SLR Investment Corp. - Quarter Report: 2019 September (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting company

Emerging growth company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended September 30, 2019

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 814-00754

SOLAR CAPITAL LTD.

(Exact name of registrant as specified in its charter)


Maryland		26-1381340
(State of Incorporation)		(I.R.S. Employer Identification No.)

500 Park Avenue New York, N.Y.		10022
(Address of principal executive offices)		(Zip Code)

(212) 993-1670

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☐ No ☐

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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading

Symbol(s)

Name of Each Exchange

on Which Registered

Common Stock, par value $0.01 per share

SLRC

The NASDAQ Global Select Market

The number of shares of the registrant’s Common Stock, $.01 par value, outstanding as of October 31, 2019 was 42,260,826.

SOLAR CAPITAL LTD.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS


		PAGE
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Assets and Liabilities as of September 30, 2019 (unaudited) and December 31, 2018		3

	Consolidated Statements of Operations for the three and nine months ended September 30, 2019 (unaudited) and the three and nine months ended September 30, 2018 (unaudited)		4

	Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2019 (unaudited) and the three and nine months ended September 30, 2018 (unaudited)		5

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 (unaudited) and the nine months ended September 30, 2018 (unaudited)		6

	Consolidated Schedule of Investments as of September 30, 2019 (unaudited)		7

	Consolidated Schedule of Investments as of December 31, 2018		14

	Notes to Consolidated Financial Statements (unaudited)		23

	Report of Independent Registered Public Accounting Firm		44

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		45

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		63

Item 4.	Controls and Procedures		63

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		64

Item 1A.	Risk Factors		64

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		64

Item 3.	Defaults Upon Senior Securities		64

Item 4.	Mine Safety Disclosures		64

Item 5.	Other Information		64

Item 6.	Exhibits		65

	Signatures		67

PART I. FINANCIAL INFORMATION

In this Quarterly Report, “Solar Capital”, “Company”, “Fund”, “we”, “us”, and “our” refer to Solar Capital Ltd. unless the context states otherwise.

Item 1. Financial Statements

SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except share amounts)


	September 30, 2019 (unaudited)			December 31, 2018
Assets
Investments at fair value:
Companies less than 5% owned (cost: $969,950 and $948,478, respectively)	$	961,301		$	944,597
Companies more than 25% owned (cost: $519,938 and $500,792, respectively)		538,737			511,483
Cash		9,684			7,570
Cash equivalents (cost: $159,772 and $199,646, respectively)		159,772			199,646
Dividends receivable		10,117			9,065
Interest receivable		6,158			7,619
Receivable for investments sold		1,693			2,073
Other receivables		498			593
Prepaid expenses and other assets		727			783

Total assets	$	1,688,687		$	1,683,429

Liabilities
Debt ($570,985 and $476,185 face amounts, respectively, reported net of unamortized debt issuance costs of $6,914 and $2,647, respectively. See notes 6 and 7)	$	564,071		$	473,538
Payable for investments and cash equivalents purchased		159,828			251,391
Distributions payable		17,327			17,327
Management fee payable (see note 3)		6,738			6,504
Performance-based incentive fee payable (see note 3)		4,606			4,613
Interest payable (see note 7)		5,724			4,714
Administrative services payable (see note 3)		2,238			2,716
Other liabilities and accrued expenses		2,785			3,455

Total liabilities	$	763,317		$	764,258

Commitments and contingencies (see note 10)
Net Assets
Common stock, par value $0.01 per share, 200,000,000 and 200,000,000 common shares authorized, respectively, and 42,260,826 and 42,260,826 shares issued and outstanding, respectively	$	423		$	423
Paid-in capital in excess of par		992,438			992,438
Accumulated distributable net loss		(67,491	)		(73,690	)

Total net assets	$	925,370		$	919,171

Net Asset Value Per Share	$	21.90		$	21.75

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share amounts)


	Three months ended						Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
INVESTMENT INCOME:
Interest:
Companies less than 5% owned	$	27,019		$	21,859		$	82,010		$	70,704
Companies more than 25% owned		1,523			884			3,928			1,842
Dividends:
Companies less than 5% owned		19			12			32			22
Companies more than 25% owned		10,145			14,255			28,844			41,446
Other income:
Companies less than 5% owned		1,000			83			2,824			1,101
Companies more than 25% owned		5			49			14			175

Total investment income		39,711			37,142			117,652			115,290

EXPENSES:
Management fees (see note 3)	$	6,738		$	6,399		$	20,027		$	19,285
Performance-based incentive fees (see note 3)		4,606			4,604			13,830			14,109
Interest and other credit facility expenses (see note 7))		7,529			5,521			21,958			17,522
Administrative services expense (see note 3)		1,352			1,459			4,013			4,151
Other general and administrative expenses		1,060			743			2,502			3,785

Total expenses		21,285			18,726			62,330			58,852

Net investment income	$	18,426		$	18,416		$	55,322		$	56,438

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND CASH EQUIVALENTS:
Net realized gain (loss) on investments and cash equivalents:
Companies less than 5% owned	$	(52	)	$	687		$	179		$	1,074
Companies 5% to 25% owned		—			(7	)		—			168
Companies more than 25% owned		—			—			(661	)		(5	)

Net realized gain (loss) on investments and cash equivalents		(52	)		680			(482	)		1,237

Net change in unrealized gain (loss) on investments and cash equivalents:
Companies less than 5% owned		(2,451	)		530			(4,768	)		62
Companies more than 25% owned		(2,206	)		(1,496	)		8,108			231

Net change in unrealized gain (loss) on investments and cash equivalents		(4,657	)		(966	)		3,340			293

Net realized and unrealized gain (loss) on investments and cash equivalents		(4,709	)		(286	)		2,858			1,530

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	13,717		$	18,130		$	58,180		$	57,968

EARNINGS PER SHARE (see note 5)	$	0.32		$	0.43		$	1.38		$	1.37

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

(in thousands, except share amounts)


	Three months ended						Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Increase in net assets resulting from operations:
Net investment income	$	18,426		$	18,416		$	55,322		$	56,438
Net realized gain (loss)		(52	)		680			(482	)		1,237
Net change in unrealized gain (loss)		(4,657	)		(966	)		3,340			293

Net increase in net assets resulting from operations		13,717			18,130			58,180			57,968

Distributions to stockholders:
From net investment income		(17,327	)		(17,327	)		(51,981	)		(51,981	)

Capital transactions (see note 12):
Reinvestment of distributions		—			—			—			—

Net increase in net assets resulting from capital transactions		—			—			—			—

Total increase (decrease) in net assets		(3,610	)		803			6,199			5,987
Net assets at beginning of period		928,980			926,789			919,171			921,605

Net assets at end of period	$	925,370		$	927,592		$	925,370		$	927,592

Capital stock activity (see note 12):
Common stock issued from reinvestment of distributions		—			—			—			—

Net increase from capital stock activity		—			—			—			—

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)


	Nine months ended
	September 30, 2019			September 30, 2018
Cash Flows from Operating Activities:
Net increase in net assets resulting from operations	$	58,180		$	57,968
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
Net realized (gain) loss on investments and cash equivalents		482			(1,237	)
Net change in unrealized gain on investments and cash equivalents		(3,340	)		(293	)
Effect of consolidation of Senior Secured Unitranche Loan Program LLC and Senior Secured Unitranche Loan Program II LLC		—			(445	)
(Increase) decrease in operating assets:
Purchase of investments		(306,026	)		(468,462	)
Proceeds from disposition of investments		272,748			525,366
Net accretion of discount on investments		(7,332	)		(5,187	)
Capitalization of payment-in-kind interest		(967	)		(136	)
Collections of payment-in-kind interest		477			784
Receivable for investments sold		380			(19,704	)
Interest receivable		1,461			(798	)
Dividends receivable		(1,052	)		5,268
Other receivables		95			58
Prepaid expenses and other assets		56			258
Increase (decrease) in operating liabilities:
Payable for investments and cash equivalents purchased		(91,563	)		65,103
Management fee payable		234			(974	)
Performance-based incentive fee payable		(7	)		(56	)
Administrative services payable		(478	)		(689	)
Interest payable		1,010			4,283
Other liabilities and accrued expenses		(670	)		2,215

Net Cash Provided by (Used in) Operating Activities		(76,312	)		163,322

Cash Flows from Financing Activities:
Cash distributions paid		(51,981	)		(50,878	)
Deferred financing costs		629			320
Consolidation of SSLP Facility and SSLP II Facility		—			61,066
Proceeds from secured borrowings		791,504			395,969
Repayment of secured borrowings		(701,600	)		(510,600	)

Net Cash Provided by (Used in) Financing Activities		38,552			(104,123	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(37,760	)		59,199
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		207,216			150,789

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	169,456		$	209,988

Supplemental disclosure of cash flow information:
Cash paid for interest	$	20,948		$	13,239

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)

September 30, 2019

(in thousands, except share/unit amounts)


Description	Industry		Spread Above Index⁽⁷⁾			LIBOR Floor			Interest Rate⁽¹⁾			Acquisition Date		Maturity Date		Par Amount		Cost		Fair Value
Senior Secured Loans — 91.2%

