any secondary market nor is it expected that any will develop in the future. We intend to explore a potential liquidity event for our stockholders between five and seven years following the completion of our offering stage, which may include further follow-on offerings. However, there can be no assurance that we will complete a liquidity event within such time or at all. We expect that our board of directors, in the exercise of its duties to us, will determine to pursue a liquidity event when it believes that then-current market conditions are favorable for a liquidity event, and that such an event is in our best interests. A liquidity event could include (1) the sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation, (2) a listing of our shares on a national securities exchange or (3) a merger or another transaction approved by our board in which our stockholders will receive cash or shares of a publicly traded company.

In making the decision to apply for listing of our shares, our directors will try to determine whether listing our shares or liquidating our assets will result in greater value for our stockholders. In making a determination of what type of liquidity event is in our best interests, our board of directors, including our independent directors, may consider a variety of criteria, including, but not limited to, market conditions, portfolio diversification, portfolio performance, our financial condition, potential access to capital as a listed company, market conditions for the sale of our assets or listing of our common stock, internal management requirements to become a perpetual life company and the potential for stockholder liquidity. If our shares are listed, we cannot assure you a public trading market will develop.

You should also be aware that shares of publicly traded closed-end investment companies frequently trade at a discount to their NAV. If our shares are eventually listed on a national exchange, we would not be able to predict whether our common stock would trade above, at or below NAV. This risk is separate and distinct from the risk that our NAV may decline.

We may limit the number of shares to be repurchased during any redemption period to the number of shares of common stock we are able to repurchase with the proceeds received from the sale of shares of common stock under the DRIP during such redemption period.

As discussed above, we intend to conduct tender offers pursuant to our share repurchase program on a semi-annual basis. We may limit the number of shares to be repurchased during any redemption period to the number of shares of common stock we are able to repurchase with the proceeds received from the sale of shares of common stock under the DRIP during such redemption period. Our three most recent tender offers were oversubscribed.

Federal Income Tax Risks

We may be subject to corporate-level U.S. federal taxes if we fail to maintain our qualification as a RIC.

To maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements.

•
The Annual Distribution Requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our net ordinary income and net short-term capital gain in excess of net long-term capital loss, if any. We may be subject to corporate-level U.S. federal income tax on any of our undistributed income or gain. Additionally, we will be subject to a 4% nondeductible federal excise tax to the extent that we do not satisfy certain additional minimum distribution requirements on a calendar-year basis. Because we use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and may in the future become subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirements. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
•
The income source requirement will be satisfied if we obtain at least 90% of our gross income for each year from dividends, interest, gains from the sale of stock or securities or similar sources.
•
The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in

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order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

If we fail to maintain RIC tax treatment for any reason and are subject to corporate-level U.S. federal income tax on all of our income, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Even if we qualify as a RIC, we will be required to pay corporate-level U.S. federal income taxes on any income or capital gains that we do not distribute (or deemed to be distributed) to stockholders. We may also be subject to certain U.S. federal excise taxes, as well as state, local and foreign taxes.

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

For U.S. federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash. Further, we may elect to amortize market discounts and include such amounts in our taxable income in the current year, instead of upon disposition, as an election not to do so would limit our ability to deduct interest expenses for tax purposes.  

Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

You may receive shares of our common stock as distributions which could result in adverse tax consequences to you.

In order to satisfy the Annual Distribution Requirement applicable to RICs, we may have the ability to declare a large portion of a distribution in shares of our common stock instead of in cash, provided that stockholders have the right to elect to receive their distribution in cash. As long as a portion of such distribution is payable in cash (which portion can be as low as 20% based on certain rulings by the IRS) and certain requirements are met, the entire distribution to the extent of our current and accumulated earnings and profits would be a dividend for U.S. federal income tax purposes. If too many stockholders elect to receive their distributions in cash, each stockholder electing to receive his/her distribution in cash would receive a pro rata portion of his/her distribution in cash and the remaining portion of the distribution would be paid in shares of our common stock. As a result, a stockholder would be taxed on the entire distribution in the same manner as a cash distribution, even though a portion of the distribution was paid in shares of our common stock, and a stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, then such sales may put downward pressure on the trading price of our stock.

You may have current tax liability on distributions you elect to reinvest in our common stock but would not receive cash from such distributions to pay such tax liability.

If you participate in our distribution reinvestment plan, you will be deemed to have received, and for U.S. federal income tax purposes will be taxed on, the fair market value of our common stock that you received to the extent such amount was not a tax-free return of capital. As a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of our common stock received from the distribution.



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Your investment may be impacted by recently enacted federal tax legislation.

Significant U.S. federal tax reform legislation was recently enacted that, among other things, permanently reduces the maximum federal corporate income tax rate, reduces the maximum individual income tax rate (effective for taxable years 2018 through 2025), restricts the deductibility of business interest expense, changes the rules regarding the calculation of net operating loss deductions that may be used to offset taxable income, and, under certain circumstances, requires accrual method taxpayers to recognize income for U.S. federal income tax purposes no later than the income is taken into account as revenue in an applicable financial statement. The impact of this new legislation on the Company, our stockholders, and entities in which we may invest is uncertain. For example, it is unclear whether new limitations on the deductibility of business interest expense will affect the demand for credit among the entities to which we may lend money. Prospective investors are urged to consult their tax advisors regarding the effects of the new legislation on an investment in our shares of common stock.

If we do not qualify as a “publicly offered regulated investment company,” as defined in the Code, you will be taxed as though you received a distribution of some of our expenses and may be limited in your ability to deduct such expenses.

A “publicly offered regulated investment company” is a regulated investment company whose shares are either (i) continuously offered pursuant to a public offering, (ii) regularly traded on an established securities market or (iii) held by at least 500 persons at all times during the taxable year. If we are not a publicly offered regulated investment company for any period, a non-corporate stockholder’s pro rata portion of our affected expenses, including our management fees, will be treated as an additional distribution to the stockholder and will be deductible by such stockholder only to the extent permitted under the limitations described below. For non-corporate stockholders, including individuals, trusts, and estates, significant limitations generally apply to the deductibility of certain expenses of a non-publicly offered regulated investment company, including advisory fees. In particular, these expenses, referred to as miscellaneous itemized deductions, are not deductible after 2015 by individuals for before 2016. From 2026 and after, such expenses may be deductible only to the extent they exceed 2% of such a stockholder’s adjusted gross income. Such expenses are not deductible by an individual for alternative minimum tax purposes. While we anticipate that we will constitute a publicly offered regulated investment company for our current tax year, there can be no assurance that we will in fact so qualify for any of our taxable years.

An investment in the shares by a Non-U.S. stockholder may have adverse tax consequences.

Whether an investment in the shares is appropriate for a Non-U.S. stockholder will depend upon that person’s particular circumstances. A “Non-U.S. stockholder” is a beneficial owner of shares of our common stock that is neither a U.S. stockholder nor a partnership (including an entity treated as a partnership for U.S. federal income tax purposes). Among other things, a Non-U.S. stockholder, under certain circumstances, may be subject to withholding of U.S. federal income tax at a rate of 30.0% (or lower rate provided by an applicable treaty); required to file U.S. income taxes to receive a tax credit or tax refund of overpayments of taxes; subject to U.S. income tax at graduated rates or to a branch profits on our distributions; subject to certain reporting requirements, disclosure requirements, and withholding taxes under the Foreign Account Tax Compliance Act and other laws; and subject to certain rules regarding foreign tax credits. Non-U.S. persons should consult their tax advisors with respect to U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in our shares.

Our investments in CLOs may be subject to special anti-deferral provisions that could result in us incurring tax or recognizing income prior to receiving cash distributions related to such income.

We may in the future purchase residual or subordinated interests in CLOs or certain other non-U.S. equity investments that are treated for U.S. federal income tax purposes as shares in a “passive foreign investment company” (a “PFIC”). If we acquire shares in a PFIC (including equity tranche investments in CLOs that are PFICs), we may be subject to U.S. federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is distributed as a taxable distribution by us to our stockholders. Certain elections may be available to mitigate or eliminate such tax on excess distributions. If we make a QEF election, we generally would be required to include in our gross income our share of the earnings of a PFIC on a current basis, regardless of whether any distributions are received from such PFIC in a given taxable year. If this election were made, the special rules discussed above, relating to the taxation of excess distributions, would not apply. Alternatively, we may elect to mark-to-market our PFIC shares at the end of each taxable year, with the result that unrealized gains would be treated as though they were realized and reported as ordinary income. Any mark-to-market losses would be deductible as ordinary losses to the extent of any net mark-to-market gains included in income in prior taxable years.

If we hold more than 10% of the shares in a foreign corporation that is treated as a controlled foreign corporation (“CFC”) (including equity tranche investments in a CLO treated as CFC), we may be treated as receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporation in an amount equal to our pro rata share of the corporation’s income for the tax year (including both ordinary earnings and capital gains). In general, a foreign corporation will be considered a CFC

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if greater than 50% of the shares of the corporation, measured by reference to combined voting power or value, if owned (directly, indirectly or by attribution) by U.S. Shareholders. A “U.S. Shareholder,” for this purpose, is any U.S. person that possesses (actually or constructively) 10% or more of the combined voting power or value of all classes of shares of a corporation. If we are treated as having received such deemed distributions from a CFC, we will be required to include such distribution in our investment company taxable income regardless of whether we receive any distributions from such CFC, and we would be required to distribute such income to satisfy the distribution requirements applicable to RICs.

If we are required to include amounts in our taxable income prior to receiving distributions representing such income, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax.

Proposed regulations may impact our ability to qualify as a RIC if we do not receive timely distributions from certain of our CLO and other non-U.S. equity investments.

As discussed above, we may be required to include in our income our proportionate share of the income of certain CLO and other non-U.S. investments to the extent that such CLOs or foreign entities are PFICs for which we have made a qualifying electing fund (“QEF”) election or are CFCs. To qualify as a RIC, we must, among other thing, derive in each taxable year at least 90% of our gross income from certain sources specified in the Code (the “90% Income Test”). Although the Code generally provides that the income inclusions from a QEF or a CFC will be “good income” for purposes of this 90% Income Test to the extent that the QEF or the CFC distribute such income to us in the same taxable year to which the income is included in our income, the Code does not specifically provide whether these income inclusions would be “good income” for this 90% Income Test if we do not receive distributions from the QEF or CFC during such taxable year. The IRS and U.S. Treasury Department have proposed regulations that would provide that the income inclusions from a QEF or a CFC would not be good income for purposes of the 90% Income Test unless we receive a cash distribution from such entity in the same tax year attributable to the included income inclusions. The proposed regulations, if adopted, would apply to tax years beginning on or after 90 days after the regulations are published as final. If such regulations are finalized, we may be restricted in our ability to make QEF elections with respect to CLOs and other non-U.S. equity investments treated as PFICs as well as many need to limit and/or manage our holdings in issuers that could be treated as PFICs or CFCs in order to mitigate the risk that we do not qualify as a RIC.

The Collateralized Securities in which we invest may be subject to U.S. withholding tax if they fail to comply with certain reporting requirements.

The “Foreign Account Tax Compliance Act,” or FATCA, imposes a withholding tax of 30% on payments of U.S. source interest and distributions, and gross proceeds from the disposition of an instrument that produces U.S. source interest or distributions paid after December 31, 2018, to certain non-U.S. entities, including certain non U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its U.S. account holders and its U.S. owners. Most CLO vehicles in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If a CLO vehicle in which we invest fails to properly comply with these reporting requirements, it could reduce the amounts available to distribute to equity and junior debt holders in such CLO vehicle, which could materially and adversely affect our operating results and cash flows.

ITEM 1B. UNRESOLVED STAFF COMMENTS
    
None.

ITEM 2. PROPERTIES

We do not own any real estate or other physical properties materially important to our operation. Our executive offices are located at 9 West 57th Street, 49th Floor, Suite 4920, New York, NY 10019. We believe that our current office facilities are adequate for our business as we intend to conduct it.

ITEM 3. LEGAL PROCEEDINGS

As of December 31, 2017, we were not defendants 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. Third parties may also seek to impose liability on us in connection with the activities of our portfolio companies.


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BUSINESS DEVELOPMENT CORPORATION OF AMERICA


ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is currently no market for our common stock, and we do not expect that a market for our shares will develop in the future. We closed the Offering to new investments on April 30, 2015. And no stock has been authorized for issuance under any equity compensation plans. We are prohibited under the 1940 Act from selling our shares of common stock at a public offering price, after deducting selling commissions and dealer manager fees, that is below our net asset value per share unless we obtain stockholder approval. In connection with any issuance of shares of our common stock, our board of directors or a committee thereof will review the then current offering price per share against the current estimated net asset value per share to ensure that we were not selling shares of our common stock at a price which, after deducting selling commissions and dealer manager fees, was below our net asset value per share.

Set forth below is a chart describing the classes of our securities outstanding as of December 31, 2017:

Title of Class
 
Amount Authorized
 
Amount Issued
Common Stock, par value $0.001 per share
 
450,000,000
 
179,733,998

As of December 31, 2017, we had issued 195.7 million shares of common stock for gross proceeds of $2.1 billion, including the shares purchased by affiliates and shares issued under our DRIP. As of December 31, 2017, we had repurchased 16.0 million shares of common stock for payments of $143.6 million through our share purchase program. As of December 31, 2017, we had 36,330 record holders of our common stock.

Distributions

We declared our first distribution on June 23, 2011 and have declared and paid cash distributions to our stockholders on a monthly basis since such time. We calculate each stockholder’s specific distribution amount for the month using record and declaration dates, and the stockholder's distributions begin to accrue on the date we accepted their subscription for shares of our common stock. From time-to-time, we may also pay interim distributions at the discretion of our board of directors. Each year a statement on Internal Revenue Service Form 1099-DIV (or such successor form) identifying the source of the distribution (i.e., paid from ordinary income, paid from net capital gain on the sale of securities, and/or a return of paid-in capital surplus which is a nontaxable distribution) will be mailed to our stockholders. Our distributions may exceed our earnings, and, as a result, a portion of the distributions we make may represent a return of capital for tax purposes.
    
We have not established any limit on the extent to which we may use borrowings, if any, or proceeds from any future offering to fund distributions. There can be no assurance that we will be able to sustain distributions at any particular level.
    
From time-to-time and not less than quarterly, our Adviser will be required to review our accounts to determine whether distributions are appropriate. We shall distribute pro rata to our stockholders funds received by us which our Adviser deems unnecessary for us to retain.

To maintain our RIC qualification, we must, among other things, distribute at least 90% of our net ordinary income and net short-term capital gain in excess of net long-term capital loss, if any, to our stockholders. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute, or be deemed to distribute, during each calendar year an amount at least equal to the sum of: (1) 98% of our net ordinary income for the calendar year; (2) 98.2% of our capital gain in excess of capital loss for the calendar year; and (3) any net ordinary income and net capital gain for preceding years that were not distributed during such years and on which we paid no U.S. federal income tax. We can offer no assurance that we will achieve results that will permit the payment of any distributions and, if we issue senior securities, we will be prohibited from paying distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.


45


The table below reflects the cash distributions per share that we have paid on our common stock since January 2015 (dollars in thousands except per share amounts).
Record Date
 
Payment Date
 
Per share
 
Distributions Paid in Cash
 
Distributions Paid Through the DRIP
 
Total Distributions Paid
2015:
 
 
 
 
 
 
 
 
 
 
January 31, 2015
 
February 4, 2015
 
$
0.07

 
$
5,948

 
$
5,797

 
$
11,745

February 28, 2015
 
March 2, 2015
 
0.07

 
5,520

 
5,236

 
10,756

March 31, 2015
 
April 1, 2015
 
0.07

 
6,265

 
5,898

 
12,163

April 30, 2015
 
May 1, 2015
 
0.07

 
6,242

 
5,849

 
12,091

May 29, 2015
 
June 1, 2015
 
0.07

 
6,680

 
5,905

 
12,585

June 30, 2015
 
July 1, 2015
 
0.07

 
6,485

 
5,735

 
12,220

July 31, 2015
 
August 3, 2015
 
0.07

 
6,976

 
6,126

 
13,102

August 31, 2015
 
September 1, 2015
 
0.07

 
7,053

 
6,049

 
13,102

September 30, 2015
 
October 1, 2015
 
0.07

 
6,870

 
5,835

 
12,705

October 31, 2015
 
November 2, 2015
 
0.07

 
7,140

 
6,030

 
13,170

November 30, 2015
 
December 1, 2015
 
0.07

 
6,932

 
5,835

 
12,767

December 31, 2015
 
January 4, 2016
 
0.07

 
7,224

 
5,989

 
13,213

 
 
 
 
 
 
$
79,335

 
$
70,284

 
$
149,619

2016:
 
 
 
 
 
 
 
 
 
 
January 31, 2016
 
February 3, 2016
 
$
0.07

 
$
8,922

 
$
4,298

 
$
13,220

February 28, 2016
 
March 1, 2016
 
0.07

 
7,014

 
5,333

 
12,347

March 31, 2016
 
April 1, 2016
 
0.07

 
7,363

 
5,718

 
13,081

April 30, 2016
 
May 2, 2016
 
0.07

 
12,708

 
(2
)
 
12,706

May 31, 2016
 
June 2, 2016
 
0.07

 
7,582

 
5,539

 
13,121

June 30, 2016
 
July 1, 2016
 
0.07

 
7,438

 
5,304

 
12,742

July 31, 2016
 
August 1, 2016
 
0.07

 
7,789

 
5,421

 
13,210

August 31, 2016
 
September 1, 2016
 
0.07

 
7,908

 
5,351

 
13,259

September 30, 2016
 
October 3, 2016
 
0.07

 
7,745

 
5,127

 
12,872

October 31, 2016
 
November 1, 2016
 
0.07

 
8,067

 
5,273

 
13,340

November 30, 2016
 
December 1, 2016
 
0.07

 
7,947

 
5,073

 
13,020

December 31, 2016
 
January 3, 2017
 
0.07

 
8,311

 
5,205

 
13,516

 
 
 
 
 
 
$
98,794

 
$
57,640

 
$
156,434

2017:
 
 
 
 
 
 
 
 
 
 
January 31, 2017
 
February 3, 2017
 
$
0.07

 
$
7,983

 
$
5,081

 
$
13,064

February 28, 2017
 
March 1, 2017
 
0.07

 
7,250

 
4,612

 
11,862

March 31, 2017
 
April 3, 2017
 
0.07

 
8,135

 
5,060

 
13,195

April 30, 2017
 
May 1, 2017
 
0.07

 
7,942

 
4,881

 
12,823

May 31, 2017
 
June 1, 2017
 
0.07

 
8,270

 
4,995

 
13,265

June 30, 2017
 
July 3, 2017
 
0.07

 
8,064

 
4,813

 
12,877

July 31, 2017
 
August 3, 2017
 
0.06

 
6,307

 
3,692

 
9,999

August 31, 2017
 
September 1, 2017
 
0.06

 
6,223

 
3,622

 
9,845

September 30, 2017
 
October 2, 2017
 
0.05

 
6,060

 
3,477

 
9,537

October 31, 2017
 
November 1, 2017
 
0.06

 
6,303

 
3,574

 
9,877

November 30, 2017
 
December 1, 2017
 
0.05

 
6,140

 
3,443

 
9,583

December 31, 2017
 
January 2, 2018
 
0.06

 
6,388

 
3,535

 
9,923

 
 
 
 
 
 
$
85,065


$
50,785

 
$
135,850

        
    

46


We have a distribution reinvestment plan (the “DRIP”) pursuant to which we reinvest all cash dividends or distributions (“Distributions”) declared by our board of directors on behalf of investors who do not elect to receive their Distributions in cash as described below (the “Participants”). As a result, if our board of directors declares a Distribution, then stockholders who have not elected to “opt out” of the DRIP will have their Distributions automatically reinvested in additional shares of our common stock at a price equal to NAV per share as estimated in good faith by us on the payment date. The timing and amount of any future Distributions to stockholders are subject to applicable legal restrictions and the sole discretion of our board of directors.
    
We have not established limits on the amount of funds we may use from available sources to fund distributions. We may have distributions which could be characterized as a return of capital for tax purposes. During the years ended December 31, 2017 and December 31, 2016, no portion of our distributions were characterized as return of capital for tax purposes, respectively. During the year ended December 31, 2015, $16.3 million of our distributions were characterized as return of capital for tax purposes, respectively.
    
Sales of Unregistered Securities

In connection with the closing of the Transaction, an affiliate of BSP purchased $10.0 million of our common stock based on our net asset value per share as of September 30, 2016 in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”). On November 7, 2016, we issued approximately 1.2 million shares of our common stock to the BSP affiliate.

Issuer Purchases of Equity Securities

The table below provides information concerning our repurchases of shares of our common stock during the year ended December 31, 2017, pursuant to our share repurchase program.

Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as
Part of Publicly Announced Plans or
Programs
January 1, 2017 to March 31, 2017
 
—

 
$
—

 
—

April 1, 2017 to June 30, 2017
 
—

 
$
—

 
—

July 1, 2017 to September 30, 2017
 
3,548,885

 
$
8.52

 
3,548,885

October 1, 2017 to December 31, 2017
 
—

 
$
—

 
—

Total
 
3,548,885

 
 
 
3,548,885


See Note 9 to our consolidated financial statements contained in this Annual Report on Form 10-K for a more detailed discussion of the terms of our share repurchase program.


















47


ITEM 6. SELECTED FINANCIAL DATA

The consolidated statements of operations data, consolidated per share data and consolidated statements of assets and liabilities data for each of the five years in the period ended December 31, 2017 are derived from our audited consolidated financial statements which are filed with the SEC. This selected financial data should be read in conjunction with our consolidated financial statements and related notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report.
 
As of and For the Year Ended December 31, 2017
 
As of and For the Year Ended December 31, 2016
 
As of and For the Year Ended December 31, 2015
 
As of and For the Year Ended December 31, 2014
 
As of and For the Year Ended December 31, 2013
 
(Dollars in thousands, except per share data)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
 
 
Total investment income
$
223,820

 
$
229,658

 
$
195,846

 
$
138,281

 
$
31,393

Total expenses net of expense waivers (1)
116,161

 
108,521

 
81,690

 
51,994

 
18,301

Income tax expense, including excise tax
1,619

 
1,140

 
—

 
—

 
 
Net investment (income) loss attributable to non-controlling interests
29

 
19

 
—

 
(68
)
 
—

Net investment income
106,011

 
119,978

 
114,156

 
86,355

 
13,092

Net realized and unrealized gain (loss) on investments and total return swap, net of deferred taxes
(27,651
)
 
(26,892
)
 
(103,576
)
 
(6,155
)
 
29,652

Net change in unrealized (appreciation) depreciation attributable to non-controlling interests
29

 
1,316

 
(2,527
)
 
(660
)
 
—

Net increase in net assets resulting from operations
$
78,389

 
$
94,402

 
$
8,053

 
$
79,540

 
$
42,744

Consolidated Per Share Data:
 
 
 
 
 
 
 
 
 
Net investment income
$
0.59

 
$
0.67

 
$
0.66

 
$
0.71

 
$
0.36

Net realized and unrealized gain (loss) on investments and total return swap, net of deferred taxes
$
(0.15
)
 
$
(0.14
)
 
$
(0.60
)
 
$
(0.05
)
 
$
0.81

Net increase in net assets resulting from operations
$
0.44

 
$
0.52

 
$
0.05

 
$
0.65

 
$
1.17

Distributions declared
$
0.76

 
$
0.87

 
$
0.87

 
$
0.87

 
$
0.85

Consolidated Statements of Assets and Liabilities Data:
 
 
 
 
 
 
 
 
 
Total assets
$
2,652,514

 
$
2,616,306

 
$
2,490,755

 
$
2,187,942

 
$
841,641

Borrowings outstanding
$
1,041,149

 
$
915,497

 
$
842,238

 
$
618,712

 
$
132,687

Total net assets
$
1,494,516

 
$
1,529,734

 
$
1,610,485

 
$
1,535,423

 
$
627,903

Other data:
 
 
 
 
 
 
 
 
 
Total return (2)
5.24
%
 
6.02
%
 
0.67
%
 
7.63
%
 
14.12
%
Number of portfolio company investments at year end
157

 
135

 
125

 
110

 
83

Value of investments at year end
$
2,503,523

 
$
2,394,083

 
$
2,311,281

 
$
1,916,991

 
$
695,776

Weighted average yield on investments at year end (3)
8.9
%
 
9.7
%
 
9.9
%
 
10.8
%
 
9.7
%



48


______________
(1) Expenses are net of expense waivers for the years ended December 31, 2015, 2014 and 2013, the amounts waived were $3,534, $1,335 and $1,827, respectively. No expenses were waived for the years ended December 31, 2017 and 2016.
(2) Total return is calculated assuming a purchase of shares of common stock at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the DRIP. The total return based on net asset value for the years ended December 31, 2017, December 31, 2016, December 31, 2015, December 31, 2014 and December 31, 2013, includes the effect of expense waivers and reimbursements which equaled 0.00%, 0.00%, 0.22%, 0.11% and 0.51%, respectively.
(3) Inclusive of TRS Loans, for the years ended December 31, 2014, and 2013. The TRS was liquidated during the year ended December 31, 2014.

49



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the selected financial data and our consolidated financial statements and the notes thereto, included elsewhere in this Annual Report on Form 10-K. We are externally managed by our adviser, BDCA Adviser, LLC (the “Adviser”).

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 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 disclosed in our U.S. Securities and Exchange Commission (“SEC”) reports and those identified elsewhere in this report, including the “Risk Factors” section, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

•
our future operating results;
•
our business prospects and the prospects of our portfolio companies;
•
the impact of the investments that we expect to make;
•
the ability of our portfolio companies to achieve their objectives;
•
our contractual arrangements and relationships with third parties;
•
our expected financings and investments;
•
the adequacy of our cash resources and working capital;
•
the timing of cash flows, if any, from the operations of our portfolio companies;
•
our repurchase of shares;
•
actual and potential conflicts of interest with our Adviser and its affiliates;
•
the dependence of our future success on the general economy and its effect on the industries in which we invest;
•
the ability to qualify and maintain our qualifications as a regulated investment company (“RIC”) and a business development company (“BDC”);
•
the timing, form and amount of any distributions;
•
the impact of fluctuations in interest rates on our business;
•
the valuation of any investments in portfolio companies, particularly those having no liquid trading market;
•
the impact of changes to generally accepted accounting principles, and the impact to BDCA; and
•
the impact of changes to tax legislation and, generally, our tax position.

Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in this Annual Report.

Overview

We are an externally managed, non-diversified closed-end management investment company incorporated in Maryland in May 2010 that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (“the 1940 Act”). In addition, we have elected to be treated for tax purposes as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Our investment activities are managed by the Adviser, a subsidiary of Benefit Street Partners L.L.C. (“BSP”) and supervised by our board of directors, a majority of whom are independent of the Adviser and its affiliates. As a BDC,

50


we are required to comply with certain regulatory requirements. See “Item 1. Business - Regulation” for discussion of BDC regulation and other regulatory considerations.

Our investment objective is to generate both current income and to a lesser extent long-term capital appreciation through debt and equity investments. We invest primarily in senior secured loans, and to a lesser extent, mezzanine loans, unsecured loans and equity of predominantly private U.S. middle-market companies. We define middle market companies as those with annual revenues of less than $1 billion, although we may invest in larger or smaller companies. We may also purchase interests in loans or corporate bonds through secondary market transactions. We expect that each investment generally will range between approximately 0.5% and 3.0% of our total assets. As of December 31, 2017, 80.5% of our portfolio was invested in senior secured loans.

Senior secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in priority of payments and are generally secured by liens on the operating assets of a borrower which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. We may also invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles (“Collateralized Securities” or “CLO's”).

Financial and Operating Highlights
(Dollars in millions, except per share amounts)
 
At December 31, 2017:
 
 
Investment Portfolio
$
2,503.5

 
Net Assets attributable to Business Development Corporation of America
1,491.7

 
Debt (net of deferred financing costs)
1,030.2

 
Net Asset Value per share
8.30

 
 
 
Portfolio Activity for the Year Ended December 31, 2017:
 
 
Cost of investments purchased during period, including PIK
1,108.9

 
Sales, repayments and other exits during the period
980.9

 
Number of portfolio companies at end of period
157

 
 
 
Operating results for the Year Ended December 31, 2017:
 
 
Net investment income per share
0.59

 
Distributions declared per share
0.76

 
Net increase in net assets resulting from operations per share
0.44

 
Net investment income
106.0

 
Net realized and unrealized gain (loss) on investments, net of deferred taxes
(27.6
)
 
Net increase in net assets resulting from operations
78.4


Portfolio and Investment Activity

During the year ended December 31, 2017, we made $1,102.0 million of investments in new and existing portfolio companies and had $980.9 million in aggregate amount of exits and repayments, resulting in net investments of $121.1 million for the period. The portfolio composition by loan market consisted of 75.3% Middle Market (1), 8.9% Large Corporate (2), and 15.8% Other (3) investments. In addition, the total portfolio of debt investments at fair value consisted of 92.7% bearing variable interest rates and 7.3% bearing fixed interest rates.
______________

(1) Middle market represents companies with annual revenues of less than $1 billion.
(2) Large corporate represents companies with annual revenues exceeding $1 billion.
(3) Other represents collateralized securities and equity investments.


51


Our portfolio composition, based on fair value at December 31, 2017 was as follows:
 
December 31, 2017
 
Percentage of
Total Portfolio
 
Weighted Average Current Yield for Total Portfolio (1)
Senior Secured First Lien Debt
71.0
%
 
8.7
%
Senior Secured Second Lien Debt
9.5

 
10.4

Subordinated Debt
3.8

 
13.0

Collateralized Securities (2)
6.4

 
6.3

Equity/Other
9.3

 
N/A

Total
100.0
%
 
8.9
%
______________

(1) Includes the effect of the amortization or accretion of loan premiums or discounts.
(2) Weighted average current yield for Collateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).

During the year ended December 31, 2016, we made $678.5 million of investments in new and existing portfolio companies and had $587.9 million in aggregate amount of exits and repayments, resulting in net investments of $90.6 million for the period. The portfolio composition by loan market consisted of 75.2% Middle Market (1), 7.2% Large Corporate (2), and 17.6% Other (3) investments. In addition, the total portfolio of debt investments at fair value consisted of 92.2% bearing variable interest rates and 7.8% bearing fixed interest rates.
______________

(1) Middle market represents companies with annual revenues of less than $1 billion.
(2) Large corporate represents companies with annual revenues exceeding $1 billion.
(3) Other represents collateralized securities and equity investments.

Our portfolio composition, based on fair value at December 31, 2016 was as follows:
 
December 31, 2016
 
Percentage of
Total Portfolio
 
Weighted Average Current Yield for Total Portfolio (1)
Senior Secured First Lien Debt
68.1
%
 
9.1
%
Senior Secured Second Lien Debt
10.9

 
10.7

Subordinated Debt
3.4

 
13.5

Collateralized Securities (2)
10.4

 
11.5

Equity/Other
7.2

 
N/A

Total
100.0
%
 
9.7
%
______________

(1) Includes the effect of the amortization or accretion of loan premiums or discounts.
(2) Weighted average current yield for Collateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).

Portfolio Asset Quality

Our Adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Adviser grades the credit risk of all debt investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio debt investment relative to the inherent risk at the time the original debt investment was made (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company's business, the collateral coverage of the investment and other relevant factors.

52


 Loan Rating
 
Summary Description
1
  
Debt investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since the time of investment are favorable.
 
 
2
  
Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable. All investments are initially rated a “2”.
 
 
3
  
Performing debt investment requiring closer monitoring. Trends and risk factors show some deterioration.
 
 
4
  
Underperforming debt investment. Some loss of interest or dividend expected, but still expecting a positive return on investment. Trends and risk factors are negative.
 
 
5
  
Underperforming debt investment with expected loss of interest and some principal.

The weighted average risk ratings of our investments based on fair value was 2.32 and 2.18 as of December 31, 2017 and December 31, 2016, respectively. As of December 31, 2017, we had four portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $120.2 million, amortized cost of $97.6 million, and fair value of $21.0 million, which represented 4.0%, 3.8% and 0.8% of the investment portfolio's total principal, amortized cost and fair value, respectively. As of December 31, 2016, we had six portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $136.2 million, amortized cost of $127.6 million, and fair value of $51.2 million which represented 5.0%, 5.1% and 2.1% of the investment portfolio's total principal, amortized cost and fair value, respectively. Refer to Note 2 - Summary of Significant Accounting Policies - in our consolidated financial statements included in this report for additional details regarding our non-accrual policy.

RESULTS OF OPERATIONS

Operating results for the years ended December 31, 2017, 2016 and 2015 was as follows (dollars in thousands):
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
2017
 
2016
 
2015
Total investment income
$
223,820

 
$
229,658

 
$
195,846

Total expenses net of expense waivers
116,161

 
108,521

 
81,690

Income tax expense, including excise tax
1,619

 
1,140

 
—

Net investment loss attributable to non-controlling interests
29

 
19

 
—

Net investment income
$
106,011

 
$
119,978

 
$
114,156


 Investment Income

For the year ended December 31, 2017, total investment income was $223.8 million and was primarily attributable to interest income from investments in portfolio companies with an average portfolio fair value of $2.4 billion and a weighted average current yield of 8.9%. Included within total investment income was $7.7 million of fee income for the year ended December 31, 2017. Fee income consists primarily of prepayment and amendment fees. For the year ended December 31, 2016, total investment income was $229.7 million and was primarily attributable to interest income from investments in portfolio companies with an average portfolio fair value of $2.4 billion and a weighted average current yield of 9.7%. Included within total investment income was $5.5 million of fee income for the year ended December 31, 2016. Fee income consists primarily of prepayment and amendment fees. For the year ended December 31, 2015, total investment income was $195.8 million and was primarily attributable to interest income from investments in portfolio companies with an average portfolio fair value of $2.1 billion and a weighted average current yield of 9.9%. Included within total investment income was $2.5 million of fee income for the year ended December 31, 2015. Fee income consists primarily of prepayment and amendment fees. The decrease in total investment income during the year ended December 31, 2017 as compared to the year ended December 31, 2016, was due to a decrease in weighted average yield on investments. The increase in total investment income during the year ended December 31, 2016 as compared to the year ended December 31, 2015, was driven by the year over year increases in average portfolio size.