Bank Debt/Senior Secured Loans
Aegis Toxicology Sciences Corporation (14)		Health Care Providers & Services		L+550			1.00	%		7.68	%		5/7/2018		5/9/2025	$	17,086	$	16,833	$	15,890
Alteon Health, LLC (14)		Health Care Providers & Services		L+650			1.00	%		8.54	%		9/14/2018		9/1/2022		15,138		15,048		14,836
American Teleconferencing Services, Ltd. (PGI) (14)		Communications Equipment		L+650			1.00	%		8.69	%		5/5/2016		6/8/2023		30,051		29,352		28,248
Atria Wealth Solutions, Inc. (14)		Diversified Financial Services		L+600			1.00	%		8.10	%		9/14/2018		11/30/2022		4,415		4,380		4,371
AviatorCap SII, LLC (2)		Aerospace & Defense		L+700			—			9.14	%		12/27/2018		10/30/2020		2,909		2,909		2,909
AviatorCap SII, LLC (2)		Aerospace & Defense		L+700			—			9.14	%		3/19/2019		1/29/2021		2,794		2,794		2,794
BAM Capital, LLC		Diversified Financial Services		L+900			—			11.10	%		12/26/2018		1/23/2023		14,986		14,793		14,686
BAM Capital, LLC		Diversified Financial Services		L+1200			—			14.10	%		12/26/2018		1/23/2023		4,583		4,527		4,491
Bishop Lifting Products, Inc. (5)		Trading Companies & Distributors		L+800			1.00	%		10.04	%		3/24/2014		3/27/2022		24,985		24,897		24,610
Enhanced Capital Group, LLC		Capital Markets		L+550			1.00	%		7.60	%		6/28/2019		6/28/2024		21,068		20,765		20,857
Falmouth Group Holdings Corp. (AMPAC) (14)		Chemicals		L+675			1.00	%		8.95	%		12/7/2015		12/14/2021		37,195		37,042		37,195
Greystone Select Holdings LLC & Greystone & Co., Inc.		Thrifts & Mortgage Finance		L+800			1.00	%		10.52	%		3/29/2017		4/17/2024		19,751		19,609		19,751
iCIMS, Inc.		Software		L+650			1.00	%		8.56	%		9/7/2018		9/12/2024		15,003		14,740		15,003
IHS Intermediate, Inc.**		Health Care Providers & Services		L+825			1.00	%		10.83	%		6/19/2015		7/20/2022		25,000		24,728		18,750
Kingsbridge Holdings, LLC		Multi-Sector Holdings		L+700			1.00	%		9.33	%		12/21/2018		12/21/2024		33,112		32,658		32,947
KORE Wireless Group, Inc. (14)		Wireless Telecommunication Services		L+550			—			7.60	%		12/21/2018		12/21/2024		36,943		36,274		36,573
Logix Holding Company, LLC (14)		Communications Equipment		L+575			1.00	%		7.79	%		9/14/2018		12/22/2024		7,122		7,065		7,122
MRI Software LLC		Software		L+575			—			7.80	%		7/23/2019		6/30/2023		23,660		23,432		23,541
On Location Events, LLC & PrimeSport Holdings Inc. (14)		Media		L+500			1.00	%		7.04	%		12/7/2017		9/29/2021		27,954		27,794		27,954
Pet Holdings ULC & Pet Supermarket, Inc. (3)(14)		Specialty Retail		L+550			1.00	%		7.82	%		9/14/2018		7/5/2022		29,120		28,888		28,901
PhyMed Management LLC		Health Care Providers & Services		L+875			1.00	%		10.79	%		12/18/2015		5/18/2021		32,321		31,852		32,321
PhyNet Dermatology LLC (14)		Health Care Providers & Services		L+550			1.00	%		7.54	%		9/5/2018		8/16/2024		16,526		16,410		16,443
PPT Management Holdings, LLC		Health Care Providers & Services		L+675	⁽¹⁶⁾		1.00	%		8.85	%		9/14/2018		12/16/2022		20,663		20,556		18,700
PSKW, LLC & PDR, LLC (14)		Health Care Providers & Services		L+425			1.00	%		6.35	%		9/14/2018		11/25/2021		1,859		1,851		1,859
PSKW, LLC & PDR, LLC (14)		Health Care Providers & Services		L+769			1.00	%		9.79	%		10/24/2017		11/25/2021		27,929		27,662		27,929
RS Energy Group U.S., Inc. (14)		Software		L+475			—			6.85	%		10/26/2018		10/6/2023		15,134		14,879		15,134

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share/unit amounts)


Description	Industry	Spread Above Index⁽⁷⁾		LIBOR Floor			Interest Rate⁽¹⁾			Acquisition Date		Maturity Date		Par Amount		Cost		Fair Value
Rug Doctor LLC (2)	Diversified Consumer Services		L+975		1.50	%		11.77	%		12/23/2013		5/16/2023	$	9,111	$	9,088	$	9,111
SOINT, LLC (2)	Aerospace & Defense		L+900		—			11.14	%		2/28/2019		4/30/2024		621		610		621
Solara Medical Supplies, Inc. (14)	Health Care Providers & Services		L+600		1.00	%		8.04	%		5/31/2018		2/27/2024		7,443		7,316		7,443
The Hilb Group, LLC & Gencorp Insurance Group, Inc.	Insurance		L+485		1.00	%		6.95	%		5/8/2019		6/24/2021		944		927		944
The Octave Music Group, Inc. (fka TouchTunes)	Media		L+825		1.00	%		10.32	%		5/28/2015		5/27/2022		12,194		12,109		12,194
Varilease Finance, Inc.	Multi-Sector Holdings		L+775		1.00	%		10.07	%		8/22/2014		8/24/2020		33,000		32,883		33,000

Total Bank Debt/Senior Secured Loans																$	564,671	$	557,128


Life Science Senior Secured Loans
Alimera Sciences, Inc.	Pharmaceuticals		L+765		—			9.72	%		1/5/2018		7/1/2022	$	25,000	$	25,269	$	25,750
Apollo Endosurgery, Inc.	Health Care Equipment & Supplies		L+750		—			9.57	%		3/15/2019		9/1/2023		20,492		20,475		20,440
Ardelyx, Inc. (3)	Pharmaceuticals		L+745		—			9.52	%		5/10/2018		11/1/2022		24,500		24,655		24,622
aTyr Pharma, Inc.	Pharmaceuticals		P+410		—			9.35	%		11/18/2016		11/18/2020		4,667		5,227		5,133
Axcella Health Inc.	Pharmaceuticals		L+850		—			10.61	%		1/9/2018		1/1/2023		26,000		26,441		26,520
Cardiva Medical, Inc.	Health Care Equipment & Supplies		L+795		0.63	%		10.02	%		9/24/2018		9/1/2022		16,500		16,786		16,830
Centrexion Therapeutics, Inc.	Pharmaceuticals		L+725		2.45	%		9.70	%		6/28/2019		1/1/2024		12,615		12,492		12,504
Cerapedics, Inc.	Health Care Equipment & Supplies		L+695		2.50	%		9.45	%		3/22/2019		3/1/2024		18,803		18,834		18,803
Corindus Vascular Robotics, Inc. (3)	Health Care Equipment & Supplies		L+725		—			9.35	%		3/9/2018		3/1/2022		8,337		8,898		8,962
Delphinus Medical Technologies, Inc.	Health Care Equipment & Supplies		L+850		—			10.57	%		8/18/2017		9/1/2021		4,355		4,429		4,442
GenMark Diagnostics, Inc. (3)	Health Care Providers & Services		L+590		2.51	%		8.41	%		2/1/2019		2/1/2023		35,373		35,629		35,726
Kindred Biosciences, Inc. (3)(17)	Pharmaceuticals		L+675		2.17	%		8.92	%		9/30/2019		9/30/2024		9,197		9,151		9,151
OmniGuide Holdings, Inc. (13)	Health Care Equipment & Supplies		L+805		—			10.12	%		7/30/2018		7/29/2023		10,500		10,605		10,552
PQ Bypass, Inc.	Health Care Equipment & Supplies		L+795		1.00	%		10.06	%		12/20/2018		12/19/2022		5,200		5,184		5,213
Restoration Robotics, Inc.	Health Care Equipment & Supplies		L+795		—			10.02	%		5/10/2018		5/1/2022		9,000		9,779		9,814
Rubius Therapeutics, Inc. (3)	Pharmaceuticals		L+550		—			7.57	%		12/21/2018		12/21/2023		26,861		26,914		26,928
scPharmaceuticals, Inc.	Pharmaceuticals		L+795		2.23	%		10.18	%		9/17/2019		9/17/2023		4,684		4,685		4,684
Senseonics Holdings, Inc.	Health Care Equipment & Supplies		L+650		2.48	%		8.98	%		7/25/2019		7/1/2024		21,076		20,911		20,853

Total Life Science Senior Secured Loans																$	286,364	$	286,927

Total Senior Secured Loans																$	851,035	$	844,055

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share/unit amounts)


Description	Industry	Interest Rate⁽¹⁾		Acquisition Date		Maturity Date		Par Amount		Cost		Fair Value
Equipment Financing — 35.4%
Althoff Crane Service, Inc. (15)	Commercial Services & Supplies		10.55%		7/31/2017		6/8/2022	$	1,227	$	1,227	$	1,249
AmeraMex International, Inc. (10)	Commercial Services & Supplies		10.00%		3/29/2019		3/28/2022		6,304		6,181		6,304
Blackhawk Mining, LLC (15)	Oil, Gas & Consumable Fuels		10.99-11.17%		2/16/2018		3/1/2022-11/1/2022		5,110		4,846		5,185
C&H Paving, Inc. (15)	Construction & Engineering		9.94-10.57%		12/26/2018		1/1/2024-7/1/2024		3,982		4,028		4,001
Capital City Jet Center, Inc. (10)	Airlines		10.00%		4/4/2018		10/4/2023		1,901		1,901		1,915
Central Freight Lines, Inc. (10)	Road & Rail		7.16%		7/31/2017		1/14/2024		1,495		1,495		1,495
Cfactor Leasing Corp. & CZM USA, Corp. (15)	Machinery		12.00-12.03%		7/31/2017		5/27/2020-1/15/2021		607		607		613
Champion Air, LLC (10)	Airlines		10.00%		3/19/2018		1/1/2023		2,891		2,887		2,807
Easton Sales and Rentals, LLC (10)	Commercial Services & Supplies		10.00%		9/18/2018		10/1/2021		1,971		1,949		1,929
Equipment Operating Leases, LLC (2)(12)	Multi-Sector Holdings		7.53-8.37%		4/27/2018		8/1/2022-4/27/2025		30,548		30,548		30,548
Family First Freight, LLC (10)	Road & Rail		9.43-10.10%		7/31/2017		7/1/2020-1/22/2022		642		641		640
Freightsol LLC (15)	Road & Rail		12.62-12.99%		4/9/2019		11/1/2023		2,333		2,377		2,333
Garda CL Technical Services, Inc. (15)	Commercial Services & Supplies		8.31-8.77%		3/22/2018		7/13/2023-10/5/2023		2,454		2,454		2,411
Georgia Jet, Inc. (10)	Airlines		8.00%		12/4/2017		12/4/2021		1,934		1,934		1,901
Globecomm Systems Inc. (15)	Wireless Telecommunication Services		13.18%		5/10/2018		7/1/2021		1,198		1,198		1,227
GMT Corporation (15)	Machinery		12.46%		10/23/2018		10/23/2023		6,682		6,623		6,699
Haljoe Coaches USA, LLC (15)	Road & Rail		8.15-9.90%		7/31/2017		7/1/2022-7/1/2024		5,796		5,796		5,754
Hawkeye Contracting Company, LLC (10)(11)	Oil, Gas & Consumable Fuels		10.00%		11/15/2017		11/15/2020		2,293		2,293		2,282
HTI Logistics Corporation (10)	Commercial Services & Supplies		9.69-9.80%		11/15/2018		12/1/2023-4/1/2024		304		304		304
Hypro, Inc. (10)	Machinery		11.53%		9/30/2019		10/1/2023		3,579		3,614		3,579
Interstate NDT, Inc. (15)	Road & Rail		11.32-13.94%		6/11/2018		7/1/2023-10/1/2023		2,126		2,126		2,169
ISR Holdings, LLC (10)	Commercial Services & Supplies		9.25%		8/27/2019		8/27/2022		5,172		5,172		5,172
JP Motorsports, Inc. (15)	Road & Rail		16.35%		8/17/2018		1/25/2022		212		210		216
Kool Pak, LLC (15)	Road & Rail		8.58%		2/5/2018		3/1/2024		642		642		628
Lineal Industries, Inc. (10)	Construction & Engineering		8.00%		12/21/2018		12/21/2021		84		84		84
Loyer Capital LLC (2)(12)	Multi-Sector Holdings		8.73-11.52%		5/16/2019		5/16/24-9/25/24		19,731		19,731		19,731
Meridian Consulting I Corp, Inc. (10)	Hotels, Restaurants & Leisure		10.72%		7/31/2017		12/4/2021		1,993		1,993		2,043
Mountain Air Helicopters, Inc. (10)	Commercial Services & Supplies		10.00%		7/31/2017		4/30/2022		1,579		1,579		1,598
Rango, Inc. (10)	Commercial Services & Supplies		9.70%		9/24/2019		4/1/2023		2,642		2,680		2,642
Rossco Crane & Rigging, Inc. (15)	Commercial Services & Supplies		11.13-11.53%		8/25/2017		4/1/2021-9/1/2022		635		635		634
Royal Express Inc. (15)	Road & Rail		9.64%		1/17/2019		2/1/2024		1,107		1,127		1,107
RVR Air Charter, LLC & RVR Aviation, LLC (10)	Airlines		12.00%		7/31/2017		8/1/2020-1/1/2022		1,984		1,984		1,990
Sidelines Tree Service LLC (15)	Diversified Consumer Services		10.31-10.52%		7/31/2017		8/1/2022-10/1/2022		355		356		358
South Texas Oilfield Solutions, LLC (15)	Energy Equipment & Services		12.52-13.76%		3/29/2018		9/1/2022-7/1/2023		2,926		2,926		2,928