53


Operating Expenses

The composition of our operating expenses for the years ended December 31, 2017, 2016 and 2015 was as follows (dollars in thousands):

 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
2017
 
2016
 
2015
Management fees
$
39,068

 
$
38,121

 
$
35,994

Incentive fee on income
19,707

 
17,906

 
10,145

Interest and debt fees
43,851

 
37,327

 
26,467

Professional fees
4,726

 
6,357

 
6,777

Other general and administrative
7,047

 
7,059

 
4,590

Administrative services
807

 
811

 
966

Insurance
11

 
184

 
210

Directors' fees
944

 
756

 
75

Operating expenses before expense waivers
116,161

 
108,521

 
85,224

Waiver of management and incentive fees
—

 
—

 
(3,534
)
Total operating expenses net of expense waivers
$
116,161

 
$
108,521

 
$
81,690


For the year ended December 31, 2017, we incurred $39.1 million of management fees, of which the Adviser did not waive any such fees. For the year ended December 31, 2017, we incurred $19.7 million of incentive fees on income, of which the Adviser did not waive any such fees. For the year ended December 31, 2016, we incurred $38.1 million of management fees, of which the Adviser did not waive any such fees. For the year ended December 31, 2016, we incurred $17.9 million of incentive fees on income, of which the Adviser did not waive any such fees. For the year ended December 31, 2015, we incurred $36.0 million of management fees, of which the Adviser did not waive any such fees. For the year ended December 31, 2015, we incurred $10.1 million of incentive fees on income, of which the Adviser waived $3.5 million.

For the years ended December 31, 2017, 2016 and 2015, we incurred interest and debt fees of $43.9 million, $37.3 million, and $26.5 million, respectively. Interest and debt fees are comprised of interest expense, non-usage fees, trustee fees, amortization of deferred financing costs and amortization of discount if applicable related to the Wells Fargo Credit Facility, Deutsche Bank Credit Facility, Citi Credit Facility, UBS Credit Facility, 2020 Notes, Unsecured Notes and the JPMC PB Account. The increase in interest and debt fees for the year ended December 31, 2017 as compared to the same periods in 2016 and 2015 is a result of an increase in the weighted average interest rate as well as an increase in the average debt outstanding.



















54


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

Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments, net of deferred taxes for the years ended December 31, 2017, December 31, 2016 and December 31, 2015 were as follows (dollars in thousands):

 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
2017
 
2016
 
2015
Net realized gain (loss) from investments
 
 
 
 
 
   Control investments
$
(1,702
)
 
$
—

 
$
(51
)
   Affiliate investments
(20,019
)
 
(11,988
)
 
276

   Non-affiliate investments
(31,414
)
 
(11,321
)
 
(579
)
Total net realized loss from investments
(53,135
)
 
(23,309
)
 
(354
)
Net change in unrealized appreciation (depreciation) on investments, net of deferred taxes
 
 
 
 
 
   Control investments
(1,899
)
 
(40,638
)
 
19,207

   Affiliate investments
75

 
48,182

 
(68,777
)
   Non-affiliate investments
27,308

 
(11,127
)
 
(53,652
)
Total net change in unrealized appreciation (depreciation) on investments, net of deferred taxes
25,484

 
(3,583
)
 
(103,222
)
Net change in unrealized (appreciation) depreciation attributable to non-controlling interests
29

 
1,316

 
(2,527
)
Net realized and unrealized loss on investments
$
(27,622
)
 
$
(25,576
)
 
$
(106,103
)

Net realized and unrealized loss on investments, net of deferred taxes, resulted in a net loss of $(27.6) million for the year ended December 31, 2017 compared to a net loss of $(25.6) million and $(106.1) million, respectively, for the same periods in 2016 and 2015. We look at net realized gains (losses) and change in unrealized appreciation (depreciation) together, as movement in unrealized appreciation or depreciation can be the result of realizations.

The net realized and unrealized loss for the year ended December 31, 2017 was primarily driven by realized losses on Senior Secured Investment restructurings and sales of Collateralized Securities and unrealized losses in Senior Secured Investments. The net realized and unrealized loss for the year ended December 31, 2016 was primarily driven by realized losses on one subordinated, one first lien, and one equity investment. The net realized and unrealized loss for the year ended December 31, 2015 was primarily driven by unrealized depreciation across the portfolio of Collateralized Securities investments.
        
Changes in Net Assets from Operations

For the year ended December 31, 2017, we recorded a net increase in net assets resulting from operations of $78.4 million versus a net increase in net assets resulting from operations of $94.4 million for the year ended December 31, 2016. The decrease is primarily attributable to greater realized losses on our investments. Based on the weighted average shares of common stock outstanding for the periods ended December 31, 2017 and 2016, respectively, our per share net increase in net assets resulting from operations was $0.44 for the year ended December 31, 2017, versus a net increase in net assets resulting from operations of $0.52 for the year ended December 31, 2016.

For the year ended December 31, 2016, we recorded a net increase in net assets resulting from operations of $94.4 million versus a net increase in net assets resulting from operations of $8.1 million for the year ended December 31, 2015. The increase is primarily attributable to net unrealized appreciation on our investments, driven mostly by our Collateralized Securities. Based on the weighted average shares of common stock outstanding for the periods ended December 31, 2016 and 2015, respectively, our per share net increase in net assets resulting from operations was $0.52 for the year ended December 31, 2016, versus a net increase in net assets resulting from operations of $0.05 for the year ended December 31, 2015.




55


Cash Flows

For the year ended December 31, 2017, net cash used in operating activities was $31.5 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio
investments. The decrease in cash flows used in operating activities for the year ended December 31, 2017 was primarily result of purchases of investments of $1,102.0 million, offset by sales and repayments of investments of $980.9 million.

Net cash used in financing activities of $58.0 million during the year ended December 31, 2017 primarily related to net repurchases of common stock of $87.9 million and payments of stockholder distributions of $87.0 million, partially offset by net proceeds from the Wells Fargo Credit Facility, Citi Credit Facility, and the JPMC PB Account of $125.3 million.

For the year ended December 31, 2016, net cash provided by operating activities was $84.5 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio
investments, among other factors. The increase in cash flows provided by operating activities for the year ended December 31, 2016 was primarily due to $587.9 million for sales and repayments of investments, a net increase in realized gains from investments of $23.3 million, a net increase in net assets of $94.4 million and an increase in unsettled purchases of $67.3 million, offset by cash used in operating activities for purchases of $678.5 million, a decrease in unsettled sale proceeds of $2.9 million and payment-in-kind (“PIK”) interest of $12.4 million.

Net cash used in financing activities of $45.7 million during the year ended December 31, 2016 primarily related to net proceeds from the Wells Fargo Credit Facility, Citi Credit Facility, Deutsche Bank Credit Facility and the UBS Credit Facility of $72.9 million. These inflows were partially offset by payments of stockholder distributions of $97.7 million and net repurchases of common stock of $29.1 million.
    
For the year ended December 31, 2015, net cash used in operating activities was $344.9 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio
investments, among other factors. The increase in cash flows used in operating activities for the year ended December 31, 2015 was primarily due to $1,150.3 million for purchases of investments partially offset by cash provided by operating activities of $678.2 million for sales and repayments of investments, $6.0 million from a increase in unsettled trades payable, and $8.1 million from a net increase in net assets from operations. The purchase and sales activity was driven by the increase in investment activity resulting from the equity capital raising and borrowings on our credit facilities.

Net cash provided by financing activities of $288.5 million during the year ended December 31, 2015 primarily related to net proceeds from the issuance of common stock of $165.5 million and net proceeds from the Wells Fargo Credit Facility, the Deutsche Bank Credit Facility, Citi Credit Facility, and the UBS Credit Facility of $223.4 million. These inflows were partially offset by payments of stockholder distributions of $78.0 million. Consistent with the increase in investment activity, the proceeds from the issuance of common stock are the result of our increasing equity raise capabilities.
    
Recent Developments

Distribution Reinvestment Plan (“DRIP”) Sales

From January 1, 2018 through the filing of this Form 10-K, we issued 1.2 million shares of common stock including shares issued pursuant to the DRIP. Total gross proceeds from these issuances including proceeds from shares issued pursuant to the DRIP were $10.2 million.

Share Repurchase Program

On December 19, 2017, we offered to purchase no less than 2,300,000 and up to approximately 3,000,000 shares of our common stock pursuant to our SRP at a price equal to $8.31 per share. The offer expired on January 19, 2018 (the “Expiration Date”). On the Expiration Date, we purchased 2,547,524 shares of our common stock for aggregate consideration of $21.4 million pursuant to the limitations of the SRP as detailed in Note 9.







56


Liquidity and Capital Resources

We generate cash flows from fees, interest and dividends earned from our investments, as well as proceeds from sales of our investments and, previously, from the net proceeds of our Offering. As of December 31, 2017, we had issued 195.7 million shares of our common stock for gross proceeds of $2.1 billion, including the shares purchased by affiliates and shares issued pursuant to the DRIP.
    
Our principal demands for funds in both the short-term and long-term are for portfolio investments, for the payment of operating expenses, distributions to our investors, repurchases under our share repurchase program, and for the payment of principal and interest on our outstanding indebtedness. We may also from time to time enter into other agreements with third parties whereby third parties will contribute to specific investment opportunities. Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from private offerings, proceeds from the sale of investments and undistributed funds from operations. However, our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to raise proceeds in our public offering will be dependent on a number of factors as well, including general market conditions for BDCs.

We intend to conduct semi-annual tender offers pursuant to our share repurchase program. Our board of directors will consider the following factors, among others, in making its determination regarding whether to cause us to offer to repurchase shares and under what terms:

•
the effect of such repurchases on our qualification as a RIC (including the consequences of any necessary asset sales);
•
the liquidity of our assets (including fees and costs associated with disposing of assets);
•
our investment plans and working capital requirements;
•
the relative economies of scale with respect to our size;
•
our history in repurchasing shares or portions thereof; and
•
the condition of the securities markets.

On March 8, 2016, our board of directors amended our share repurchase program. We intend to conduct tender offers on a semi-annual basis, instead of on a quarterly basis as was done previously. We intend to continue to limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 5.0% at each semi-annual tender offer. In addition, in the event of a stockholder’s death or disability, any repurchases of shares made in connection with a stockholder’s death or disability may be included within the overall limitation imposed on tender offers during the relevant redemption period, which provides that we may limit the number of shares to be repurchased during any redemption period to the number of shares of common stock we are able to repurchase with the proceeds received from the sale of shares of common stock under the DRIP during such redemption period.

Distributions

Our board of directors has authorized, and has declared, cash distributions payable on a monthly basis to stockholders of record on each day since it commenced operations. From November 2013 until July 2017, the distribution rate has been $0.002378082 per day, which is equivalent to $0.868 per annum, per share of common stock, except for 2016, where the daily distribution rate was $0.002371585 per day to accurately reflect 2016 being a leap year. In July 2017, the board of directors reduced the distribution rate with respect to our cash distributions to $0.001780822 per day, which is equivalent to $0.65 annually, per share of common stock.

The amount of each such distribution is subject to the discretion of our board of directors and applicable legal restrictions related to the payment of distributions. We calculate each stockholder’s specific distribution amount for the month using record and declaration dates and accrue distributions on the date we accept a subscription for shares of our common stock. The distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month.

From time to time, we may also pay interim distributions at the discretion of our board of directors. Our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from our IPO. As a result, a portion of the distributions we make may represent a return of capital for tax purposes.

57


The table below shows the components of the distributions we have declared and/or paid during the years ended December 31, 2017, 2016 and 2015 (dollars in thousands).

 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
2017
 
2016
 
2015
Distributions declared
$
135,850

 
$
156,434

 
$
149,619

Distributions paid
$
139,443

 
$
156,132

 
$
147,992

Portion of distributions paid in cash
$
86,988

 
$
97,708

 
$
77,959

Portion of distributions paid in DRIP shares
$
52,455

 
$
58,424

 
$
70,033


As of December 31, 2017, we had $9.9 million of distributions accrued and unpaid. As of December 31, 2016, we had $13.5 million of distributions accrued and unpaid.

We may fund our cash distributions to stockholders from any sources of funds available to us, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets and non-capital gains proceeds from the sale of assets. We have not established limits on the amount of funds we may use from available sources to make distributions. We may have distributions which could be characterized as a return of capital for tax purposes. During the years ended December 31, 2017 and 2016, no portion of our distributions was characterized as return of capital for tax purposes. During the year ended December 31, 2015, $16.3 million of our distributions was characterized as return of capital for tax purposes. The specific tax characteristics of our distributions made in respect of our anticipated fiscal year ending December 31, 2017 will be reported to stockholders shortly after the end of the calendar year 2017 as well as in our periodic reports with the SEC. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gains. Moreover, you should understand that any such distributions were not based on our investment performance and can only be sustained if we achieve positive investment performance in future periods and/or our Adviser continues to make such reimbursements. There can be no assurance that we will achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at all.

The following table sets forth the distributions made during the years ended December 31, 2017, 2016, and 2015 (dollars in thousands):
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
2017
 
2016
 
2015
Monthly distributions
$
135,850

 
$
156,434

 
$
149,619

Total distributions
$
135,850

 
$
156,434

 
$
149,619


Taxation as a RIC

We have elected to be treated as a RIC under Subchapter M of the Code commencing with our tax year ended December 31, 2011, and intend to maintain our qualification as a RIC thereafter. As a RIC, we generally will not be subject to corporate-level U.S. federal income taxes on any income that we distribute as dividends for U.S. federal income tax purposes to our stockholders. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must distribute to our stockholders, for each tax year, an amount equal to at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss and determined without regard to any deduction for dividends paid, or the annual distribution requirement. Even if we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax on our undistributed taxable income and could be subject to state, local and foreign taxes.

Additionally, in order to avoid the imposition of a U.S. federal excise tax, we are required to distribute, in respect of each calendar year, dividends to our stockholders of an amount at least equal to the sum of 98% of our calendar year net ordinary income (taking into account certain deferrals and elections); 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the one year period ending on October 31 of such calendar year; and any net ordinary income and capital gain net income for preceding calendar years that were not distributed during such calendar years and on which we previously did not incur any U.S. federal income tax. If we fail to qualify as a RIC for any reason and become subject to corporate tax, the resulting corporate taxes

58


could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on us and our stockholders. In addition, we could be required to recognize unrealized gains, incur substantial taxes and interest and make substantial distributions in order to re-qualify as a RIC. We cannot assure stockholders that they will receive any distributions.

Related Party Transactions and Agreements

The Transaction

On July 19, 2016, American Realty Capital II Advisors, LLC, the former parent of the Adviser, entered into a membership interest purchase agreement with a subsidiary of BSP, pursuant to which such subsidiary acquired all of the outstanding limited liability company interests of the Adviser (the “Transaction”). In connection with the Transaction, we amended the Investment Advisory Agreement, effective as of November 1, 2016, to allow the Adviser to serve as investment adviser to us following the closing of the Transaction.

Investment Advisory Agreement
    
We entered into an Investment Advisory Agreement on November 1, 2016 under which the Adviser, 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 Adviser and its affiliates also provide investment advisory services to other funds that have investment mandates that are similar, in whole and in part, with ours. The Adviser and its affiliates serve as investment adviser or sub-adviser to private funds and registered open-end funds, and serves as an investment adviser to a public real estate investment trust. The Adviser’s policies are designed to manage and mitigate the conflicts of interest associated with the allocation of investment opportunities. In addition, any affiliated fund currently formed or formed in the future and managed by the Adviser or its affiliates may have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. However, in certain instances due to regulatory, tax, investment, or other restrictions, certain investment opportunities may not be appropriate for either us or other funds managed by the Adviser or its affiliates.

Administration Agreement

In connection with the closing of the Transaction, we terminated our previous administration agreement and entered into a new administration agreement with BSP on November 1, 2016. In connection with the New Administration Agreement, BSP will provide us with office facilities and administrative services.

Co-Investment Relief

The 1940 Act generally prohibits BDCs from entering into negotiated co-investments with affiliates absent an order from the SEC permitting the BDC to do so. The SEC staff has granted us exemptive relief that allows it to enter into certain negotiated co-investment transactions alongside other funds managed by the Adviser or its affiliates (“Affiliated Funds”) in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). Pursuant to the Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our eligible directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

Transactions with Affiliates

In connection with the closing of the Transaction, an affiliate of BSP purchased $10.0 million of our common stock based on our net asset value per share as of September 30, 2016 in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). On November 7, 2016, we issued approximately 1.2 million shares of our common stock to such BSP affiliate.
 
Borrowings

We are only allowed to borrow money such that our asset coverage, which, as defined in the 1940 Act, measures the ratio of total assets less total liabilities not represented by senior securities to total borrowings, equals at least 200% after such borrowing, with certain limited exceptions. We may use borrowed funds, known as “leverage,” to make investments and to attempt to increase

59


returns to our stockholders by reducing our overall cost of capital. We currently have credit facilities with Wells Fargo, Citi, JP Morgan Securities LLC and UBS and have sold $250.0 million in aggregate principal of unsecured notes.

Wells Fargo Credit Facility
On July 24, 2012, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into a revolving credit facility with Wells Fargo and U.S. Bank as collateral agent, account bank and collateral custodian (the “Wells Fargo Credit Facility”). The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013, September 9, 2013, June 30, 2014, May 29, 2015, November 4, 2015, and May 18, 2017 provides for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis, subject to compliance with a borrowing base. The Wells Fargo Credit Facility has a maturity date of May 18, 2022.
The Wells Fargo Credit Facility is priced at the one-month maturity London Interbank Offered Rate (“LIBOR”), with no LIBOR floor, plus a spread ranging between 1.65% and 2.50% per annum, depending on the composition of the portfolio of loans owned by Funding I for the relevant period. Interest is payable quarterly in arrears. Funding I is subject to a non-usage fee to the extent the aggregate principal amount available under the Wells Fargo Credit Facility has not been borrowed. The non-usage fee per annum is 0.50% for the first 25% of the unused balance and 2.0% for the portion of the unused balance that exceeds 25%.
In connection with the Wells Fargo Credit Facility, Funding I has made certain representations and warranties, is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities and is subject to certain customary events of default. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and all other obligations under the Wells Fargo Credit Facility immediately due and payable. During the continuation of an event of default, Funding I must pay interest at a default rate.

Deutsche Bank Credit Facility

On February 21, 2014, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, 2L Funding I, entered into the credit facility with Deutsche Bank (the “Deutsche Bank Credit Facility”) as lender and as administrative agent and U.S. Bank as collateral agent and collateral custodian. The Deutsche Bank Credit Facility was amended on February 19, 2016, and it was terminated in accordance with its terms on June 3, 2016.
Citi Credit Facility
On June 27, 2014, the Company, through a wholly-owned, special purpose financing subsidiary, CB Funding, entered into a credit facility (the “Citi Credit Facility”) with Citibank, N.A. as administrative agent and U.S. Bank as collateral agent, account bank and collateral custodian. The Citi Credit Facility, which was subsequently amended on October 14, 2015, provides for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis, subject to the administrative agent’s right to approve the assets acquired by CB Funding and pledged as collateral under the Citi Credit Facility. The Citi Credit Facility was amended on November 28, 2017 to extend the investment period to May 31, 2019. The Citi Credit Facility has a maturity date of May 28, 2020.
The Citi Credit Facility is priced at three month LIBOR, with no LIBOR floor, plus a spread of 1.60% per annum through and including the last day of the investment period and 2.00% per annum thereafter. Interest is payable quarterly in arrears. CB Funding is subject to a non-usage fee to the extent the aggregate principal amount available under the Citi Credit Facility has not been borrowed. The non-usage fee per annum is 0.50%. Any amounts borrowed under the Citi Credit Facility along with any accrued and unpaid interest thereunder will mature, and will be due and payable, in three years.
UBS Credit Facility
On April 7, 2015, the Company, through a wholly-owned, special-purpose, bankruptcy-remote subsidiary, Helvetica Funding, entered into a debt financing facility with UBS AG, London Branch (“UBS”), pursuant to which $150.0 million has been made available to the Company to fund investments in new securities and for other general corporate purposes (the “UBS Credit Facility”). The UBS Credit Facility was subsequently amended on July 10, 2015 to increase the amount of debt available to the Company under the facility from $150.0 million to $210.0 million. On June 6, 2016, the UBS credit facility was again amended to increase the amount of debt available from $210.0 million to $232.5 million. In addition, the amended facility increased the applicable spread over a three-month LIBOR from 3.90% to 4.05% per annum for the relevant period and increased the permissible percentage of second lien loans from 60% to 70%. Pricing under the transaction is based on three-month LIBOR plus a spread of 4.05% per annum for the relevant period. The UBS Credit Facility has a maturity date of April 7, 2018.

60


Unsecured Notes
On August 26, 2015, the Company entered into a Purchase Agreement relating to the Company’s sale of $100.0 million aggregate principal amount of its 6.00% fixed rate senior notes due September 1, 2020 (the “Unsecured Notes”). The Unsecured Notes are subject to customary indemnification provisions and representations, warranties and covenants. The net proceeds from the sale of the Unsecured Notes were approximately $97.9 million. The Unsecured Notes bear interest at a rate of 6.00% per year payable semi-annually.
2022 Notes
On December 14, 2017, the Company entered into a Purchase Agreement relating to the Company's sale of $150.0 million aggregate principal amount of its 4.75% fixed rate notes due December 30, 2022 (the “2022 Notes”). The 2020 Notes are subject to customary indemnification provisions and representations, warranties and covenants. The net proceeds from the sale of the 2022 Notes was approximately $147.0 million. The Notes bear interest at a rate of 4.75% per year payable semi-annually.
JP Morgan Securities LLC Prime Brokerage Account
On January 20, 2017, the Company entered into a prime brokerage account agreement with JP Morgan Securities LLC (the “JPMC PB Account”). The JPMC PB Account provides a full suite of services around the custody of bonds and equities and also access to leverage, which is dependent on the price, credit quality and diversity of the pool of assets held within the account. The borrowing availability is recalculated daily based on changes to the assets, with margin calls issued in the morning as appropriate. The cost to borrow is 1 week LIBOR + 90 bps and there is no mandatory usage or period wherein the debt needs to be repaid. As of December 31, 2017, the Company had borrowings of $36.3 million and additional borrowing capacity of $13.7 million under the JPMC PB Account.

See Note 5 to our consolidated financial statements contained in this Annual Report on Form 10-K for a more detailed discussion of our borrowings.

Contractual Obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at December 31, 2017 (dollars in thousands):
 
 
 
Payment Due by Period
 
Total
 
Less than 1 year
 
1 - 3 years
 
3- 5 years
 
More than 5 years
Wells Fargo Credit Facility (1)
$
188,051

 
$
—

 
$
—

 
$
188,051

 
$
—

Citi Credit Facility (2)
336,003

 
—

 
336,003

 
—

 
—

UBS Credit Facility (3)
232,500

 
232,500

 
—

 
—

 
—

2022 Notes (4)
149,175

 
—

 
—

 
149,175

 
—

Unsecured Notes (5)
99,158

 
—

 
99,158

 
—

 
—

JPMC PB Account (6)
36,262

 
—

 
—

 
—

 
36,262

Total contractual obligations
$
1,041,149

 
$
232,500

 
$
435,161

 
$
337,226

 
$
36,262

______________

(1) 
As of December 31, 2017, we had $211.9 million of unused borrowing capacity under the Wells Fargo Credit Facility, subject to borrowing base limits.
(2) 
As of December 31, 2017, we had $64.0 million of unused borrowing capacity under the Citi Credit Facility, subject to borrowing base limits.
(3) 
As of December 31, 2017, we had no unused borrowing capacity under the UBS Credit Facility, subject to borrowing base limits.
(4) 
As of December 31, 2017, we had no unused borrowing capacity under the 2022 Notes.
(5) 
As of December 31, 2017, we had no unused borrowing capacity under the Unsecured Notes.
(6) 
As of December 31, 2017 , we had $13.7 million of unused borrowing capacity under the JPMC PB Account.

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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Commitments

In the ordinary course of business, we may enter into future funding commitments. As of December 31, 2017, we had unfunded commitments on delayed draw term loans of $38.7 million, unfunded commitments on revolver term loans of $19.8 million and unfunded equity capital commitments of $6.0 million. As of December 31, 2016, we had unfunded commitments on delayed draw term loans of $35.7 million, unfunded commitments on revolver term loans of $24.7 million and unfunded equity capital commitments of $9.4 million. The unfunded commitments are disclosed in our consolidated schedule of investments. We believe we maintain sufficient cash on hand and available borrowing capacity to fund such unfunded commitments.

Significant Accounting Estimates and Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

While our significant accounting policies are more fully described in Note 2 of Notes to Consolidated Financial Statements appearing elsewhere in this report, we believe the following accounting policies require the most significant judgment in the preparation of our consolidated financial statements.

Valuation of Portfolio Investments

Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. On a quarterly basis we perform an analysis of each investment to determine fair value as follows:

Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. We may also obtain quotes with respect to certain of our investments from pricing services or brokers or dealers in order to value assets. When doing so, we determine whether the quote obtained is readily available according to U.S. GAAP to determine the fair value of the security. If determined readily available, we use the quote obtained.

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. 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 amounts (for example, 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, 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, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

For an investment in an investment fund that does not have a readily determinable fair value, we measure the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC 946, as of our measurement date.

For investments in Collateralized Securities, both the assets and liabilities of each Collateralized Securities' capital structure are modeled. The model uses a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distribute the cash flows to the liability structure based on the priority of payments. The waterfall cash flows are discounted

62


using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, broker quotations and/or comparable trade activity is considered as an input to determining fair value when available. 

As part of our quarterly valuation process the Adviser may be assisted by one or more independent valuation firms engaged by us. The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser and the independent valuation firm(s) (to the extent applicable).

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

•
Each portfolio company or investment will be valued by the Adviser, potentially with assistance from one or more independent valuation firms engaged by our board of directors;
•
The independent valuation firm(s), if involved, will conduct independent appraisals and make an independent assessment of the value of each investment; and
•
The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser, independent valuation firm (to the extent applicable) and the audit committee of the board of directors.

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

Revenue Recognition

Interest Income

Investment transactions are accounted for on the trade date. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discount and premium on investments purchased are accreted/amortized over the expected life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discount and amortization of premium on investments.

We have a number of investments in Collateralized Securities. Interest income from investments in the “equity” class of these Collateralized Securities (in our case, preferred shares or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC Paragraph 325-40-35, Beneficial Interests in Securitized Financial Assets. We monitor the expected cash inflows from our equity investments in Collateralized Securities, including the expected principal repayments. The effective yield is determined and updated quarterly.
Fee Income
Fee income, such as structuring fees, origination, closing, amendment fees, commitment and other upfront fees are generally non-recurring and are recognized as revenue when earned, either upfront or amortized into income. Upon the payment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment and other upfront fees are recorded as income.
Payment-in-Kind Interest/Dividends

We hold debt and equity investments in its portfolio that contain PIK interest and dividend provisions. The PIK interest and PIK dividend, which represent contractually deferred interest or dividends that add to the investment balance that is generally due at maturity, are generally recorded on the accrual basis.


63


Non-accrual income

Investments are placed on non-accrual status when principal or interest/dividend payments are past due 30 days or more and/or when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest is generally reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

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

Gains or losses on the sale of investments are calculated using the specific identification method. 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, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
 
See Note 2 to the consolidated financial statements for a description of other accounting policies and recently issued accounting pronouncements.


ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk associated with financial instruments and derivative financial instruments is the risk of loss from
adverse changes in market prices or interest rates. Our market risk arises primarily from interest rate risk relating to interest rate
fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and
political considerations and other factors that are beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements, subject to the requirements of the 1940 Act, in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. During the periods covered by this report, we did not engage in interest rate hedging activities. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.
    
As of December 31, 2017, our debt included variable-rate debt, bearing a weighted average interest rate of LIBOR plus 2.47% and fixed rate debt, bearing a weighted average interest rate of 5.25% with a total carrying value of $1,030.2 million. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase by 100 or 200 basis points or decrease by 25 basis points assuming that our current statement of assets and liabilities was to remain constant and no actions were taken to alter our existing interest rate sensitivity.

Change in Interest Rates
 
Estimated Percentage Change in Interest Income net of Interest Expense
(-) 25 Basis Points
 
(1.79
)%
Base Interest Rate
 
—
 %
(+) 100 Basis Points
 
7.16
 %
(+) 200 Basis Points
 
14.31
 %

Because we may borrow money to make investments, our net investment income may be dependent on the difference
between the rate at which we borrow funds and the rate at which we invest these funds. In periods of increasing interest rates,
our cost of funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a
significant change in market interest rates will not have a material adverse effect on our net investment income.
    

64


ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements are annexed to this Annual Report beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures
 
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were (a) designed to ensure that the information we are required to disclose in our reports under the Exchange Act is recorded, processed and reported in an accurate manner and on a timely basis and the information that we are required to disclose in our Exchange Act reports is accumulated and communicated to management to permit timely decisions with respect to required disclosure and (b) operating in an effective manner.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP.

Our internal control over financial reporting includes those policies and procedures that:
1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and our dispositions of assets;
2. Provide reasonable assurance that our transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of our Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making that assessment, management used the criteria based on the framework set forth in Internal Control-Integrated Framework 2014 issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on its assessment, our management concluded that, as of December 31, 2017, our internal control over financial reporting was effective.
    
The rules of the SEC do not require, and this annual report does not include, an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.



65


Change in Internal Control Over Financial Reporting
 
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the year ended December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B. OTHER INFORMATION

None.

66


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days following the end of our fiscal year.

We have adopted a Code of Business Conduct and Ethics which contains a Statement on the Prohibition of Insider Trading that applies to directors, officers and employees. The Code of Business Conduct and Ethics is available on our website at
http://www.bdcofamerica.com. We will report any amendments to or waivers of a required provision of the Code of Business Conduct and Ethics on our website or in a Form 8-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days following the end of our fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days following the end of our fiscal year.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days following the end of our fiscal year.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days following the end of our fiscal year.



67


PART IV

ITEM 15. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the year ended December 31, 2017 (and are numbered in accordance with Item 601 of Regulation S-K).

a. Consolidated Financial Statements
See the Index to the Consolidated Financial Statements at page F-1 of this report.
b. Exhibits
Exhibit No.
Description
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

68


Exhibit No.
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

69


Exhibit No.
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


70


ITEM 16. FORM 10-K SUMMARY

None.


71


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 22nd day of March 2018.
 
 
 
 
 
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
 
 
By:
/s/ Richard J. Byrne
Name: Richard J. Byrne
Title: Chief Executive Officer, President and Chairman of the Board of Directors
* * * * *
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
 
 
 
 
 
Signature
 
Title
 
Date
 
 
 
 
 
/s/ Richard J. Byrne   
Richard J. Byrne
 
Chief Executive Officer, President, and Chairman of the Board of Directors
(Principal Executive Officer)
 
March 22, 2018
/s/ Corinne D. Pankovcin          
Corinne D. Pankovcin
 
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
 
March 22, 2018
/s/ Lee S. Hillman
Lee S. Hillman
 
Independent Director
 
March 22, 2018
/s/ Ronald J. Kramer    
Ronald J. Kramer
 
Independent Director
 
March 22, 2018
/s/ Leslie D. Michelson    
Leslie D. Michelson
 
Independent Director
 
March 22, 2018
/s/ Randolph C. Read      
Randolph C. Read
 
Independent Director
 
March 22, 2018
/s/ Edward G. Rendell     
Edward G. Rendell
 
Independent Director
 
March 22, 2018
/s/ Dennis M. Schaney
Dennis M. Schaney

  
 
Independent Director
 
March 22, 2018



72


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
Page
Audited Consolidated Financial Statements:
  



F- 1

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. In connection with the preparation of our annual consolidated financial statements, management has conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control-Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management's assessment included an evaluation of the design of our internal control over financial reporting. Based on this evaluation, we have concluded that, as of December 31, 2017, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.


F- 2

Report of Independent Registered Public Accounting Firm


To the Shareholders and the Board of Directors of
Business Development Corporation of America

Opinion on the Financial Statements

We have audited the accompanying consolidated statement of assets and liabilities of Business Development Corporation of America (the “Company”), including the consolidated schedule of investments, as of December 31, 2017, and the related consolidated statements of operations, cash flows, and changes in net assets for the year then ended and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Business Development Corporation of America at December 31, 2017, the results of its operations, its cash flows, and its changes in net assets for the year then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies were not received. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017.

New York, NY
March 22, 2018











F- 3

Report of Independent Registered Public Accounting Firm



The Board of Directors and Stockholders
Business Development Corporation of America:

We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, of Business Development Corporation of America (and subsidiaries) (the Company) as of December 31, 2016, and the related consolidated statements of operations, changes in net assets, and cash flows for the years ended December 31, 2016 and 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 2016, by correspondence with the custodian, portfolio companies and agents or by other appropriate auditing procedures where replies from portfolio companies or agents were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Business Development Corporation of America (and subsidiaries) as of December 31, 2016, and the results of their operations, and their cash flows for the years ended December 31, 2016 and 2015, in conformity with U.S. generally accepted accounting principles.




/s/ KPMG LLP
New York, New York
March 16, 2017


F- 4

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
 
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(dollars in thousands except share and per share data)
 
December 31,
 
2017
 
2016
ASSETS
 
 
 
Investments, at fair value:
 
 
 
Control Investments, at fair value (amortized cost of $374,888 and $271,711, respectively)
$
350,279

 
$
254,638

Affiliate Investments, at fair value (amortized cost of $296,884 and $383,894, respectively)
236,801

 
354,238

Non-affiliate Investments, at fair value (amortized cost of $1,926,856 and $1,859,933, respectively)
1,916,443

 
1,785,207

Investments, at fair value (amortized cost of $2,598,628 and $2,515,538, respectively)
2,503,523

 
2,394,083

Cash and cash equivalents
99,822

 
189,270

Interest and dividends receivable
21,542

 
28,608

Receivable for unsettled trades
21,409

 
4,293

Prepaid expenses and other assets
6,218

 
52

Total assets
$
2,652,514

 
$
2,616,306

 
 
 
 
LIABILITIES
 

 
 

Debt (net of deferred financing costs of $10,926 and $5,013, respectively)
$
1,030,223

 
$
910,484

Stockholder distributions payable
9,923

 
13,516

Management fees payable
9,932

 
9,571

Incentive fee on income payable
4,558

 
3,137

Accounts payable and accrued expenses
11,137

 
8,454

Payable for unsettled trades
80,547

 
74,020

Interest and debt fees payable
11,611

 
9,606

Payable for common stock repurchases
—

 
57,651

Directors' fees payable
67

 
133

Total liabilities
$
1,157,998

 
$
1,086,572

Commitments and contingencies (Note 6)
 
 
 
 
 
 
 
NET ASSETS
 
 
 
Preferred stock, $.001 par value, 50,000,000 shares authorized, none issued and outstanding
$
—

 
$
—

Common stock, $.001 par value, 450,000,000 shares authorized, 179,733,998 and 177,120,791 shares issued and outstanding, respectively
180

 
177

Additional paid in capital
1,752,793

 
1,729,865

Accumulated under distributed net investment income
33,469

 
48,944

Accumulated over distributed net realized gains
(197,348
)
 
(129,161
)
Net unrealized depreciation, net of deferred taxes
(97,399
)
 
(122,912
)
Total net assets attributable to Business Development Corporation of America
1,491,695

 
1,526,913

Net assets attributable to non-controlling interest
2,821

 
2,821

Total net assets
1,494,516

 
1,529,734

 
 
 
 
Total liabilities and net assets
$
2,652,514

 
$
2,616,306

 
 
 
 
Net asset value per share attributable to Business Development Corporation of America
$
8.30

 
$
8.62




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

F- 5
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except share and per share data)


 
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
 
2017
 
2016
 
2015
Investment income:
 
 
 
 
 
 
Interest from investments
 
 
 
 
 
 
Control investments
 
$
24,648

 
$
27,140

 
$
18,451

Affiliate investments
 
17,093

 
41,485

 
38,781

Non-affiliate investments
 
158,548

 
149,736

 
128,339

Total interest from investments
 
200,289

 
218,361

 
185,571

Interest from cash and cash equivalents
 
362

 
257

 
58

Total interest income
 
200,651

 
218,618

 
185,629

Other income
 
23,169

 
11,040

 
10,217

Total investment income
 
223,820

 
229,658

 
195,846

 
 
 
 
 
 
 
Operating expenses:
 
 

 
 

 
 

Management fees
 
39,068

 
38,121

 
35,994

Incentive fee on income
 
19,707

 
17,906

 
10,145

Interest and debt fees
 
43,851

 
37,327

 
26,467

Professional fees
 
4,726

 
6,357

 
6,777

Other general and administrative
 
7,047

 
7,059

 
4,590

Administrative services
 
807

 
811

 
966

Insurance
 
11

 
184

 
210

Directors' fees
 
944

 
756

 
75

Expenses before expense waivers
 
116,161

 
108,521

 
85,224

Waiver of management and incentive fees
 
—

 
—

 
(3,534
)
Total expenses net of expense waivers
 
116,161

 
108,521

 
81,690

 
 
 
 
 
 
 
Income tax expense, including excise tax
 
1,619

 
1,140

 
—

 
 
 
 
 
 
 
Net investment loss attributable to non-controlling interests
 
29

 
19

 
—

 
 
 
 
 
 
 
Net investment income
 
106,011

 
119,978

 
114,156

 
 
 
 
 
 
 
Realized and unrealized gain (loss) on investments:
 
 
 
 
 
 
Net realized gain (loss) from investments
 
 
 
 
 
 
   Control investments
 
(1,702
)
 
—

 
(51
)
   Affiliate investments
 
(20,019
)
 
(11,988
)
 
276

   Non-affiliate investments
 
(31,414
)
 
(11,321
)
 
(579
)
Total net realized loss from investments
 
(53,135
)
 
(23,309
)
 
(354
)
Net change in unrealized appreciation (depreciation) on investments, net of deferred taxes
 
 
 
 
 
 
   Control investments
 
(1,899
)
 
(40,638
)
 
19,207

   Affiliate investments
 
75

 
48,182

 
(68,777
)
   Non-affiliate investments
 
27,308

 
(11,127
)
 
(53,652
)
Total net change in unrealized appreciation (depreciation) on investments, net of deferred taxes
 
25,484

 
(3,583
)
 
(103,222
)
Net change in unrealized (appreciation) depreciation attributable to non-controlling interests
 
29

 
1,316

 
(2,527
)
 
 
 
 
 
 
 
Net realized and unrealized loss on investments
 
(27,622
)
 
(25,576
)
 
(106,103
)

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

F- 6
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except share and per share data)


 
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
Net increase in net assets resulting from operations
 
$
78,389

 
$
94,402

 
$
8,053

 
 
 
 
 
 
 
Per share information - basic and diluted
 
 
 
 
 
 
Net investment income
 
$
0.59

 
$
0.67

 
$
0.66

Net increase in net assets resulting from operations
 
$
0.44

 
$
0.52

 
$
0.05

Weighted average shares outstanding
 
179,179,656

 
180,215,713

 
172,208,186




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

F- 7

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(dollars in thousands except share and per share data)

 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
2017
 
2016
 
2015
Operations:
 
 
 
 
 
Net investment income
$
106,011

 
$
119,978

 
$
114,156

Net realized loss from investments
(53,135
)
 
(23,309
)
 
(354
)
Net change in unrealized appreciation (depreciation) on investments, net of deferred taxes
25,484

 
(3,583
)
 
(103,222
)
Net change in unrealized (appreciation) depreciation attributable to non-controlling interests
29

 
1,316

 
(2,527
)
Net increase in net assets resulting from operations
78,389

 
94,402

 
8,053

Stockholder distributions:
 

 
 

 
 

Distributions
(135,850
)
 
(156,434
)
 
(130,846
)
Distributions from net realized gain from investments
—

 
—

 
(2,509
)
Return of capital
—

 
—

 
(16,264
)
Net decrease in net assets from stockholder distributions
(135,850
)
 
(156,434
)
 
(149,619
)
Capital share transactions:
 

 
 

 
 

Issuance of common stock, net of issuance costs
—

 
10,000

 
165,527

Reinvestment of stockholder distributions
52,455

 
58,424

 
70,033

Repurchases of common stock
(30,212
)
 
(85,844
)
 
(21,459
)
Net increase (decrease) in net assets from capital share transactions
22,243

 
(17,420
)
 
214,101

Total increase (decrease) in net assets, before non-controlling interest
(35,218
)
 
(79,452
)
 
72,535

Increase (decrease) in non-controlling interest
—

 
(1,299
)
 
2,527

Total increase (decrease) in net assets
(35,218
)
 
(80,751
)
 
75,062

Net assets at beginning of year
1,529,734

 
1,610,485

 
1,535,423

Net assets at end of year
$
1,494,516

 
$
1,529,734

 
$
1,610,485

 
 
 
 
 
 
Net asset value per common share attributable to Business Development Corporation of America
$
8.30

 
$
8.62

 
$
8.97

Common shares outstanding at end of year
179,733,998

 
177,120,791

 
179,142,028

 
 
 
 
 
 
Accumulated under (over) distributed net investment income
$
33,469

 
$
48,944

 
$
(7,656
)
Accumulated over distributed net realized gains
$
(197,348
)
 
$
(129,161
)
 
$
(3,405
)


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

F- 8
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
2017
 
2016
 
2015
Operating activities:
 
 
 
 
 
Net increase in net assets resulting from operations
$
78,389

 
$
94,402

 
$
8,053

Adjustments to reconcile net increase in net assets from operations to net cash provided by (used in) operating activities:
 
 
 

 
 
Payment-in-kind interest income
(6,963
)
 
(12,412
)
 
(19,904
)
Net accretion of discount on investments
(8,237
)
 
(6,898
)
 
(5,231
)
Amortization of deferred financing costs
2,525

 
2,806

 
2,577

Amortization of discount on unsecured notes
321

 
316

 
106

Sales and repayments of investments
980,929

 
587,893

 
678,166

Purchases of investments
(1,101,954
)
 
(678,527
)
 
(1,150,263
)
Net realized loss from investments
53,135

 
23,309

 
354

Net unrealized (appreciation) depreciation on investments, gross of deferred taxes
(26,350
)
 
3,833

 
102,588

(Increase) decrease in operating assets:
 
 
 

 
 
Interest and dividends receivable
7,066

 
(5,836
)
 
(308
)
Prepaid expenses and other assets
(6,166
)
 
4,834

 
(3,094
)
Receivable for unsettled trades
(17,116
)
 
(2,889
)
 
32,342

Increase (decrease) in operating liabilities:
 
 
 

 
 
Payable for unsettled trades
6,527

 
67,337

 
5,998

Management fees payable
361

 
39

 
1,551

Incentive fee on income payable
1,421

 
3,137

 
(2,736
)
Interest and debt fees payable
2,005

 
3,099

 
3,121

Accounts payable and accrued expenses
2,683

 
(32
)
 
1,744

Directors' fees payable
(66
)
 
113

 
2

Net cash provided by (used in) operating activities
(31,490
)
 
84,524

 
(344,934
)
 
 
 
 
 
 
Financing activities:
 

 
 

 
 
Proceeds from issuance of shares of common stock, net
—

 
10,000

 
165,527

Repurchases of common stock
(87,863
)
 
(29,117
)
 
(21,207
)
Decrease in deferred offering costs receivable
—

 
—

 
3,274

Proceeds from debt
347,331

 
195,513

 
456,250

Payments on debt
(222,000
)
 
(122,571
)
 
(232,830
)
Payments of financing costs
(8,438
)
 
(288
)
 
(5,696
)
Payments to affiliate
—

 
(197
)
 
(1,411
)
Stockholder distributions
(86,988
)
 
(97,708
)
 
(77,959
)
Increase (decrease) in non-controlling interest
—

 
(1,298
)
 
2,526

Net cash provided by (used in) financing activities
(57,958
)
 
(45,666
)
 
288,474

 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(89,448
)
 
38,858

 
(56,460
)
Cash and cash equivalents, beginning of year
189,270

 
150,412

 
206,872

Cash and cash equivalents, end of year
$
99,822

 
$
189,270

 
$
150,412

 
 
 
 
 
 

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

F- 9
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
2017
 
2016
 
2015
Supplemental information:
 

 
 

 
 
Interest paid during the period
$
38,764

 
$
30,977

 
$
20,612

Taxes, including excise tax, paid during the year
$
1,063

 
$
1,300

 
$
257

Distributions reinvested
$
52,455

 
$
58,424

 
$
70,033




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

F- 10
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (y)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value
 
% of Net Assets (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured First Lien
Debt - 118.8% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Abaco Systems Holding Corp. (c) (i)
 
Business Services
 
L+6.00% (7.35%), 12/7/2021
 
$
23,698

 
$
23,320

 
$
23,129

 
1.6
%
ABC Financial Intermediate, LLC (c) (j)
 
Media
 
L+4.25% (5.94%), 1/2/2025
 
7,739

 
7,700

 
7,700

 
0.5
%
Ability Networks Inc. (c) (j)
 
Health Care Providers & Services
 
L+5.00% (6.35%), 12/13/2024
 
13,607

 
13,539

 
13,607

 
0.9
%
Adams Publishing Group, LLC (c) (i)
 
Media
 
L+7.00% (8.69%), 11/3/2020
 
16,250

 
16,109

 
16,250

 
1.1
%
Adams Publishing Group, LLC (c)
 
Media
 
L+7.00% (8.69%), 11/3/2020
 
4,432

 
4,432

 
4,432

 
0.3
%
Aleris International, Inc. (x)
 
Metals & Mining
 
9.50%, 4/1/2021
 
2,882

 
3,046

 
3,044

 
0.2
%
Alvogen Pharma US, Inc. (j)
 
Health Care
 
L+5.00% (6.57%), 4/2/2022
 
14,061

 
13,955

 
13,932

 
0.9
%
AMI Entertainment Network, LLC (c) (f) (i)
 
Hotels, Restaurants & Leisure
 
L+6.00% (7.69%), 7/21/2022
 
14,632

 
14,365

 
14,368

 
1.0
%
Amports, Inc. (c) (m)
 
Transportation Infrastructure
 
L+5.00% (6.69%), 5/19/2020
 
14,876

 
14,832

 
14,876

 
1.0
%
Amteck, LLC (c) (f) (i)
 
Commercial Services & Supplies
 
L+7.50% (9.20%), 7/2/2020
 
21,688

 
21,499

 
21,579

 
1.4
%
Answers Corporation (c) (p)
 
Technology
 
L+5.00% (6.57%), 4/15/2021
 
3,007

 
2,945

 
2,916

 
0.2
%
AP Gaming I, LLC (i) (j)
 
Gaming/Lodging
 
L+5.50% (7.07%), 2/15/2024
 
33,592

 
33,524

 
33,823

 
2.3
%
APCO Holdings (c) (i)
 
Diversified Consumer Services
 
L+6.00% (7.57%), 1/29/2022
 
3,666

 
3,590

 
3,593

 
0.2
%
Applied Merchant Systems West Coast, Inc. (c) (m)
 
Diversified Financial Services
 
L+11.50% (12.84%), 10/26/2020
 
18,853

 
18,635

 
17,816

 
1.2
%
Applied Merchant Systems West Coast, Inc. (c) (m)
 
Diversified Financial Services
 
L+11.50% (12.84%), 10/26/2020
 
6,500

 
6,425

 
6,143

 
0.4
%
AqGen Ascensus Inc. (j)
 
Technology
 
L+3.50% (5.06%), 12/3/2022
 
19,637

 
19,637

 
19,694

 
1.3
%
AqGen Ascensus Inc. (f)
 
Technology
 
L+3.50% (5.06%), 12/3/2022
 
3,333

 
3,325

 
3,348

 
0.2
%
Avatar Purchaser, Inc. (c) (m)
 
Business Services
 
L+7.50% (8.99%), 11/17/2025
 
11,716

 
11,370

 
11,520

 
0.8
%
Avaya Holdings Corp. (j)
 
Communications Equipment
 
L+4.75% (6.23%), 12/15/2024
 
26,108

 
25,848

 
25,662

 
1.7
%
Basho Technologies, Inc. (c) (d) (l) (t)
 
Software
 
17.00%, 5/31/2018
 
6,645

 
6,485

 
—

 
—
%
Basho Technologies, Inc. (c) (d) (l) (t)
 
Software
 
17.00%, 5/31/2018
 
2,550

 
2,550

 
—

 
—
%
BCP Raptor, LLC (j)
 
Energy Equipment & Services
 
L+4.25% (5.73%), 6/24/2024
 
19,986

 
19,800

 
20,048

 
1.3
%
BCP Renaissance, LLC (j)
 
Energy Equipment & Services
 
L+4.00% (5.38%), 10/31/2024
 
8,472

 
8,431

 
8,569

 
0.6
%
BDS Solutions Group, LLC (c) (i) (m)
 
Business Services
 
L+8.75% (10.45%), 6/1/2021
 
33,042

 
32,531

 
33,042

 
2.2
%
BDS Solutions Group, LLC (c)
 
Business Services
 
L+8.75% (10.45%), 6/1/2021
 
2,888

 
2,841

 
2,888

 
0.2
%
Beaver-Visitec International Holdings, Inc. (c) (j)
 
Health Care
 
L+5.00% (6.69%), 8/21/2023
 
6,580

 
6,580

 
6,580

 
0.4
%
Berner Food & Beverage LLC (c) (f) (i)
 
Food Products
 
L+7.00% (8.69%), 3/16/2022
 
18,853

 
18,536

 
18,476

 
1.2
%
Black Mountain Sand, LLC (c) (f)
 
Energy Equipment & Services
 
L+9.00% (10.50%), 11/30/2021
 
13,050

 
12,859

 
12,854

 
0.9
%

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

F- 11
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (y)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value
 
% of Net Assets (b)
Blount International, Inc. (j)
 
Commercial Services & Supplies
 
L+4.25% (5.61%), 4/12/2023
 
$
12,500

 
$
12,470

 
$
12,637

 
0.9
%
California Resources, Corp (m)
 
Metals & Mining
 
L+10.38% (11.88%), 12/31/2022
 
12,259

 
12,014

 
12,198

 
0.8
%
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t)
 
Food Products
 
L+12.50% (13.88%), 4/28/2019
 
20,482

 
16,406

 
4,096

 
0.3
%
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t)
 
Food Products
 
L+12.50% (13.88%), 4/28/2019
 
47,336

 
33,647

 
9,467

 
0.6
%
Catapult Learning, LLC (c) (i) (m)
 
Diversified Consumer Services
 
L+6.50% (7.88%), 7/16/2020
 
27,138

 
26,861

 
25,917

 
1.7
%
CCW, LLC (c) (f) (i)
 
Hotels, Restaurants & Leisure
 
L+7.00% (8.63%), 3/21/2021
 
26,525

 
26,292

 
26,525

 
1.8
%
Central Security Group, Inc. (c) (i) (j)
 
Commercial Services & Supplies
 
L+5.63% (7.19%), 10/6/2021
 
25,293

 
24,999

 
25,294

 
1.7
%
Chicken Soup for the Soul Publishing, LLC (c)
 
Media
 
L+6.25% (7.61%), 1/8/2019
 
27,536

 
27,465

 
24,369

 
1.6
%
Chloe Ox Parent, LLC (j)
 
Health Care Providers & Services
 
L+5.00% (6.64%), 12/23/2024
 
10,768

 
10,660

 
10,768

 
0.7
%
Clover Technologies Group, LLC (j)
 
Commercial Services & Supplies
 
L+4.50% (6.07%), 5/8/2020
 
13,548

 
13,495

 
10,070

 
0.7
%
Community Care Health Network, LLC (c) (j)
 
Health Care
 
L+5.50% (7.07%), 10/19/2021
 
2,376

 
2,384

 
2,377

 
0.2
%
CONSOL Energy, Inc. (j)
 
Metals & Mining
 
L+6.00% (7.47%), 11/28/2022
 
3,240

 
3,176

 
3,275

 
0.2
%
Contura Energy Inc. (j)
 
Energy Equipment & Services
 
L+5.00% (6.63%), 3/18/2024
 
7,491

 
7,425

 
7,379

 
0.5
%
ConvergeOne Holdings Corp. (j)
 
Technology
 
L+4.75% (6.44%), 6/20/2024
 
16,475

 
16,323

 
16,489

 
1.1
%
Cvent, Inc. (c) (j)
 
Internet Software & Services
 
L+3.75% (5.32%), 11/29/2024
 
16,436

 
16,333

 
16,436

 
1.1
%
DigiCert, Inc (j)
 
Internet Software & Services
 
L+4.75% (6.13%), 10/31/2024
 
10,800

 
10,747

 
10,930

 
0.7
%
Eagle Rx, LLC (c) (i)
 
Health Care Providers & Services
 
L+4.25% (5.61%), 8/15/2019
 
27,279

 
27,192

 
27,279

 
1.8
%
Elo Touch Solutions, Inc (j)
 
Technology
 
L+6.00% (7.44%), 10/31/2023
 
3,781

 
3,744

 
3,772

 
0.3
%
ERG Holding Company (c) (i) (m)
 
Health Care Providers & Services
 
L+6.75% (8.45%), 4/4/2019
 
34,099

 
33,846

 
33,587

 
2.3
%
ERG Holding Company (c) (f)
 
Health Care Providers & Services
 
L+6.75% (8.45%), 4/4/2019
 
136

 
136

 
134

 
0.1
%
Everi Payments, Inc. (j)
 
Hotels, Restaurants & Leisure
 
L+3.50% (4.98%), 5/9/2024
 
10,654

 
10,639

 
10,748

 
0.7
%
Excelitas Technologies Corp. (j)
 
Electronic Equipment, Instruments & Components
 
L+3.50% (5.16%), 12/2/2024
 
10,000

 
9,975

 
10,066

 
0.7
%
Genesys Telecommunications Laboratories, Inc. (j)
 
Diversified Telecommunication Services
 
L+3.75% (5.44%), 12/1/2023
 
24,751

 
24,435

 
24,874

 
1.7
%
Greenwave Holdings, Inc. (c) (d) (l)
 
Internet Software & Services
 
13.00%, 7/8/2019
 
12,184

 
12,136

 
12,184

 
0.8
%
GTCR Valor Companies, Inc. (j)
 
Internet Software & Services
 
L+4.25% (5.94%), 6/16/2023
 
9,975

 
9,952

 
10,079

 
0.7
%
HC Group Holdings III, Inc. (j)
 
Health Care
 
L+5.00% (6.57%), 4/7/2022
 
14,781

 
14,567

 
14,911

 
1.0
%
Hexion Inc. (x)
 
Chemicals
 
10.38%, 2/1/2022
 
920

 
920

 
853

 
0.1
%
Ideal Tridon Holdings, Inc. (c) (m)
 
Commercial Services & Supplies
 
L+6.50% (7.74%), 7/31/2023
 
23,917

 
23,472

 
23,465

 
1.6
%

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

F- 12
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (y)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value
 
% of Net Assets (b)
Ideal Tridon Holdings, Inc. (c) (f)
 
Commercial Services & Supplies
 
L+6.50% (7.74%), 7/31/2022
 
$
546

 
$
511

 
$
536

 
—
%
Indivior Finance S.A.R.L. (i)
 
Health Care
 
L+4.50% (6.11%), 12/18/2022
 
6,983

 
6,948

 
7,001

 
0.5
%
InMotion Entertainment Group, LLC (c) (i)
 
Specialty Retail
 
L+7.25% (8.95%), 10/1/2021
 
13,343

 
13,299

 
13,343

 
0.9
%
InMotion Entertainment Group, LLC (c) (f) (i)
 
Specialty Retail
 
L+7.75% (9.45%), 10/1/2021
 
327

 
327

 
327

 
—
%
Intelsat S.A (m)
 
Diversified Telecommunication Services
 
L+4.50% (6.19%), 1/2/2024
 
665

 
665

 
672

 
—
%
Intelsat S.A (m)
 
Diversified Telecommunication Services
 
L+4.50% (6.63%), 1/2/2024
 
2,211

 
2,211

 
2,231

 
0.1
%
Internap Corporation (m)
 
Communications Equipment
 
L+7.00% (8.41%), 4/6/2022
 
8,208

 
8,102

 
8,280

 
0.6
%
IPC Corp. (j)
 
Diversified Telecommunication Services
 
L+4.50% (5.89%), 8/6/2021
 
7,103

 
6,995

 
6,943

 
0.5
%
Jackson Hewitt, Inc. (j)
 
Diversified Consumer Services
 
L+7.00% (8.38%), 7/30/2020
 
6,515

 
6,448

 
6,409

 
0.4
%
K2 Pure Solutions NoCal, L.P. (c) (i)
 
Chemicals
 
L+6.00% (7.57%), 2/19/2021
 
6,500

 
6,445

 
6,500

 
0.4
%
Kahala Ireland OpCo Designated Activity Company (a) (c) (l) (o)
 
Aerospace & Defense
 
L+8.00% (13.00%), 12/23/2028
 
141,549

 
141,549

 
141,549

 
9.5
%
Kissner Milling Co. Ltd. (c) (x)
 
Chemicals
 
8.38%, 12/1/2022
 
21,199

 
21,530

 
21,430

 
1.4
%
Lakeland Tours, LLC (f)
 
Diversified Consumer Services
 
L+4.00% (5.59%), 12/15/2024
 
5,634

 
5,620

 
5,683

 
0.4
%
LenderLive Services, LLC (c)
 
Business Services
 
L+12.00% (13.50%), 8/11/2020
 
10,000

 
9,869

 
9,650

 
0.7
%
Lightsquared LP (l)
 
Diversified Telecommunications Services
 
L+8.75% (10.27%), 6/15/2020
 
11,315

 
10,598

 
10,481

 
0.7
%
Lionbridge Technologies, Inc. (c) (i)
 
Business Services
 
L+5.50% (7.07%), 2/28/2024
 
13,764

 
13,703

 
13,702

 
0.9
%
MCS Acquisition Corp. (c) (j)
 
Professional Services
 
L+4.75% (6.25%), 5/18/2024
 
14,297

 
14,239

 
14,297

 
1.0
%
Medallion Midland Acquisition, L.P. (j)
 
Energy Equipment & Services
 
L+3.25% (4.82%), 11/13/2024
 
4,450

 
4,439

 
4,456

 
0.3
%
Medical Depot Holdings, Inc. (c) (i)
 
Health Care
 
L+5.50% (7.19%), 1/3/2023
 
19,771

 
18,270

 
18,407

 
1.2
%
Metal Services LLC (j)
 
Metals & Mining
 
L+7.50% (9.19%), 6/30/2019
 
10,806

 
10,726

 
10,846

 
0.7
%
Michael Baker International, LLC (j)
 
Business Services
 
L+4.50% (5.94%), 11/21/2022
 
5,607

 
5,552

 
5,593

 
0.4
%
Midwest Can Company, LLC (c) (f) (i)
 
Energy Equipment & Services
 
L+6.75% (8.32%), 1/26/2022
 
5,067

 
4,994

 
5,008

 
0.3
%
MMM Holdings, LLC (c) (d) (j) (l)
 
Health Care
 
L+8.75% (10.32%), 6/28/2019
 
7,028

 
7,029

 
6,818

 
0.5
%
Monitronics International, Inc. (j)
 
Diversified Consumer Services
 
L+5.50% (7.19%), 9/30/2022
 
2,963

 
2,950

 
2,933

 
0.2
%
Montreign Operating Company, LLC (c) (m)
 
Hotels, Restaurants & Leisure
 
L+8.25% (9.82%), 1/24/2023
 
27,161

 
26,732

 
27,473

 
1.8
%
Mood Media Corporation (c) (m)
 
Business Services
 
L+7.25% (8.94%), 6/28/2022
 
13,912

 
13,638

 
13,608

 
0.9
%
Motion Recruitment Partners, LLC (c) (f) (i)
 
Professional Services
 
L+6.00% (7.57%), 2/13/2020
 
17,194

 
17,021

 
17,194

 
1.2
%

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

F- 13
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (y)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value
 
% of Net Assets (b)
MSO of Puerto Rico, LLC (c) (d) (j) (l)
 
Health Care
 
L+8.75% (10.32%), 6/28/2019
 
$
5,110

 
$
5,110

 
$
4,956

 
0.3
%
Murray Energy Holdings Co. (j)
 
Energy Equipment & Services
 
L+7.25% (8.94%), 4/16/2020
 
13,408

 
12,929

 
11,778

 
0.8
%
National Technical Systems, Inc. (c) (i)
 
Professional Services
 
L+6.25% (7.61%), 6/12/2021
 
16,469

 
16,376

 
15,481

 
1.0
%
Navitas Midstream Midland Basin, LLC (j)
 
Energy Equipment & Services
 
L+4.50% (5.98%), 12/13/2024
 
7,969

 
7,929

 
7,969

 
0.5
%
New Star Metals Inc. (c) (d) (l) (m)
 
Business Services
 
L+9.50% (11.00%), 12/22/2021
 
24,388

 
23,959

 
24,413

 
1.6
%
NexSteppe Inc. (c) (f) (l) (t)
 
Chemicals
 
12.00%, 9/30/2018
 
1,533

 
1,500

 
—

 
—
%
NexSteppe Inc. (c) (l) (t)
 
Chemicals
 
12.00%, 9/30/2018
 
11,998

 
10,453

 
—

 
—
%
Noosa Acquirer, Inc. (c) (i) (m)
 
Food Products
 
L+5.25% (6.94%), 11/21/2020
 
25,000

 
24,819

 
25,000

 
1.7
%
NTM Acquisition Corp. (c) (i)
 
Media
 
L+6.25% (7.94%), 6/7/2022
 
18,681

 
18,490

 
18,587

 
1.2
%
Office Depot, Inc. (j)
 
Specialty Retail
 
L+7.00% (8.41%), 11/8/2022
 
9,130

 
8,949

 
9,153

 
0.6
%
Optiv, Inc. (j)
 
Business Services
 
L+3.25% (4.63%), 2/1/2024
 
4,455

 
4,229

 
4,160

 
0.3
%
Orchid Underwriters Agency, LLC (c) (f) (i)
 
Insurance Broker
 
L+5.00% (6.31%), 3/17/2022
 
18,480

 
18,325

 
18,480

 
1.2
%
ORG Chemical Holdings, LLC (c) (i) (m)
 
Chemicals
 
L+5.75% (7.44%), 6/30/2022
 
27,822

 
27,322

 
27,338

 
1.8
%
ORG GC Holdings, LLC (c) (i) m)
 
Business Services
 
L+6.75% (8.08%), 7/31/2022
 
25,550

 
25,199

 
25,266

 
1.7
%
Peabody Energy Corp. (j)
 
Metals & Mining
 
L+3.50% (5.07%), 3/31/2022
 
2,608

 
2,602

 
2,641

 
0.2
%
PeopLease Holdings, LLC (c) (i)
 
Commercial Services & Supplies
 
L+9.00% (10.70%), 2/26/2021
 
20,000

 
19,872

 
15,000

 
1.0
%
PetVet Care Centers, LLC (c) (i)
 
Business Services
 
L+6.00% (7.69%), 6/8/2023
 
19,454

 
19,296

 
19,386

 
1.3
%
PetVet Care Centers, LLC (c) (f)
 
Business Services
 
L+6.00% (7.35%), 6/8/2023
 
4,425

 
4,425

 
4,409

 
0.3
%
PetVet Care Centers, LLC (c) (f)
 
Business Services
 
L+6.00% (9.50%), 6/8/2023
 
1,676

 
1,676

 
1,676

 
0.1
%
PGX Holdings, Inc. (c) (j)
 
Transportation Infrastructure
 
L+5.25% (6.82%), 9/29/2020
 
12,547

 
12,500

 
12,547

 
0.8
%
Premier Dental Services, Inc. (i) (j)
 
Health Care
 
L+5.25% (6.82%), 6/30/2023
 
33,018

 
32,764

 
33,162

 
2.2
%
Premier Global Services, Inc. (j)
 
Diversified Telecommunication Services
 
L+6.50% (7.83%), 12/8/2021
 
9,357

 
9,093

 
9,182

 
0.6
%
Pre-Paid Legal Services, Inc. (c) (j)
 
Diversified Consumer Services
 
L+5.25% (6.82%), 7/1/2019
 
12,010

 
12,026

 
12,010

 
0.8
%
Pride Plating, Inc. (c) (i)
 
Aerospace & Defense
 
L+5.50% (7.19%), 6/13/2019
 
8,376

 
8,351

 
8,293

 
0.6
%
PSKW, LLC (c) (i)
 
Health Care Providers & Services
 
L+4.25% (5.94%), 11/25/2021
 
1,569

 
1,559

 
1,569

 
0.1
%
PSKW, LLC (c) (m)
 
Health Care Providers & Services
 
L+8.26% (9.95%), 11/25/2021
 
17,750

 
17,518

 
17,750

 
1.2
%
PSKW, LLC (c) (m)
 
Health Care Providers & Services
 
L+8.26% (9.95%), 11/25/2021
 
1,972

 
1,934

 
1,972

 
0.1
%
PT Network, LLC (c) (f) (i)
 
Health Care
 
L+5.50% (6.86%), 11/30/2021
 
16,935

 
16,802

 
16,931

 
1.1
%
Pure Barre, LLC (c) (i) (m)
 
Hotels, Restaurants & Leisure
 
L+7.00% (8.57%), 6/11/2020
 
25,698

 
25,478

 
25,441

 
1.7
%

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

F- 14
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (y)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value
 
% of Net Assets (b)
Pure Barre, LLC (c) (f)
 
Hotels, Restaurants & Leisure
 
L+7.00% (8.57%), 6/11/2020
 
$
500

 
$
500

 
$
495

 
—
%
Resco Products, Inc. (c) (i)
 
Metals & Mining
 
L+6.25% (7.82%), 3/7/2020
 
10,000

 
10,000

 
9,750

 
0.7
%
Sage Automotive Holdings, Inc. (j)
 
Auto Components
 
L+5.00% (6.57%), 11/8/2022
 
18,461

 
18,321

 
18,576

 
1.2
%
SHO Holding II Corporation (c) (j)
 
Specialty Retail
 
L+5.00% (6.42%), 10/27/2022
 
9,770

 
9,702

 
9,379

 
0.6
%
Skillsoft Corp. (j)
 
Technology
 
L+4.75% (6.32%), 4/28/2021
 
12,829

 
12,158

 
12,325

 
0.8
%
Squan Holding Corp. (c) (p)
 
Diversified Telecommunication Services
 
L+4.50% (6.20%), 10/10/2019
 
17,052

 
14,680

 
13,642

 
0.9
%
SSH Group Holdings, Inc. (c) (i)
 
Diversified Consumer Services
 
L+5.00% (6.69%), 10/2/2024
 
6,088

 
6,029

 
6,027

 
0.4
%
SunGard Availability Services Capital, Inc. (c) (j)
 
IT Services
 
L+10.00% (11.56%), 3/31/2019
 
6,860

 
6,842

 
6,688

 
0.5
%
Tax Defense Network, LLC (c) (l) (t)
 
Diversified Consumer Services
 
L+13.00% (14.70%), 8/28/2019
 
29,670

 
26,532

 
7,477

 
0.5
%
Thoughtworks, Inc. (j)
 
Business Services
 
L+4.50% (6.07%), 10/12/2024
 
4,420

 
4,409

 
4,420

 
0.3
%
Tillamook Country Smoker, LLC (c) (f) (i)
 
Food Products
 
L+5.75% (7.19%), 5/19/2022
 
10,244

 
10,110

 
10,111

 
0.7
%
Traverse Midstream Partners, LLC (j)
 
Energy Equipment & Services
 
L+4.00% (5.85%), 9/27/2024
 
6,352

 
6,321

 
6,435

 
0.4
%
Trilogy International Partners, LLC (x)
 
Diversified Telecommunication Services
 
8.88%, 5/1/2022
 
14,875

 
14,810

 
15,247

 
1.0
%
Trojan Battery Company, LLC (c) (j)
 
Auto Components
 
L+4.75% (6.32%), 6/12/2021
 
10,478

 
10,425

 
10,399

 
0.7
%
Turning Tech LLC (c) (i)
 
Software
 
L+10.75% (12.45%), 6/30/2020
 
23,476

 
23,271

 
20,542

 
1.4
%
Twenty Eighty, Inc. (c) (f) (l) (p)
 
Media
 
8.00%, 3/31/2020
 
6,291

 
4,535

 
4,719

 
0.3
%
Twenty Eighty, Inc. (c) (f) (l) (p)
 
Media
 
L+8.00% (9.42%), 3/31/2020
 
2,911

 
2,426

 
2,853

 
0.2
%
Twenty Eighty, Inc. (c) (f) (l) (p)
 
Media
 
9.00%, 3/31/2020
 
5,753

 
4,164

 
3,739

 
0.3
%
United Central Industrial Supply Company, LLC (c) (i) (j)
 
Commercial Services & Supplies
 
L+7.25% (8.82%), 10/9/2018
 
8,504

 
8,483

 
7,943

 
0.5
%
US Salt, LLC (c) (f) (i) (m)
 
Food Products
 
L+4.75% (6.11%), 12/1/2023
 
5,189

 
5,137

 
5,137

 
0.3
%
VCVH Holding Corp. (c) (i) (j)
 
Health Care
 
L+5.00% (6.70%), 6/1/2023
 
22,875

 
22,801

 
23,081

 
1.5
%
Veritas US Inc. (j)
 
Technology
 
L+4.50% (6.19%), 1/27/2023
 
15,018

 
15,061

 
15,044

 
1.0
%
VetCor Professional Practices LLC (c) (f) (i)
 
Diversified Consumer Services
 
L+6.00% (7.69%), 4/20/2021
 
4,909

 
4,877

 
4,859

 
0.3
%
VetCor Professional Practices LLC (c)
 
Diversified Consumer Services
 
L+6.00% (7.69%), 4/20/2021
 
2,569

 
2,569

 
2,543

 
0.2
%
VetCor Professional Practices LLC (c) (i)
 
Diversified Consumer Services
 
L+6.00% (7.69%), 4/20/2021
 
9,750

 
9,696

 
9,653

 
0.7
%
Von Drehle Corporation (c) (i) (m)
 