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share/unit amounts)


Description	Industry	Interest Rate⁽¹⁾		Acquisition Date		Maturity Date		Par Amount		Cost		Fair Value
Southern Nevada Oral & Maxillofacial Surgery, LLC (10)	Health Care Providers & Services		12.00%		7/31/2017		3/1/2024	$	1,307	$	1,307	$	1,320
Southwest Traders, Inc. (15)	Road & Rail		9.13%		11/21/2017		11/1/2020		88		88		86
Spartan Education, LLC (10)	Diversified Consumer Services		10.26-12.00%		3/28/2019		2/28/2020-6/14/2023		4,667		4,747		4,667
ST Coaches, LLC (15)	Road & Rail		8.21-8.59%		7/31/2017		10/1/2022-10/1/2023		4,060		4,060		4,018
Stafford Logistics, Inc. (10)	Commercial Services & Supplies		12.59-12.71%		9/11/2019		10/1/2024-10/1/2025		7,421		7,421		7,421
Star Coaches Inc. (15)	Road & Rail		8.42%		3/9/2018		4/1/2025		3,429		3,429		3,429
Sturgeon Services International Inc. (10)	Energy Equipment & Services		19.10%		7/31/2017		2/28/2022		1,388		1,388		1,366
Sun-Tech Leasing of Texas, L.P. (15)	Road & Rail		8.68-16.95%		7/31/2017		6/25/2020-7/25/2021		308		308		306
Superior Transportation, Inc. (15)	Road & Rail		9.34-12.27%		7/31/2017		4/23/2022-8/1/2024		6,725		6,703		6,739
Tailwinds, LLC (10)	Air Freight & Logistics		9.00%		7/26/2019		8/1/2024		1,190		1,190		1,190
The Smedley Company & Smedley Services, Inc. (10)	Commercial Services & Supplies		9.92-14.75%		7/31/2017		10/29/2023-2/10/2024		5,250		5,272		5,315
Thora Capital, LLC (10)	Airlines		9.00%		7/3/2019		7/1/2025		6,353		6,353		6,353
Tornado Bus Company (15)	Road & Rail		10.78%		7/31/2017		9/1/2021		1,676		1,676		1,688
Trinity Equipment Rentals, Inc. (15)	Commercial Services & Supplies		11.24%		9/13/2018		10/1/2022		774		774		774
Trolleys, Inc. (15)	Road & Rail		9.81%		7/18/2018		8/1/2022		2,488		2,488		2,485
Up Trucking Services, LLC (15)	Road & Rail		11.21-12.10%		3/23/2018		4/1/2022-8/1/2024		2,616		2,657		2,643
Warrior Crane Services, LLC (10)	Commercial Services & Supplies		8.95%		7/11/2019		7/11/2024-8/1/2026		3,434		3,434		3,434
Wind River Environmental, LLC (10)	Diversified Consumer Services		10.00%		7/31/2019		8/1/2024		956		965		956
W.P.M., Inc., WPM-Southern, LLC, WPM Construction Services, Inc. (10)	Construction & Engineering		7.50%		7/31/2017		10/1/2022		2,083		2,083		2,026

									Shares/Units
NEF Holdings, LLC Equity Interests (2)(9)	Multi-Sector Holdings				7/31/2017				200		145,000		146,500

Total Equipment Financing										$	325,491	$	327,192

Preferred Equity — 1.4%
SOAGG LLC (2)(3)(4)	Aerospace & Defense		8.00%		12/14/2010		6/30/2020		1,730	$	1,730	$	7,317
SOINT, LLC (2)(3)(4)	Aerospace & Defense		15.00%		6/8/2012		6/30/2020		55,109		5,511		6,139

Total Preferred Equity										$	7,241	$	13,456

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share/unit amounts)


Description	Industry	Acquisition Date		Shares/Units		Cost		Fair Value
Common Equity/Equity Interests/Warrants — 34.1%
aTyr Pharma, Inc. Warrants *	Pharmaceuticals		11/18/2016		6,347	$	106	$	—
B Riley Financial Inc. (3)(8)	Research & Consulting Services		3/16/2007		38,015		2,684		898
CardioFocus, Inc. Warrants *	Health Care Equipment & Supplies		3/31/2017		440,816		50		40
Centrexion Therapeutics, Inc. Warrants *	Pharmaceuticals		6/28/2019		210,256		106		89
Conventus Orthopaedics, Inc. Warrants *	Health Care Equipment & Supplies		6/15/2016		157,500		65		14
Corindus Vascular Robotics, Inc. Warrants (3)*	Health Care Equipment & Supplies		3/9/2018		249,420		166		732
Crystal Financial LLC (2)(3)	Diversified Financial Services		12/28/2012		280,303		280,737		300,000
Delphinus Medical Technologies, Inc. Warrants *	Health Care Equipment & Supplies		8/18/2017		380,904		74		58
Essence Group Holdings Corporation (Lumeris) Warrants *	Health Care Technology		3/22/2017		208,000		63		280
PQ Bypass, Inc. Warrants *	Health Care Equipment & Supplies		12/20/2018		156,000		70		44
RD Holdco Inc. (Rug Doctor) (2)*	Diversified Consumer Services		12/23/2013		231,177		15,683		7,851
RD Holdco Inc. (Rug Doctor) Class B (2)*	Diversified Consumer Services		12/23/2013		522		5,216		5,216
RD Holdco Inc. (Rug Doctor) Warrants (2)*	Diversified Consumer Services		12/23/2013		30,370		381		—
Restoration Robotics, Inc. Warrants *	Health Care Equipment & Supplies		5/10/2018		72,776		111		1
Scynexis, Inc. Warrants *	Pharmaceuticals		9/30/2016		122,435		105		—
Senseonics Holdings, Inc. Warrants *	Health Care Equipment & Supplies		7/25/2019		526,901		117		112
Sunesis Pharmaceuticals, Inc. Warrants *	Pharmaceuticals		3/31/2016		104,001		118		—
Tetraphase Pharmaceuticals, Inc. Warrants (3)*	Pharmaceuticals		10/30/2018		14,227		269		—

Total Common Equity/Equity Interests/Warrants						$	306,121	$	315,335

Total Investments (6) — 162.1%						$	1,489,888	$	1,500,038


Description	Industry		Acquisition Date		Maturity Date		Par Amount
Cash Equivalents — 17.3%
U.S. Treasury Bill		Government		9/30/2019		10/29/2019	$	160,000	$	159,772	$	159,772


Total Investments & Cash Equivalents — 179.4%									$	1,649,660	$	1,659,810
Liabilities in Excess of Other Assets — (79.4%)												(734,440	)

Net Assets — 100.0%											$	925,370

(1)

Floating rate debt investments typically bear interest at a rate determined by reference to the London Interbank Offered Rate (“LIBOR”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current rate of interest, or in the case of leases the current implied yield, in effect as of September 30, 2019.

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share/unit amounts)

(2)

Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the Investment Company Act of 1940 (“1940 Act”), due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the nine months ended September 30, 2019 in these controlled investments are as follows:


Name of Issuer	Fair Value at December 31, 2018		Gross Additions		Gross Reductions		Realized Gain (Loss)			Change in Unrealized Gain (Loss)			Interest/Dividend /Other Income		Fair Value at September 30, 2019
Ark Real Estate Partners LP	$	39	$	—	$	—	$	(526	)	$	487		$	—	$	—
Ark Real Estate Partners II LP		1		—		—		(135	)†		11			—		—
AviatorCap SII, LLC		2,975		—		66		—			—			208		2,909
AviatorCap SII, LLC		—		2,975		181		—			—			146		2,794
Crystal Financial LLC		293,000		—		—		—			7,000			22,500		300,000
Equipment Operating Leases, LLC		32,882		—		2,334		—			—			1,936		30,548
Loyer Capital LLC		—		21,634		1,903		—			—			610		19,731
NEF Holdings, LLC		145,000		—		—		—			1,500			2,900		146,500
RD Holdco Inc. (Rug Doctor, common equity)		7,732		—		—		—			119			—		7,851
RD Holdco Inc. (Rug Doctor, class B)		5,216		—		—		—			—			—		5,216
RD Holdco Inc. (Rug Doctor, warrants)		—		—		—		—			—			—		—
Rug Doctor LLC		9,111		—		—		—			(37	)		907		9,111
SOAGG LLC		9,113		—		762		—			(1,034	)		2,823		7,317
SOINT, LLC		—		2,144		1,566		—			11			135		621
SOINT, LLC (preferred equity)		6,414		—		326		—			51			621		6,139

	$	511,483	$	26,753	$	7,138	$	(661	)	$	8,108		$	32,786	$	538,737

(3)

Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 (“1940 Act”), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of September 30, 2019, on a fair value basis, non-qualifying assets in the portfolio represented 26.5% of the total assets of the Company.

(4)	Solar Capital Ltd.’s investments in SOAGG, LLC and SOINT, LLC include a two and one dollar investment in common shares, respectively.

(5)	Bishop Lifting Products, Inc., SEI Holding I Corporation, Singer Equities, Inc. & Hampton Rubber Company are co-borrowers.

(6)

Aggregate net unrealized appreciation for U.S. federal income tax purposes is $6,476; aggregate gross unrealized appreciation and depreciation for federal tax purposes is $30,366 and $23,890, respectively, based on a tax cost of $1,493,562. Unless otherwise noted, all of the Company’s investments are pledged as collateral against the borrowings outstanding on the senior secured credit facility. The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act. All investments are Level 3 unless otherwise indicated.

(7)	Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are often subject to a LIBOR or PRIME rate floor.

(8)	Denotes a Level 1 investment.

(9)	NEF Holdings, LLC is held through NEFCORP LLC, a wholly-owned consolidated taxable subsidiary and NEFPASS LLC, a wholly-owned consolidated subsidiary.

(10)	Indicates an investment that is wholly held by Solar Capital Ltd. through NEFPASS LLC.

(11)	Hawkeye Contracting Company, LLC, Eagle Creek Mining, LLC & Falcon Ridge Leasing, LLC are co-borrowers.

(12)	Denotes a subsidiary of NEF Holdings, LLC.

(13)	OmniGuide Holdings, Inc., Domain Surgical, Inc. and OmniGuide, Inc. are co-borrowers.

(14)

Indicates an investment that is wholly or partially held by the Company through its wholly-owned consolidated financing subsidiary SSLP 2016-1, LLC (the “SSLP SPV”). Such investments are pledged as collateral under the SSLP 2016-1, LLC Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of the Company.