Life Sciences Tools & Services
 
L+7.50% (9.19%), 3/6/2023
 
26,549

 
26,167

 
26,220

 
1.8
%
Xplornet Communications, Inc. (a) (j)
 
Diversified Telecommunication Services
 
L+4.75% (6.44%), 9/9/2021
 
13,127

 
13,051

 
13,242

 
0.9
%
Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
$
1,865,392

 
$
1,776,534

 
118.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 

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

F- 15
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (y)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value
 
% of Net Assets (b)
Senior Secured Second Lien Debt - 16.0% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Anchor Glass Container Corporation (c) (m)
 
Containers & Packaging
 
L+7.75% (9.18%), 12/7/2024
 
$
20,000

 
$
19,826

 
$
20,060

 
1.3
%
Answers Corporation (c) (p)
 
Technology
 
L+7.90% (9.00%), 9/15/2021
 
4,675

 
4,088

 
4,371

 
0.3
%
Astro AB Merger Sub, Inc. (m)
 
Diversified Financial Services
 
L+7.50% (8.88%), 4/30/2023
 
7,758

 
7,758

 
7,777

 
0.5
%
Boston Market Corporation (c) (m)
 
Hotels, Restaurants & Leisure
 
L+8.25% (9.73%), 12/16/2018
 
24,101

 
24,026

 
23,860

 
1.6
%
BrandMuscle Holdings Inc. (c) (m)
 
Internet Software & Services
 
L+8.50% (9.84%), 6/1/2022
 
24,500

 
24,166

 
24,500

 
1.6
%
Cayan Holdings (c) (m)
 
IT Services
 
L+8.50% (10.18%), 3/24/2022
 
20,000

 
19,673

 
20,000

 
1.3
%
CDS U.S. Intermediate Holdings, Inc. (c) (m)
 
Hotels, Restaurants & Leisure
 
L+8.25% (9.94%), 7/8/2023
 
7,927

 
7,809

 
7,828

 
0.5
%
CIG Financial, LLC (a) (c) (m)
 
Consumer Finance
 
10.50%, 6/30/2019
 
9,000

 
8,973

 
8,550

 
0.6
%
CIG Financial, LLC (a) (c) (f)
 
Consumer Finance
 
10.50%, 6/30/2019
 
1,000

 
1,000

 
950

 
0.1
%
CREDITCORP (x)
 
Consumer Finance
 
12.00%, 7/15/2018
 
13,250

 
13,238

 
11,925

 
0.8
%
Epic Health Services, Inc. (c) (m)
 
Health Care Providers & Services
 
L+8.00% (9.57%), 3/17/2025
 
15,000

 
14,796

 
14,531

 
1.0
%
Hertz Corp. (x)
 
Automobiles
 
7.63%, 6/1/2022
 
14,194

 
14,194

 
14,930

 
1.0
%
PI US Holdco III Limited (c) (m)
 
Consumer Finance
 
L+7.25% (8.92%), 12/20/2025
 
6,696

 
6,629

 
6,629

 
0.4
%
Recess Holdings, Inc. (c) (m)
 
Hotels, Restaurants & Leisure
 
L+3.75% (5.25%), 9/29/2025
 
13,008

 
12,816

 
12,813

 
0.9
%
Rx30 HoldCo, Inc. (c) (m)
 
Health Care Technology
 
L+9.00% (10.35%), 6/15/2022
 
11,500

 
11,353

 
11,500

 
0.8
%
Rx30 HoldCo, Inc. (c) (m)
 
Health Care Technology
 
L+9.00% (10.50%), 6/15/2022
 
1,229

 
1,204

 
1,229

 
0.1
%
TierPoint, LLC (c) (m)
 
Technology
 
L+7.25% (8.82%), 5/5/2025
 
5,334

 
5,285

 
5,281

 
0.4
%
U.S. Auto (c) (m)
 
Diversified Consumer Services
 
L+11.75% (13.12%), 6/8/2020
 
30,000

 
29,743

 
29,100

 
2.0
%
US Salt, LLC (c) (m)
 
Food Products
 
L+8.75% (10.18%), 12/1/2024
 
12,872

 
12,681

 
12,679

 
0.8
%
Sub Total Senior Secured Second Lien Debt
 
 
 
 
 
 
 
$
239,258

 
$
238,513

 
16.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Subordinated Debt - 6.3% (b)
 
 
 
 
 
 
 
 
 
 
 
 
BMC Software Finance, Inc. (x)
 
Software
 
8.13%, 7/15/2021
 
$
8,461

 
$
8,422

 
$
8,482

 
0.6
%
Gold, Inc. (c) (m)
 
Textiles, Apparel & Luxury Goods
 
10.00%, 6/30/2019
 
3,742

 
3,670

 
3,312

 
0.2
%
Frontier Communications (x)
 
Diversified Telecommunication Services
 
8.13%, 10/1/2018
 
5,500

 
5,494

 
5,479

 
0.4
%
Frontier Communications (x)
 
Diversified Telecommunication Services
 
8.50%, 4/15/2020
 
10,000

 
9,143

 
8,300

 
0.5
%
Park Ave RE Holdings, LLC (c) (d) (l) (o)
 
Real Estate Management & Development
 
L+8.00% (13.00%), 12/31/2021
 
37,192

 
37,192

 
37,192

 
2.5
%
Steel City Media (c) (l)
 
Media
 
16.00%, 3/29/2020
 
23,661

 
23,461

 
20,585

 
1.4
%
Xplornet Communications, Inc. (a) (l) (x)
 
Diversified Telecommunication Services
 
10.63%, 6/1/2022
 
10,534

 
10,534

 
10,989

 
0.7
%
Sub Total Subordinated Debt
 
 
 
 
 
 
 
$
97,916

 
$
94,339

 
6.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 

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

F- 16
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (y)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value
 
% of Net Assets (b)
Collateralized Securities - 10.7% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized Securities - Debt Investment
 
 
 
 
 
 
 
 
 
 
 
 
NewStar Exeter Fund CLO - Debt (a) (c) (p)
 
Diversified Investment Vehicles
 
L+7.50% (8.86%), 1/19/2027
 
$
10,728

 
$
9,262

 
$
8,660

 
0.6
%
Collateralized Securities - Equity Investment (n)
 
 
 
 
 
 
 
 
 
 
 
 
B&M CLO 2014-1, LTD. Subordinated Notes (a) (c) (p) (v)
 
Diversified Investment Vehicles
 
0.00%, 4/16/2026
 
$
40,250

 
$
15,385

 
$
12,804

 
0.8
%
CVP Cascade CLO, LTD. Subordinated Notes (a) (c) (p) (v)
 
Diversified Investment Vehicles
 
0.00%, 1/16/2026
 
31,000

 
7,618

 
4,121

 
0.3
%
Figueroa CLO 2014-1, LTD. Subordinated Notes (a) (c) (p) (v)
 
Diversified Investment Vehicles
 
0.00%, 1/15/2027
 
35,057

 
16,421

 
12,508

 
0.8
%
MidOcean Credit CLO II, LLC Income Notes (a) (c) (p) (v)
 
Diversified Investment Vehicles
 
15.75%, 1/29/2025
 
37,600

 
20,876

 
20,651

 
1.4
%
MidOcean Credit CLO III, LLC Subordinated Notes (a) (c) (p) (v)
 
Diversified Investment Vehicles
 
1.31%, 7/21/2026
 
40,250

 
20,323

 
17,508

 
1.2
%
MidOcean Credit CLO IV, LLC Income Notes (a) (c) (p) (v)
 
Diversified Investment Vehicles
 
1.44%, 4/15/2027
 
21,500

 
13,289

 
12,212

 
0.8
%
NewStar Arlington Senior Loan Program LLC Subordinated Notes (a) (c) (p) (v)
 
Diversified Investment Vehicles
 
12.62%, 7/25/2025
 
31,603

 
21,849

 
25,439

 
1.7
%
NewStar Exeter Fund CLO - Equity (a) (c) (p) (v)
 
Diversified Investment Vehicles
 
3.45%, 1/19/2027
 
31,575

 
19,471

 
13,089

 
0.9
%
OFSI Fund VI, Ltd. Subordinated Notes (a) (c) (p) (v)
 
Diversified Investment Vehicles
 
0.00%, 3/20/2025
 
38,000

 
14,006

 
10,162

 
0.7
%
Related Fee Agreements (a) (c) (s)
 
Diversified Investment Vehicles
 
 
 
 
 
6,959

 
3,917

 
0.2
%
Silver Spring CLO, Ltd. Subordinated Notes (a) (c) (p) (v)
 
Diversified Investment Vehicles
 
0.00%, 10/16/2026
 
31,500

 
15,123

 
10,363

 
0.7
%
WhiteHorse VIII, Ltd. CLO Subordinated Notes (a) (c) (p) (v)
 
Diversified Investment Vehicles
 
10.03%, 5/1/2026
 
36,000

 
12,947

 
8,761

 
0.6
%
Sub Total Collateralized Securities
 
 
 
 
 
 
 
$
193,529

 
$
160,195

 
10.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity/Other - 15.7% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Answers Corporation - Common Equity (c) (e) (p)
 
Technology
 
 
 
909

 
$
11,361

 
$
14,231

 
1.0
%
Avaya Holdings Corp. (e) (x)
 
Communications Equipment
 
 
 
611

 
9,696

 
10,716

 
0.7
%
Basho Technologies, Inc. - Series G Senior Participating Preferred Stock Warrant (c) (e)
 
Software
 
Expire 3/9/2025
 
306,122

 
—

 
—

 
—
%
Basho Technologies, Inc. - Series G Senior Preferred Stock (c) (e)
 
Software
 
 
 
2,040,816

 
2,000

 
—

 
—
%
California Resources Development JV, LLC - Preferred Equity (c) (u)
 
Metals & Mining
 
9.00%
 
26,717,000

 
26,183

 
26,984

 
1.8
%
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (c) (e) (o)
 
Food Products
 
 
 
6,023

 
1,630

 
—

 
—
%
Capstone Nutrition - Class B and C Common Stock (fka Integrity Nutraceuticals, Inc.) (c) (e) (o) (u)
 
Food Products
 
 
 
24,656

 
—

 
—

 
—
%
Danish CRJ LTD. - Common Equity (a) (c) (e) (p) (r)
 
Aerospace & Defense
 
 
 
10,000

 
1

 
605

 
—
%
Evolution Research Group - Preferred Equity (c) (e)
 
Health Care Providers & Services
 
8.00%
 
500,000

 
500

 
535

 
—
%

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

F- 17
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (y)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value
 
% of Net Assets (b)
Greenwave Holdings, Inc. - Series C Preferred Stock Warrant (c) (e)
 
Internet Software & Services
 
Expire 8/16/2025
 
172,414

 
$
—

 
$
—

 
—
%
Kahala Ireland OpCo Designated Activity Company - Common Equity (a) (c) (e) (h) (o)
 
Aerospace & Defense
 
 
 
137

 
—

 
11,709

 
0.8
%
Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (a) (c) (e) (h) (o)
 
Aerospace & Defense
 
 
 
3,250,000

 
2,851

 
3,250

 
0.2
%
Kahala US OpCo LLC - Class A Preferred Units (c) (e) (k) (o)
 
Aerospace & Defense
 
13.00%
 
4,413,472

 
—

 
—

 
—
%
Mood Media Corporation - Warrants (c) (e)
 
Business Services
 
 
 
121,021

 
27

 
47

 
—
%
New Star Metals Inc. - Warrants (c) (e)
 
Business Services
 
Expire 12/22/2036
 
100,216

 
151

 
272

 
—
%
NexSteppe Inc. - Series C Preferred Stock Warrant (c) (e)
 
Chemicals
 

 
237,240

 
737

 
—

 
—
%
NMFC Senior Loan Program I, LLC (a) (p)
 
Diversified Investment Vehicles
 
 
 
50,000

 
50,000

 
50,805

 
3.4
%
Orchid Underwriters Agency, LLC - Preferred Shares (c) (e) (u)
 
Insurance Broker
 
 
 
5,000

 
113

 
616

 
—
%
Orchid Underwriters Agency, LLC - Common Shares (c) (e) (u)
 
Insurance Broker
 
 
 
5,000

 
—

 
—

 
—
%
Park Ave RE Holdings, LLC - Common Shares (c) (e) (o) (w)
 
Real Estate Management & Development
 
 
 
1,000

 
—

 
12,678

 
0.8
%
Park Ave RE Holdings, LLC - Preferred Shares (c) (e) (o) (w)
 
Real Estate Management & Development
 
8.00%
 
47,290

 
23,645

 
23,645

 
1.6
%
PennantPark Credit Opportunities Fund II, LP (a) (f) (g) (p)
 
Diversified Investment Vehicles
 
 
 
$
9,952

 
9,952

 
10,136

 
0.7
%
South Grand MM CLO I, LLC (a) (f) (p)
 
Diversified Investment Vehicles
 
 
 
$
29,524

 
29,095

 
28,904

 
2.0
%
Squan Holding Corp. - Class A Common Stock (c) (e) (p)
 
Diversified Telecommunication Services
 
 
 
180,835

 
—

 
—

 
—
%
Squan Holding Corp. - Series A Preferred Stock (c) (e) (p)
 
Diversified Telecommunication Services
 
 
 
8,962

 
—

 
60

 
—
%
Tax Defense Network, LLC - Common Equity (c) (e)
 
Diversified Consumer Services
 
 
 
106,346

 
425

 
—

 
—
%
Tennenbaum Waterman Fund, L.P. (a)
 
Diversified Investment Vehicles
 
 
 
$
10,000

 
10,000

 
10,427

 
0.7
%
TCG BDC, Inc. - Common Stock (fka Carlyle GMS Finance, Inc.) (a) (x)
 
Diversified Investment Vehicles
 
 
 
404,899

 
7,765

 
7,843

 
0.5
%
The SAVO Group, Ltd. - Warrants (c) (e)
 
Internet Software & Services
 
Expire 3/23/2023
 
138,000

 
—

 
—

 
—
%
THL Credit Greenway Fund II LLC (a) (p)
 
Diversified Investment Vehicles
 
 
 
$
12,141

 
12,141

 
11,373

 
0.9
%
Twentyeighty, Inc. - Class A Common Equity (c) (e)
 
Media
 
 
 
54,586

 
—

 
—

 
—
%
TZ Holdings, Inc. - Warrants (fka Zimbra, Inc.) (c) (e)
 
Software
 
 
 
—

 
—

 
—

 
—
%
TZ Holdings, Inc. - Preferred Shares (fka Zimbra, Inc.) (c) (e)
 
Software
 
 
 
1,000,000

 
10

 
179

 
—
%
U.S. Auto - Series A Common Units (c) (e) (u)
 
Diversified Consumer Services
 
 
 
10,000

 
10

 
—

 
—
%
U.S. Auto - Series A Preferred Units (c) (e) (u)
 
Diversified Consumer Services
 
 
 
490

 
490

 
513

 
—
%

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

F- 18
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (y)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value
 
% of Net Assets (b)
World Business Lenders, LLC - Preferred Stock (c) (e)
 
Consumer Finance
 
 
 
922,669

 
$
3,750

 
$
3,759

 
0.3
%
Xplornet Communications, Inc. - Warrants (a) (c) (e)
 
Diversified Telecommunication Services
 
Expire 10/25/2023
 
10,284

 
—

 
4,655

 
0.3
%
Sub Total Equity/Other
 
 
 
 
 
 
 
$
202,533

 
$
233,942

 
15.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS - 167.5% (b)
 
 
 
 
 
 
 
$
2,598,628

 
$
2,503,523

 
167.5
%
_____________
(a)
All of the Company's investments, except the investments noted by this footnote, are qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (the "1940 Act"). Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of our total assets. Qualifying assets represent 73.8% of the Company's total assets. The significant majority of all investments held are deemed to be illiquid.
(b)
Percentages are based on net assets of $1,494,516 as of December 31, 2017.
(c)
The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's board of directors as required by the 1940 Act and are valued using significant unobservable inputs (See Note 3 to the consolidated financial statements).
(d)
As of the date of election, the portfolio company elected to pay cash interest, noting the company has the option to elect a portion of the interest to be payment-in-kind (“PIK”).
(e)
Non-income producing at December 31, 2017.












































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

F- 19
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017


(f)The Company has various unfunded commitments to portfolio companies. The remaining amount of these unfunded commitments as of December 31, 2017 are comprised of the following:
Portfolio Company Name
 
Investment Type
 
Commitment Type
 
Original Commitment
 
Remaining Commitment
AMI Entertainment Network, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
$
1,234

 
$
1,234

Amteck, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
5,000

 
5,000

AqGen Ascensus, Inc.
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
5,000

 
1,667

Berner Food & Beverage LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
2,693

 
2,693

Black Mountain Sand LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
13,050

 
13,050

CCW, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
3,000

 
600

CIG Financial, LLC
 
Senior Secured Second Lien Debt
 
Delayed draw term loan
 
5,000

 
4,000

ERG Holding Company
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
263

 
136

ERG Holding Company
 
Senior Secured First Lien Debt
 
Revolver term loan
 
87

 
78

Ideal Tridon Holdings, Inc.
 
Senior Secured First Lien Debt
 
Revolver term loan
 
2,731

 
2,185

InMotion Entertainment Group, LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
2,200

 
1,843

Lakeland Tours, LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
464

 
464

Midwest Can Company, LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
828

 
828

Motion Recruitment Partners, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
2,000

 
2,000

NexSteppe Inc.
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
2,825

 
250

Orchid Underwriters Agency, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
2,200

 
2,200

PennantPark Credit Opportunities Fund II, LP
 
Equity/Other
 
Equity capital commitment
 
10,764

 
538

PetVet Care Centers, LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
6,704

 
2,272

PT Network, LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
6,579

 
6,579

PT Network, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
1,316

 
1,316

Pure Barre, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
2,500

 
2,000

South Grand MM CLO I, LLC
 
Equity/Other
 
Equity capital commitment
 
35,000

 
5,476

Tillamook Country Smoker, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
2,696

 
2,696

Twentyeighty, Inc.
 
Senior Secured First Lien Debt
 
Revolver term loan
 
442

 
442

US Salt, LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
1,297

 
1,297

VetCor Professional Practices LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
3,656

 
3,656

Total
 
 
 
 
 
$
119,529

 
$
64,500


(g)
The investment is subject to a three year lock-up restriction on withdrawals in year 4.
(h)
The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala LuxCo, which own 100% of the equity of the operating company, Kahala Ireland OpCo Designated Activity Company.
(i)
The Company's investment or a portion thereof is pledged as collateral under the Wells Fargo Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.
(j)
The Company's investment or a portion thereof is pledged as collateral under the Citi Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.
(k)
The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala Aviation US, Inc. which own 100% of the equity of the operating company, Kahala US OpCo LLC.














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

F- 20
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017


(l)For the year ended December 31, 2017, the following investments paid or have the option to pay all or a portion of interest and dividends via payment-in-kind (“PIK”):
Portfolio Company
 
Investment Type
 
Cash
 
PIK
 
All-in Rate
 
PIK Earned for the Year ended December 31, 2017
Basho Technologies, Inc.
 
Senior Secured First Lien Debt
 
17.00
%
 
—
%
 
17.00
%
 
$
—

Capstone Nutrition (fka Integrity Nutraceuticals, Inc.)
 
Senior Secured First Lien Debt
 
—
%
 
13.88
%
 
13.88
%
 
—

Greenwave Holdings, Inc.
 
Senior Secured First Lien Debt
 
10.00
%
 
3.00
%
 
13.00
%
 
476

ILC Dover LP
 
Senior Secured First Lien Debt
 
8.24
%
 
2.00
%
 
10.24
%
 
214

Kahala Ireland OpCo Designated Activity Company
 
Senior Secured First Lien Debt
 
—
%
 
13.00
%
 
13.00
%
 
141

Lightsquared LP
 
Senior Secured First Lien Debt
 
—
%
 
10.27
%
 
10.27
%
 
1,069

MMM Holdings, LLC
 
Senior Secured First Lien Debt
 
10.32
%
 
—
%
 
10.32
%
 
—

MSO of Puerto Rico, LLC
 
Senior Secured First Lien Debt
 
10.32
%
 
—
%
 
10.32
%
 
—

New Star Metals Inc.
 
Senior Secured First Lien Debt
 
11.00
%
 
—
%
 
11.00
%
 
—

NexSteppe Inc.
 
Senior Secured First Lien Debt
 
—
%
 
12.00
%
 
12.00
%
 
135

Park Ave RE Holdings, LLC
 
Subordinated Debt
 
13.00
%
 
—
%
 
13.00
%
 
—

Steel City Media
 
Subordinated Debt
 
—
%
 
16.00
%
 
16.00
%
 
2,243

Tax Defense Network, LLC
 
Senior Secured First Lien Debt
 
—
%
 
14.70
%
 
14.70
%
 
266

Twentyeighty, Inc.
 
Senior Secured First Lien Debt
 
4.92
%
 
4.50
%
 
9.42
%
 
108

Twentyeighty, Inc.
 
Senior Secured First Lien Debt
 
1.00
%
 
7.00
%
 
8.00
%
 
390

Twentyeighty, Inc.
 
Senior Secured First Lien Debt
 
0.25
%
 
8.75
%
 
9.00
%
 
441

Xplornet Communications, Inc.
 
Subordinated Debt
 
—
%
 
13.00
%
 
13.00
%
 
946

Xplornet Communications, Inc.
 
Subordinated Debt
 
—
%
 
10.63
%
 
10.63
%
 
534

Total
 
 
 
 
 
 
 
 
 
$
6,963


(m)
The Company's investment or a portion thereof is pledged as collateral under the UBS Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.
(n)
For equity investments in Collateralized Securities, the effective yield is presented in place of the investment coupon rate for each investment. Refer to footnote (v) for a further description of an equity investment in a Collateralized Security.
(o)
The provisions of the 1940 Act classify investments based on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be "non-controlled" when we own 25% or less of the portfolio company's voting securities and "controlled" when we own more than 25% of the portfolio company's voting securities. The Company classifies this investment as "controlled".
(p)
The provisions of the 1940 Act classify investments further based on the level of ownership that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as "non-affiliated" when we own less than 5% of a portfolio company's voting securities and "affiliated" when we own 5% or more of a portfolio company's voting securities. The Company classifies this investment as "affiliated".
(q)
Unless otherwise indicated, all investments in the schedule of investments are non-affiliated, non-controlled investments.
(r)
The Company's investment is held through the Consolidated Holding Company, Kahala Aviation Holdings, LLC, which owns 49% of the operating company, Danish CRJ LTD.
(s)
Related Fee Agreements consist of four investments with a total fair value of $3.9 million that are classified as Affiliated Investments.
(t)
The investment is on non-accrual status as of December 31, 2017.
(u)
Investments are held in the taxable wholly-owned, consolidated subsidiary, 54th Street Equity Holdings, Inc.
(v)
The Collateralized Securities - subordinated notes are treated as equity investments and are entitled to recurring distributions which are generally equal to the remaining cash flow of the payments made by the underlying fund’s securities less contractual payments to debt holders and fund expenses. The estimated yield indicated is based upon a current projection of the amount and timing of these recurring distributions and the estimated amount of repayment of principal upon termination. Such projections are periodically reviewed and adjusted, and the estimated yield may not ultimately be realized.
(w)
The Company's investment is held through the consolidated subsidiary, Park Ave RE, Inc., which owns 100% of the equity of the operating company, Park Ave RE Holdings, LLC.
(x)
The Company's investment or a portion thereof is pledged as collateral under the JPMC PB Account. Individual investments can be divided into parts which are pledged to separate credit facilities.
(y)
The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate ("LIBOR" or "L") or Prime ("P") and which reset daily, monthly, quarterly or semiannually. For each, the Company has provided the spread over LIBOR or Prime and the current interest rate in effect at December 31, 2017. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate loans, a spread above a reference rate is not applicable.




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

F- 21
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2017
 
The following table shows the portfolio composition by industry grouping based on fair value at December 31, 2017:

 
At December 31, 2017
 
Investments at
Fair Value
 
Percentage of
Total Portfolio
Diversified Investment Vehicles
$
279,683

 
11.2
%
Business Services
197,181

 
7.9

Aerospace & Defense
165,406

 
6.6

Hotels, Restaurants & Leisure
149,551

 
6.0

Health Care
148,156

 
5.9

Diversified Telecommunication Services
125,997

 
5.0

Health Care Providers & Services
121,732

 
4.9

Diversified Consumer Services
116,717

 
4.7

Commercial Services & Supplies
116,524

 
4.6

Technology
97,471

 
3.9

Media
95,534

 
3.8

Food Products
84,966

 
3.4

Energy Equipment & Services
84,496

 
3.4

Internet Software & Services
74,129

 
3.0

Real Estate Management & Development
73,515

 
2.9

Metals & Mining
68,738

 
2.6

Chemicals
56,121

 
2.2

Professional Services
46,972

 
1.9

Communications Equipment
44,658

 
1.8

Software
36,903

 
1.5

Gaming/Lodging
33,823

 
1.3

Specialty Retail
32,202

 
1.3

Consumer Finance
31,813

 
1.3

Diversified Financial Services
31,736

 
1.3

Auto Components
28,975

 
1.2

Transportation Infrastructure
27,423

 
1.1

IT Services
26,688

 
1.1

Life Sciences Tools & Services
26,220

 
1.0

Containers & Packaging
20,060

 
0.8

Insurance
19,096

 
0.8

Automobiles
14,930

 
0.6

Health Care Technology
12,729

 
0.5

Electronic Equipment, Instruments & Components
10,066

 
0.4

Textiles, Apparel & Luxury Goods
3,312

 
0.1

Total
$
2,503,523

 
100.0
%




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

F- 22
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2016

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (n) (x)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured First Lien
Debt - 106.6% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Abaco Systems Holding Corp. (i)
 
Business Services
 
L+6.00% (7.00%), 12/7/2021
 
$
23,940

 
$
23,462

 
$
23,461

 
1.5
%
Ability Networks Inc. (j)
 
Health Care Providers & Services
 
L+5.00% (6.00%), 5/14/2021
 
13,712

 
13,631

 
13,712

 
0.9
%
Adams Publishing Group, LLC (i)
 
Media
 
P+4.25% (8.00%), 11/3/2020
 
15,178

 
14,904

 
15,178

 
1.0
%
Affinion Group, Inc. (j)
 
Business Services
 
L+5.25% (6.75%), 4/30/2018
 
9,974

 
9,827

 
9,910

 
0.6
%
Amports, Inc. (m)
 
Transportation Infrastructure
 
L+8.14% (9.14%), 5/19/2020
 
15,000

 
14,936

 
14,775

 
1.0
%
Amteck, LLC (f) (i)
 
Commercial Services & Supplies
 
L+8.50% (9.50%), 7/2/2020
 
23,438

 
23,063

 
22,852

 
1.5
%
Answers Corporation (i) (j) (t)
 
Internet Software & Services
 
P+6.25% (10.00%), 10/3/2021
 
34,475

 
33,589

 
17,065

 
1.1
%
AP Gaming I, LLC (i) (j)
 
Hotels, Restaurants & Leisure
 
L+8.25% (9.25%), 12/20/2020
 
30,353

 
30,148

 
30,150

 
2.0
%
APCO Holdings (i)
 
Diversified Consumer Services
 
L+6.00% (7.00%), 1/29/2022
 
8,868

 
8,632

 
8,646

 
0.6
%
Applied Merchant Systems West Coast, Inc. (m)
 
Diversified Financial Services
 
L+11.50% (12.50%), 10/26/2020
 
26,122

 
25,714

 
25,599

 
1.7
%
Ascensus, Inc. (j)
 
IT Services
 
L+4.50% (5.50%), 12/3/2022
 
17,831

 
16,915

 
17,786

 
1.2
%
Asurion LLC (j)
 
IT Services
 
L+3.75% (4.75%), 11/3/2023
 
249

 
248

 
253

 
—
%
Avaya, Inc. Term Loan B-3 (j)
 
Communications Equipment
 
L+4.50% (5.39%), 10/26/2017
 
9,685

 
8,784

 
8,384

 
0.5
%
Avaya, Inc. Term Loan B-6 (j)
 
Communications Equipment
 
L+5.50% (6.50%), 3/31/2018
 
8,457

 
8,461

 
7,353

 
0.5
%
Avaya, Inc. Term Loan B-7 (i) (j)
 
Communications Equipment
 
L+5.25% (6.25%), 5/29/2020
 
9,793

 
9,725

 
8,489

 
0.5
%
AxleTech International, LLC (i)
 
Machinery
 
L+6.50% (7.50%), 1/5/2021
 
19,600

 
19,467

 
18,914

 
1.2
%
Basho Technologies, Inc. (d) (l) (t)
 
Software
 
17.00%, 3/9/2018
 
10,595

 
10,294

 
3,814

 
0.2
%
Basho Technologies, Inc. (d) (t)
 
Software
 
17.00%, 3/31/2017
 
2,550

 
2,550

 
918

 
0.1
%
BDS Solutions Group, LLC (f) (i) (m)
 
Business Services
 
L+8.75% (9.59%), 6/1/2021
 
36,830

 
36,094

 
36,830

 
2.4
%
Blount International, Inc. (j)
 
Machinery
 
L+6.25% (7.25%), 4/12/2023
 
12,469

 
12,128

 
12,578

 
0.8
%
Broder Bros, Co. (m)
 
Distributors
 
L+5.75% (7.00%), 6/3/2021
 
7,275

 
7,158

 
7,275

 
0.5
%
Broder Bros, Co. (m)
 
Distributors
 
L+12.25% (13.50%), 6/3/2021
 
7,350

 
7,232

 
7,350

 
0.5
%
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (l) (o) (t)
 
Food Products
 
L+12.50% (13.50%), 4/28/2019
 
56,470

 
50,053

 
19,708

 
1.3
%
Catapult Learning, LLC (i) (m)
 
Diversified Consumer Services
 
L+7.99% (8.99%), 7/16/2020
 
27,500

 
27,109

 
26,537

 
1.7
%
CCW, LLC (f) (i)
 
Hotels, Restaurants & Leisure
 
L+7.00% (8.00%), 3/21/2021
 
24,625

 
24,268

 
24,379

 
1.6
%
Central Security Group, Inc. (i) (j)
 
Commercial Services & Supplies
 
L+5.63% (6.63%), 10/6/2020
 
25,554

 
25,200

 
25,458

 
1.7
%
CH Hold Corp. (f) (i)
 
Diversified Consumer Services
 
L+5.25% (6.25%), 11/20/2019
 
16,572

 
16,434

 
16,531

 
1.1
%
Chicken Soup for the Soul Publishing, LLC (i)
 
Media
 
L+6.25% (7.50%), 1/8/2019
 
28,543

 
28,331

 
27,116

 
1.8
%

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

F- 23
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2016

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (n) (x)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets (b)
Clover Technologies Group, LLC (j)
 
Commercial Services & Supplies
 
P+3.50% (7.25%), 5/8/2020
 
$
14,012

 
$
13,935

 
$
13,265

 
0.9
%
Contura Energy Inc.
 
Energy Equipment & Services
 
10.00%, 8/1/2021
 
10,000

 
10,534

 
10,650

 
0.7
%
ConvergeOne Holdings Corp. (j)
 
Diversified Consumer Services
 
L+5.38% (6.38%), 6/17/2020
 
16,601

 
16,470

 
16,518

 
1.1
%
Covenant Surgical Partners
 
Health Care
 
(8.75%), 8/1/2019
 
10,000

 
9,457

 
9,675

 
0.6
%
Cvent, Inc. (j)
 
Internet Software & Services
 
L+5.00% (6.00%), 11/29/2023
 
10,000

 
9,900

 
10,075

 
0.7
%
Danish CRJ LTD. (a) (p)
 
Aerospace & Defense
 
0.135
 
20

 
7

 
20

 
—
%
DigiCert, Inc (j)
 
Internet Software & Services
 
L+5.00% (6.00%), 10/21/2021
 
10,890

 
10,627

 
10,836

 
0.7
%
Doskocil Manufacturing Company, Inc. (m)
 
Household Durables
 
L+8.40% (9.40%), 11/10/2020
 
15,000

 
14,797

 
15,000

 
1.0
%
Eagle Rx, LLC (i)
 
Health Care Providers & Services
 
L+6.00% (7.00%), 8/15/2019
 
14,533

 
14,495

 
14,533

 
1.0
%
ECI Acquisition Holdings, Inc. (i)
 
Internet Software & Services
 
L+6.25% (7.25%), 3/11/2019
 
12,775

 
12,738

 
12,584

 
0.8
%
Emergency Communications Network, LLC (m)
 
Internet Software & Services
 
L+10.08% (11.33%), 6/12/2021
 
19,750

 
19,530

 
19,552

 
1.3
%
ERG Holding Company (i) (m)
 
Health Care Providers & Services
 
L+6.75% (8.00%), 4/4/2019
 
34,650

 
34,194

 
34,130

 
2.2
%
Excelitas Technologies Corp. (j)
 
Electronic Equipment, Instruments & Components
 
L+5.00% (6.00%), 11/2/2020
 
13,761

 
13,714

 
13,451

 
0.9
%
Genesys Telecommunications Laboratories, Inc. (j)
 
Diversified Telecommunication Services
 
L+5.25% (6.25%), 12/1/2023
 
25,000

 
24,628

 
25,422

 
1.7
%
Greenwave Holdings, Inc. (l)
 
Internet Software & Services
 
13.00%, 7/8/2019
 
15,693

 
15,543

 
15,693

 
1.0
%
GTCR Valor Companies, Inc. (j)
 
Software
 
L+6.00% (7.00%), 6/16/2023
 
24,875

 
23,956

 
24,587

 
1.6
%
HC Group Holdings III, Inc. (j)
 
Health Care
 
L+5.00% (6.00%), 4/7/2022
 
14,932

 
14,665

 
14,298

 
0.9
%
Icynene US Acquisition Corp. (f) (i) (m)
 
Building Products
 
L+6.25% (7.25%), 11/4/2020
 
21,286

 
21,012

 
21,286

 
1.4
%
Icynene US Acquisition Corp. (f)
 
Building Products
 
L+6.25% (7.25%), 11/4/2019
 
1,000

 
1,000

 
1,000

 
0.1
%
ILC Dover LP (i) (l)
 
Aerospace & Defense
 
L+9.00% (10.00%), 3/20/2020
 
14,101

 
14,064

 
11,986

 
0.8
%
Indivior Finance S.A.R.L. (j)
 
Health Care
 
L+6.00% (7.00%), 12/19/2019
 
9,244

 
9,244

 
9,279

 
0.6
%
InMotion Entertainment Group, LLC (f) (i)
 
Specialty Retail
 
L+7.75% (9.00%), 10/1/2018
 
14,450

 
14,328

 
14,450

 
0.9
%
IPC Corp. (j)
 
Diversified Telecommunication Services
 
L+4.50% (5.50%), 8/6/2021
 
9,187

 
9,040

 
8,796

 
0.6
%
Jackson Hewitt, Inc. (j)
 
Diversified Consumer Services
 
L+7.00% (8.00%), 7/30/2020
 
6,860

 
6,810

 
6,577

 
0.4
%
K2 Pure Solutions NoCal, L.P. (i)
 
Chemicals
 
L+6.00% (7.00%), 8/19/2019
 
6,500

 
6,442

 
6,500

 
0.4
%
Kahala Ireland OpCo Designated Activity Company (a) (d) (l) (o)
 
Aerospace & Defense
 
L+8.00% (13.00%), 12/23/2028
 
149,409

 
149,409

 
149,409

 
9.8
%
Kahala US OpCo LLC (d) (l) (o)
 
Aerospace & Defense
 
L+8.00% (13.00%), 12/23/2028
 
2,690

 
2,690

 
2,690

 
0.2
%

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

F- 24
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2016

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (n) (x)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets (b)
Kissner HLD
 
Chemicals
 
8.38%, 12/1/2022
 
$
9,960

 
$
9,942

 
$
10,060

 
0.7
%
Land Holdings I, LLC (m)
 
Hotels, Restaurants & Leisure
 
12.00%, 6/26/2019
 
14,250

 
14,108

 
14,250

 
0.9
%
LenderLive Services, LLC
 
Business Services
 
L+12.00% (12.69%), 8/11/2020
 
10,000

 
9,819

 
9,800

 
0.6
%
Lightsquared LP (l)
 
Diversified Telecommunications Services
 
L+8.75% (9.75%), 6/15/2020
 
10,246

 
9,371

 
9,529

 
0.6
%
MCS AMS Sub-Holdings LLC (j)
 
Real Estate Management & Development
 
L+6.50% (7.50%), 10/15/2019
 
11,906

 
11,701

 
11,073

 
0.7
%
Medical Depot Holdings, Inc. (i)
 
Health Care
 
L+5.50% (6.50%), 1/3/2023
 
20,278

 
18,453

 
18,504

 
1.2
%
Metal Services LLC (j)
 
Metals & Mining
 
L+7.50% (8.50%), 6/30/2019
 
10,917

 
10,783

 
10,944

 
0.7
%
MMM Holdings, LLC (j) (l)
 
Health Care
 
L+8.25% (9.75%), 6/28/2019
 
7,153

 
7,072

 
6,938

 
0.5
%
Monitronics International, Inc. (j)
 
Diversified Consumer Services
 
L+5.50% (6.50%), 9/30/2022
 
2,993

 
2,978

 
3,018

 
0.2
%
Montreign Operating Company, LLC (m)
 
Hotels, Restaurants, & Leisure
 
L+8.25% (9.25%), 1/24/2023
 
25,000

 
24,500

 
25,187

 
1.6
%
Motion Recruitment Partners, LLC (f) (i)
 
Professional Services
 
L+6.00% (7.00%), 2/13/2020
 
18,000

 
17,733

 
18,000

 
1.2
%
Motorsports Aftermarket Group, Inc. (i) (j)
 
Auto Components
 
L+4.00% (5.00%), 5/14/2021
 
26,309

 
24,914

 
12,716

 
0.8
%
MSO of Puerto Rico, LLC (j) (l)
 
Health Care
 
L+8.25% (9.75%), 6/28/2019
 
5,200

 
5,142

 
5,044

 
0.3
%
Murray Energy Holdings Co.
 
Energy Equipment & Services
 
L+7.25% (8.25%), 4/16/2020
 
9,974

 
9,222

 
9,506

 
0.6
%
MWI Holdings, Inc. (j)
 
Machinery
 
L+5.50% (6.50%), 6/28/2020
 
9,950

 
9,862

 
9,950

 
0.6
%
National Technical Systems, Inc. (f) (i)
 
Professional Services
 
L+6.25% (7.25%), 6/12/2021
 
19,326

 
19,072

 
18,359

 
1.2
%
New Star Metals Inc. (l)
 
Business Services
 
L+9.50% (11.00%), 12/22/2021
 
32,707

 
32,020

 
32,023

 
2.1
%
NexSteppe Inc. (l)
 
Chemicals
 
15.00%, 3/30/2018
 
10,741

 
10,444

 
8,056

 
0.5
%
Noosa Acquirer, Inc. (i) (m)
 
Food Products
 
L+5.25% (6.25%), 11/21/2020
 
25,000

 
24,756

 
25,000

 
1.6
%
North Atlantic Trading Company, Inc. (i) (j)
 
Food Products
 
P+5.50% (9.25%), 1/13/2020
 
17,331

 
17,304

 
17,158

 
1.1
%
NTM Acquisition Corp. (i)
 
Media
 
L+6.25% (7.25%), 6/7/2022
 
12,431

 
12,260

 
12,245

 
0.8
%
Orchid Underwriters Agency, LLC (f) (m)
 
Insurance Broker
 
10.00%, 11/6/2019
 
13,955

 
13,806

 
13,955

 
0.9
%
Otter Box Holdings, Inc. (j)
 
Electronic Equipment, Instruments & Components
 
L+4.75% (5.75%), 6/3/2020
 
14,797

 
14,591

 
14,612

 
1.0
%
PeopLease Holdings, LLC (i)
 
Commercial Services & Supplies
 
L+9.00% (10.00%), 2/26/2021
 
20,000

 
19,832

 
20,000

 
1.3
%
PGX Holdings, Inc. (j)
 
Transportation Infrastructure
 
L+5.25% (6.25%), 9/29/2020
 
13,172

 
13,071

 
13,148

 
0.9
%
Plaskolite, LLC (j)
 
Chemicals
 
L+4.75% (5.75%), 11/3/2022
 
8,693

 
8,623

 
8,693

 
0.6
%
Premier Dental Services, Inc. (i) (j)
 
Health Care Providers & Services
 
L+6.50% (7.50%), 11/1/2018
 
22,488

 
22,440

 
22,319

 
1.5
%

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

F- 25
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2016

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (n) (x)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets (b)
Premier Global Services, Inc. (j)
 
Diversified Telecommunication Services
 
L+6.50% (7.50%), 12/8/2021
 
$
9,871

 
$
9,528

 
$
9,606

 
0.6
%
Pre-Paid Legal Services, Inc. (j)
 
Diversified Consumer Services
 
L+5.25% (6.50%), 7/1/2019
 
13,009

 
13,006

 
13,021

 
0.9
%
Pride Plating, Inc. (i)
 
Aerospace & Defense
 
L+5.50% (6.50%), 6/13/2019
 
7,188

 
7,153

 
6,864

 
0.4
%
PSKW, LLC (i)
 
Health Care Providers & Services
 
L+4.25% (5.25%), 11/25/2021
 
2,025

 
2,008

 
2,005

 
0.1
%
PSKW, LLC (m)
 
Health Care Providers & Services
 
L+8.39% (9.39%), 11/25/2021
 
17,750

 
17,460

 
17,217

 
1.1
%
PT Network, LLC (f) (i)
 
Health Care
 
L+6.50% (7.50%), 11/30/2021
 
17,105

 
16,858

 
16,934

 
1.1
%
Pure Barre, LLC (f) (i) (m)
 
Hotels, Restaurants & Leisure
 
L+7.00% (8.00%), 6/11/2020
 
27,823

 
27,444

 
27,545

 
1.8
%
Resco Products, Inc. (i)
 
Metals & Mining
 
P+4.75% (8.50%), 3/31/2017
 
10,000

 
10,000

 
9,200

 
0.6
%
RVNB Holdings, Inc. (dba All My Sons Moving & Storage) (f) (i)
 
Diversified Consumer Services
 
L+6.50% (7.50%), 2/25/2020
 
21,733

 
21,449

 
21,733

 
1.4
%
Sage Automotive Holdings, Inc. (j)
 
Auto Components
 
L+5.00% (6.00%), 10/8/2020
 
15,000

 
14,851

 
14,850

 
1.0
%
SHO Holding II Corporation (j)
 
Specialty Retail
 
L+5.00% (6.00%), 10/27/2022
 
11,880

 
11,779

 
11,821

 
0.8
%
Squan Holding Corp.
 
Diversified Telecommunication Services
 
L+4.00% (5.00%), 10/10/2019
 
10,455

 
6,903

 
6,895

 
0.5
%
STG-Fairway Acquisitions, Inc. (j)
 
Professional Services
 
L+5.25% (6.25%), 6/30/2022
 
13,359

 
13,199

 
13,042

 
0.9
%
Stratose Intermediate Holdings II, LLC (j)
 
Health Care Providers & Services
 
L+5.00% (6.00%), 1/26/2022
 
9,900

 
9,816

 
9,937

 
0.6
%
SunGard Availability Services Capital, Inc. (j)
 
IT Services
 
L+5.00% (6.00%), 3/31/2019
 
8,741

 
8,700

 
8,443

 
0.6
%
Tax Defense Network, LLC (f) (i) (m)
 
Diversified Consumer Services
 
L+10.50% (11.50%), 8/28/2019
 
26,650

 
26,354

 
18,388

 
1.2
%
Total Outdoor Holdings Corp.
 
Media
 
L+11.00% (12.00%), 8/28/2019
 
12,900

 
12,762

 
12,900

 
0.8
%
Trojan Battery Company, LLC (j)
 
Auto Components
 
P+3.75% (7.50%), 6/12/2021
 
10,586

 
10,517

 
10,507

 
0.7
%
Turning Tech LLC (f) (i)
 
Software
 
L+10.75% (11.59%), 6/30/2020
 
24,976

 
24,668

 
24,102

 
1.6
%
Twenty Eighty, Inc. (j) (m)
 
Media
 
P+5.00% (8.75%), 9/30/2019
 
21,926

 
20,989

 
7,975

 
0.5
%
United Central Industrial Supply Company, LLC (i) (j)
 
Commercial Services & Supplies
 
L+7.25% (8.50%), 10/9/2018
 
8,640

 
8,590

 
6,890

 
0.5
%
VCVH Holding Corp. (j)
 
Health Care
 
L+5.00% (6.00%), 6/1/2023
 
12,935

 
12,816

 
12,854

 
0.8
%
VetCor Professional Practices LLC (i)
 
Diversified Consumer Services
 
L+6.25% (7.25%), 4/20/2021
 
14,808

 
14,696

 
14,512

 
0.9
%
Xplornet Communications, Inc. (a) (j)
 
Diversified Telecommunication Services
 
L+6.00% (7.00%), 7/25/2020
 
9,975

 
9,882

 
10,050

 
0.7
%
Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
$
1,726,833

 
$
1,630,661

 
106.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Second Lien Debt - 17.1% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Anchor Glass Container Corporation
 
Containers & Packaging
 
L+7.75% (8.75%), 12/7/2024
 
$
20,000

 
$
19,801

 
$
20,325

 
1.3
%

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

F- 26
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2016

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (n) (x)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets (b)
Appriss Holdings, Inc. (m)
 
IT Services
 
L+9.25% (10.25%), 5/21/2021
 
$
13,985

 
$
13,839

 
$
13,775

 
0.9
%
Asurion LLC (j)
 
IT Services
 
L+7.50% (8.50%), 3/3/2021
 
10,000

 
9,320

 
10,156

 
0.7
%
Boston Market Corporation (m)
 
Hotels, Restaurants & Leisure
 
L+8.25% (9.25%), 12/16/2018
 
24,351

 
24,196

 
24,107

 
1.6
%
BrandMuscle Holdings Inc. (m)
 
Internet Software & Services
 
L+8.50% (9.50%), 6/1/2022
 
24,500

 
24,091

 
24,500

 
1.6
%
Cayan Holdings (m)
 
IT Services
 
L+8.50% (9.50%), 3/24/2022
 
20,000

 
19,579

 
19,600

 
1.3
%
CDS U.S. Intermediate Holdings, Inc. (m)
 
Hotels, Restaurants & Leisure
 
L+8.25% (9.25%), 7/8/2023
 
4,800

 
4,680

 
4,668

 
0.3
%
CIG Financial, LLC (a) (f) (m)
 
Consumer Finance
 
10.50%, 6/30/2019
 
13,000

 
12,935

 
12,415

 
0.8
%
CREDITCORP
 
Consumer Finance
 
12.00%, 7/15/2018
 
13,250

 
13,217

 
10,401

 
0.7
%
Epic Health Services, Inc. (m)
 
Health Care Providers & Services
 
L+9.25% (10.25%), 8/17/2021
 
15,933

 
15,703

 
15,933

 
1.0
%
J. C. Bromac Corporation (dba EagleRider, Inc.) (f) (m)
 
Hotels, Restaurants & Leisure
 
L+8.75% (9.59%), 2/10/2021
 
6,950

 
6,887

 
6,776

 
0.4
%
Linc Energy Finance USA, Inc. (t)
 
Oil, Gas & Consumable Fuels
 
12.50%, 10/31/2017
 
9,000

 
8,914

 
—

 
—
%
NCP Finance Limited Partnership (j)
 
Consumer Finance
 
L+9.75% (11.00%), 10/1/2018
 
12,145

 
12,109

 
11,386

 
0.7
%
Rx30 HoldCo, Inc. (m)
 
Health Care Technology
 
L+9.00% (10.00%), 6/15/2022
 
11,500

 
11,320

 
11,500

 
0.8
%
Schulman Associates Institutional Review Board, Inc. (m)
 
Life Sciences Tools & Services
 
L+8.00% (9.00%), 6/3/2021
 
17,000

 
16,768

 
16,745

 
1.1
%
Stratose Intermediate Holdings II, LLC (m)
 
Health Care Providers & Services
 
L+9.50% (10.50%), 7/26/2022
 
30,000

 
29,593

 
30,000

 
2.0
%
U.S. Auto (m)
 
Diversified Consumer Services
 
L+11.75% (12.75%), 6/8/2020
 
30,000

 
29,561

 
29,700

 
1.9
%
Sub Total Senior Secured Second Lien Debt
 
 
 
 
 
 
 
$
272,513

 
$
261,987

 
17.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Subordinated Debt - 5.3% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Gold, Inc. (m)
 
Textiles, Apparel & Luxury Goods
 
10.00%, 6/30/2019
 
$
7,003

 
$
6,924

 
$
5,953

 
0.4
%
Park Ave RE Holdings, LLC (d) (l) (o)
 
Real Estate Management & Development
 
L+8.00% (13.00%), 12/29/2017
 
37,192

 
37,192

 
37,192

 
2.4
%
Steel City Media (l)
 
Media
 
16.00%, 3/29/2020
 
21,418

 
21,146

 
20,561

 
1.4
%
Xplornet Communications, Inc. (a) (l)
 
Diversified Telecommunication Services
 
13.00%, 10/25/2020
 
14,591

 
14,591

 
15,102

 
1.0
%
Zimbra, Inc. (t)
 
Software
 
12.00%, 7/10/2018
 
1,203

 
1,203

 
1,732

 
0.1
%
Sub Total Subordinated Debt
 
 
 
 
 
 
 
$
81,056

 
$
80,540

 
5.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized Securities - 16.3% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized Securities - Debt Investment
 
 
 
 
 
 
 
 
 
 
 
 
Fifth Street Senior Loan Fund I, LLC - 1A Class F (a) (p)
 
Diversified Investment Vehicles
 
L+7.50% (8.38%), 1/19/2027
 
$
10,728

 
$
9,100

 
$
8,455

 
0.5
%
Collateralized Securities - Equity Investment
 
 
 
 
 
 
 
 
 
 
 
 
B&M CLO 2014-1, LTD. Subordinated Notes (a) (p) (v)
 
Diversified Investment Vehicles
 
7.71%, 4/16/2026
 
$
40,250

 
$
20,331

 
$
16,772

 
1.1
%

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

F- 27
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2016

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (n) (x)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets (b)
CVP Cascade CLO, LTD. Subordinated Notes (a) (p) (v)
 
Diversified Investment Vehicles
 
0.04%, 1/16/2026
 
$
31,000

 
$
10,552

 
$
8,868

 
0.6
%
CVP Cascade CLO-2, LTD. Subordinated Notes (a) (p) (v)
 
Diversified Investment Vehicles
 
4.80%, 7/18/2026
 
35,250

 
13,667

 
11,593

 
0.8
%
Fifth Street Senior Loan Fund I, LLC - 2015-1A Subordinated Notes (a) (p) (v)
 
Diversified Investment Vehicles
 
13.83%, 1/19/2027
 
31,575

 
22,079

 
20,579

 
1.3
%
Figueroa CLO 2014-1, LTD. Subordinated Notes (a) (p) (v)
 
Diversified Investment Vehicles
 
4.65%, 1/15/2027
 
35,057

 
19,941

 
16,101

 
1.1
%
MidOcean Credit CLO II, LLC (a) (p) (v)
 
Diversified Investment Vehicles
 
7.44%, 1/29/2025
 
37,600

 
23,092

 
22,419

 
1.5
%
MidOcean Credit CLO III, LLC (a) (p) (v)
 
Diversified Investment Vehicles
 
11.89%, 7/21/2026
 
40,250

 
23,998

 
23,341

 
1.5
%
MidOcean Credit CLO IV, LLC (a) (p) (v)
 
Diversified Investment Vehicles
 
13.77%, 4/15/2027
 
21,500

 
15,160

 
15,505

 
1.0
%
NewStar Arlington Senior Loan Program LLC Subordinated Notes (a) (p) (v)
 
Diversified Investment Vehicles
 
23.61%, 7/25/2025
 
31,603

 
23,795

 
24,491

 
1.6
%
Ocean Trails CLO V, LTD. (a) (p) (v)
 
Diversified Investment Vehicles
 
14.78%, 10/13/2026
 
40,518

 
28,222

 
29,144

 
1.9
%
OFSI Fund VI, Ltd. Subordinated Notes (a) (p) (v)
 
Diversified Investment Vehicles
 
13.59%, 3/20/2025
 
38,000

 
19,012

 
17,354

 
1.1
%
Related Fee Agreements (a) (s)
 
Diversified Investment Vehicles
 
 
 
—

 
11,345

 
10,390

 
0.7
%
Silver Spring CLO, Ltd. (a) (p) (v)
 
Diversified Investment Vehicles
 
0.26%, 10/16/2026
 
31,500

 
18,676

 
12,007

 
0.8
%
WhiteHorse VIII, Ltd. CLO Subordinated Notes (a) (p) (v)
 
Diversified Investment Vehicles
 
6.99%, 5/1/2026
 
36,000

 
15,806

 
12,563

 
0.8
%
Sub Total Collateralized Securities
 
 
 
 
 
 
 
$
274,776

 
$
249,582

 
16.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity/Other - 11.2% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Basho Technologies, Inc. - Series G Senior Participating Preferred Stock Warrant (e)
 
Software
 
Expire 3/9/2025
 
306,122

 
$
—

 
$
—

 
—
%
Basho Technologies, Inc. - Series G Senior Preferred Stock (e)
 
Software
 
 
 
2,040,816

 
2,000

 
—

 
—
%
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (e) (o)
 
Food Products
 
 
 
6,023

 
1,630

 
—

 
—
%
Capstone Nutrition - Class B and C Common Stock (fka Integrity Nutraceuticals, Inc.) (e) (o) (u)
 
Food Products
 
 
 
24,656

 
—

 
—

 
—
%
Carlyle GMS Finance, Inc. (a) (f)
 
Diversified Investment Vehicles
 
 
 
$
6,587

 
6,587

 
6,273

 
0.4
%
Danish CRJ LTD. (a) (e) (p) (r)
 
Aerospace & Defense
 
 
 
10,000

 
1

 
407

 
—
%
Evolution Research Group - Preferred Equity (e)
 
Health Care Providers & Services
 
8.00%
 
200

 
500

 
610

 
—
%
Greenwave Holdings, Inc. - Series C Preferred Stock Warrant (e)
 
Internet Software & Services
 
Expire 8/16/2025
 
172,414

 
—

 
19

 
—
%

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

F- 28
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2016

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (n) (x)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets (b)
Kahala Ireland OpCo Designated Activity Company - Common Equity (a) (e) (h) (o)
 
Aerospace & Defense
 
 
 
137

 
$
—

 
$
8,180

 
0.5
%
Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (a) (e) (h) (o)
 
Aerospace & Defense
 
 
 
3,250,000

 
2,900

 
3,250

 
0.2
%
Kahala US OpCo LLC - Class A Preferred Units (e) (k) (o)
 
Aerospace & Defense
 
13.00%
 
4,413,472

 
4,193

 
4,000

 
0.3
%
New Star Metals Inc. (l)
 
Business Services
 
Expire 12/22/2036
 
133,074

 
201

 
201

 
—
%
NexSteppe Inc. - Series C Preferred Stock Warrant (e)
 
Chemicals
 
Expire 3/9/2025
 
185,704

 
500

 
43

 
—
%
NMFC Senior Loan Program I, LLC (a) (p)
 
Diversified Investment Vehicles
 
 
 
$
50,000

 
50,000

 
47,057

 
3.1
%
Orchid Underwriters Agency, LLC - Preferred Shares (e) (u)
 
Insurance Broker
 
 
 
5,000

 
500

 
659

 
—
%
Orchid Underwriters Agency, LLC - Common Shares (e) (u)
 
Insurance Broker
 
 
 
5,000

 
—

 
304

 
—
%
Park Ave RE Holdings, LLC - Common Shares (e) (o) (w)
 
Real Estate Management & Development
 
 
 
1,000

 
—

 
6,564

 
0.4
%
Park Ave RE Holdings, LLC - Preferred Shares (o) (w)
 
Real Estate Management & Development
 
8.00%
 
47,290

 
23,645

 
23,645

 
1.6
%
PennantPark Credit Opportunities Fund II, LP (a) (f) (g) (p)
 
Diversified Investment Vehicles
 
 
 
$
9,943

 
9,943

 
9,788

 
0.7
%
South Grand MM CLO I, LLC (a) (f) (p)
 
Diversified Investment Vehicles
 
 
 
$
29,095

 
29,095

 
28,382

 
1.9
%
Squan Holding Corp. - Class A Common Stock (e) (p)
 
Diversified Telecommunication Services
 
 
 
180,835

 
—

 
—

 
—
%
Squan Holding Corp. - Series A Preferred Stock (e) (p)
 
Diversified Telecommunication Services
 
 
 
8,962

 
—

 
—

 
—
%
Tax Defense Network, LLC (e)
 
Diversified Consumer Services
 
 
 
396

 
425

 
—

 
—
%
Tennenbaum Waterman Fund, L.P. (a)
 
Diversified Investment Vehicles
 
 
 
$
10,000

 
10,000

 
10,169

 
0.7
%
The SAVO Group, Ltd. - Warrants (e)
 
Internet Software & Services
 
Expire 3/23/2023
 
138,000

 
—

 
—

 
—
%
THL Credit Greenway Fund II LLC (a) (p)
 
Diversified Investment Vehicles
 
 
 
$
13,990

 
13,990

 
12,850

 
0.9
%
U.S. Auto - Series A Common Units (e) (u)
 
Diversified Consumer Services
 
 
 
10,000

 
10

 
27

 
—
%
U.S. Auto - Series A Preferred Units (e) (u)
 
Diversified Consumer Services
 
 
 
490

 
490

 
572

 
—
%
World Business Lenders, LLC (e)
 
Consumer Finance
 
 
 
922,669

 
3,750

 
4,441

 
0.3
%
Xplornet Communications, Inc. - Warrants (a) (e)
 
Diversified Telecommunication Services
 
Expire 10/25/2023
 
10,284

 
—

 
3,647

 
0.2
%
Zimbra, Inc. - Warrants (Third Lien Bridge Note) (e)
 
Software
 
Expire 7/11/2023
 
1,000,000

 
—

 
225

 
—
%

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

F- 29
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2016

Portfolio Company (q)
 
Industry
 
Investment Coupon Rate / Maturity (n) (x)
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets (b)
Sub Total Equity/Other
 
 
 
 
 
 
 
$
160,360

 
$
171,313

 
11.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS - 156.5% (b)
 
 
 
 
 
 
 
$
2,515,538

 
$
2,394,083

 
156.5
%
_____________
(a)
All of the Company's investments, except the investments noted by this footnote, are qualifying assets under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of our total assets. Qualifying assets represent 77.9% of the Company's total assets. The significant majority of all investments held are deemed to be illiquid.
(b)
Percentages are based on net assets of $1,529,734 as of December 31, 2016.
(c)
The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's board of directors as required by the 1940 Act and are valued using significant unobservable inputs (See Note 3 to the consolidated financial statements).
(d)
As of the date of election, the portfolio company elected to pay cash interest, noting the company has the option to elect a portion of the interest to be payment-in-kind (“PIK”).
(e)
Non-income producing at December 31, 2016.
(f)The Company has various unfunded commitments to portfolio companies. The remaining amount of these unfunded commitments as of December 31, 2016 are comprised of the following:
Portfolio Company Name
 
Investment Type
 
Commitment Type
 
Original Commitment
 
Remaining Commitment
Amteck, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
$
5,000

 
$
5,000

BDS Solutions Group, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
3,000

 
3,000

Carlyle GMS Finance, Inc.
 
Equity/Other
 
Equity capital commitment
 
10,000

 
3,413

CCW, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
3,000

 
3,000

CH Hold Corp.
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
2,175

 
706

CIG Financial, LLC
 
Senior Secured Second Lien Debt
 
Delayed draw term loan
 
5,000

 
5,000

Icynene US Acquisition Corp.
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
5,000

 
5,000

Icynene US Acquisition Corp.
 
Senior Secured First Lien Debt
 
Revolver term loan
 
5,000

 
4,000

InMotion Entertainment Group, LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
2,200

 
1,843

J. C. Bromac Corporation (dba EagleRider, Inc.)
 
Senior Secured Second Lien Debt
 
Delayed draw term loan
 
5,000

 
5,000

Motion Recruitment Partners, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
2,000

 
2,000

National Technical Systems, Inc.
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
5,000

 
5,000

Orchid Underwriters Agency, LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
5,600

 
5,600

PennantPark Credit Opportunities Fund II, LP
 
Equity/Other
 
Equity capital commitment
 
10,800

 
538

Pure Barre, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
6,579

 
6,579

PT Network, LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
1,316

 
1,316

PT Network, LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
2,500

 
2,500

RVNB Holdings, Inc. (dba All My Sons Moving & Storage)
 
Senior Secured First Lien Debt
 
Revolver term loan
 
852

 
852

South Grand MM CLO I, LLC
 
Equity/Other
 
Equity capital commitment
 
35,000

 
5,476

Tax Defense Network, LLC
 
Senior Secured First Lien Debt
 
Delayed draw term loan
 
5,000

 
1,000

Turning Tech LLC
 
Senior Secured First Lien Debt
 
Revolver term loan
 
6,000

 
3,000

Total
 
 
 
 
 
$
126,022

 
$
69,823


(g)
The investment is subject to a three year lock-up restriction on withdrawals in year 4.
(h)
The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala LuxCo, which own 100% of the equity of the operating company, Kahala Ireland OpCo Designated Activity Company.
(i)
The Company's investment or a portion thereof is pledged as collateral under the Wells Fargo Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.
(j)
The Company's investment or a portion thereof is pledged as collateral under the Citi Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.


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

F- 30
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2016


(k)
The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala Aviation US, Inc. which own 100% of the equity of the operating company, Kahala US OpCo LLC.
(l)For the year ended December 31, 2016, the following investments paid or have the option to pay all or a portion of interest and dividends via payment-in-kind (“PIK”):
Portfolio Company
 
Investment Type
 
Cash
 
PIK
 
All-in Rate
 
PIK Earned for the Year ended December 31, 2016
Basho Technologies, Inc.
 
Senior Secured First Lien Debt
 
17.00
%
 
—
%
 
17.00
%
 
$
283

Capstone Nutrition (fka Integrity Nutraceuticals, Inc.)
 
Senior Secured First Lien Debt
 
—
%
 
13.50
%
 
13.50
%
 
807

CPX Interactive Holdings, LP
 
Senior Secured Second Lien Debt
 
11.00
%
 
2.00
%
 
13.00
%
 
315

Greenwave Holdings, Inc.
 
Senior Secured First Lien Debt
 
10.00
%
 
3.00
%
 
13.00
%
 
510

ILC Dover LP
 
Senior Secured First Lien Debt
 
8.00
%
 
2.00
%
 
10.00
%
 
132

Kahala Ireland OpCo Designated Activity Company
 
Senior Secured First Lien Debt
 
—
%
 
13.00
%
 
13.00
%
 
5,827

Kahala US OpCo LLC
 
Senior Secured First Lien Debt
 
13.00
%
 
—
%
 
13.00
%
 
87

Lightsquared LP
 
Senior Secured First Lien Debt
 
—
%
 
9.75
%
 
9.75
%
 
—

MMM Holdings, LLC
 
Senior Secured First Lien Debt
 
9.75
%
 
—
%
 
9.75
%
 
—

MSO of Puerto Rico, LLC
 
Senior Secured First Lien Debt
 
9.75
%
 
—
%
 
9.75
%
 
—

New Star Metals Inc.
 
Senior Secured First Lien Debt
 
9.00
%
 
2.00
%
 
11.00
%
 
—

NexSteppe Inc.
 
Senior Secured First Lien Debt
 
10.00
%
 
5.00
%
 
15.00
%
 
509

Park Ave RE Holdings, LLC
 
Subordinated Debt
 
13.00
%
 
—
%
 
13.00
%
 
—

Steel City Media
 
Subordinated Debt
 
12.00
%
 
4.00
%
 
16.00
%
 
840

Taqua, LLC
 
Senior Secured First Lien Debt
 
10.50
%
 
3.00
%
 
13.50
%
 
202

The Tennis Channel Holdings, Inc.
 
Senior Secured First Lien Debt
 
6.88
%
 
2.00
%
 
8.88
%
 
85

Visionary Integration Professionals, LLC
 
Subordinated Debt
 
—
%
 
15.00
%
 
15.00
%
 
1,088

Xplornet Communications, Inc.
 
Subordinated Debt
 
—
%
 
13.00
%
 
13.00
%
 
1,727

Total
 
 
 
 
 
 
 
 
 
$
12,412


(m)
The Company's investment or a portion thereof is pledged as collateral under the UBS Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities.
(n)
For equity investments in Collateralized Securities, the effective yield is presented in place of the investment coupon rate for each investment. Refer to footnote (v) for a further description of an equity investment in a Collateralized Security.
(o)
The provisions of the 1940 Act classify investments based on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be "non-controlled" when we own 25% or less of the portfolio company's voting securities and "controlled" when we own more than 25% of the portfolio company's voting securities.
(p)
The provisions of the 1940 Act classify investments further based on the level of ownership that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as "non-affiliated" when we own less than 5% of a portfolio company's voting securities and "affiliated" when we own 5% or more of a portfolio company's voting securities.
(q)
Unless otherwise indicated, all investments in the schedule of investments are non-affiliated, non-controlled investments.
(r)
The Company's investment is held through the Consolidated Holding Company, Kahala Aviation Holdings, LLC, which owns 49% of the operating company, Danish CRJ LTD.
(s)
Related Fee Agreements consist of one investment with a fair value of $0.7 million that is classified as a Non-affiliated Investment and six investments with a total fair value of $9.6 million that are classified as Affiliated Investments.
(t)
The investment is on non-accrual status as of December 31, 2016.
(u)
Investments are held in the taxable wholly-owned, consolidated subsidiary, 54th Street Equity Holdings, Inc.
(v)
The Collateralized Securities - debt investments and equity investments are considered equity positions in the Collateralized Loan Obligation funds. Equity investments are entitled to recurring distributions which are generally equal to the remaining cash flow of the payments made by the underlying fund’s securities less contractual payments to debt holders and fund expenses. The estimated yield indicated is based upon a current projection of the amount and timing of these recurring distributions and the estimated amount of repayment of principal upon termination. Such projections are periodically reviewed and adjusted, and the estimated yield may not ultimately be realized.
(w)
The Company's investment is held through the consolidated subsidiary, Park Ave RE, Inc., which owns 100% of the equity of the operating company, Park Ave RE Holdings, LLC.
(x)
The majority of the investments bear interest at a rate that may be determined by reference to LIBOR or Prime and which reset daily, monthly, quarterly or semiannually. For each, the Company has provided the spread over LIBOR or Prime and the current interest rate in effect at December 31, 2016. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate loans, a spread above a reference rate is not applicable.



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

F- 31
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)


December 31, 2016

The following table shows the portfolio composition by industry grouping based on fair value at December 31, 2016:

 
At December 31, 2016
 
Investments at
Fair Value
 
Percentage of
Total Portfolio
Diversified Investment Vehicles
$
364,101

 
15.2
%
Aerospace & Defense
186,806

 
7.8

Diversified Consumer Services
175,780

 
7.3

Health Care Providers & Services
160,396

 
6.7

Hotels, Restaurants & Leisure
157,062

 
6.6

Business Services
112,225

 
4.7

Internet Software & Services
110,324

 
4.6

Media
95,975

 
4.0

Health Care
93,526

 
3.9

Diversified Telecommunication Services
89,047

 
3.7

Commercial Services & Supplies
88,465

 
3.7

Real Estate Management & Development
78,474

 
3.3

IT Services
70,013

 
2.9

Food Products
61,866

 
2.6

Software
55,378

 
2.3

Professional Services
49,401

 
2.1

Machinery
41,442

 
1.7

Consumer Finance
38,643

 
1.6

Auto Components
38,073

 
1.6

Chemicals
33,352

 
1.4

Electronic Equipment, Instruments & Components
28,063

 
1.2

Transportation Infrastructure
27,923

 
1.2

Specialty Retail
26,271

 
1.1

Diversified Financial Services
25,599

 
1.1

Communications Equipment
24,226

 
1.0

Building Products
22,286

 
0.9

Containers & Packaging
20,325

 
0.9

Energy Equipment & Services
20,156

 
0.8

Metals & Mining
20,144

 
0.8

Life Sciences Tools & Services
16,745

 
0.7

Household Durables
15,000

 
0.6

Insurance
14,918

 
0.6

Distributors
14,625

 
0.6

Health Care Technology
11,500

 
0.5

Textiles, Apparel & Luxury Goods
5,953

 
0.3

Oil, Gas & Consumable Fuels
—

 
—

Total
$
2,394,083

 
100.0
%




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

F- 32
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)


Note 1 — Organization and Basis of Presentation

Business Development Corporation of America (the “Company”) is an externally managed, non-diversified closed-end management investment company incorporated in Maryland in May 2010 that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“the 1940 Act”). In addition, the Company has elected to be treated for tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s investment activities are managed by BDCA Adviser, LLC (the “Adviser”), a subsidiary of Benefit Street Partners L.L.C. (“BSP”) and supervised by the Company’s board of directors, a majority of whom are independent of the Adviser and its affiliates. As a BDC, the Company is required to comply with certain regulatory requirements.