(15)

Indicates an investment that is held by the Company through its wholly-owned consolidated financing subsidiary NEFPASS SPV, LLC (the “NEFPASS SPV”). Such investments are pledged as collateral under the NEFPASS SPV, LLC Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of the Company.

(16)	Spread is 6.00% Cash / 0.75% PIK.

(17)	Kindred Biosciences, Inc., KindredBio Equine, Inc. and Centaur Biopharmaceutical Services, Inc. are co-borrowers.

*	Non-income producing security.

**	Investment is on non-accrual status.

†	Represents estimated change in receivable balance.

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share/unit amounts)


Industry Classification	Percentage of Total Investments (at fair value) as of September 30, 2019
Diversified Financial Services (Crystal Financial LLC)		21.6	%
Multi-Sector Holdings (includes NEF Holdings, LLC, Equipment Operating Leases, LLC and Loyer Capital LLC)		17.5	%
Health Care Providers & Services		12.7	%
Pharmaceuticals		9.0	%
Health Care Equipment & Supplies		7.8	%
Software		3.6	%
Media		2.7	%
Commercial Services & Supplies		2.6	%
Wireless Telecommunication Services		2.5	%
Chemicals		2.5	%
Road & Rail		2.4	%
Communications Equipment		2.4	%
Specialty Retail		1.9	%
Diversified Consumer Services		1.9	%
Trading Companies & Distributors		1.6	%
Capital Markets		1.4	%
Aerospace & Defense		1.3	%
Thrifts & Mortgage Finance		1.3	%
Airlines		1.0	%
Machinery		0.7	%
Oil, Gas & Consumable Fuels		0.5	%
Construction & Engineering		0.4	%
Energy Equipment & Services		0.3	%
Hotels, Restaurants & Leisure		0.1	%
Air Freight & Logistics		0.1	%
Insurance		0.1	%
Research & Consulting Services		0.1	%
Health Care Technology		0.0	%

Total Investments		100.0	%

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2018

(in thousands, except share/unit amounts)


Description	Industry	Spread Above Index⁽⁹⁾		LIBOR Floor			Interest Rate⁽¹⁾			Acquisition Date		Maturity Date		Par Amount		Cost		Fair Value
Senior Secured Loans — 89.1%

Bank Debt/Senior Secured Loans
Aegis Toxicology Sciences Corporation (10)	Health Care Providers & Services		L+550		1.00	%		8.10	%		5/7/2018		5/9/2025	$	17,215		$16,935		$17,215
Alteon Health, LLC (10)(16)	Health Care Providers & Services		L+650		1.00	%		9.02	%		9/14/2018		9/1/2022		15,271		15,159		14,507
American Teleconferencing Services, Ltd. (PGI) (10)(16)	Communications Equipment		L+650		1.00	%		9.09	%		5/5/2016		12/8/2021		30,965		30,001		30,578
Amerilife Group, LLC (10)	Insurance		L+875		1.00	%		11.27	%		7/9/2015		1/10/2023		15,000		14,811		14,963
Associated Pathologists, LLC (10)(16)	Health Care Providers & Services		L+500		1.00	%		7.38	%		9/14/2018		8/1/2021		3,718		3,699		3,718
Atria Wealth Solutions, Inc. (10)(16)	Diversified Financial Services		L+600		1.00	%		8.61	%		9/14/2018		11/30/2022		3,358		3,326		3,324
AviatorCap SII, LLC (3)(10)	Aerospace & Defense		L+700		—			9.80	%		12/27/2018		10/30/2020		2,975		2,975		2,975
BAM Capital, LLC (10)	Diversified Financial Services		L+800		—			11.52	%		12/26/2018		1/23/2023		15,500		15,268		15,268
Bishop Lifting Products, Inc. (7)(10)	Trading Companies & Distributors		L+800		1.00	%		10.52	%		3/24/2014		3/27/2022		24,985		24,873		24,235
Datto, Inc. (10)	IT Services		L+800		1.00	%		10.46	%		12/6/2017		12/7/2022		25,000		24,587		25,000
Falmouth Group Holdings Corp. (AMPAC) (10)(16)	Chemicals		L+675		1.00	%		9.27	%		12/7/2015		12/14/2021		40,887		40,658		40,887
Global Holdings LLC & Payment Concepts LLC (10)(16)	Consumer Finance		L+750		1.00	%		10.24	%		9/14/2018		5/5/2022		7,066		6,964		7,066
Greystone Select Holdings LLC & Greystone & Co., Inc. (10)	Thrifts & Mortgage Finance		L+800		1.00	%		10.51	%		3/29/2017		4/17/2024		19,900		19,739		19,850
iCIMS, Inc. (10)	Software		L+650		1.00	%		8.94	%		9/7/2018		9/12/2024		12,670		12,426		12,480
IHS Intermediate, Inc. (10)	Health Care Providers & Services		L+825		1.00	%		10.74	%		6/19/2015		7/20/2022		25,000		24,705		24,000
Kingsbridge Holdings, LLC (10)	Multi-Sector Holdings		L+700		1.00	%		9.82	%		12/21/2018		12/21/2024		28,973		28,540		28,538
KORE Wireless Group, Inc. (10)	Wireless Telecommunication Services		L+550		1.00	%		8.29	%		12/21/2018		12/21/2024		37,222		36,478		36,850
Logix Holding Company, LLC (10)(16)	Communications Equipment		L+575		1.00	%		8.27	%		9/14/2018		12/22/2024		7,178		7,115		7,178
On Location Events, LLC & PrimeSport Holdings Inc. (10)(16)	Media		L+550		1.00	%		7.90	%		12/7/2017		9/29/2021		24,506		24,284		24,322
Pet Holdings ULC & Pet Supermarket, Inc. (5)(10)(16)	Specialty Retail		L+550		1.00	%		7.90	%		9/14/2018		7/5/2022		29,344		29,054		29,197
PhyMed Management LLC (10)	Health Care Providers & Services		L+875		1.00	%		11.46	%		12/18/2015		5/18/2021		32,321		31,662		32,160
PhyNet Dermatology LLC (10)	Health Care Providers & Services		L+550		1.00	%		8.02	%		9/5/2018		8/16/2024		9,644		9,551		9,547
PPT Management Holdings, LLC (10)	Health Care Providers & Services		L+750 PIK		1.00	%		9.85	%		9/14/2018		12/16/2022		19,969		19,841		16,973
PSKW, LLC & PDR, LLC (10)(16)	Health Care Providers & Services		L+425		1.00	%		7.05	%		9/14/2018		11/25/2021		2,024		2,016		2,024
PSKW, LLC & PDR, LLC (10)(16)	Health Care Providers & Services		L+825		1.00	%		11.05	%		10/24/2017		11/25/2021		26,647		26,348		26,647
RS Energy Group U.S., Inc. (10)	Software		L+475		1.00	%		7.55	%		10/26/2018		10/6/2023		15,249		14,951		14,944

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2018

(in thousands, except share/unit amounts)


Description	Industry	Spread Above Index⁽⁹⁾		LIBOR Floor			Interest Rate⁽¹⁾			Acquisition Date		Maturity Date		Par Amount		Cost		Fair Value
Rug Doctor LLC (3)(10)	Diversified Consumer Services		L+975		1.50	%		12.33	%		12/23/2013		10/31/2019		9,111		9,050		9,111
Solara Medical Supplies, Inc. (10)(16)	Health Care Providers & Services		L+600		1.00	%		8.52	%		5/31/2018		5/31/2023		3,418		3,371		3,418
Southern Auto Finance Company (5)(10)	Consumer Finance		—		—			11.15	%		10/19/2011		12/4/2019		25,000		24,920		25,000
The Octave Music Group, Inc. (fka TouchTunes) (10)	Media		L+825		1.00	%		10.63	%		5/28/2015		5/27/2022		14,000		13,880		13,930
Varilease Finance, Inc. (10)	Multi-Sector Holdings		L+825		1.00	%		10.65	%		8/22/2014		8/24/2020		33,000		32,793		33,000

Total Bank Debt/Senior Secured Loans																$	569,980	$	568,905

Life Science Senior Secured Loans
Alimera Sciences, Inc. (10)	Pharmaceuticals		L+765		—			10.03	%		1/5/2018		7/1/2022	$	25,000	$	25,044	$	25,125
Ardelyx, Inc. (5)(10)	Pharmaceuticals		L+745		—			9.83	%		5/10/2018		11/1/2022		24,500		24,400		24,377
aTyr Pharma, Inc. (10)	Pharmaceuticals		P+410		—			9.35	%		11/18/2016		11/18/2020		7,667		7,985		7,782
Axcella Health Inc. (10)	Pharmaceuticals		L+850		—			10.84	%		1/9/2018		7/1/2022		26,000		26,247		26,000
BioElectron Technology Corporation (10)	Pharmaceuticals		L+750		—			9.88	%		8/9/2018		8/10/2022		10,500		10,458		10,447
Breathe Technologies, Inc. (10)	Health Care Equipment & Supplies		L+850		—			10.84	%		1/5/2018		1/5/2022		22,000		22,298		22,000
Cardiva Medical, Inc. (10)	Health Care Equipment & Supplies		L+795		0.63	%		10.33	%		9/24/2018		9/1/2022		12,000		12,067		12,030
Corindus Vascular Robotics, Inc. (5)(10)	Health Care Equipment & Supplies		L+725		—			9.60	%		3/9/2018		3/1/2022		6,783		6,787		6,817

Delphinus Medical Technologies, Inc. (10)	Health Care Equipment & Supplies		L+850		—			10.88	%		8/18/2017		9/1/2021		5,625		5,594		5,513
GenMark Diagnostics, Inc. (5)(10)	Health Care Providers & Services		—		—			6.90	%		11/8/2018		1/1/2021		17,473		17,531		17,531
OmniGuide Holdings, Inc. (10)(15)	Health Care Equipment & Supplies		L+805		—			10.43	%		7/30/2018		7/29/2023		10,500		10,504		10,474
PQ Bypass, Inc. (10)	Health Care Equipment & Supplies		L+795		1.00	%		10.42	%		12/20/2018		12/20/2022		5,200		5,119		5,117
Restoration Robotics, Inc. (10)	Health Care Equipment & Supplies		L+795		—			10.33	%		5/10/2018		5/1/2022		9,000		8,887		8,977
Rubius Therapeutics, Inc. (5)(10)	Pharmaceuticals		L+550		—			7.97	%		12/21/2018		12/21/2023		13,430		13,400		13,397
scPharmaceuticals, Inc. (10)	Pharmaceuticals		L+845		—			10.83	%		5/23/2017		5/1/2021		5,000		5,019		5,025
Scynexis, Inc. (10)	Pharmaceuticals		L+849		—			10.87	%		9/30/2016		9/30/2020		15,000		15,379		15,300
SentreHeart, Inc. (10)	Health Care Equipment & Supplies		L+885		—			11.19	%		11/15/2016		11/15/2020		10,000		10,193		10,150
Sunesis Pharmaceuticals, Inc. (10)	Pharmaceuticals		L+854		—			10.92	%		3/31/2016		4/1/2020		3,750		3,833		3,769
Tetraphase Pharmaceuticals, Inc. (10)	Pharmaceuticals		L+725		—			9.63	%		10/30/2018		5/2/2023		20,600		20,169		20,125

Total Life Science Senior Secured Loans																$	250,914	$	249,956

Total Senior Secured Loans																$	820,894	$	818,861

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2018

(in thousands, except share/unit amounts)