The Company’s investment objective is to generate both current income and to a lesser extent long-term capital appreciation through debt and equity investments. The Company invests primarily in first and second lien senior secured loans and mezzanine debt issued by middle market companies. The Company defines middle market companies as those with annual revenues up to $1 billion. The Company also purchases interests in loans through secondary market transactions. First and second lien secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in bankruptcy priority and are generally secured by liens on the operating assets of a borrower, which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. The Company may invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles (“Collateralized Securities” or "CLOs"). Structurally, CLOs are entities that are formed to manage a portfolio of senior secured loans made to companies whose debt is rated below investment grade or, in limited circumstances, unrated. The senior secured loans within these Collateralized Securities meet specified credit and diversity criteria and are subject to concentration limitations in order to create a diverse investment portfolio. In most cases, companies to whom we provide customized financing solutions will be privately held at the time the Company invests in them.

During the year ended December 31, 2017, the Company invested approximately $1,102.0 million to portfolio companies to contribute to the support of their business objectives of which some were contractually obligated. See also Note 6 - Commitments and Contingencies. As of December 31, 2017, the Company held investments in loans it made investee companies with aggregate principal amounts of $2,262.9 million. The details of such investments have been disclosed on the consolidated schedule of investments as well as in Note 3 - Fair Value of Financial Instruments. In addition to providing loans to investee companies, from time to time the Company may assist investee companies in securing financing from other sources by introducing such investee companies to sponsors or other lending institutions.

While the structure of the Company’s investments is likely to vary, we may invest in senior secured debt, senior unsecured debt, subordinated secured debt, subordinated unsecured debt, mezzanine debt, convertible debt, convertible preferred equity, preferred equity, common equity, warrants, CLOs and other instruments, many of which generate current yields. If the Adviser deems appropriate, the Company may invest in more liquid senior secured and second lien debt securities, some of which may be traded. The Company will make such investments to the extent allowed by the 1940 Act and consistent with its continued qualification as a RIC for federal income tax purposes.

On January 25, 2011, the Company commenced its initial public offering (the “IPO”) on a “reasonable best efforts basis” of up to 150.0 million shares of common stock, 0.001 par value per share, and subsequently amended the offering to issue up to an additional 101.1 million shares of its common stock (the “Offering”). The Company closed the Offering to new investments on April 30, 2015. As of December 31, 2017, the Company had issued 195.7 million shares of common stock for gross proceeds of $2.1 billion including the shares purchased by affiliates and shares issued under the Company's distribution reinvestment plan (“DRIP”). As of December 31, 2017, the Company had repurchased a cumulative 16.0 million shares of common stock through its share repurchase program for payments of $143.6 million.

The Company intends to co-invest, subject to the conditions included in the exemptive order the Company received from the Securities and Exchange Commission ("SEC"), with certain of our affiliates. The Company believes that such co-investments may afford it additional investment opportunities and an ability to achieve greater diversification.

As a BDC, the Company is generally required to invest at least 70% of our total assets primarily in securities of private and certain U.S. public companies (other than certain financial institutions), cash, cash equivalents and U.S. government securities and other high quality debt investments that mature in one year or less.

The Company is permitted to borrow money from time to time within the levels permitted by the 1940 Act (which

F- 33
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

generally allows it to incur leverage for up to one half of its total assets). The Company has used, and expects to continue to use, its credit facilities and other borrowings, along with proceeds from the rotation of its portfolio and proceeds from private securities offerings to finance its investment objectives.
    
Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The consolidated financial statements reflect all adjustments, both normal and recurring which, in the opinion of management, are necessary of the fair presentation of the Company’s results of operations and financial condition for the periods presented. The Company is an investment company and follows accounting and reporting guidance in Accounting Standards Codification ("ASC") Topic 946 - Financial Services - Investment Companies ("ASC 946").

The Company consolidates the following subsidiaries for accounting purposes: BDCA Funding I, LLC (“Funding I”), BDCA 2L Funding I, LLC (“2L Funding I”), BDCA-CB Funding, LLC (“CB Funding”), BDCA Helvetica Funding, Ltd. (“Helvetica Funding”), 54th Street Equity Holdings, Inc. and the Consolidated Holding Companies. All significant intercompany balances and transactions have been eliminated in consolidation. In conjunction with the consolidation of subsidiaries, the Company recognizes non-controlling interests attributable to third party ownership in the following Consolidated Holding Companies: Kahala Aviation Holdings, LLC, Kahala Aviation US, Inc., and Kahala LuxCo.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Consolidation

As provided under Regulation S-X and ASC 946, the Company will generally not consolidate its investment in a company other than a substantially wholly-owned investment company or controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the accounts of the Company's substantially wholly-owned subsidiaries in its consolidated financial statements.

Valuation of Portfolio Investments

Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. On a quarterly basis, the Company performs an analysis of each investment to determine fair value as follows:

Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is readily available according to U.S. GAAP to determine the fair value of the security. If determined readily available, the Company uses the quote obtained.


F- 34
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. 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 amounts (for example, 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, 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, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

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

•
Each portfolio company or investment will be valued by the Adviser, with assistance from one or more independent valuation firms engaged by our board of directors or as noted below, with respect to investments in an investment fund;
•
The independent valuation firm(s) conduct independent appraisals and make an independent assessment of the value of each investment; and
•
The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser and independent valuation firm (to the extent applicable).

For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC 946, as of the Company's measurement date.

The Company’s investments in funds that offer periodic liquidity have redemption frequencies which range from monthly to quarterly and redemption notice periods which range from 30 to 90 days. Investments in private equity typically do not offer liquidity and instead, capital is returned through periodic distributions.

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

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control” is defined as the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. In addition, any person “who owns beneficially, either directly or through one or more controlled companies, more than 25% of the voting securities of a company shall be presumed to control such company. Any person who does not so own more than 25% of the voting securities of any company shall be presumed not to control such company”. Consistent with the 1940 Act, “Affiliated Investments” are defined as those investments in companies in which the Company owns between 5% or more of the voting securities. Consistent with the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments.

Where appropriate, prior period consolidated financial statements may have been reclassified to disclose the Company's Control Investments and Affiliate Investments as defined above. In addition, prior period consolidated financial statements may have been reclassified to present investment industry classifications in a consistent manner with the current year.

F- 35
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)


Cash and Cash Equivalents

Cash and cash equivalents include short-term, liquid investments in a money market deposit account. Cash and cash equivalents are carried at cost which approximates fair value.

Offering Costs

The Company incurs certain costs in connection with the registration of shares of its common stock. Offering costs principally relate to professional fees, printing costs, direct marketing expenses, due diligence costs, fees paid to regulators and other expenses, including the salaries and/or expenses of the Adviser and its affiliates engaged in registering and marketing the Company’s common stock. Such allocated expenses of the Adviser and its affiliates may include the development of marketing materials and presentations, training and educational meetings, and generally coordinating the marketing process for the Company.

Pursuant to the Investment Advisory Agreement, the Company and the Adviser have agreed that the Company will not be liable for organization and offering costs, including transfer agent fees, in excess of 1.5% of the aggregate gross proceeds from the Company’s on-going offering. Should the Company resume continually offering its shares, any offering costs incurred will be capitalized and amortized as an expense on a straight-line basis over a 12-month period. For the year ended December 31, 2017 and December 31, 2016, the Company did not incur any offering costs.

Deferred Financing Costs

Financing costs incurred in connection with the Company’s Unsecured Notes and revolving credit facilities with Wells Fargo, Citi, and UBS are capitalized and amortized into expense using the straight-line method, which approximates the effective yield method over the life of the respective facility. See Note 5 - Borrowings - for details on the Credit Facilities and Unsecured Notes.

Distributions

The Company’s board of directors has authorized, and has declared, cash distributions payable on a monthly basis to stockholders of record on each day since it commenced operations. From November 2013 until July 2017, the distribution rate has been $0.002378082 per day, which is equivalent to $0.868 per annum, per share of common stock, except for 2016 where the daily distribution rate was $0.002371585 per day to accurately reflect 2016 being a leap year. In July 2017, the board of directors reduced the distribution rate with respect to the Company's cash distributions to $0.001780822 per day, which is equivalent to $0.65 annually, per share of common stock.

The amount of each such distribution is subject to the discretion of the board of directors and applicable legal restrictions related to the payment of distributions. The Company calculates each stockholder’s specific distribution amount for the month using record and declaration dates and accrue distributions on the date the Company accepts a subscription for shares of the Company’s common stock. The distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month. From time to time, the Company may also pay interim distributions, including capital gains distributions, at the discretion of the Company’s board of directors. The Company’s distributions may exceed earnings, especially during the period before it has substantially invested the proceeds from the offering. As a result, a portion of the distributions made by the Company may represent a return of capital for U.S. federal income tax purposes. A return of capital is a return of each stockholder’s investment rather than earnings or gains derived from the Company’s investment activities.
    
The Company may fund cash distributions to stockholders from any sources of funds available to the Company, including advances from the Adviser that are subject to reimbursement, as well as offering proceeds, borrowings, net investment income from operations, capital gain proceeds from the sale of assets, and non-capital gain proceeds from the sale of assets. The Company has not established limits on the amount of funds it may use from available sources to make distributions. See Note 12 - Income Tax Information and Distributions to Stockholders for additional information.


F- 36
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Revenue Recognition

Interest Income

Investment transactions are accounted for on the trade date. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discount and premium on investments purchased are accreted/amortized over the expected life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discount and amortization of premium on investments.

The Company has a number of investments in Collateralized Securities. Interest income from investments in the “equity” class of these Collateralized Securities (in the Company's case, preferred shares or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40-35, Beneficial Interests in Securitized Financial Assets. The Company monitors the expected cash inflows from its equity investments in Collateralized Securities, including the expected principal repayments. The effective yield is determined and updated quarterly.
Fee Income

Fee income, such as structuring fees, origination, closing, amendment fees, commitment, termination and other upfront fees are generally non-recurring and are recognized as revenue when earned, either upon receipt or amortized into income. Upon the re-payment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment and other upfront fees are recorded as income.
Payment-in-Kind Interest/Dividends

The Company holds debt and equity investments in its portfolio that contain payment-in-kind (“PIK”) interest and dividend provisions. The PIK interest and PIK dividend, which represent contractually deferred interest or dividends that add to the investment balance that is generally due at maturity, are generally recorded on the accrual basis.

Non-accrual income

Investments may be placed on non-accrual status when principal or interest/dividend payments are past due 30 days or more and/or when there is reasonable doubt that principal or interest will be collected. Accrued interest which may include un-capitalized PIK interest is generally reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

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

Gains or losses on the sale of investments are calculated using the specific identification method. 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, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Income Taxes

The Company has elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. Generally, a RIC is not subject to federal income taxes in respect of each taxable year if it distributes dividends for federal income tax purposes to stockholders of an amount generally equal to at least 90% of ‘‘investment company taxable income,’’ as defined in the Code, and determined without regard to any deduction for dividends paid. Distributions declared prior to the filing of the previous year's tax return and paid up to twelve months after the previous tax year can be carried back to the prior tax year in determining the distributions paid in such tax year. The Company intends to make sufficient distributions to maintain its ability to be subject to be taxed as a RIC each year. The Company may be subject to federal excise tax imposed at a rate of 4% on certain undistributed amounts. See Note 12 - Income Tax Information and Distributions to Stockholders for additional information.

F- 37
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)


New Accounting Pronouncements

In December 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2016-19, Technical Corrections and Improvements. As part of this guidance, ASU 2016-19 amends FASB ASC 820 to clarify the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. ASU 2016-19 is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. The Company has evaluated the impact of ASU 2016-19 on its consolidated financial statements and disclosures and determined that the adoption of ASU 2016-19 has not had a material impact on its consolidated financial statements.

In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows, which will amend FASB ASC 230. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted this guidance and the application did not have a material impact on the Company's consolidated financial statements.

In October 2016, the SEC adopted new rules and amended rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. The application of this guidance did not have a material impact on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”, which seeks to reduce diversity in how certain cash payments are presented in the Statement of Cash Flows. Under ASU 2016-15, an entity will need to conform to the presentation as prescribed for eight specific cash flow issues. ASU 2016-15 will be effective for annual and interim reporting periods after December 15, 2017. The application of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606 "Identifying Performance Obligations and Licensing"),” which amends the criteria for revenue recognition where an entity enters into contracts with customers to transfer goods or services or where there is a transfer of non-financial assets. Under ASU 2016-10, an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2016-10 will be effective for annual and interim reporting periods beginning after December 15, 2017. The Company does not believe that the adoption of ASU 2016-10 will have a material impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. The Company does not believe that the adoption of ASU 2016-01 will have a material impact on the Company's consolidated financial statements.
    
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s consolidated financial statements.





F- 38
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Note 3 — Fair Value of Financial Instruments

The Company’s fair value measurements are classified into a fair value hierarchy in accordance with ASC Topic 820, Fair Value Measurement, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. This alternative approach also reflects the contractual terms of the derivatives, if any, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The guidance defines three levels of inputs that may be used to measure fair value:

•
Level 1—Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
•
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
•
Level 3—Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.

For investments for which Level 1 inputs, such as quoted prices, were not available at December 31, 2017, the investments were valued at fair value as determined in good faith using the valuation policy approved by the board of directors using Level 2 and Level 3 inputs. The Company evaluates the source of inputs, including any markets in which the Company's investments are trading, in determining fair value. Due to the inherent uncertainty in the valuation process, the estimate of fair value of the Company’s investment portfolio at December 31, 2017 may differ materially from values that would have been used had a ready market for the securities existed.

In addition to using the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the board of directors. Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. On a quarterly basis the Company performs an analysis of each investment to determine fair value as described below.

Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is readily available according to U.S. GAAP to determine the fair value of the security. If determined readily available, the Company uses the quote obtained.

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. 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 amounts (for example, 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, 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

F- 39
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC Topic 946, as of the Company's measurement date.

For investments in Collateralized Securities, the Adviser models both the assets and liabilities of each Collateralized Securities' capital structure. The model uses a waterfall engine to store the collateral data, generate cash flows from the assets, and distribute the cash flows to the liability structure based on priority of payments. The cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, the Adviser considers broker quotations and/or comparable trade activity is considered as an input to determining fair value when available. 

As part of the Company's quarterly valuation process, the Adviser may be assisted by one or more independent valuation firms engaged by the Company. The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser and the independent valuation firm(s) (to the extent applicable).

Determination of fair values involves subjective judgments and estimates. Accordingly, the notes to the consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations on the consolidated financial statements.
    
For discussion of the fair value measurement of the Company's borrowings, refer to Note 5 - Borrowings - in the consolidated financial statements included in this report.

The following table presents fair value measurements of investments, by major class, as of December 31, 2017, according to the fair value hierarchy:
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Measured at Net Asset value (1)
 
Total
Senior Secured First Lien Debt
$
—

 
$
522,031

 
$
1,254,503

 
—

 
$
1,776,534

Senior Secured Second Lien Debt
—

 
34,632

 
203,881

 
—

 
238,513

Subordinated Debt
—

 
33,250

 
61,089

 
—

 
94,339

Collateralized Securities
—

 
—

 
160,195

 
—

 
160,195

Equity/Other
10,716

 
7,843

 
103,738

 
111,645

 
233,942

Total
$
10,716

 
$
597,756

 
$
1,783,406

 
$
111,645

 
$
2,503,523

______________

(1) In accordance with ASC Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient election have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.










F- 40
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

The following table presents fair value measurements of investments, by major class, as of December 31, 2016, according to the fair value hierarchy:
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Measured at Net Asset Value (1)
 
Total
Senior Secured First Lien Debt
$
—

 
$
714,562

 
$
916,099

 
—

 
$
1,630,661

Senior Secured Second Lien Debt
—

 
56,936

 
205,051

 
—

 
261,987

Subordinated Debt
—

 
—

 
80,540

 
—

 
80,540

Collateralized Securities
—

 
—

 
249,582

 
—

 
249,582

Equity/Other
—

 
—

 
56,794

 
114,519

 
171,313

Total
$
—

 
$
771,498

 
$
1,508,066

 
$
114,519

 
$
2,394,083

______________

(1) In accordance with ASC Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient election have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended December 31, 2017:

 
Senior Secured First Lien Debt
 
Senior Secured Second Lien Debt
 
Subordinated Debt
 
Collateralized Securities
 
Equity/Other
 
Total
Balance as of December 31, 2016
$
916,099

 
$
205,051

 
$
80,540

 
$
249,582

 
$
56,794

 
$
1,508,066

Net change in unrealized appreciation (depreciation) on investments
(23,259
)
 
(558
)
 
(2,718
)
 
(8,140
)
 
13,805

 
(20,870
)
Purchases and other adjustments to cost
427,865

 
79,561

 
3,167

 
161

 
38,817

 
549,571

Sales and redemptions
(342,176
)
 
(117,696
)
 
(21,453
)
 
(79,376
)
 
(3,980
)
 
(564,681
)
Net realized gains (losses)
(11,753
)
 
1,144

 
1,553

 
(2,032
)
 
(1,698
)
 
(12,786
)
Transfers in
287,727

 
36,379

 
—

 
—

 
—

 
324,106

Transfers out
—

 
—

 
—

 
—

 
—

 
—

Balance as of December 31, 2017
$
1,254,503

 
$
203,881

 
$
61,089

 
$
160,195

 
$
103,738

 
$
1,783,406

Net change in unrealized appreciation (depreciation) for the
period relating to those Level 3
assets that were still held by
the Company at the end of the
period:
$
(36,523
)
 
$
(841
)
 
$
(1,678
)
 
$
(9,353
)
 
$
13,573

 
$
(34,822
)

Purchases represent the acquisition of new investments at cost. Redemptions represent principal payments received during the period.

For the year ended December 31, 2017, there were no transfers out of Level 1 to Level 2 and Level 3 to Level 2. For the year ended December 31, 2017, twenty-five investments were transferred out of Level 2 to Level 3. Transfers during the period were due to changes in management's assessment of liquidity in the underlying positions.
 
Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur.

F- 41
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)


The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended December 31, 2016:

 
Senior Secured First Lien Debt
 
Senior Secured Second Lien Debt
 
Subordinated Debt
 
Collateralized Securities
 
Equity/Other
 
Total
Balance as of December 31, 2015
$
1,095,040

 
$
340,563

 
$
92,272

 
$
261,784

 
$
115,112

 
$
1,904,771

Net change in unrealized appreciation (depreciation) on investments
(39,045
)
 
4,506

 
1,120

 
48,557

 
(19,214
)
 
(4,076
)
Purchases and other adjustments to cost
255,985

 
27,416

 
5,813

 
162

 
201

 
289,577

Sales and redemptions
(241,206
)
 
(118,913
)
 
(7,403
)
 
(60,921
)
 
(4,069
)
 
(432,512
)
Net realized gains (losses)
(9,461
)
 
1,538

 
(11,262
)
 
—

 
(6,081
)
 
(25,266
)
Transfers in
4,252

 
—

 
—

 
—

 
—

 
4,252

Transfers out
(149,466
)
 
(50,059
)
 
—

 
—

 
(29,155
)
 
(228,680
)
Balance as of December 31, 2016
$
916,099

 
$
205,051

 
$
80,540

 
$
249,582

 
$
56,794

 
$
1,508,066

Net change in unrealized appreciation (depreciation) for the
period relating to those Level 3
assets that were still held by
the Company at the end of the
period:
$
(41,722
)
 
$
1,653

 
$
(603
)
 
$
48,557

 
$
(21,841
)
 
$
(13,956
)

Purchases represent the acquisition of new investments at cost. Redemptions represent principal payments received during the period.

For the year ended December 31, 2016, there were no transfers out of Level 1 to Level 2. For the year ended December 31, 2016, an investment in one company was transferred out of Level 2 to Level 3. For the year ended December 31, 2016, investments in seventeen companies were transferred from Level 3 to Level 2 as the number of observable market quotes increased.

The composition of the Company’s investments as of December 31, 2017, at amortized cost and fair value, were as follows:
 
Investments at
Amortized Cost
 
Investments at
Fair Value
 
Fair Value
Percentage of
Total Portfolio
Senior Secured First Lien Debt
$
1,865,392

 
$
1,776,534

 
71.0
%
Senior Secured Second Lien Debt
239,258

 
238,513

 
9.5

Subordinated Debt
97,916

 
94,339

 
3.8

Collateralized Securities
193,529

 
160,195

 
6.4

Equity/Other
202,533

 
233,942

 
9.3

Total
$
2,598,628

 
$
2,503,523

 
100.0
%





F- 42
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

The composition of the Company’s investments as of December 31, 2016, at amortized cost and fair value, were as follows:
 
Investments at
Amortized Cost
 
Investments at
Fair Value
 
Fair Value
Percentage of
Total Portfolio
Senior Secured First Lien Debt
$
1,726,833

 
$
1,630,661

 
68.1
%
Senior Secured Second Lien Debt
272,513

 
261,987

 
10.9

Subordinated Debt
81,056

 
80,540

 
3.4

Collateralized Securities
274,776

 
249,582

 
10.4

Equity/Other
160,360

 
171,313

 
7.2

Total
$
2,515,538

 
$
2,394,083

 
100.0
%
    
Significant Unobservable Inputs

The following table summarizes the significant unobservable inputs used to value the majority of the Level 3 investments as of December 31, 2017. The table is not intended to be all-inclusive, but instead identifies the significant unobservable inputs relevant to the determination of fair values.
 
 
 
 
Range
 
 
Asset Category
 
Fair Value
 
Primary Valuation Technique
 
Unobservable Inputs
 
Minimum
 
Maximum
 
Weighted Average (a)
Senior Secured First Lien Debt (b)
 
$
967,773

 
Yield Analysis
 
Market Yield
 
5.00
%
 
26.75
%
 
9.21
%
Senior Secured First Lien Debt (b) (c)
 
$
141,549

 
Waterfall Analysis
 
Discount Rate
 
15.00
%
 
17.00
%
 
N/A

Senior Secured Second Lien Debt (d)
 
$
184,572

 
Yield Analysis
 
Market Yield
 
9.25
%
 
15.05
%
 
11.91
%
Subordinated Debt (c) (e)
 
$
37,192

 
Waterfall Analysis
 
Discount Rate
 
8.20
%
 
9.20
%
 
N/A

Subordinated Debt (c) (e)
 
$
3,312

 
Yield Analysis
 
Market Yield
 
12.50
%
 
14.60
%
 
N/A

Collateralized Securities
 
$
160,195

 
Discounted Cash Flow
 
Discount Rate
 
12.35
%
 
37.50
%
 
20.37
%
Equity/Other (f)
 
$
51,282

 
Waterfall Analysis
 
Discount Rate
 
8.45%

 
16.00%

 
10.65%

Equity/Other (f)
 
$
27,589

 
Discounted Cash Flow
 
Discount Rate
 
5.63%

 
12.19%

 
12.05%

Equity/Other (f)
 
$
1,462

 
Waterfall Analysis
 
EBITDA Multiple
 
 4.00x

 
 10.50x

 
 9.31x

Equity/Other (f)
 
$
47

 
Option Pricing Method
 
Volatility
 
30.00%

 
50.00%

 
40.00%

______________
    
(a) 
Weighted averages are calculated based on fair value of investments.
(b) 
The remaining $145.2 million of senior secured first lien debt consisted of $113.5 million which were valued using a Scenario-Based analysis technique factoring in various unobservable inputs and $31.7 million which were valued based on their respective acquisition prices as the investments closed near year end.
(c) 
Weighted average not applicable as this asset category contains one investment.
(d) 
The remaining $19.3 million of senior secured second lien debt were valued based on their respective acquisition prices as the investments closed near year end.
(e) 
The remaining $20.6 million of subordinated debt were valued using a Scenario-Based analysis technique factoring in various unobservable inputs.
(f) 
The remaining $23.2 million of equity/other investments were valued using the Current Method, factoring in various unobservable inputs and $0.2 million which were valued based on their respective acquisition prices as the investments closed near year end.

F- 43
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

There were no significant changes in valuation approach or technique as of December 31, 2017.

Increases or decreases in any of the above unobservable inputs in isolation would result in a lower or higher fair value measurement for such assets.
    
The following table summarizes the significant unobservable inputs used to value the majority of the Level 3 investments as of December 31, 2016. The table is not intended to be all-inclusive, but instead identifies the significant unobservable inputs relevant to the determination of fair values.

 
 
 
 
Range
 
 
Asset Category
 
Fair Value
 
Primary Valuation Technique
 
Unobservable Inputs
 
Minimum
 
Maximum
 
Weighted Average (a)
Senior Secured First Lien Debt (b)
 
$
823,974

 
Yield Analysis
 
Market Yield
 
6.00
%
 
27.00
%
 
10.88
%
Senior Secured First Lien Debt (c)
 
$
19,708

 
Joint Venture/Merger Strategy
 
EBITDA Multiple
 
6.75x

 
7.50x

 
N/A

Senior Secured Second Lien Debt
 
$
205,051

 
Yield Analysis
 
Market Yield
 
10.60
%
 
13.60
%
 
11.91
%
Subordinated Debt (d)
 
$
78,808

 
Yield Analysis
 
Market Yield
 
12.25
%
 
17.25
%
 
14.11
%
Collateralized Securities
 
$
249,582

 
Discounted Cash Flow
 
Discount Rate
 
7.54
%
 
45.06
%
 
19.84
%
Equity/Other (e)
 
$
10,279

 
Market Multiple Analysis
 
EBITDA Multiple
 
2.40x

 
11.20x

 
7.00x

______________
    
(a) 
Weighted averages are calculated based on fair value of investments.
(b) 
Refer to note (c) below for one senior secured first lien debt investment valued using an alternative technique. The remaining $72.4 million of senior secured first lien debt were valued at their respective acquisition prices as the investments closed near year end.
(c) 
Weighted average not applicable as this asset category contains one investment.
(d) 
The remaining $1.7 million of subordinated debt were valued based on a Monte-Carlo simulation.
(e) 
The remaining $46.5 million of equity/other investments consisted of $46.0 million which were valued with consideration of their respective appraisal value, $0.3 million which were based on a Monte-Carlo simulation, and $0.2 million which were valued at their respective acquisition prices as the investment closed near year end.

Increases or decreases in any of the above unobservable inputs in isolation would result in a lower or higher fair value measurement for such assets.

As of December 31, 2017, the Company had four portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $120.2 million, amortized cost of $97.6 million, and fair value of $21.0 million which represented 4.0%, 3.8% and 0.8% of the investment portfolio's total principal, amortized cost and fair value, respectively. As of December 31, 2016, the Company had six portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $136.2 million, amortized cost of $127.6 million, and fair value of $51.2 million which represented 5.0%, 5.1% and 2.1% of the investment portfolio's total principal, amortized cost and fair value, respectively. Refer to Note 2 - Summary of Significant Accounting Policies - for additional details regarding the Company’s non-accrual policy.








F- 44
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Note 4 — Related Party Transactions and Arrangements

Investment Advisory Agreement

Pursuant to the Investment Advisory Agreement and for the investment advisory and management services provided thereunder, the Company pays the Adviser a base management fee and an incentive fee.

Base Management Fee

The base management fee is calculated at an annual rate of 1.5% of the Company’s average gross assets. The base management fee is payable quarterly in arrears. Average gross assets is calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters. All or any part of the base management fee not taken as to any quarter shall be deferred without interest and may be taken in such other quarter as the Adviser will determine. The base management fee for any partial month or quarter is appropriately pro-rated.

As of December 31, 2017 and December 31, 2016, $9.9 million and $9.6 million was payable to the Adviser for base management fees, respectively.

Incentive Fees

The incentive fee consists of two parts. The first part is referred to as the incentive fee on income and it is calculated and payable quarterly in arrears based on the Company’s “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter. “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees, other than fees for providing managerial assistance, such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the administration agreement and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount debt instruments with payment-in-kind interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. The payment of the incentive fee on income shall be subject to payment of a preferred return to investors each quarter, expressed as a quarterly rate of return on the value of our net assets at the end of the most recently completed calendar quarter, of 1.75% (7.00% annualized), subject to a “catch up” feature (as described below). The calculation of the incentive fee on income for each quarter is as follows:

•
No incentive fee on income shall be payable to the Adviser in any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the preferred return rate of 1.75% or 7.00% annualized (the “Preferred Return”) on net assets;
•
100% of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds the preferred return but is less than or equal to 2.1875% in any calendar quarter (8.75% annualized) shall be payable to the Adviser. This portion of the Company’s incentive fee on income is referred to as the “catch up” and is intended to provide the Adviser with an incentive fee of 20% on all of the Company’s Pre-Incentive Fee Net Investment Income when the Company’s Pre-Incentive Fee Net Investment Income reaches 2.1875% (8.75% annualized) in any calendar quarter; and
•
For any quarter in which our Pre-Incentive Fee Net Investment Income exceeds 2.1875% (8.75% annualized), the incentive fee on income shall equal 20% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, as the Preferred Return and catch-up will have been achieved.

As of December 31, 2017 and December 31, 2016 $4.6 million and $3.1 million was payable to the Adviser for the incentive fee on income, respectively.

The second part of the incentive fee, referred to as the “incentive fee on capital gains during operations,” shall be an incentive fee on capital gains earned on liquidated investments from the portfolio during operations prior to the Company’s liquidation and shall be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, if earlier). This fee shall equal 20.0% of the Company’s incentive fee capital gains, which shall equal the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any

F- 45
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

previously paid capital gain incentive fees.

The Transaction

On July 19, 2016, American Realty Capital II Advisors, LLC, the former parent of the Adviser, entered into a membership interest purchase agreement with a subsidiary of BSP, pursuant to which such subsidiary acquired all of the outstanding limited liability company interests of the Adviser (the “Transaction”). In connection with the Transaction, the Company amended the Investment Advisory Agreement, effective as of November 1, 2016, to allow the Adviser to serve as investment adviser to the Company following the closing of the Transaction.

Administration Agreement

In connection with the closing of the Transaction, the Company terminated the previous administration agreement and entered into a new administration agreement with BSP on November 1, 2016. In connection with the New Administration Agreement, BSP provides the Company with office facilities and administrative services. As of December 31, 2017 and December 31, 2016, $0.6 million and $0.5 million was payable to BSP under the New Administration Agreement, respectively.

Co-Investment Relief

The 1940 Act generally prohibits BDCs from entering into negotiated co-investments with affiliates absent an order from the SEC. The SEC staff has granted the Company exemptive relief that allows it to enter into certain negotiated co-investment transactions alongside with other funds managed by the Adviser or its affiliates (“Affiliated Funds”) in a manner consistent with its investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). Pursuant to the Order, the Company is permitted to co-invest with its affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of its eligible directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to the Company and our stockholders and do not involve overreaching in respect of the Company or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of the Company’s stockholders and is consistent with the Company’s investment objective and strategies.

Transactions with Affiliates
    
In connection with the closing of the Transaction, an affiliate of BSP purchased $10.0 million of the Company’s common stock based on its net asset value per share in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"). On November 7, 2016, the Company issued approximately 1.2 million shares of its common stock to such BSP affiliate.

Offering Costs

The Company incurs certain costs in connection with the registration of shares of its common stock. Offering costs principally relate to professional fees, printing costs, direct marketing expenses, due diligence costs, fees paid to regulators and other expenses, including the salaries and/or expenses of the Adviser and its affiliates engaged in registering and marketing the Company’s common stock. Such allocated expenses of the Adviser and its affiliates may include the development of marketing materials and presentations, training and educational meetings, and generally coordinating the marketing process for the Company.

Other Affiliated Parties

The Adviser is the investment adviser of BDCA. The Adviser is an affiliate of BSP, an SEC registered investment adviser. The Adviser and BSP are under common control. The Adviser is affiliated and under common control with Providence Equity Capital Markets L.L.C. (“PECM”), an SEC registered investment adviser on the BSP platform. The Adviser is affiliated and under common control with Providence Equity Partners L.L.C. (“PEP”), an SEC registered investment adviser. PEP is a global private equity investment adviser and maintains an information barrier between itself and the Adviser, BSP and PECM. The Adviser is affiliated and under common control with Merganser Capital Management, LLC (“Merganser”), an SEC registered investment adviser. BSP, the Adviser, PECM, Merganser and PEP’s respective Form ADV’s are publicly available for review on the SEC Investment Adviser Public Disclosure website.

F- 46
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)


Note 5 — Borrowings

Wells Fargo Credit Facility

On July 24, 2012, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into a revolving credit facility with Wells Fargo and U.S. Bank as collateral agent, account bank and collateral custodian (the “Wells Fargo Credit Facility”). The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013, September 9, 2013, June 30, 2014, May 29, 2015, November 4, 2015, and May 18, 2017 provides for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis. The Wells Fargo Credit Facility has a maturity date of May 18, 2022.

The Wells Fargo Credit Facility is priced at the one-month maturity London Interbank Offered Rate (“LIBOR”), with no LIBOR floor, plus a spread ranging between 1.65% and 2.50% per annum, depending on the composition of the portfolio of loans owned by Funding I for the relevant period. Interest is payable quarterly in arrears. Funding I is subject to a non-usage fee to the extent the aggregate principal amount available under the Wells Fargo Credit Facility has not been borrowed. The non-usage fee per annum is 0.50% for the first 25% of the unused balance and 2.0% for the portion of the unused balance that exceeds 25%.

Borrowings under the Wells Fargo Credit Facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Funding I varies depending upon the types of loans in Funding I's portfolio. The Wells Fargo Credit Facility may be prepaid in whole or in part, subject to customary breakage costs.

The Wells Fargo Credit Facility contains customary default provisions for facilities of this type pursuant to which Wells Fargo may terminate the rights, obligations, power and authority of the Company, in its capacity as servicer of the portfolio assets under the Wells Fargo Credit Facility, including, but not limited to, non-performance of Wells Fargo Credit Facility obligations, insolvency, defaults of certain financial covenants and other events with respect to the Company that may be adverse to Wells Fargo and the secured parties under the Wells Fargo Credit Facility.

In connection with the Wells Fargo Credit Facility, Funding I has made certain representations and warranties, is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities and is subject to certain customary events of default. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and all other obligations under the Wells Fargo Credit Facility immediately due and payable. During the continuation of an event of default, Funding I must pay interest at a default rate.

Deutsche Bank Credit Facility

On February 21, 2014, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, 2L Funding I, entered into the credit facility with Deutsche Bank (the “Deutsche Bank Credit Facility”) as lender and as administrative agent and U.S. Bank as collateral agent and collateral custodian. The Deutsche Bank Credit Facility was amended on February 19, 2016, and it was terminated in accordance with its terms on June 3, 2016.

The Deutsche Bank Credit Facility provided for borrowings in an aggregate principal amount of up to $60.0 million with a term of 36 months. The Deutsche Bank Credit Facility was priced at LIBOR plus 4.25%, with no LIBOR floor. Prior to its termination, the Deutsche Bank Credit Facility was subject to a minimum utilization of 82.5% of the loan amount thereafter, measured quarterly. If the utilized portion of the loan amount was less than the foregoing thresholds, such shortfalls bore interest at LIBOR plus 4.25%. The Deutsche Bank Credit Facility provided for monthly interest payments for each drawn loan. 2L Funding I paid a structuring fee and incurred certain other customary costs and expenses in connection with obtaining the Deutsche Bank Credit Facility.
    









F- 47
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Citi Credit Facility

On June 27, 2014, the Company, through a wholly-owned, special purpose financing subsidiary, CB Funding, entered into a credit facility (the “Citi Credit Facility”) with Citibank, N.A. ("Citi") as administrative agent and U.S. Bank as collateral agent, account bank and collateral custodian. The Citi Credit Facility, which was subsequently amended on October 14, 2015, provides for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis, subject to the administrative agent’s right to approve the assets acquired by CB Funding and pledged as collateral under the Citi Credit Facility. The Citi Credit Facility was amended on November 28, 2017 to extend the investment period to May 31, 2019. The Citi Credit Facility has a maturity date of May 28, 2020.

The Citi Credit Facility is priced at three month LIBOR, with no LIBOR floor, plus a spread of 1.60% per annum through and including the last day of the investment period and 2.00% per annum thereafter. Interest is payable quarterly in arrears. CB Funding is subject to a non-usage fee to the extent the aggregate principal amount available under the Citi Credit Facility has not been borrowed. The non-usage fee per annum is 0.50%. Any amounts borrowed under the Citi Credit Facility along with any accrued and unpaid interest thereunder will mature, and will be due and payable, in three years.
    
UBS Credit Facility

On April 7, 2015, the Company, through a wholly-owned, special-purpose, bankruptcy-remote subsidiary, Helvetica Funding, entered into a debt financing facility with UBS AG, London Branch (“UBS”), pursuant to which $150.0 million has been made available to the Company to fund investments in new securities and for other general corporate purposes (the “UBS Credit Facility”). The UBS Credit Facility was subsequently amended on July 10, 2015 to increase the amount of debt available to the Company under the facility from $150.0 million to $210.0 million. On June 6, 2016, the UBS credit facility was again amended to increase the amount of debt available from $210.0 million to $232.5 million. In addition, the amended facility increased the applicable spread over a three-month LIBOR from 3.90% to 4.05% per annum for the relevant period and increased the permissible percentage of second lien loans from 60% to 70%. Pricing under the transaction is based on three-month LIBOR plus a spread of 4.05% per annum for the relevant period. The UBS Credit Facility has a maturity date of April 7, 2018.

Unsecured Notes

On August 26, 2015, the Company entered into a Purchase Agreement with the initial purchasers, relating to the Company’s sale of $100.0 million aggregate principal amount of its 6.00% fixed rate senior notes due 2020 to the initial purchasers in a private placement in reliance on Section 4(a)(2) of the Securities Act and for initial resale by the initial purchasers to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act (the “Unsecured Notes”). The Company relied upon these exemptions from registration based in part on representations made by the initial purchasers. The Purchase Agreement includes customary representations, warranties and covenants by the Company. Under the terms of the Purchase Agreement, the Company has agreed to indemnify the initial purchasers against certain liabilities under the Securities Act. The Unsecured Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The net proceeds from the sale of the Unsecured Notes was approximately $97.9 million, after deducting initial purchasers’ discounts and commissions of approximately $1.6 million payable by the Company and estimated offering expenses of approximately $0.5 million payable by the Company. The Company used the net proceeds to make investments in accordance with the Company’s investment objectives and for general corporate purposes. 
    
The Unsecured Notes were issued pursuant to the Indenture, dated as of August 31, 2015, between the Company and the Trustee. The Unsecured Notes will mature on September 1, 2020, and may be redeemed in whole or in part at the Company’s option at any time, or from time to time, at the redemption prices set forth in the Indenture. The Unsecured Notes bear interest at a rate of 6.00% per year payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 2016. The Unsecured Notes will be general unsecured obligations of the Company that rank senior in right of payment to all of the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the Unsecured Notes. The Unsecured Notes will rank equally in right of payment with all of the Company’s existing and future senior liabilities that are not so subordinated, effectively junior to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness, and structurally junior to all existing and future indebtedness incurred by the Company’s subsidiaries, financing vehicles or similar facilities, including credit facilities held by the Company’s wholly owned, special purpose financing subsidiaries. 


F- 48
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

The Indenture contains certain covenants, including covenants requiring the Company to: (i) comply with the asset coverage requirements of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act as in effect immediately prior to the issuance of the Unsecured Notes, whether or not the Company is subject to such provisions; (ii) provide financial information to the holders of the Unsecured Notes and the Trustee if the Company is no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended; and (iii) maintain total unencumbered assets, as defined in the Indenture, of at least 175% of the aggregate principal amount of all of the Company and the Company’s consolidated subsidiaries’ outstanding unsecured debt determined on a consolidated basis in accordance with U.S. GAAP. These covenants are subject to important limitations and exceptions that are described in the Indenture.

2022 Notes
    
On December 14, 2017, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with Sandler O’Neill & Partners, L.P (the “Initial Purchaser”) relating to the Company's sale of $150.0 million aggregate principal amount of its 4.75% fixed rate notes due 2022 (the “2022 Notes”) to the Initial Purchaser in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and for initial resale by the Initial Purchaser to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act and to institutional accredited investors under Rule 501(a)(1), (2), (3) or (7) under the Securities Act. The Company relied upon these exemptions from registration based in part on representations made by the Initial Purchaser. The Purchase Agreement also includes customary representations, warranties and covenants by the Company. Under the terms of the Purchase Agreement, the Company has agreed to indemnify the Initial Purchaser against certain liabilities under the Securities Act. The 2022 Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration. The net proceeds from the sale of the 2022 Notes was approximately $147.0 million, after deducting an offering price discount of approximately $0.8 million, as well as Initial Purchaser’s discounts and commissions of approximately $1.7 million and estimated offering expenses of approximately $0.6 million, each payable by the Company. The Company intends to use the net proceeds to repay outstanding indebtedness, to make investments in portfolio companies in accordance with its investment objectives and for general corporate purposes.

The 2022 Notes were issued pursuant to an Indenture dated as of December 19, 2017 (the “Indenture”), between the Company and U.S. Bank National Association, trustee (the “Trustee”), and a Supplemental Indenture, dated as of December 19, 2017 (the “Supplemental Indenture”), between the Company and the Trustee. The 2022 Notes will mature on December 30, 2022, unless repurchased or redeemed in accordance with their terms prior to such date. The Notes bear interest at a rate of 4.75% per year payable semi-annually on June 30 and December 30 of each year, commencing on June 30, 2018. The 2022 Notes will be general unsecured obligations of the Company that rank senior in right of payment to all of the Company's existing and future indebtedness that is expressly subordinated in right of payment to the 2022 Notes. The 2022 Notes will rank equally in right of payment with all of the Company's existing and future senior liabilities that are not so subordinated, effectively junior to any of the Company's secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness, and structurally junior to all existing and future indebtedness incurred by the Company's subsidiaries, financing vehicles or similar facilities, including credit facilities entered into by the Company's wholly owned, special purpose financing subsidiaries.

The Indenture contains certain covenants, including covenants requiring the Company to (i) comply with the asset coverage requirements of the 1940 Act, whether or not it is subject to those requirements, and (ii) provide financial information to the holders of the 2022 Notes and the Trustee if the Company is no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended. These covenants are subject to important limitations and exceptions that are described in the Indenture.

In addition, if a change of control repurchase event, as defined in the Indenture, occurs prior to maturity, holders of the 2022 Notes will have the right, at their option, to require the Company to repurchase for cash some or all of the 2022 Notes at a repurchase price equal to 100% of the principal amount of the 2022 Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

JP Morgan Securities LLC Prime Brokerage Account
On January 20, 2017, the Company entered into a prime brokerage account agreement with JP Morgan Securities LLC (the “JPMC PB Account”). The JPMC PB Account provides a full suite of services around the custody of bonds and equities and also access to leverage, which is dependent on the price, credit quality and diversity of the pool of assets held within the account. The borrowing availability is recalculated daily based on changes to the assets, with margin calls issued in the morning

F- 49
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

as appropriate. The cost to borrow is 1 week LIBOR + 90 bps and there is no mandatory usage or period wherein the debt needs to be repaid.

As of December 31, 2017, the Company had borrowings of $36.3 million and additional borrowing capacity of $13.7 million under the JPMC PB Account.

The weighted average annualized interest cost for all borrowings for the years ended December 31, 2017, 2016 and 2015 was 3.96%, 3.54% and 2.86%, respectively. The average daily debt outstanding for the years ended December 31, 2017, 2016 and 2015 was $981.3 million, $870.0 million and $742.0 million, respectively. The maximum debt outstanding for the years ended December 31, 2017, 2016 and 2015 was $1,226.6 million, $993.1 million and $842.2 million, respectively.

The following table represents borrowings as of December 31, 2017:
 
 
Maturity Date
 
Total Aggregate Borrowing Capacity
 
Total Principal Outstanding
 
Less Deferred Financing Costs
 
Amount per Balance Sheet
Wells Fargo Credit Facility
 
5/18/2022
 
$
400,000

 
$
188,051

 
$
(6,299
)
 
$
181,752

Citi Credit Facility
 
5/28/2020
 
400,000

 
336,003

 
(1,902
)
 
334,101

UBS Credit Facility
 
4/7/2018
 
232,500

 
232,500

 
(110
)
 
232,390

2022 Notes
 
12/30/2022
 
150,000

 
149,175

 
(2,280
)
 
146,895

Unsecured Notes
 
9/1/2020
 
100,000

 
99,158

 
(335
)
 
98,823

JPMC PB Account
 
n/a
 
49,994

 
36,262

 
—

 
36,262

Totals
 
 
 
$
1,332,494

 
$
1,041,149

 
$
(10,926
)
 
$
1,030,223


The following table represents borrowings as of December 31, 2016:
 
 
Maturity Date
 
Total Aggregate Borrowing Capacity
 
Total Principal Outstanding
 
Less Deferred Financing Costs
 
Amount per Balance Sheet
Wells Fargo Credit Facility
 
5/29/2020
 
$
400,000

 
$
298,152

 
$
(2,939
)
 
$
295,213

Citi Credit Facility
 
6/27/2018
 
400,000

 
286,003

 
(1,097
)
 
284,906

UBS Credit Facility
 
4/7/2018
 
232,500

 
232,500

 
(517
)
 
231,983

Unsecured Notes
 
9/1/2020
 
100,000

 
98,842

 
(460
)
 
98,382

Totals
 
 
 
$
1,132,500

 
$
915,497

 
$
(5,013
)
 
$
910,484


    
















F- 50
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

The following table represents interest and debt fees for the year ended December 31, 2017:

 
Year ended December 31, 2017
 
Interest Rate
 
Non-Usage Rate
 
Interest Expense
 
Deferred Financing Costs (3)
 
Other Fees (4)
Wells Fargo Credit Facility
(1) 
 
(2) 
 
$
11,678

 
$
1,224

 
$
749

Citi Credit Facility
L+1.60%
 
0.50%
 
8,958

 
745

 
538

UBS Credit Facility
L+4.05%
 
n/a
 
12,361

 
415

 
106

2022 Notes
4.75%
 
n/a
 
243

 
16

 
—

Unsecured Notes
6.00%
 
n/a
 
6,316

 
125

 
15

JPMC PB Account
L+0.90%
 
n/a
 
362

 
—

 
—

Totals
 
 
 
 
$
39,918

 
$
2,525

 
$
1,408


_________________
(1) Interest rate is priced at one month's LIBOR with no LIBOR floor, plus a spread ranging between 1.65% and 2.50% per annum, depending on the composition of the portfolio of loans owned.
(2) The non-usage fee per annum is 0.50% for the first 25% of the unused balance and 2.0% for the unused balance that exceeds 25%.
(3) Amortization of deferred financing costs.
(4) Includes non-usage fees, custody fees and trustee fees.

The following table represents interest and debt fees for the year ended December 31, 2016:

 
Year ended December 31, 2016
 
Interest Rate
 
Non-Usage Rate
 
Interest Expense
 
Deferred Financing Costs (5)
 
Other Fees (6)
Wells Fargo Credit Facility
(1) 
 
(2) 
 
$
7,758

 
$
1,082

 
$
1,413

Deutsche Bank Credit Facility
L+4.25%
 
(3) (4) 
 
679

 
412

 
295

Citi Credit Facility
L+1.70%
 
0.50%
 
6,891

 
889

 
592

UBS Credit Facility
L+4.05%
 
n/a
 
10,557

 
297

 
53

Unsecured Notes
6.00%
 
n/a
 
6,283

 
126

 
—

Totals
 
 
 
 
$
32,168

 
$
2,806

 
$
2,353

______________
(1) Interest rate is priced at one month's LIBOR with no LIBOR floor, plus a spread ranging between 1.75% and 2.50% per annum, depending on the composition of the portfolio of loans owned.
(2) The non-usage fee per annum for the first nine months is 0.50%; thereafter, 0.50% for the first 20% of the unused balance and 2.0% for the unused balance that exceeds 20%.
(3) The undrawn rate is 0.75%. The Facility is subject to minimum utilization of 82.5% of the loan amount measured quarterly. If the utilized portion of the loan amount is less than the foregoing, such thresholds shall bears interest at LIBOR + 4.25%.
(4) On June 3, 2016, the Deutsche Bank Credit Facility was repaid and terminated.
(5) Amortization of deferred financing costs.
(6) Includes non-usage fees and custody fees.
    






F- 51
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

The following table represents interest and debt fees for the year ended December 31, 2015:

 
Year ended December 31, 2015
 
Interest Rate
 
Non-Usage Rate
 
Interest Expense
 
Deferred Financing Costs (4)
 
Other Fees (5)
Wells Fargo Credit Facility
(1) 
 
(2) 
 
$
6,983

 
$
1,268

 
$
737

Deutsche Bank Credit Facility
L+4.25%
 
(3) 
 
1,256

 
328

 
676

Citi Credit Facility
L+1.70%
 
0.50%
 
5,385

 
902

 
706

UBS Credit Facility
L+3.90%
 
n/a
 
5,920

 
43

 
71

Unsecured Notes
n/a
 
n/a
 
2,156

 
36

 
—

Totals
 
 
 
 
$
21,700

 
$
2,577

 
$
2,190

______________
(1) Interest rate is priced at one month's LIBOR with no LIBOR floor, plus a spread ranging between 1.75% and 2.50% per annum, depending on the composition of the portfolio of loans owned.
(2) The non-usage fee per annum for the first nine months is 0.50%; thereafter, 0.50% for the first 20% of the unused balance and 2.0% for the unused balance that exceeds 20%.
(3) The undrawn rate is 0.75%. The Facility is subject to minimum utilization of 82.5% of the loan amount measured quarterly. If the utilized portion of the loan amount is less than the foregoing, such thresholds shall bear interest at LIBOR + 4.25%.
(4) Amortization of deferred financing costs.
(5) Includes non-usage fees and custody fees.

The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate fair value. The fair value of short-term financial instruments such as cash and cash equivalents, due to affiliates and accounts payable approximate their carrying value on the accompanying consolidated statements of assets and liabilities due to their short-term nature. The fair value of the Company's Unsecured Notes and 2022 Notes are derived from market indications provided by Bloomberg Finance L.P. at December 31, 2017 and December 31, 2016, respectively.

At December 31, 2017, the carrying amount of our secured borrowings approximated their fair value. The fair values of our debt obligations 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 borrowings are estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. As of December 31, 2017 and December 31, 2016, our borrowings would be deemed to be Level 3, as defined in Note 3.

The fair values of the Company’s remaining financial instruments that are not reported at fair value on the accompanying consolidated statements of assets and liabilities are reported below (amounts in thousands):
 
Level
 
Carrying Amount at December 31, 2017
 
Fair Value at December 31, 2017
Wells Fargo Credit Facility
3
 
$
188,051

 
$
188,051

Citi Credit Facility
3
 
336,003

 
336,003

UBS Credit Facility
3
 
232,500

 
232,500

2022 Notes
3
 
149,175

 
148,811

Unsecured Notes
3
 
99,158

 
103,276

JPMC PB Account
n/a
 
36,262

 
36,262

 
 
 
$
1,041,149

 
$
1,044,903



F- 52
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

 
Level
 
Carrying Amount at December 31, 2016
 
Fair Value at December 31, 2016
Wells Fargo Credit Facility
3
 
$
298,152

 
$
298,152

Citi Credit Facility
3
 
286,003

 
286,003

UBS Credit Facility
3
 
232,500

 
232,500

Unsecured Notes
3
 
98,842

 
98,125

 
 
 
$
915,497

 
$
914,780



Note 6 — Commitments and Contingencies

Commitments

In the ordinary course of business, the Company may enter into future funding commitments. As of December 31, 2017, the Company had unfunded commitments on delayed draw term loans of $38.7 million, unfunded commitments on revolver term loans of $19.8 million and unfunded equity capital commitments of $6.0 million. As of December 31, 2016, the Company had unfunded commitments on delayed draw term loans of $35.7 million, unfunded commitments on revolver term loans of $24.7 million and unfunded equity capital commitments of $9.4 million. The unfunded commitments are disclosed in the Company's consolidated schedule of investments. The Company maintains sufficient cash on hand and available borrowings to fund such unfunded commitments.

Litigation and Regulatory Matters
 
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.
 
Indemnifications

In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote.

Guarantees

The Company has provided a guarantee to its controlled portfolio company, Park Ave RE Holdings, LLC, in connection with a secured loan whereby the Company will be responsible for certain liabilities of the portfolio company upon the occurrence of certain events (such as a bankruptcy or the incurrence of additional indebtedness in violation of the terms of the loan).


Note 7 — Economic Dependency
 
Under various agreements, the Company has engaged or will engage the Adviser and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issuance, as well as other administrative responsibilities for the Company including accounting services and investor relations.
  
As a result of these relationships, the Company is dependent upon the Adviser and its affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.






F- 53
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Note 8 — Common Stock

On August 25, 2011, the Company had raised sufficient funds to break escrow on its IPO. On July 1, 2014, the Company's registration statement on Form N-2 (File No.333-193241) for its Follow-on was declared effective by the SEC. Simultaneously with the effectiveness of the registration statement of the Follow-on, the Company's IPO terminated. Through December 31, 2017, the Company sold 195.7 million shares of common stock for gross proceeds of $2.1 billion, including the shares purchased by an affiliate of BSP and shares issued under the Company's DRIP. Following the time the Company's updated registration statement was declared effective on June 30, 2015, the Company issued shares for subscription agreements that had been accepted through that date. The Company is no longer issuing new shares except for DRIP shares. As of December 31, 2017, the Company had repurchased 16.0 million shares of common stock through its share repurchase program for payments of $143.6 million.

The following table reflects the common stock activity for the year ended December 31, 2017 (dollars in thousands except share amounts):

 
 
Shares
 
Value
Shares Sold
 
—

 
$
—

Shares Issued through DRIP
 
6,162,092

 
52,455

Share Repurchases
 
(3,548,885
)
 
(30,212
)
 
 
2,613,207

 
$
22,243


The following table reflects the common stock activity for the year ended December 31, 2016 (dollars in thousands except share amounts):

 
 
Shares
 
Value
Shares Sold
 
1,165,501

 
$
10,000

Shares Issued through DRIP
 
6,591,972

 
58,424

Share Repurchases
 
(9,778,710
)
 
(85,844
)
 
 
(2,021,237
)
 
$
(17,420
)

The following table reflects the common stock activity for the year ended December 31, 2015 (dollars in thousands except share amounts):

 
 
Shares
 
Value
Shares Sold
 
16,586,551

 
$
183,562

Shares Issued through DRIP
 
7,158,346

 
70,033

Share Repurchases
 
(2,136,909
)
 
(21,459
)
 
 
21,607,988

 
$
232,136


    
Note 9 — Share Repurchase Program

The Company intends to conduct semi-annual tender offers pursuant to its share repurchase program (“SRP”). The Company’s board of directors considers the following factors in making its determination regarding whether to cause the Company to offer to repurchase shares and under what terms:

•the effect of such repurchases on the Company's qualification as a RIC (including the consequences of
any necessary asset sales);
•the liquidity of the Company's assets (including fees and costs associated with disposing of assets);
•the Company's investment plans and working capital requirements;
•the relative economies of scale with respect to the Company's size;

F- 54
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

•the Company's history in repurchasing shares or portions thereof;
•the condition of the securities markets.
    
On March 8, 2016, the Company's board of directors amended the Company's SRP. The Company intends to conduct tender offers on a semi-annual basis, instead of on a quarterly basis as was done previously. The Company intends to continue to limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 5.0% at each semi-annual tender offer. In addition, in the event of a stockholder’s death or disability, any repurchases of shares made in connection with a stockholder’s death or disability may be included within the overall limitation imposed on tender offers during the relevant redemption period, which provides that the Company may limit the number of shares to be repurchased during any redemption period to the number of shares of common stock the Company is able to repurchase with the proceeds received from the sale of shares of common stock under the DRIP during such redemption period. The Company's three most recent tender offers were oversubscribed.
 
Offer Date
 
Repurchase Date
 
Shares Tendered
 
Shares Repurchased
 
Repurchase Price Per Share
 
Aggregate Consideration for Repurchased Shares (in thousands)
September 12, 2012
 
October 8, 2012
 
—

 
—

 
$
9.71

 
$
—

December 13, 2012
 
January 15, 2013
 
46,975

 
10,732

 
$
9.90

 
$
106.22

March 27, 2013
 
April 25, 2013
 
29,625

 
29,625

 
$
10.18

 
$
301.58

July 15, 2013
 
August 13, 2013
 
30,365

 
30,365

 
$
10.18

 
$
308.97

October 22, 2013
 
November 21, 2013
 
55,255

 
55,255

 
$
10.36

 
$
572.44

February 4, 2014
 
March 6, 2014
 
68,969

 
68,969

 
$
10.36

 
$
714.52

June 6, 2014
 
July 11, 2014
 
117,425

 
117,425

 
$
10.36

 
$
1,216.38

August 7, 2014
 
September 10, 2014
 
111,854

 
111,854

 
$
10.36

 
$
1,158.80

December 19, 2014
 
January 23, 2015
 
313,101

 
313,101

 
$
10.36

 
$
3,243.73

March 16, 2015
 
April 15, 2015
 
162,688

 
162,688

 
$
10.36

 
$
1,685.45

June 26, 2015
 
July 31, 2015
 
533,527

 
533,527

 
$
9.72

 
$
5,185.88

September 18, 2015
 
October 20, 2015
 
728,874

 
728,874

 
$
9.53

 
$
6,946.17

December 23, 2015
 
January 25, 2016
 
7,375,871

 
3,053,869

 
$
9.22

 
$
28,156.67

July 26, 2016
 
December 31, 2016
 
17,004,354

 
6,715,864

 
$
8.58

 
$
57,622.10

June 8, 2017
 
July 6, 2017
 
11,747,753

 
3,433,482

 
$
8.52

 
$
28,576.26

December 19, 2017
 
January 19, 2018
 
21,521,235

 
2,547,524

 
$
8.31

 
$
21,350.21

    
Share amounts in the table above represent amounts filed in the tender offer.

Through December 31, 2017, the Company had repurchased an aggregate of 16.0 million shares of common stock for payments of $143.6 million. As of December 31, 2016, the Company had repurchased 12.5 million shares of common stock for payments of $113.4 million. Amounts include additional shares tendered for death and disability as permitted.














F- 55
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Note 10 — Earnings Per Share

Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company had no potentially dilutive securities as of December 31, 2017, 2016 and 2015.

The following information sets forth the computation of the weighted average basic and diluted net increase in net assets per share resulting from operations for the years ended December 31, 2017, 2016 and 2015.

 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
2017
 
2016
 
2015
Basic and diluted
 
 
 
 
 
Net increase in net assets resulting from operations
$
78,389

 
$
94,402

 
$
8,053

Weighted average common shares outstanding
179,179,656

 
180,215,713

 
172,208,186

Net increase in net assets resulting from operations per share
$
0.44

 
$
0.52

 
$
0.05

    
Note 11 — Distributions

The Company’s board of directors has authorized, and has declared, cash distributions payable on a monthly basis to stockholders of record on each day since it commenced operations. From November 2013 until July 2017, the distribution rate has been $0.002378082 per day, which is equivalent to $0.868 per annum, per share of common stock, except for 2016 where the daily distribution rate was $0.002371585 per day to accurately reflect 2016 being a leap year. In July 2017, the board of directors reduced the distribution rate with respect to the Company's cash distributions to $0.001780822 per day, which is equivalent to $0.65 annually, per share of common stock.

The amount of each such distribution is subject to the discretion of the board of directors and applicable legal restrictions related to the payment of distributions. The Company calculates each stockholder’s specific distribution amount for the month using record and declaration dates and accrue distributions on the date the Company accepts a subscription for shares of the Company’s common stock. The distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month.

From time to time, the Company may also pay interim distributions at the discretion of its board of directors. The Company may fund its cash distributions to stockholders from any sources of funds available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets and non-capital gains proceeds from the sale of assets. The Company’s distributions may exceed its earnings, especially during the period before the Company has substantially invested the proceeds from its IPO and Follow-on. As a result, a portion of the distributions the Company will make may represent a return of capital for tax purposes. As of December 31, 2017, the Company had accrued $9.9 million in stockholder distributions that were unpaid. As of December 31, 2016, the Company had accrued $13.5 million in stockholder distributions that were unpaid.
    

F- 56
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

The table below reflects the cash distributions per share that we have paid on our common stock since January 2015.
Record Date
 
Payment Date
 
Per share
 
Distributions Paid in Cash
 
Distributions Paid Through the DRIP
 
Total Distributions Paid
2015:
 
 
 
 
 
 
 
 
 
 
January 31, 2015
 
February 4, 2015
 
$
0.07

 
$
5,948

 
$
5,797

 
$
11,745

February 28, 2015
 
March 2, 2015
 
0.07

 
5,520

 
5,236

 
10,756

March 31, 2015
 
April 1, 2015
 
0.07

 
6,265

 
5,898

 
12,163

April 30, 2015
 
May 1, 2015
 
0.07

 
6,242

 
5,849

 
12,091

May 29, 2015
 
June 1, 2015
 
0.07

 
6,680

 
5,905

 
12,585

June 30, 2015
 
July 1, 2015
 
0.07

 
6,485

 
5,735

 
12,220

July 31, 2015
 
August 3, 2015
 
0.07

 
6,976

 
6,126

 
13,102

August 31, 2015
 
September 1, 2015
 
0.07

 
7,053

 
6,049

 
13,102

September 30, 2015
 
October 1, 2015
 
0.07

 
6,870

 
5,835

 
12,705

October 31, 2015
 
November 2, 2015
 
0.07

 
7,140

 
6,030

 
13,170

November 30, 2015
 
December 1, 2015
 
0.07

 
6,932

 
5,835

 
12,767

December 31, 2015
 
January 4, 2016
 
0.07

 
7,224

 
5,989

 
13,213

 
 
 
 
 
 
$
79,335

 
$
70,284

 
$
149,619

2016:
 
 
 
 
 
 
 
 
 
 
January 31, 2016
 
February 3, 2016
 
$
0.07

 
$
8,922

 
$
4,298

 
$
13,220

February 28, 2016
 
March 1, 2016
 
0.07

 
7,014

 
5,333

 
12,347

March 31, 2016
 
April 1, 2016
 
0.07

 
7,363

 
5,718

 
13,081

April 30, 2016
 
May 2, 2016
 
0.07

 
12,708

 
(2
)
 
12,706

May 31, 2016
 
June 2, 2016
 
0.07

 
7,582

 
5,539

 
13,121

June 30, 2016
 
July 1, 2016
 
0.07

 
7,438

 
5,304

 
12,742

July 31, 2016
 
August 1, 2016
 
0.07

 
7,789

 
5,421

 
13,210

August 31, 2016
 
September 1, 2016
 
0.07

 
7,908

 
5,351

 
13,259

September 30, 2016
 
October 3, 2016
 
0.07

 
7,745

 
5,127

 
12,872

October 31, 2016
 
November 1, 2016
 
0.07

 
8,067

 
5,273

 
13,340

November 30, 2016
 
December 1, 2016
 
0.07

 
7,947

 
5,073

 
13,020

December 31, 2016
 
January 3, 2017
 
0.07

 
8,311

 
5,205

 
13,516

 
 
 
 
 
 
$
98,794

 
$
57,640

 
$
156,434

2017:
 
 
 
 
 
 
 
 
 
 
January 31, 2017
 
February 3, 2017
 
$
0.07

 
$
7,983

 
$
5,081

 
$
13,064

February 28, 2017
 
March 1, 2017
 
0.07

 
7,250

 
4,612

 
11,862

March 31, 2017
 
April 3, 2017
 
0.07

 
8,135

 
5,060

 
13,195

April 30, 2017
 
May 1, 2017
 
0.07

 
7,942

 
4,881

 
12,823

May 31, 2017
 
June 1, 2017
 
0.07

 
8,270

 
4,995

 
13,265

June 30, 2017
 
July 3, 2017
 
0.07

 
8,064

 
4,813

 
12,877

July 31, 2017
 
August 3, 2017
 
0.06

 
6,307

 
3,692

 
9,999

August 31, 2017
 
September 1, 2017
 
0.06

 
6,223

 
3,622

 
9,845

September 30, 2017
 
October 2, 2017
 
0.05

 
6,060

 
3,477

 
9,537

October 31, 2017
 
November 1, 2017
 
0.06

 
6,303

 
3,574

 
9,877

November 30, 2017
 
December 1, 2017
 
0.05

 
6,140

 
3,443

 
9,583

December 31, 2017
 
January 2, 2018
 
0.06

 
6,388

 
3,535

 
9,923

 
 
 
 
 
 
$
85,065

 
$
50,785

 
$
135,850



F- 57
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

The Company has not established any limit on the extent to which it may use borrowings, if any, or proceeds from its IPO and Follow-on to fund distributions (which may reduce the amount of capital it ultimately invests in assets). There can be no assurance that the Company will be able to sustain distributions at any particular level.

Note 12 — Income Tax Information and Distributions to Stockholders

The Company has elected to be treated for federal income tax purposes as a RIC under the Code. Generally, a RIC is exempt from federal income taxes if it meets, certain quarterly asset diversification requirements, annual income tests, and distributes to stockholders its ‘‘investment company taxable income,’’ as defined in the Code, each taxable year. Distributions declared prior to the filing of the previous year's tax return and paid up to one year after the previous tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. The Company intends to make sufficient distributions to maintain its RIC status each year. The Company may also be subject to federal excise taxes of 4%.

A RIC is limited in its ability to deduct expenses in excess of its “investment company taxable income” (which is, generally, ordinary income plus net realized short-term capital gains in excess of net realized long-term capital losses). If the Company's expenses in a given taxable year exceed gross taxable income (e.g., as the result of large amounts of equity-based compensation), it would incur a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent taxable years and such net operating losses do not pass through to the RIC’s stockholders. In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, realized capital losses in excess of realized capital gains) to offset the RIC’s investment company taxable income, but may carry forward such net capital losses, and use them to offset capital gains indefinitely. Due to these limits on the deductibility of expenses and net capital losses, the Company may for tax purposes have aggregate taxable income for several taxable years that it is required to distribute and that is taxable to stockholders even if such taxable income is greater than the aggregate net income the Company actually earned during those taxable years. Such required distributions may be made from the Company cash assets or by liquidation of investments, if necessary. The Company may realize gains or losses from such liquidations. In the event the Company realizes net capital gains from such transactions, the Company may receive a larger capital gain distribution than it would have received in the absence of such transactions.

The tax character of distributions for the fiscal years ended December 31, 2017, 2016 and 2015 were as follows (dollars in thousands):
 
 
2017
 
2016
 
2015
Ordinary income distributions
 
$
135,850

 
100.0
%
 
$
156,434

 
100.0
%
 
$
133,355

 
89.1
%
Capital gains distributions
 
—

 
—

 
—

 
—

 
—

 
—
%
Return of capital
 
—

 
—

 
—

 
—

 
16,264

 
10.9

Total distributions
 
$
135,850

 
100.0
%
 
$
156,434

 
100.0
%
 
$
149,619

 
100.0
%

For the years ended December 31, 2017, 2016 and 2015, the reconciliation of net increase in net assets resulting from operations to taxable income is as follows (dollars in thousands):
 
 
2017
 
2016
 
2015
Book income from operating activities
 
$
78,389

 
$
94,402

 
$
8,053

Net unrealized (gain) loss on investments
 
(25,512
)
 
2,267

 
105,748

Nondeductible expenses
 
1,619

 
1,140

 
1,671

Temporary differences
 
91,787

 
76,469

 
(4,872
)
Taxable income before deductions for distributions paid
 
$
146,283

 
$
174,278

 
$
110,600

    








F- 58
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

As of December 31, 2017, 2016 and 2015, the components of accumulated gain and losses on a tax basis were as follows:
 
 
2017
 
2016
 
2015
Undistributed ordinary income
 
$
33,312

 
$
46,797

 
$
—

Undistributed long-term capital loss carryforward
 
(75,415
)
 
(16,896
)
 
(354
)
Total undistributed net earnings (loss carryforward)
 
(42,103
)
 
29,901

 
(354
)
Net unrealized loss on investments
 
(216,881
)
 
(231,229
)
 
(115,116
)
Total distributed (undistributed) taxable income
 
$
(258,984
)
 
$
(201,328
)
 
$
(115,470
)

As of December 31, 2017, the Company had capital loss carryforwards, with no expirations of $75.4 million available to offset future realized capital gains.

At December 31, 2017, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes are as follows:
 
 
December 31,
2017
Tax cost
 
$
2,720,404

Gross unrealized appreciation
 
54,173

Gross unrealized depreciation
 
(271,054
)
Total investments, at fair value
 
$
2,503,523


During 2017, as a result of permanent book-to-tax differences, the Company made reclassifications among components of net assets as follows:
 
 
Accumulated under distributed net investment income
 
Accumulated over distributed realized losses
 
Paid in capital
2017
 
$
14,364

 
$
(15,052
)
 
$
(689
)

The differences were attributable to non-deductible expenses, investments in partnerships, controlled foreign corporations, certain debt investments and subsidiaries. Aggregate stockholders’ equity was not affected by this reclassification.
    
Tax information for the fiscal year ended December 31, 2017 is an estimate and will not be finally determined until the Company files its 2017 tax return.

The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes (“ASC Topic 740”), nor did the Company have any unrecognized tax benefits as of the periods presented herein. The Company's 2016, 2015 and 2014 federal tax returns remain subject to examination by the Internal Revenue Service.