Description	Industry	Interest Rate⁽¹⁾	Acquisition Date	Maturity Date	Par Amount		Cost		Fair Value
Equipment Financing — 34.2%
Althoff Crane Service, Inc. (10)(17)	Commercial Services & Supplies	10.55%	7/31/2017	6/8/2022	$	1,362	$	1,362	$	1,357
B&W Resources, Inc. (10)(12)	Oil, Gas & Consumable Fuels	21.57%	8/17/2018	3/27/2020		297		291		305
BB578, LLC (10)(12)	Media	10.00%	7/31/2017	11/1/2021		669		669		667
Beverly Hills Limo and Corporate Coach, Inc. (10)(17)	Road & Rail	10.57%	3/19/2018	9/9/2019		366		379		363
Blackhawk Mining, LLC (10)(17)	Oil, Gas & Consumable Fuels	10.99-11.17%	2/16/2018	3/1/2022-11/1/2022		6,270		5,890		6,270
Brightwater R&B Acquisition, LLC (10)(17)	Machinery	12.24%	8/17/2018	4/20/2019		76		76		76
C&H Paving, Inc. (10)(12)	Construction & Engineering	9.94%	12/26/2018	1/1/2024		3,393		3,444		3,393
Capital City Jet Center, Inc. (10)(12)	Airlines	10.00%	4/4/2018	10/4/2023		2,174		2,174		2,184
Central Freight Lines, Inc. (10)(12)	Road & Rail	7.16%	7/31/2017	1/14/2024		1,710		1,710		1,710
Cfactor Leasing Corp. & CZM USA, Corp. (10)(17)	Machinery	12.00-14.11%	7/31/2017	5/27/2020-8/3/2022		3,162		3,143		3,173
Champion Air, LLC (10)(12)	Airlines	10.00%	3/19/2018	1/1/2023		3,200		3,181		3,200
Delicate Productions, Inc. (10)(12)	Commercial Services & Supplies	13.30%	5/3/2018	5/15/2022		2,023		2,010		2,023
Easton Sales and Rentals, LLC (10)(12)	Commercial Services & Supplies	10.00%	9/18/2018	10/1/2021		2,034		1,981		2,034
Equipment Operating Leases, LLC (3)(10)(14)	Multi-Sector Holdings	7.53-8.37%	4/27/2018	8/1/22-4/27/2025		32,882		32,882		32,882
Falcon Transport Company (10)(12)	Road & Rail	10.96%	10/24/2018	7/1/2024		12,443		12,271		12,443
Family First Freight, LLC (10)(12)	Road & Rail	9.29-11.52%	7/31/2017	7/2/2019-1/22/2022		881		879		870
Garda CL Technical Services, Inc. (10)(17)	Commercial Services & Supplies	8.31-8.77%	3/22/2018	7/13/2023-10/5/2023		2,847		2,847		2,847
Georgia Jet, Inc. (10)(12)	Airlines	8.00%	12/4/2017	12/4/2021		2,373		2,373		2,373
Globecomm Systems Inc. (10)(17)	Wireless Telecommunication Services	13.18%	5/10/2018	7/1/2021		1,610		1,610		1,610
GMT Corporation (10)(12)	Machinery	12.46%	10/23/2018	10/23/2023		7,582		7,506		7,582
Great Plains Gas Compression Holdings, LLC (10)(12)	Oil, Gas & Consumable Fuels	9.37-9.93%	3/19/2018	8/1/2019-9/7/19		8,775		8,754		8,792
Haljoe Coaches USA, LLC (10)(17)	Road & Rail	8.15-9.90%	7/31/2017	7/1/2022-11/17/2022		5,180		5,180		5,137
Hawkeye Contracting Company, LLC (10)(12)(13)	Oil, Gas & Consumable Fuels	10.00%	11/15/2017	11/15/2020		3,648		3,648		3,620
HTI Logistics Corporation (10)(12)	Commercial Services & Supplies	9.80%	11/15/2018	12/1/2023		274		274		274
Interstate NDT, Inc. (10)(17)	Road & Rail	11.32-13.94%	6/11/2018	7/1/2023-10/1/2023		2,429		2,429		2,429
JP Motorsports, Inc. (10)(17)	Road & Rail	13.96%	8/17/2018	1/25/2022		397		394		405
Knight Transfer Services, Inc. & Dumpstr Xpress, Inc. (10)(17)	Commercial Services & Supplies	12.05-12.76%	7/31/2017	4/11/2020-4/30/2020		518		518		519

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2018

(in thousands, except share/unit amounts)


Description	Industry	Interest Rate⁽¹⁾	Acquisition Date	Maturity Date	Par Amount		Cost		Fair Value
Kool Pak, LLC (10)(17)	Road & Rail	8.58%	2/5/2018	3/1/2024	$	729	$	729	$	722
Lineal Industries, Inc. (10)(12)	Construction & Engineering	8.00%	12/21/2018	12/21/2021		107		107		107
Marcal Manufacturing, LLC dba Soundview Paper Company, LLC (10)(17)	Paper & Forest Products	12.91-12.98%	7/31/2017	7/30/2022-10/25/2022		1,365		1,365		1,386
Meridian Consulting I Corp, Inc. (10)(12)	Hotels, Restaurants & Leisure	10.72%	7/31/2017	12/4/2021		2,145		2,145		2,156
Mountain Air Helicopters, Inc. (10)(12)	Commercial Services & Supplies	10.00%	7/31/2017	4/30/2022		1,668		1,668		1,651
Mulholland Energy Services Equipment Leasing, LLC (10)(17)	Commercial Services & Supplies	8.89%	8/17/2018	10/30/2019		809		807		804
OKK Equipment, LLC (10)(12)	Commercial Services & Supplies	10.15%	7/31/2017	8/27/2023		612		612		601
Reston Limousine & Travel Service, Inc. (10)(17)	Road & Rail	11.82%	9/13/2017	10/1/2021		1,454		1,471		1,460
Rossco Crane & Rigging, Inc. (10)(17)	Commercial Services & Supplies	11.13-11.53%	8/25/2017	4/1/2021-9/1/2022		797		797		798
RVR Air Charter, LLC & RVR Aviation, LLC (10)(12)	Airlines	12.00%	7/31/2017	8/1/2020-1/1/2022		2,692		2,692		2,727
Santek Environmental, LLC (10)(17)	Commercial Services & Supplies	10.00%	7/31/2017	3/1/2021		98		98		99
Santek Environmental of Alabama, LLC (10)(17)	Commercial Services & Supplies	8.95-10.00%	7/31/2017	12/18/2020-11/29/2021		179		179		176
Sidelines Tree Service LLC (10)(17)	Diversified Consumer Services	10.31-10.52%	7/31/2017	8/1/2022-10/1/2022		431		432		427
South Texas Oilfield Solutions, LLC (10)(17)	Energy Equipment & Services	12.52-13.76%	3/29/2018	9/1/2022-7/1/2023		3,413		3,413		3,413
Southern Nevada Oral & Maxillofacial Surgery, LLC (10)(12)	Health Care Providers & Services	12.00%	7/31/2017	3/1/2024		1,404		1,404		1,425
Southwest Traders, Inc. (10)(17)	Road & Rail	9.13%	11/21/2017	11/1/2020		139		139		138
ST Coaches, LLC (10)(17)	Road & Rail	8.21-8.59%	7/31/2017	10/1/2022-10/1/2023		4,396		4,396		4,396
Star Coaches Inc. (10)(17)	Road & Rail	8.42%	3/9/2018	4/1/2025		3,785		3,785		3,785
Sturgeon Services International Inc. (10)(12)	Energy Equipment & Services	17.88%	7/31/2017	2/28/2022		1,763		1,763		1,789
Sun-Tech Leasing of Texas, L.P. (10)(17)	Road & Rail	8.68-8.83%	7/31/2017	6/25/2020-7/25/2021		424		424		416
Superior Transportation, Inc. (10)(17)	Road & Rail	9.77-10.26%	7/31/2017	4/23/2022-12/1/2023		4,500		4,499		4,460
The Smedley Company & Smedley Services, Inc. (10)(12)	Commercial Services & Supplies	9.92-14.68%	7/31/2017	10/29/2023-2/10/2024		6,273		6,315		6,361
Tornado Bus Company (10)(17)	Road & Rail	10.78%	7/31/2017	9/1/2021		2,151		2,151		2,141
Trinity Equipment Rentals, Inc. (10)(12)	Commercial Services & Supplies	11.02%	9/13/2018	10/1/2022		935		935		935
Trolleys, Inc. (10)(17)	Road & Rail	9.81%	7/18/2018	8/1/2022		3,039		3,039		3,039
Up Trucking Services, LLC (10)(17)	Road & Rail	11.91%	3/23/2018	4/1/2022		2,226		2,261		2,263

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2018

(in thousands, except share/unit amounts)


Description	Industry	Interest Rate⁽¹⁾	Acquisition Date	Maturity Date	Par Amount		Cost		Fair Value
Waste Services of Alabama, LLC (10)(17)	Commercial Services & Supplies	10.24%	8/17/2018	11/27/2020	$	1,692	$	1,696	$	1,687
Waste Services of Tennessee, LLC (10)(17)	Commercial Services & Supplies	8.95-10.15%	7/31/2017	2/7/2021-11/29/2021		742		742		727
Waste Services of Texas, LLC (10)(17)	Commercial Services & Supplies	8.95%	7/31/2017	12/6/2021		147		147		145
WJV658, LLC (10)(12)	Airlines	8.50%	7/31/2017	7/1/2022		7,884		7,884		7,879
W.P.M., Inc., WPM-Southern, LLC, WPM Construction Services, Inc. (10)(12)	Construction & Engineering	7.50%	7/31/2017	10/1/2022		2,601		2,601		2,575

						Shares/Units
NEF Holdings, LLC Equity Interests (3)(10)(11)	Multi-Sector Holdings		7/31/2017			200		145,000		145,000

Total Equipment Financing							$	313,571	$	314,226

Preferred Equity – 1.7%
SOAGG LLC (3)(5)(6)(10)	Aerospace & Defense	8.00%	12/14/2010	6/30/2020		2,493	$	2,493	$	9,113
SOINT, LLC (3)(5)(6)(10)	Aerospace & Defense	15.00%	6/8/2012	6/30/2020		58,361		5,836		6,414

Total Preferred Equity							$	8,329	$	15,527

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2018

(in thousands, except share/unit amounts)