As of December 31, 2017, the Company had a deferred tax asset of $1.6 million and a deferred tax liability of $(3.6) million. Given the losses generated by certain entities, deferred tax assets have been offset by valuation allowances of $1.6 million. As of December 31, 2016, the Company had a deferred tax asset of $2.3 million and a deferred tax liability of $(2.6) million. Given the losses generated by certain entities, deferred tax assets have been offset by valuation allowances of $2.2 million. As of December 31, 2015, the Company had a deferred tax asset of $2.1 million and a deferred tax liability of $(3.0) million. Given the losses generated by certain entities, deferred tax assets have been offset by valuation allowances of $2.1 million. 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Tax Act”) was signed into law. The Tax Act reduced the statutory income tax rate applicable to corporations from 35 percent to 21 percent. Additionally, the Tax Act makes changes regarding the use of net operating losses, repeals the corporate alternative minimum tax, restricts corporate deductibility of interest expense, and makes significant changes to the U.S. international tax rules. These changes affect the Company’s estimates of the current income tax expense and the deferred tax asset and liability balances used in the calculation of its net asset value.

F- 59

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)


The Company has assessed that the reduction in the corporate tax rate which did not have a significant impact on the Company’s net asset value. The Company will continue to assess the effects of the Tax Act on the deferred tax asset and liability balances and valuation allowances and continually assess the recoverability of their deferred tax assets based upon the weight of available evidence.

The deferred tax asset valuation allowance has been determined pursuant to the provisions of ASC Topic 740, including the Company's estimation of future taxable income, if necessary, and is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized.
    
As of December 31, 2017, the Company had differences between book basis and tax basis cost of investments of $121.9 million from investments classified as partnerships, passive foreign investment companies, or controlled foreign corporations for U.S. tax purposes and $(0.2) million from amortization of market discounts. As of December 31, 2016, the Company had differences between book basis and tax basis cost of investments of $112.3 million from investments classified as partnerships, passive foreign investment companies, or controlled foreign corporations for U.S. tax purposes and $(2.1) million from amortization of market discounts. As of December 31, 2015, the Company had differences between book basis and tax basis cost of investments of $3.1 million from investments classified as partnerships, passive foreign investment companies, or controlled foreign corporations for U.S. tax purposes and $(5.6) million from amortization of market discounts.


F- 60

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Note 13 — Financial Highlights

The following is a schedule of financial highlights for the years ended December 31, 2017, 2016, 2015, 2014 and 2013:
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
For the Year Ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
Per share data:
 
 
 
 
 
 
 

 
 
Net asset value, beginning of period
$
8.62

 
$
8.97

 
$
9.74

 
$
9.86

 
$
9.41

 
 
 
 
 
 
 
 
 
 
Results of operations (1)
       Net investment income
0.59

 
0.67

 
0.66

 
0.71

 
0.36

Net realized and unrealized gain (loss) on investments, net of deferred taxes
(0.15
)
 
(0.14
)
 
(0.60
)
 
(0.14
)
 
0.33

Net realized and unrealized gain on total return swap
—

 
—

 
—

 
0.09

 
0.48

Net unrealized depreciation on minority interests
—

 
(0.01
)
 
(0.01
)
 
(0.01
)
 
—

Net increase in net assets resulting from operations
0.44

 
0.52

 
0.05

 
0.65

 
1.17

 
 
 
 
 
 
 
 
 
 
Stockholder distributions (2)
       Distributions from net investment income
(0.76
)
 
(0.87
)
 
(0.77
)
 
(0.71
)
 
(0.36
)
Distributions from net realized gain on investments and total return swap
—

 
—

 
(0.01
)
 
(0.16
)
 
(0.49
)
Return of capital
—

 
—

 
(0.09
)
 
—

 
—

Net decrease in net assets resulting from stockholder distributions
(0.76
)
 
(0.87
)
 
(0.87
)
 
(0.87
)
 
(0.85
)
 
 
 
 
 
 
 
 
 
 
Capital share transactions
       Issuance of common stock (3)
—

 
—

 
0.18

 
0.25

 
0.31

Repurchases of common stock
—

 
—

 
(0.12
)
 
(0.04
)
 
0.04

Offering costs
—

 
—

 
(0.01
)
 
(0.11
)
 
(0.22
)
Net increase in net assets resulting from capital share transactions
—

 
—

 
0.05

 
0.10

 
0.13

Net asset value, end of period
$
8.30

 
$
8.62

 
$
8.97

 
$
9.74

 
$
9.86

Shares outstanding at end of period
179,733,998

 
177,120,791

 
179,142,028

 
157,534,040

 
63,671,644

Total return (5)
5.24
%
 
6.02
%
 
0.67
%
 
7.63
%
 
14.12
%
Ratio/Supplemental data:
 
 
 
 
 
 
 
 
 
Net assets, end of period (in thousands)
$
1,494,516

 
$
1,529,734

 
$
1,610,485

 
$
1,535,423

 
$
627,903

Ratio of net investment income to average net assets (4)(7)
7.01
%
 
7.64
%
 
7.11
%
 
7.41
%
 
3.68
%
Ratio of operating expenses to average net assets (4)(7)
7.68
%
 
6.91
%
 
5.08
%
 
4.46
%
 
5.14
%
Ratio of incentive fees to average net assets (4)
1.30
%
 
1.14
%
 
0.41
%
 
0.51
%
 
1.98
%
Ratio of debt related expenses to average net assets
2.90
%
 
2.38
%
 
1.65
%
 
0.95
%
 
0.63
%
Portfolio turnover rate (6)
40.06
%
 
24.99
%
 
32.21
%
 
89.03
%
 
76.79
%





F- 61
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

______________
(1) 
The per share data was derived by using the weighted average shares outstanding during the period. Net investment income per share excluding the expense waiver and reimbursement equals $0.59 for the year ended December 31, 2017. Net investment income per share excluding the expense waiver and reimbursement equals $0.67 for the year ended December 31, 2016. Net investment income per share excluding the expense waiver and reimbursement equals $0.64 for the year ended December 31, 2015. Net investment income per share excluding the expense waiver and reimbursement equals $0.72 for the year ended December 31, 2014. Net investment income per share excluding the expense waiver and reimbursements equals $0.31 for the year ended December 31, 2013.
(2) 
The per share data for distributions reflects the actual amount of distributions declared per share during the period.
(3) 
The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock mainly from the Company's DRIP.
(4) 
For the year ended December 31, 2017 and 2016, there was no expense waiver. For the year ended December 31, 2015, excluding the expense waiver and reimbursement, the ratio of net investment income, operating expenses, and incentive fees to average net assets is 6.89%, 5.30%, and 0.63%, respectively. For the year ended December 31, 2014, excluding the expense waiver and reimbursement, the ratio of net investment income, operating expenses, and incentive fees to average net assets is 7.53%, 4.58%, and 0.62%, respectively. For the year ended December 31, 2013, excluding the expense waiver and reimbursement, the ratio of net investment income, operating expenses, and incentive fees to average net assets is 3.17%, 5.66%, and 2.48% , respectively.
(5) 
Total return is calculated assuming a purchase of shares of common stock at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the DRIP. The total return based on net asset value for the years ended December 31, 2017, December 31, 2016, December 31, 2015, December 31, 2014 and December 31, 2013, includes the effect of expense waivers and reimbursements which equaled 0.00%, 0.00%, 0.22%, 0.11% and 0.51%, respectively.
(6) 
Portfolio turnover rate is calculated using the lesser of year-to-date purchases or sales over the average of the invested assets at fair value.
(7) 
Offering cost are not included as an expense in the calculation of this ratio.

Note 14 – Selected Quarterly Data (Unaudited)

The following is the quarterly results of operations for the years ended December 31, 2017, 2016 and 2015. The operating results for any quarter are not necessarily indicative of results for any future period:
Quarter Ended
 
Total Investment Income
 
Net Investment Income
 
Net Realized and Unrealized Gain (Loss)
 
Net Increase (Decrease) In Net Assets Resulting from Operations
 
Net Investment Income per Share
 
Net Increase (Decrease) in Net Assets Resulting from Operations per Share
 
Net Asset Value per Common Share at End of Quarter
December 31, 2017
 
$
56,042

 
$
26,021

 
$
999

 
$
27,020

 
$
0.15

 
$
0.15

 
$
8.30

September 30, 2017
 
54,845

 
26,530

 
(9,242
)
 
17,288

 
0.15

 
0.10

 
8.31

June 30, 2017
 
56,261

 
26,690

 
(11,976
)
 
14,714

 
0.15

 
0.08

 
8.38

March 31, 2017
 
56,672

 
26,770

 
(7,403
)
 
19,367

 
0.15

 
0.11

 
8.52

December 31, 2016
 
52,929

 
27,228

 
18,689

 
45,917

 
0.15

 
0.25

 
8.62

September 30, 2016
 
62,239

 
31,560

 
(38,307
)
 
(6,747
)
 
0.18

 
(0.04
)
 
8.58

June 30, 2016
 
57,573

 
27,659

 
7,288

 
34,947

 
0.15

 
0.20

 
8.84

March 31, 2016
 
56,918

 
33,531

 
(13,247
)
 
20,284

 
0.19

 
0.11

 
8.86

December 31, 2015
 
38,316

 
17,544

 
(21,402
)
 
(4,820
)
 
0.10

 
(0.03
)
 
8.97

September 30, 2015
 
51,974

 
31,490

 
(50,722
)
 
(19,317
)
 
0.18

 
(0.11
)
 
9.22

June 30, 2015
 
55,675

 
31,573

 
(30,408
)
 
1,067

 
0.19

 
0.01

 
9.53

March 31, 2015
 
49,881

 
33,549

 
(2,937
)
 
31,123

 
0.21

 
0.19

 
9.72








F- 62
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Note 15 – Senior Securities

Information about our senior securities (including debt securities and other indebtedness) is shown in the following table as of the years ended December 31, 2017, 2016, 2015, 2014, 2013. The Company had no senior securities outstanding as of December 31, 2010 or any prior fiscal years.

The following is a summary of the senior securities as of December 31, 2017 (dollars in thousands).
 
 
 
 
 
Total Amount Outstanding Exclusive of Treasury Securities
 
Asset Coverage Ratio Per Unit (1)
 
Involuntary Liquidation Preference Per Unit (2)
 
Asset Market Value Per Unit (3)
Wells Fargo Credit Facility
 
$
188,051

 
$
—

 
$
—

 
N/A
Citi Credit Facility
 
336,003

 
—

 
—

 
N/A
UBS Credit Facility
 
232,500

 
—

 
—

 
N/A
2022 Notes
 
149,175

 
—

 
—

 
N/A
Unsecured Notes
 
99,158

 
—

 
—

 
N/A
JPMC PB Account
 
36,262

 
—

 
—

 
N/A
 
 
$
1,041,149

 
$
2,435

 
$
—

 
N/A

The following is a summary of the senior securities as of December 31, 2016 (dollars in thousands).
 
 
 
 
 
Total Amount Outstanding Exclusive of Treasury Securities
 
Asset Coverage Ratio Per Unit (1)
 
Involuntary Liquidation Preference Per Unit (2)
 
Asset Market Value Per Unit (3)
Wells Fargo Credit Facility
 
$
298,152

 
$
—

 
$
—

 
N/A
Citi Credit Facility
 
286,003

 
—

 
—

 
N/A
UBS Credit Facility
 
232,500

 
—

 
—

 
N/A
Unsecured Notes
 
98,842

 
—

 
—

 
N/A
 
 
$
915,497

 
$
2,671

 
$
—

 
N/A

The following is a summary of the senior securities as of December 31, 2015 (dollars in thousands).
 
 
 
 
 
Total Amount Outstanding Exclusive of Treasury Securities
 
Asset Coverage Ratio Per Unit (1)
 
Involuntary Liquidation Preference Per Unit (2)
 
Asset Market Value Per Unit (3)
Wells Fargo Credit Facility
 
$
263,087

 
$
—

 
$
—

 
N/A
Deutsche Bank Credit Facility
 
—

 
—

 
—

 
N/A
Citi Credit Facility
 
270,625

 
—

 
—

 
N/A
UBS Credit Facility
 
210,000

 
—

 
—

 
N/A
Unsecured Notes
 
98,526

 
—

 
—

 
N/A
 
 
$
842,238

 
$
2,912

 
$
—

 
N/A










F- 63
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

The following is a summary of the senior securities as of December 31, 2014 (dollars in thousands).
 
 
 
 
 
Total Amount Outstanding Exclusive of Treasury Securities
 
Asset Coverage Ratio Per Unit (1)
 
Involuntary Liquidation Preference Per Unit (2)
 
Asset Market Value Per Unit (3)
Total Return Swap
 
$
—

 
$
—

 
$
—

 
N/A
Wells Fargo Credit Facility
 
288,087

 
—

 
—

 
N/A
Deutsche Bank Credit Facility
 
60,000

 
—

 
—

 
N/A
Citi Credit Facility
 
270,625

 
—

 
—

 
N/A
 
 
$
618,712

 
$
3,482

 
$
—

 
N/A

The following is a summary of the senior securities as of December 31, 2013 (dollars in thousands).
 
 
 
 
 
Total Amount Outstanding Exclusive of Treasury Securities
 
Asset Coverage Ratio Per Unit (1)
 
Involuntary Liquidation Preference Per Unit (2)
 
Asset Market Value Per Unit (3)
Total Return Swap
 
$
216,106

 
$
—

 
$
—

 
N/A
Revolving Credit Facility
 
132,687

 
—

 
—

 
N/A
 
 
$
348,793

 
$
2,800

 
$
—

 
N/A
______________
(1)
Asset coverage per unit is the ratio of the carrying value of the Company's total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness.
(2)
The amount to which such class of senior security would be entitled upon the voluntary liquidation of the issuer in preference to any security junior to it. The “—” in this column indicates that the Securities and Exchange Commission expressly does not require this information to be disclosed for certain types of senior securities.
(3)
Not applicable because senior securities are not registered for public trading.

Note 16 – Schedules of Investments and Advances to Affiliates

The following table presents the Schedule of Investments and Advances to Affiliates as of December 31, 2017:

Portfolio Company (1)
 
Type of Asset
 
Amount of dividends and interest included in income
 
Beginning Fair Value at December 31, 2016
 
Gross additions*
 
Gross reductions**
 
Realized Gain/(Loss)
 
Change in Unrealized Gain (Loss) (6)
 
Fair Value at December 31, 2017
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
California Resources Development JV, LLC - Preferred Equity
 
Equity/Other
 
$
1,987

 
$
—

 
$
26,182

 
$
—

 
$
—

 
$
802

 
$
26,984

Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (4)
 
Senior Secured First Lien Debt
 
—

 
19,708

 
—

 
—

 
—

 
(6,145
)
 
13,563

Capstone Nutrition Common Stock (fka Integrity Nutraceuticals, Inc.) (4)
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Capstone Nutrition Class B and C Common Stock (fka Integrity Nutraceuticals, Inc.) (4)
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Kahala Ireland OpCo Designated Activity Company (3)
 
Senior Secured First Lien Debt
 
19,245

 
149,409

 
140

 
(8,000
)
 
—

 
—

 
141,549

Kahala Ireland OpCo Designated Activity Company - Common Equity (3)
 
Equity/Other
 
—

 
8,180

 
—

 
—

 
—

 
3,529

 
11,709

Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (3)
 
Equity/Other
 
—

 
3,250

 
—

 
(48
)
 
—

 
48

 
3,250


F- 64
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Portfolio Company (1)
 
Type of Asset
 
Amount of dividends and interest included in income
 
Beginning Fair Value at December 31, 2016
 
Gross additions*
 
Gross reductions**
 
Realized Gain/(Loss)
 
Change in Unrealized Gain (Loss) (6)
 
Fair Value at December 31, 2017
Kahala US OpCo LLC (4)
 
Senior Secured First Lien Debt
 
120

 
2,690

 
—

 
(2,690
)
 
—

 
—

 
—

Kahala US OpCo LLC - Class A Preferred Units (4)
 
Equity/Other
 
—

 
4,000

 
—

 
(2,491
)
 
(1,702
)
 
193

 
—

NexSteppe Inc.
 
Senior Secured First Lien Debt
 
381

 
—

 
8,250

 
(185
)
 
—

 
(8,065
)
 
—

NexSteppe Inc.
 
Senior Secured First Lien Debt
 
—

 
—

 
1,500

 
—

 
—

 
(1,500
)
 
—

NexSteppe Inc. - Series C Preferred Stock Warrant
 
Equity/Other
 
—

 
—

 
1,280

 
(1,000
)
 
—

 
(280
)
 
—

NMFC Senior Loan Program I, LLC
 
Equity/Other
 
6,782

 
—

 
47,057

 
—

 
—

 
3,748

 
50,805

Park Ave RE Holdings, LLC (2)
 
Subordinated Debt
 
4,902

 
37,192

 
—

 
—

 
—

 
—

 
37,192

Park Ave RE Holdings, LLC (2) - Common Shares
 
Equity/Other
 
—

 
6,564

 
—

 
—

 
—

 
6,114

 
12,678

Park Ave RE Holdings, LLC (2) - Preferred Shares
 
Equity/Other
 
946

 
23,645

 
—

 
—

 
—

 
—

 
23,645

South Grand MM CLO I, LLC
 
Equity/Other
 
2,223

 
—

 
28,382

 
—

 
—

 
522

 
28,904

  Total Control Investments
 
 
 
$
36,586

 
$
254,638

 
$
112,791

 
$
(14,414
)
 
$
(1,702
)
 
$
(1,034
)
 
$
350,279

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Answers Corporation
 
Senior Secured First Lien Debt
 
$
151

 
$
—

 
$
2,967

 
$
(23
)
 
$
1

 
$
(29
)
 
2,916

Answers Corporation
 
Senior Secured First Lien Debt
 
(1
)
 
—

 
17,064

 
(15,365
)
 
(18,223
)
 
16,524

 
—

Answers Corporation
 
Senior Secured First Lien Debt
 
1

 
—

 
2,954

 
(2,954
)
 
—

 
—

 
—

Answers Corporation
 
Senior Secured Second Lien Debt
 
418

 
—

 
4,118

 
(35
)
 
4

 
284

 
4,371

Answers Corporation
 
Equity/Other
 
—

 
—

 
11,361

 
—

 
—

 
2,870

 
14,231

B&M CLO 2014-1, LTD. Subordinated Notes
 
Collateralized Securities
 
277

 
16,772

 
—

 
(4,946
)
 
—

 
978

 
12,804

Basho Technologies, Inc.
 
Senior Secured First Lien Debt
 
72

 
—

 
3,904

 
(3,967
)
 
69

 
(6
)
 
—

Basho Technologies, Inc.
 
Senior Secured First Lien Debt
 
—

 
—

 
918

 
—

 
—

 
(918
)
 
—

Basho Technologies, Inc. - Series G Senior Participating Preferred Stock Warrant
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Basho Technologies, Inc. - Series G Senior Preferred Stock
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

CVP Cascade CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
3

 
8,868

 
—

 
(2,934
)
 
—

 
(1,813
)
 
4,121

CVP Cascade CLO-2, LTD. Subordinated Notes (7)
 
Collateralized Securities
 
191

 
11,593

 
—

 
(10,837
)
 
(2,829
)
 
2,073

 
—

Danish CRJ LTD.
 
Senior Secured First Lien Debt
 
—

 
20

 
—

 
(7
)
 
—

 
(13
)
 
—

Danish CRJ LTD.
 
Equity/Other
 
—

 
407

 
—

 
—

 
—

 
198

 
605

Figueroa CLO 2014-1, LTD. Subordinated Notes
 
Collateralized Securities
 
(103
)
 
16,101

 
—

 
(3,520
)
 
—

 
(73
)
 
12,508

MidOcean Credit CLO II, LLC Income Notes
 
Collateralized Securities
 
2,380

 
22,419

 
—

 
(2,216
)
 
—

 
448

 
20,651

MidOcean Credit CLO III, LLC Subordinated Notes
 
Collateralized Securities
 
715

 
23,341

 
—

 
(3,674
)
 
—

 
(2,159
)
 
17,508


F- 65
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Portfolio Company (1)
 
Type of Asset
 
Amount of dividends and interest included in income
 
Beginning Fair Value at December 31, 2016
 
Gross additions*
 
Gross reductions**
 
Realized Gain/(Loss)
 
Change in Unrealized Gain (Loss) (6)
 
Fair Value at December 31, 2017
MidOcean Credit CLO IV, LLC Income Notes
 
Collateralized Securities
 
689

 
15,505

 
—

 
(1,871
)
 
—

 
(1,422
)
 
12,212

NewStar Arlington Senior Loan Program LLC Subordinated Notes
 
Collateralized Securities
 
4,930

 
24,491

 
—

 
(1,945
)
 
—

 
2,893

 
25,439

NewStar Exeter Fund CLO – Debt
 
Collateralized Securities
 
1,106

 
8,455

 
162

 
—

 
—

 
43

 
8,660

NewStar Exeter Fund CLO – Equity
 
Collateralized Securities
 
1,645

 
20,579

 
—

 
(2,609
)
 
—

 
(4,881
)
 
13,089

NMFC Senior Loan Program I, LLC
 
Equity/Other
 
—

 
47,057

 
—

 
(47,057
)
 
—

 
—

 
—

Ocean Trails CLO V, LTD. (7)
 
Collateralized Securities
 
48

 
29,144

 
—

 
(29,128
)
 
906

 
(922
)
 
—

OFSI Fund VI, Ltd. Subordinated Notes
 
Collateralized Securities
 
617

 
17,354

 
—

 
(5,007
)
 
—

 
(2,185
)
 
10,162

PennantPark Credit Opportunities Fund II, LP
 
Equity/Other
 
705

 
9,788

 
2,691

 
(2,691
)
 
10

 
338

 
10,136

Related Fee Agreements (5)
 
Collateralized Securities
 
922

 
9,647

 
—

 
(3,607
)
 
42

 
(2,165
)
 
3,917

Silver Spring CLO, Ltd. Subordinated Notes
 
Collateralized Securities
 
94

 
12,007

 
—

 
(3,554
)
 
—

 
1,910

 
10,363

South Grand MM CLO I, LLC
 
Equity/Other
 
—

 
28,382

 
—

 
(28,382
)
 
—

 
—

 
—

Squan Holding Corp.
 
Senior Secured First Lien Debt
 
—

 
6,895

 
—

 
(6,895
)
 
—

 
—

 
—

Squan Holding Corp. - Class A Common Stock
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Squan Holding Corp. - Series A Preferred Stock
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Tax Defense Network, LLC
 
Senior Secured First Lien Debt
 
1,075

 
—

 
18,682

 
(117
)
 
1

 
(11,089
)
 
7,477

Tax Defense Network, LLC - Common Equity
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Tennenbaum Waterman Fund, L.P.
 
Equity/Other
 
1,270

 
—

 
10,169

 
—

 
—

 
258

 
10,427

Twentyeighty, Inc. - First Lien Debt (TLA 3/20)
 
Senior Secured First Lien Debt
 
378

 
—

 
2,426

 
—

 
—

 
427

 
2,853

Twentyeighty, Inc. - First Lien Debt (TLB 3/20)
 
Senior Secured First Lien Debt
 
928

 
—

 
4,535

 
—

 
—

 
184

 
4,719

Twentyeighty, Inc. - First Lien Debt (TLC 3/20)
 
Senior Secured First Lien Debt
 
881

 
—

 
4,164

 
—

 
—

 
(425
)
 
3,739

Twentyeighty, Inc. - Class A Common Equity
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Twentyeighty, Inc. - Revolver (TL 3/20)
 
Senior Secured First Lien Debt
 
2

 
—

 
—

 
—

 
—

 
—

 
—

THL Credit Greenway Fund II LLC
 
Equity/Other
 
957

 
12,850

 
—

 
(1,849
)
 
—

 
372

 
11,373

WhiteHorse VIII, Ltd. CLO Subordinated Notes
 
Collateralized Securities
 
712

 
12,563

 
—

 
(2,859
)
 
—

 
(943
)
 
8,761

World Business Lenders, LLC - Preferred Stock
 
Equity/Other
 
—

 
—

 
4,441

 
—

 
—

 
(682
)
 
3,759

Total Affiliate Investments
 
 
 
$
21,063

 
$
354,238

 
$
90,556

 
$
(188,049
)
 
$
(20,019
)
 
$
75

 
$
236,801

Total Control & Affiliate Investments
 
 
 
$
57,649

 
$
608,876

 
$
203,347

 
$
(202,463
)
 
$
(21,721
)
 
$
(959
)
 
$
587,080

______________________________________________________
*     Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

F- 66
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

**     Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

(1) 
The principal amount and ownership detail are shown in the consolidated schedules of investments.
(2) 
This investment was not deemed significant under Regulation S-X as of December 31, 2016. However, financial information is provided for comparative purposes. As of December 31, 2017, Park Ave RE Holdings LLC had total assets and liabilities of $134.6 million and $107.1 million, respectively. Total revenue and net income for the year ended December 31, 2017 was approximately $3.2 million and $0.5 million, respectively.
(3) 
For the year ended December 31, 2016, the Company has determined that it must include audited financial statements of Kahala Ireland Opco Designated Activity Company because it is a controlled investment and is required to do so under SEC Rule 3-09. The audited financial statements are attached as Exhibit 99.1.
(4) 
This investment was not deemed significant under Regulation S-X as of December 31, 2017.
(5) 
Not all Related Fee Agreements shown on the consolidated schedules of investments are Affiliated Investments.
(6) 
Gross of deferred taxes.
(7) 
Investment no longer held as of December 31, 2017.

Dividends and interest for the year ended December 31, 2017 attributable to Controlled and Affiliated investments no longer held as of December 31, 2017 was $49 thousand.
    
Realized gain (loss) for the year ended December 31, 2017 attributable to Controlled Affiliated investments no longer held as of December 31, 2017 was $0.9 million.
    
Change in unrealized gain (loss) for the year ended December 31, 2017 attributable to Controlled and Affiliated investments no longer held as of December 31, 2017 was $(0.9) million, respectively.

The following table presents the Schedule of Investments and Advances to Affiliates as of December 31, 2016:

Portfolio Company (1)
 
Type of Asset
 
Amount of dividends and interest included in income
 
Beginning Fair Value at December 31, 2015
 
Gross additions*
 
Gross reductions**
 
Realized Gain/(Loss)
 
Change in Unrealized Gain (Loss) (6)
 
Fair Value at December 31, 2016
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (4)
 
Senior Secured First Lien Debt
 
$
713

 
$
29,731

 
$
8,933

 
$
—

 
$
—

 
$
(18,956
)
 
$
19,708

Capstone Nutrition Common Stock (fka Integrity Nutraceuticals, Inc.) (4)
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Capstone Nutrition Class B and C Common Stock (fka Integrity Nutraceuticals, Inc.) (4)
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Kahala Ireland OpCo Designated Activity Company (3)
 
Senior Secured First Lien Debt
 
21,354

 
170,281

 
5,828

 
(26,700
)
 
—

 
—

 
149,409

Kahala Ireland OpCo Designated Activity Company - Common Equity (3)
 
Equity/Other
 
—

 
29,428

 
—

 
—

 
—

 
(21,248
)
 
8,180

Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (3)
 
Equity/Other
 
—

 
3,250

 
—

 
(166
)
 
—

 
166

 
3,250

Kahala US OpCo LLC
 
Senior Secured First Lien Debt
 
354

 
2,604

 
86

 
—

 
—

 
—

 
2,690

Kahala US OpCo LLC - Class A Preferred Units
 
Equity/Other
 
1

 
4,136

 
—

 
(250
)
 
—

 
114

 
4,000

Park Ave RE Holdings, LLC (2)
 
Subordinated Debt
 
4,750

 
35,192

 
2,000

 
—

 
—

 
—

 
37,192

Park Ave RE Holdings, LLC (2) - Common Shares
 
Equity/Other
 
—

 
8,115

 
—

 
(587
)
 
—

 
(964
)
 
6,564

Park Ave RE Holdings, LLC (2) - Preferred Shares
 
Equity/Other
 
2,010

 
23,645

 
—

 
—

 
—

 
—

 
23,645

  Total Control Investments
 
 
 
$
29,182

 
$
306,382

 
$
16,847

 
$
(27,703
)
 
$
—

 
$
(40,888
)
 
$
254,638

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F- 67
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

Portfolio Company (1)
 
Type of Asset
 
Amount of dividends and interest included in income
 
Beginning Fair Value at December 31, 2015
 
Gross additions*
 
Gross reductions**
 
Realized Gain/(Loss)
 
Change in Unrealized Gain (Loss) (6)
 
Fair Value at December 31, 2016
Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
B&M CLO 2014-1, LTD. Subordinated Notes
 
Collateralized Securities
 
$
1,938

 
$
19,169

 
$
—

 
$
(5,485
)
 
$
—

 
$
3,088

 
$
16,772

CVP Cascade CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
981

 
11,114

 
—

 
(4,642
)
 
—

 
2,396

 
8,868

CVP Cascade CLO-2, LTD. Subordinated Notes
 
Collateralized Securities
 
860

 
12,216

 
—

 
(5,349
)
 
—

 
4,726

 
11,593

Danish CRJ LTD.
 
Senior Secured First Lien Debt
 
—

 
20

 
—

 
(13
)
 
—

 
13

 
20

Danish CRJ LTD.
 
Equity/Other
 
—

 
1,034

 
—

 
—

 
—

 
(627
)
 
407

Fifth Street Senior Loan Fund LLC 2015-1A Class F
 
Collateralized Securities
 
1,054

 
8,523

 
162

 
—

 
—

 
(230
)
 
8,455

Fifth Street Senior Loan Fund I, LLC - 2015-1A Subordinated Notes
 
Collateralized Securities
 
2,919

 
23,566

 
—

 
(4,660
)
 
—

 
1,673

 
20,579

Figueroa CLO 2014-1, LTD. Subordinated Notes
 
Collateralized Securities
 
1,199

 
16,112

 
—

 
(4,518
)
 
—

 
4,507

 
16,101

MidOcean Credit CLO II, LLC
 
Collateralized Securities
 
2,463

 
23,603

 
—

 
(4,627
)
 
—

 
3,443

 
22,419

MidOcean Credit CLO III, LLC
 
Collateralized Securities
 
3,516

 
23,748

 
—

 
(5,133
)
 
—

 
4,726

 
23,341

MidOcean Credit CLO IV, LLC
 
Collateralized Securities
 
2,456

 
14,212

 
—

 
(2,488
)
 
—

 
3,781

 
15,505

NMFC Senior Loan Program I, LLC
 
Equity/Other
 
7,466

 
45,994

 
—

 
—

 
—

 
1,063

 
47,057

NewStar Arlington Senior Loan Program LLC Subordinated Notes
 
Collateralized Securities
 
5,109

 
24,461

 
—

 
(3,405
)
 
—

 
3,435

 
24,491

Ocean Trails CLO V, LTD.
 
Collateralized Securities
 
4,158

 
25,957

 
—

 
(3,266
)
 
—

 
6,453

 
29,144

OFSI Fund VI, Ltd. Subordinated Notes
 
Collateralized Securities
 
2,577

 
20,205

 
—

 
(5,497
)
 
—

 
2,646

 
17,354

PennantPark Credit Opportunities Fund II, LP
 
Equity/Other
 
650

 
9,082

 
2,691

 
(1,615
)
 
180

 
(550
)
 
9,788

Related Fee Agreements (5)
 
Collateralized Securities
 
1,434

 
11,679

 
—

 
(2,182
)
 
—

 
150

 
9,647

South Grand MM CLO I, LLC
 
Equity/Other
 
2,234

 
29,155

 
—

 
—

 
—

 
(773
)
 
28,382

Silver Spring CLO, Ltd.
 
Collateralized Securities
 
(229
)
 
12,269

 
—

 
(3,609
)
 
—

 
3,347

 
12,007

Squan Holding Corp.
 
Senior Secured First Lien Debt
 
—

 
—

 
20,421

 
(3,022
)
 
(11,017
)
 
513

 
6,895

Squan Holding Corp.
 
Senior Secured First Lien Debt
 
—

 
—

 
1,035

 
(1,045
)
 
—

 
10

 
—

Squan Holding Corp. - Class A Common Stock
 
Equity/Other
 
—

 
—

 
—

 
—

 
(12
)
 
12

 
—

Squan Holding Corp. - Series A Preferred Stock
 
Equity/Other
 
—

 
—

 
—

 
—

 
(1,139
)
 
1,139

 
—

THL Credit Greenway Fund II LLC
 
Equity/Other
 
1,135

 
16,910

 
—

 
(2,912
)
 
—

 
(1,148
)
 
12,850

WhiteHorse VIII, Ltd. CLO Subordinated Notes
 
Collateralized Securities
 
1,659

 
13,955

 
—

 
(5,781
)
 
—

 
4,389

 
12,563

Total Affiliate Investments
 
 
 
$
43,579

 
$
362,984

 
$
24,309

 
$
(69,249
)
 
$
(11,988
)
 
$
48,182

 
$
354,238

Total Control & Affiliate Investments
 
 
 
$
72,761

 
$
669,366

 
$
41,156

 
$
(96,952
)
 
$
(11,988
)
 
$
7,294

 
$
608,876

______________________________________________________
*     Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
**     Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.


F- 68
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

(1) 
The principal amount and ownership detail are shown in the consolidated schedules of investments.
(2) 
This investment was not deemed significant under Regulation S-X as of December 31, 2016. However, financial information is provided for comparative purposes. As of December 31, 2016, Park Ave RE Holdings LLC had total assets and liabilities of $136.3 million and $110.2 million, respectively. Total revenue and net income for the year ended December 31, 2016 were approximately $13.4 million and $1.9 million, respectively.
(3) 
This investment was not deemed significant under Regulation S-X as of December 31, 2016. However, financial information is provided for comparative purposes. As of December 31, 2016, Kahala Ireland OpCo Designated Activity Company had total assets and liabilities of $463.1 million and $463.8 million, respectively. Total revenue and net income for the year ended December 31, 2016 were approximately $93.4 million and $2.2 million, respectively.
(4) 
This investment is deemed significant under Regulation S-X as of December 31, 2016. As of December 31, 2016, Capstone Nutrition had total assets and liabilities of $86.0 million and $101.5 million, respectively. Total revenue and net (loss) for the year ended December 31, 2016 were approximately $129.3 million and $(51.6) million, respectively.
(5) 
Not all Related Fee Agreements shown on the consolidated schedules of investments are Affiliated Investments.
(6) 
Gross of deferred taxes.

Note 17 – Subsequent Events

The Company has evaluated subsequent events through the filing of this Form 10-K and determined that there have been no events that have occurred that would require adjustments to the Company’s disclosures in the consolidated financial statements except for the following:

DRIP Sales

From January 1, 2018 through the filing of this Form 10-K, the Company has issued 1.2 million shares of common stock including shares issued pursuant to the DRIP. Total gross proceeds from these issuances including proceeds from shares issued pursuant to the DRIP were $10.2 million.

Share Repurchase Program

On December 19, 2017, the Company offered to purchase no less than 2,300,000 and up to approximately 3,000,000 shares of its common stock pursuant to its SRP at a price equal to $8.31 per share. The offer expired on January 19, 2018 (the “Expiration Date”). On the Expiration Date, the Company purchased 2,547,524 shares of its common stock for aggregate consideration of $21.4 million pursuant to the limitations of the SRP as detailed in Note 9.


F- 69