Description	Industry	Acquisition Date		Shares/ Units		Cost		Fair Value
Common Equity/Equity Interests/Warrants—33.4%
Ark Real Estate Partners LP (2)(3)(10)*	Diversified Real Estate Activities		3/12/2007		—	$	527	$	39
Ark Real Estate Partners II LP (2)(3)(10)*	Diversified Real Estate Activities		10/23/2012		—		12		1
aTyr Pharma, Inc. Warrants (10)*	Pharmaceuticals		11/18/2016		88,792		106		—
B Riley Financial Inc. (5)	Research & Consulting Services		3/16/2007		38,015		2,684		540
CardioFocus, Inc. Warrants (10)*	Health Care Equipment & Supplies		3/31/2017		440,816		51		69
CAS Medical Systems, Inc. Warrants (10)*	Health Care Equipment & Supplies		6/30/2016		48,491		38		28
Conventus Orthopaedics, Inc. Warrants (10)*	Health Care Equipment & Supplies		6/15/2016		157,500		65		68
Corindus Vascular Robotics, Inc. Warrants (5)(10)*	Health Care Equipment & Supplies		3/9/2018		79,855		40		22
Crystal Financial LLC (3)(5)(10)	Diversified Financial Services		12/28/2012		280,303		280,737		293,000
Delphinus Medical Technologies, Inc. Warrants (10)*	Health Care Equipment & Supplies		8/18/2017		380,904		74		99
Essence Group Holdings Corporation (Lumeris) Warrants (10)*	Health Care Technology		3/22/2017		208,000		63		358
PQ Bypass, Inc. Warrants (10)*	Health Care Equipment & Supplies		12/20/2018		156,000		70		75
RD Holdco Inc. (Rug Doctor) (3)(10)*	Diversified Consumer Services		12/23/2013		231,177		15,683		7,732
RD Holdco Inc. (Rug Doctor) Class B (3)(10)*	Diversified Consumer Services		12/23/2013		522		5,216		5,216
RD Holdco Inc. (Rug Doctor) Warrants (3)(10)*	Diversified Consumer Services		12/23/2013		30,370		381		—
Restoration Robotics, Inc. Warrants (10)*	Health Care Equipment & Supplies		5/10/2018		72,776		111		3
Scynexis, Inc. Warrants (10)*	Pharmaceuticals		9/30/2016		122,435		105		—
SentreHeart, Inc. Warrants (10)*	Health Care Equipment & Supplies		11/15/2016		261,825		126		127
Sunesis Pharmaceuticals, Inc. Warrants (10)*	Pharmaceuticals		3/31/2016		104,001		118		—
Tetraphase Pharmaceuticals, Inc. Warrants (10)*	Pharmaceuticals		10/30/2018		284,530		269		89

Total Common Equity/Equity Interests/Warrants						$	306,476	$	307,466

Total Investments (8) — 158.4%						$	1,449,270	$	1,456,080


Description	Industry		Acquisition Date		Maturity Date		Par Amount
Cash Equivalents — 21.7%
U.S. Treasury Bill		Government		12/31/2018		1/29/2019	$	200,000	$	199,646	$	199,646


Total Investments & Cash Equivalents —180.1%									$	1,648,916	$	1,655,726
Liabilities in Excess of Other Assets — (80.1%)												(736,555	)

Net Assets — 100.0%											$	919,171

(1)

(2)	Ark Real Estate Partners is held through SLRC ADI Corp., a wholly-owned taxable subsidiary.

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2018

(in thousands, except share/unit amounts)

(3)

Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the Investment Company Act of 1940 (“1940 Act”), due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2018 in these controlled investments are as follows:


Name of Issuer	Fair Value at December 31, 2017		Gross Additions		Gross Reductions		Realized Gain (Loss)			Change in Unrealized Gain (Loss)			Interest/ Dividend /Other Income		Fair Value at December 31, 2018
Ark Real Estate Partners LP	$	263	$	—	$	—	$	376	†	$	(224	)	$	—	$	39
Ark Real Estate Partners II LP		6		—		—		—			(5	)		—		1
AviatorCap SII, LLC I		10		—		10		—			—			—		—
AviatorCap SII, LLC		—		2,975		—		—			—			4		2,975
Crystal Financial LLC		303,200		—		—		—			(10,200	)		30,220		293,000
Equipment Operating Leases, LLC		—		34,511		1,629		—			—			1,677		32,882
NEF Holdings, LLC		145,500		—		—		—			(500	)		8,332		145,000
RD Holdco Inc. (Rug Doctor, common equity)		10,102		—		—		—			(2,369	)		—		7,732
RD Holdco Inc. (Rug Doctor, class B)		5,216		—		—		—			—			—		5,216
RD Holdco Inc. (Rug Doctor, warrants)		35		—		—		—			(35	)		—		—
Rug Doctor LLC		9,111		—		—		—			(32	)		1,164		9,111
SSLP(18)		88,736		25,322		115,038		(354	)		626			6,289		—
SSLP II(18)		51,744		21,781		72,858		(47	)		(758	)		4,628		—
SOAGG LLC		4,537		—		1,654		—			6,230			663		9,113
SOINT, LLC (preferred equity)		8,300		—		1,865		—			(21	)		982		6,414

	$	626,760	$	84,589	$	193,054	$	(25	)	$	(7,288	)	$	53,959	$	511,483

(4)

Denotes investments in which we are an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2018 in these affiliated investments are as follows:


Name of Issuer	Fair Value at December 31, 2017		Gross Additions		Gross Reductions		Realized Gain (Loss)			Change in Unrealized Gain (Loss)		Interest/ Dividend Income		Fair Value at December 31, 2018
DSW Group Holdings LLC	$	—	$	—	$	—	$	246	†	$	—	$	—	$	—

(5)

Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 (“1940 Act”), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of December 31, 2018, on a fair value basis, non-qualifying assets in the portfolio represented 23.3% of the total assets of the Company.

(6)	Solar Capital Ltd.’s investments in SOAGG, LLC and SOINT, LLC include a two and one dollar investment in common shares, respectively.

(7)	Bishop Lifting Products, Inc., SEI Holding I Corporation, Singer Equities, Inc. & Hampton Rubber Company are co-borrowers.

(8)

Aggregate net unrealized appreciation for U.S. federal income tax purposes is $853; aggregate gross unrealized appreciation and depreciation for federal tax purposes is $21,655 and $20,802, respectively, based on a tax cost of $1,455,227. All of the Company’s investments are pledged as collateral against the borrowings outstanding on the revolving credit facility. The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.

(9)	Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.

(10)	Level 3 investment valued using significant unobservable inputs.

(11)	NEF Holdings, LLC is held through NEFCORP LLC, a wholly-owned consolidated taxable subsidiary and NEFPASS LLC, a wholly-owned consolidated subsidiary.

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2018

(in thousands, except share/unit amounts)

(12)	Indicates an investment that is wholly held by Solar Capital Ltd. through NEFPASS LLC.

(13)	Hawkeye Contracting Company, LLC, Eagle Creek Mining, LLC & Falcon Ridge Leasing, LLC are co-borrowers.

(14)	Equipment Operating Leases, LLC is a subsidiary of NEF Holdings, LLC.

(15)	OmniGuide Holdings, Inc., Domain Surgical, Inc. and OmniGuide, Inc. are co-borrowers.

(16)

(17)

(18)	On September 14, 2018 and September 18, 2018, the Company acquired 100% of the equity of SSLP II and SSLP, respectively, and as such consolidated these investments as of this date. On December 19, 2018, SSLP and SSLP II were merged into the Company.

*	Non-income producing security.

†	Represents estimated change in receivable balance.

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2018

(in thousands, except share/unit amounts)


Industry Classification	Percentage of Total Investments (at fair value) as of December 31, 2018
Diversified Financial Services (Crystal Financial LLC)		21.4	%
Multi-Sector Holdings (includes NEF Holdings, LLC and Equipment Operating Leases, LLC)		16.4	%
Health Care Providers & Services		11.6	%
Pharmaceuticals		10.4	%
Health Care Equipment & Supplies		5.6	%
Road & Rail		3.2	%
Chemicals		2.8	%
Media		2.7	%
Wireless Telecommunication Services		2.6	%
Communications Equipment		2.6	%
Consumer Finance		2.2	%
Specialty Retail		2.0	%
Software		1.9	%
IT Services		1.7	%
Trading Companies & Distributors		1.7	%
Diversified Consumer Services		1.6	%
Commercial Services & Supplies		1.5	%
Thrifts & Mortgage Finance		1.4	%
Oil, Gas & Consumable Fuels		1.3	%
Aerospace & Defense		1.3	%
Airlines		1.3	%
Insurance		1.0	%
Machinery		0.7	%
Energy Equipment & Services		0.4	%
Construction & Engineering		0.4	%
Hotels, Restaurants & Leisure		0.2	%
Paper & Forest Products		0.1	%
Research & Consulting Services		0.0	%
Health Care Technology		0.0	%
Diversified Real Estate Activities		0.0	%

Total Investments		100.0	%

See notes to consolidated financial statements.

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

September 30, 2019

(in thousands, except share amounts)

Note 1. Organization

Solar Capital LLC, a Maryland limited liability company, was formed in February 2007 and commenced operations on March 13, 2007 with initial capital of $1,200,000 of which 47.04% was funded by affiliated parties.

Immediately prior to our initial public offering, through a series of transactions, Solar Capital Ltd. merged with Solar Capital LLC, leaving Solar Capital Ltd. as the surviving entity (the “Merger”). Solar Capital Ltd. issued an aggregate of approximately 26.65 million shares of common stock and $125,000 in senior unsecured notes to the existing Solar Capital LLC unit holders in connection with the Merger. Solar Capital Ltd. had no assets or operations prior to completion of the Merger and as a result, the historical books and records of Solar Capital LLC have become the books and records of the surviving entity. The number of shares used to calculate weighted average shares for use in computations on a per share basis have been decreased retroactively by a factor of approximately 0.4022 for all periods prior to February 9, 2010. This factor represents the effective impact of the reduction in shares resulting from the Merger.

Solar Capital Ltd. (“Solar Capital”, the “Company”, “we”, “us” or “our”), a Maryland corporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply the guidance in FASB Accounting Standards Codification (“ASC”) Topic 946. In addition, for tax purposes, the Company has elected to be treated, 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”).

On February 9, 2010, Solar Capital priced its initial public offering, selling 5.68 million shares, including the underwriters’ over-allotment, at a price of $18.50 per share. Concurrent with this offering, the Company’s senior management purchased an additional 600,000 shares through a private placement, also at $18.50 per share.

The Company’s investment objective is to maximize both current income and capital appreciation through debt and equity investments. The Company directly and indirectly invests primarily in leveraged middle market companies in the form of senior secured loans, stretch-senior loans, unitranche loans, leases and to a lesser extent, unsecured loans and equity securities. From time to time, we may also invest in public companies that are thinly traded.

Note 2. Significant Accounting Policies

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”), and include the accounts of the Company and certain wholly-owned subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition for the periods presented. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts may have been reclassified to conform to the current period presentation.

Interim consolidated financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. Accordingly, they may not include all of the information and notes required by GAAP for annual consolidated

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

financial statements. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending on December 31, 2019.

In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements, have been included.

The significant accounting policies consistently followed by the Company are:

(a)

Investment transactions are accounted for on the trade date;

(b)

Under procedures established by our board of directors (the “Board”), we value investments, including certain senior secured debt, subordinated debt and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we may utilize independent third-party valuation firms to assist us in determining the fair value of material assets. Accordingly, such investments go through our multi-step valuation process as described below. In each such case, independent valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations. Debt investments with maturities of 60 days or less shall each be valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of Solar Capital Partners, LLC (the “Investment Adviser”), does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our Board. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our Board. Such determination of fair values involves subjective judgments and estimates.

With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board has approved a multi-step valuation process each quarter, as described below:

(1)

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

(2)

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

(3)

independent valuation firms engaged by our Board conduct independent appraisals and review the Investment Adviser’s preliminary valuations and make their own independent assessment for all material assets;

(4)

the audit committee of the Board reviews the preliminary valuation of the Investment Adviser and that of the independent valuation firm and responds to the valuation recommendation of the independent valuation firm, if any, to reflect any comments; and

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

(5)

the Board discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm, if any, and the audit committee.

Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC 820-10, certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as a practical expedient for fair value. 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 approaches 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, 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, our principal market (as the reporting entity) 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 the nine months ended September 30, 2019, there has been no change to the Company’s valuation approaches or techniques and the nature of the related inputs considered in the valuation process.

ASC Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The exercise of judgment is based in part on our knowledge of the asset class and our prior experience.

(c)

Gains or losses on investments are calculated by using the specific identification method.

(d)

The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and we amortize such amounts into income using the effective interest method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record call premiums received on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendment fees, consent fees, and any other non-recurring fee income as well as management fee and other fee income for services rendered, if any, are recorded as other income when earned.

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

(e)

The Company intends to comply with the applicable provisions of the Code pertaining to regulated investment companies to make distributions of taxable income sufficient to relieve it of substantially all U.S. federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on such estimated excess taxable income as appropriate.

(f)

Book and tax basis differences relating to stockholder distributions and other permanent book and tax differences are typically reclassified among the Company’s capital accounts annually. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.

(g)

Distributions to common stockholders are recorded as of the record date. The amount to be paid out as a distribution is determined by the Board. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.

(h)

In accordance with Regulation S-X and ASC Topic 810—Consolidation, the Company consolidates its interest in controlled investment company subsidiaries, financing subsidiaries and certain wholly-owned holding companies that serve to facilitate investment in portfolio companies. In addition, the Company may also consolidate any controlled operating companies substantially all of whose business consists of providing services to the Company.

(i)

The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The Company will not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations would be included with the net unrealized gain or loss from investments. The Company’s investments in foreign securities, if any, may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments in terms of U.S. dollars and therefore the earnings of the Company.

(j)

The Company has made elections to apply the fair value option of accounting to the unsecured senior notes due 2022 (the “2022 Unsecured Notes”) (see notes 6 and 7), in accordance with ASC 825-10.

(k)

In accordance with ASC 835-30, the Company reports origination and other expenses related to certain debt issuances as a direct deduction from the carrying amount of the debt liability. Applicable expenses are deferred and amortized using either the effective interest method or the straight-line method over the stated life. The straight-line method may be used on revolving facilities and/or when it approximates the effective yield method.

(l)

The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when contracts are settled.

(m)

The Company records expenses related to shelf registration statements and applicable equity offering costs as prepaid assets. These expenses are typically charged as a reduction of capital upon utilization, in accordance with ASC 946-20-25. Certain subsequent costs are expensed per the AICPA Audit & Accounting Guide for Investment Companies.

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

(n)

Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 days or more (90 days or more for equipment financing) and/or when it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on such investments may be recognized as income or applied to principal depending on management’s judgment.

(o)

The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify and eliminate certain disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact of ASU 2018-13 on its consolidated financial statements and disclosures.

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which will amend FASB ASC 310-20. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium, generally requiring the premium to be amortized to the earliest call date. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company has adopted ASU 2017-08 and determined that the adoption has not had a material impact on its consolidated financial statements and disclosures.

Note 3. Agreements

Solar Capital has an Advisory Agreement with the Investment Adviser, under which the Investment Adviser will manage the day-to-day operations of, and provide investment advisory services to, Solar Capital. For providing these services, the Investment Adviser receives a fee from Solar Capital, consisting of two components—a base management fee and a performance-based incentive fee. The base management fee is determined by taking the average value of Solar Capital’s gross assets at the end of the two most recently completed calendar quarters calculated at an annual rate of 1.75% on gross assets up to 200% of the Company’s total net assets as of the immediately preceding quarter end and 1.00% on gross assets that exceed 200% of the Company’s total net assets as of the immediately preceding quarter end. For purposes of computing the base management fee, gross assets exclude temporary assets acquired at the end of each fiscal quarter for purposes of preserving investment flexibility in the next fiscal quarter. Temporary assets include, but are not limited to, U.S. treasury bills, other short-term U.S. government or government agency securities, repurchase agreements or cash borrowings.

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

The performance-based incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on Solar Capital’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, 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 we receive from portfolio companies) accrued during the calendar quarter, minus Solar Capital’s operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding the performance-based incentive fee). Pre-incentive fee net investment income does not include any realized capital gains or losses, or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of Solar Capital’s net assets at the end of the immediately preceding calendar quarter, is compared to the hurdle rate of 1.75% per quarter (7% annualized). Solar Capital pays the Investment Adviser a performance-based incentive fee with respect to Solar Capital’s pre-incentive fee net investment income in each calendar quarter as follows: (1) no performance-based incentive fee in any calendar quarter in which Solar Capital’s pre-incentive fee net investment income does not exceed the hurdle rate; (2) 100% of Solar Capital’s pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter; and (3) 20% of the amount of Solar Capital’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately pro-rated for any period of less than three months.

The second part of the performance-based incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Advisory Agreement, as of the termination date), and will equal 20% of Solar Capital’s cumulative realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all net capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For financial statement purposes, the second part of the performance-based incentive fee is accrued based upon 20% of cumulative net realized gains and net unrealized capital appreciation. No accrual was required for the three and nine months ended September 30, 2019 and 2018.

For the three and nine months ended September 30, 2019, the Company recognized $6,738 and $20,027, respectively, in base management fees and $4,606 and $13,830, respectively, in performance-based incentive fees. For the three and nine months ended September 30, 2018, the Company recognized $6,399 and $19,285, respectively, in base management fees and $4,604 and $14,109, respectively, in performance-based incentive fees.

Solar Capital has also entered into an Administration Agreement with Solar Capital Management, LLC (the “Administrator”) under which the Administrator provides administrative services to Solar Capital. For providing these services, facilities and personnel, Solar Capital reimburses the Administrator for Solar Capital’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent. The Administrator will also provide, on Solar Capital’s behalf, managerial assistance to those portfolio companies to which Solar Capital is required to provide such assistance. The Company typically reimburses the Administrator on a quarterly basis.

For the three and nine months ended September 30, 2019, the Company recognized expenses under the Administration Agreement of $1,352 and $4,013, respectively. For the three and nine months ended September 30, 2018, the Company recognized expenses under the Administration Agreement of $1,459 and

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

$4,151, respectively. No managerial assistance fees were accrued or collected for the three and nine months ended September 30, 2019 and 2018.

Note 4. Net Asset Value Per Share

At September 30, 2019, the Company’s total net assets and net asset value per share were $925,370 and $21.90, respectively. This compares to total net assets and net asset value per share at December 31, 2018 of $919,171 and $21.75, respectively.

Note 5. Earnings Per Share

The following table sets forth the computation of basic and diluted net increase in net assets per share resulting from operations, pursuant to ASC 260-10, for the three and nine months ended September 30, 2019 and 2018:


	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Earnings per share (basic & diluted)
Numerator—net increase in net assets resulting from operations:	$	13,717	$	18,130	$	58,180	$	57,968
Denominator—weighted average shares:		42,260,826		42,260,826		42,260,826		42,260,826
Earnings per share:	$	0.32	$	0.43	$	1.38	$	1.37

Note 6. Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuations used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.

Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

Quoted prices for similar assets or liabilities in active markets;

Quoted prices for identical or similar assets or liabilities in non-active markets;

Pricing models whose inputs are observable for substantially the full term of the asset or liability; and

Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s and, if applicable, an independent third-party valuation firm’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3).

Gains and losses for assets and liabilities categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of the appropriate category as of the end of the quarter in which the reclassifications occur.

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, as of September 30, 2019 and December 31, 2018:

Fair Value Measurements

As of September 30, 2019


	Level 1		Level 2		Level 3		Total
Assets:
Senior Secured Loans	$	—	$	—	$	844,055	$	844,055
Equipment Financing		—		—		327,192		327,192
Preferred Equity		—		—		13,456		13,456
Common Equity/Equity Interests/Warrants		898		—		314,437		315,335

Total Investments	$	898	$	—	$	1,499,140	$	1,500,038

Liabilities:
2022 Unsecured Notes	$	—	$	—	$	150,000	$	150,000

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

Fair Value Measurements

As of December 31, 2018


	Level 1		Level 2		Level 3		Total
Assets:
Senior Secured Loans	$	—	$	—	$	818,861	$	818,861
Equipment Financing		—		—		314,226		314,226
Preferred Equity		—		—		15,527		15,527
Common Equity/Equity Interests/Warrants		540		—		306,926		307,466

Total Investments	$	540	$	—	$	1,455,540	$	1,456,080

Liabilities:
Credit Facility, 2022 Unsecured Notes and SSLP 2016-1, LLC Revolving Credit Facility (“SSLP Facility”)	$	—	$	—	$	350,185	$	350,185

The following tables provide a summary of the changes in fair value of Level 3 assets and liabilities for the three and nine months ended September 30, 2019 and the year ended December 31, 2018 as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at September 30, 2019 and December 31, 2018:

Fair Value Measurements Using Level 3 Inputs


	Senior Secured Loans			Equipment Financing			Preferred Equity			Common Equity/ Equity Interests/ Warrants			Total
Fair value, June 30, 2019	$	858,350		$	307,933		$	15,475		$	314,087		$	1,495,845
Total gains or losses included in earnings:
Net realized loss		(17	)		(6	)		—			(125	)		(148	)
Net change in unrealized gain (loss)		(2,629	)		(671	)		(1,820	)		358			(4,762	)
Purchase of investment securities		76,569			42,449			—			117			119,135
Proceeds from dispositions of investment securities		(88,218	)		(22,513	)		(199	)		—			(110,930	)
Transfers into Level 3		—			—			—			—			—
Transfers out of Level 3		—			—			—			—			—

Fair value, September 30, 2019	$	844,055		$	327,192		$	13,456		$	314,437		$	1,499,140

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:
Net change in unrealized gain (loss)	$	(2,915	)	$	(671	)	$	(1,820	)	$	358		$	(5,048	)

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)


	Senior Secured Loans			Equipment Financing			Preferred Equity			Common Equity/ Equity Interests/ Warrants			Total
Fair value, December 31, 2018	$	818,861		$	314,226		$	15,527		$	306,926		$	1,455,540
Total gains or losses included in earnings:
Net realized gain (loss)		6			179			—			(673	)		(488	)
Net change in unrealized gain (loss)		(4,946	)		1,047			(983	)		7,864			2,982
Purchase of investment securities		235,029			78,947			—			349			314,325
Proceeds from dispositions of investment securities		(204,895	)		(67,207	)		(1,088	)		(29	)		(273,219	)
Transfers into Level 3		—			—			—			—			—
Transfers out of Level 3		—			—			—			—			—

Fair value, September 30, 2019	$	844,055		$	327,192		$	13,456		$	314,437		$	1,499,140

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:
Net change in unrealized gain (loss)	$	(4,712	)	$	1,047		$	(983	)	$	7,355		$	2,707

The following tables shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2019:


Credit Facility and 2022 Unsecured Notes	For the three months ended September 30, 2019
Beginning fair value	$	334,000
Net realized (gain) loss		—
Net change in unrealized (gain) loss		—
Borrowings		153,000
Repayments		(337,000	)
Transfers into of Level 3		—
Transfers out of Level 3		—

Ending fair value	$	150,000


Credit Facility, 2022 Unsecured Notes and SSLP Facility	For the nine months ended September 30, 2019
Beginning fair value	$	350,185
Net realized (gain) loss		—
Net change in unrealized (gain) loss		—
Borrowings		529,600
Repayments		(626,600	)
Transfers into of Level 3		—
Transfers out of Level 3		(103,185	)

Ending fair value	$	150,000

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

The Company made elections to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 825-10. On September 30, 2019, there were borrowings of $150,000 on the 2022 Unsecured Notes.

The Company did not elect to apply the fair value option of accounting to the SSLP Facility, which was refinanced by way of amendment on May 31, 2019. As this refinancing was deemed to be a significant modification of debt, per ASC 825-10-25, a new election was triggered. As such the SSLP Facility is shown as a transfer out of Level 3.

Fair Value Measurements Using Level 3 Inputs


	Senior Secured Loans			Equipment Financing			Preferred Equity			Common Equity/ Equity Interests/ Warrants			Total
Fair value, December 31, 2017	$	743,331		$	218,583		$	12,837		$	319,481		$	1,294,232
Total gains or losses included in earnings:
Net realized gain (loss)		470			17			—			367			854
Net change in unrealized gain (loss)		(1,263	)		5			6,209			(12,756	)		(7,805	)
Purchase of investment securities		413,106			132,879			—			548			546,533
Proceeds from dispositions of investment securities		(563,251	)		(37,258	)		(3,519	)		(714	)		(604,742	)
Transfers in/out of Level 3		226,468			—			—			—			226,468

Fair value, December 31, 2018	$	818,861		$	314,226		$	15,527		$	306,926		$	1,455,540

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:
Net change in unrealized gain (loss)	$	657		$	68		$	6,209		$	(12,925	)	$	(5,991	)

During the year ended December 31, 2018, the Company’s investments in SSLP and SSLP II were consolidated, and as such the Level 3 assets held by SSLP and SSLP II are reflected as transfers into Level 3.

The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the year ended December 31, 2018:


Credit Facility, 2022 Unsecured Notes, SSLP Facility and SSLP II Facility	For the year ended December 31, 2018
Beginning fair value	$	445,600
Net realized (gain) loss		—
Net change in unrealized (gain) loss		—
Borrowings		529,499
Repayments		(685,980	)
Transfers in/out of Level 3		61,066

Ending fair value	$	350,185

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

The Company made elections to apply the fair value option of accounting to the Credit Facility, the 2022 Unsecured Notes, the SSLP Facility and the SSLP II Facility, in accordance with ASC 825-10. On December 31, 2018, there were borrowings of $146,400, $150,000, $53,785 and $0, respectively, on the Credit Facility, the 2022 Unsecured Notes, the SSLP Facility and the SSLP II Facility. As a result of the consolidation of SSLP and SSLP II, the SSLP Facility and the SSLP II Facility are shown as transfers into Level 3.

Quantitative Information about Level 3 Fair Value Measurements

The Company typically determines the fair value of its performing debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to current contractual interest rates, relative maturities and other key terms and risks associated with an investment. Among other factors, a significant determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company.

Significant unobservable quantitative inputs typically used in the fair value measurement of the Company’s Level 3 assets and liabilities primarily reflect current market yields, including indices, and readily available quotes from brokers, dealers, and pricing services as indicated by comparable assets and liabilities, as well as enterprise values, returns on equity and earnings before income taxes, depreciation and amortization (“EBITDA”) multiples of similar companies, and comparable market transactions for equity securities.

Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of September 30, 2019 is summarized in the table below:

Asset or
Liability

Fair Value at
September 30, 2019

Principal Valuation
Technique/Methodology

Unobservable Input

Range (Weighted
Average)

Senior Secured Loans

Asset

825,305

18,750

Income Approach

Market Approach

Market Yield

EBITDA Multiple

6.4%-13.0% (9.7%)

7.8x-8.0x (7.9x)

Equipment Financing

Asset

180,692

146,500

Income Approach

Market Approach

Market Yield

Return on Equity

7.2%-19.6% (10.1%)

7.8%-7.8% (7.8%)

Preferred Equity

Asset

13,456

Income Approach

Market Yield

8.0%-12.7% (10.1%)

Common Equity/Equity Interests/Warrants

Asset

14,437

300,000

Market Approach

EBITDA Multiple

Return on Equity

5.8x-6.3x (6.0x)

7.9%-16.7% (15.4%)

2022 Unsecured Notes

Liability

150,000

Income Approach

Market Yield

3.8%-6.0% (4.5%)

Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2018 is summarized in the table below:

Asset or
Liability

Fair Value at
December 31, 2018

Principal Valuation
Technique/Methodology

Unobservable Input

Range (Weighted
Average)

Senior Secured Loans

Asset

818,861

Income Approach

Market Yield

7.1%-13.6% (10.7%)

Equipment Financing

Asset

169,226

145,000

Income Approach

Market Approach

Market Yield

Return on Equity

7.2%-19.8% (10.1%)

9.1%-9.1% (9.1%)

Preferred Equity

Asset

15,527

Income Approach

Market Yield

8.0%-13.0% (10.1%)

Common Equity/Equity Interests/Warrants

Asset

13,926

293,000

Market Approach

EBITDA Multiple

Return on Equity

6.0x-7.0x (6.3x)

7.9%-17.5% (17.4%)

Credit Facility and SSLP Facility

Liability

200,185

Income Approach

Market Yield

L+1.4%-L+4.8%

(L+2.1%)

2022 Unsecured Notes

Liability

150,000

Income Approach

Market Yield

4.5%-4.9% (4.5%)

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in deriving bid-ask spreads, if applicable, could result in significantly lower or higher fair value measurements for such assets and liabilities. Generally, an increase in market yields or decrease in EBITDA multiples may result in a decrease in the fair value of certain of the Company’s investments.

Note 7. Debt

Our debt obligations consisted of the following as of September 30, 2019 and December 31, 2018:


	September 30, 2019					December 31, 2018
Facility	Face Amount		Carrying Value			Face Amount		Carrying Value
Credit Facility	$	212,800	$	209,978	⁽¹⁾	$	146,400	$	146,400
SSLP Facility		82,185		80,312	⁽²⁾		53,785		53,785
NEFPASS Facility		30,000		29,092	⁽³⁾		30,000		28,933	⁽³⁾
2022 Notes		150,000		150,000			150,000		150,000
2022 Tranche C Notes		21,000		20,898	⁽⁴⁾		21,000		20,877	⁽⁴⁾
2023 Notes		75,000		73,791	⁽⁵⁾		75,000		73,543	⁽⁵⁾

	$	570,985	$	564,071		$	476,185	$	473,538

(1)	Carrying Value equals the Face Amount net of unamortized debt issuance costs of $2,822 as of September 30, 2019.

(2)	Carrying Value equals the Face Amount net of unamortized debt issuance costs of $1,873 as of September 30, 2019.

(3)	Carrying Value equals the Face Amount net of unamortized debt issuance costs of $908 and $1,067, respectively, as of September 30, 2019 and December 31, 2018.

(4)	Carrying Value equals the Face Amount net of unamortized debt issuance costs of $102 and $123, respectively, as of September 30, 2019 and December 31, 2018.

(5)	Carrying Value equals the Face Amount net of unamortized debt issuance costs of $1,209 and $1,457, respectively, as of September 30, 2019 and December 31, 2018.

Unsecured Notes

On December 28, 2017, the Company closed a private offering of $21,000 of unsecured tranche c notes due 2022 (the “2022 Tranche C Notes”) with a fixed interest rate of 4.50% and a maturity date of December 28, 2022. Interest on the 2022 Tranche C Notes is due semi-annually on June 28 and December 28. The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers.

On November 22, 2017, we issued $75,000 in aggregate principal amount of publicly registered unsecured senior notes due 2023 (the “2023 Unsecured Notes”) for net proceeds of $73,846. Interest on the 2023 Unsecured Notes is paid semi-annually on January 20 and July 20, at a fixed rate of 4.50% per year, commencing on January 20, 2018. The 2023 Unsecured Notes mature on January 20, 2023.

On February 15, 2017, the Company closed a private offering of $100,000 of additional 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

On November 8, 2016, the Company closed a private offering of $50,000 of the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

Revolving and Term Loan Facilities

On August 28, 2019, the Company repaid its existing senior secured credit agreement due September 2021 and entered into a new senior secured credit agreement (the “Credit Facility”). The Credit Facility is composed of $470,000 of revolving credit and $75,000 of term loans. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of 2.00-2.25% or the alternate base rate plus 1.00%-1.25%. The Credit Facility has no LIBOR floor requirement. The Credit Facility matures in August 2024 and includes ratable amortization in the final year. The Credit Facility may be increased up to $800,000 with additional new lenders or an increase in commitments from current lenders. The Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Credit Facility contains certain financial covenants that among other things, requires the Company to maintain a minimum shareholder’s equity and a minimum asset coverage ratio. At September 30, 2019, outstanding USD equivalent borrowings under the Credit Facility totaled $212,800, composed of $137,800 of revolving credit and $75,000 of term loans.

On May 31, 2019, the Company as transferor and SSLP 2016-1, LLC, a wholly-owned subsidiary of the Company, as borrower entered into amendment number two to the $200,000 SSLP Facility with Wells Fargo Bank, NA acting as administrative agent. The Company acts as servicer under the SSLP Facility. The SSLP Facility is scheduled to mature on May 31, 2024. The SSLP Facility generally bears interest at a rate of LIBOR plus 2.25%. The Company and SSLP 2016-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The SSLP Facility also includes usual and customary events of default for credit facilities of this nature. There were $82,185 of borrowings outstanding as of September 30, 2019.

On September 26, 2018, NEFPASS SPV LLC, a newly formed wholly-owned subsidiary of NEFPASS LLC, as borrower entered into a $50,000 senior secured revolving credit facility (the “NEFPASS Facility”) with Keybank acting as administrative agent. The Company acts as servicer under the NEFPASS Facility. The NEFPASS Facility is scheduled to mature on September 26, 2023. The NEFPASS Facility generally bears interest at a rate of LIBOR plus 2.15%. NEFPASS and NEFPASS SPV LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The NEFPASS Facility also includes usual and customary events of default for credit facilities of this nature. There were $30,000 of borrowings outstanding as of September 30, 2019.

The Company has made an election to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 825-10. We believe accounting for this facility at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility. ASC 825-10 requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

Statement of Assets and Liabilities and changes in fair value of the above facility are reported in the Consolidated Statement of Operations.

The average annualized interest cost for all borrowings for the nine months ended September 30, 2019 and the year ended December 31, 2018 was 4.62% and 4.33%, respectively. These costs are exclusive of other credit facility expenses such as unused fees, agency fees and other prepaid expenses related to establishing and/or amending the Credit Facility, the 2022 Unsecured Notes, the 2022 Tranche C Notes, the NEFPASS Facility, the SSLP Facility and the 2023 Unsecured Notes (collectively the “Credit Facilities”), if any. The maximum amounts borrowed on the Credit Facilities during the nine months ended September 30, 2019 and the year ended December 31, 2018 were $616,186 and $592,600, respectively.

Note 8. Financial Highlights and Senior Securities Table

The following is a schedule of financial highlights for the nine months ended September 30, 2019 and 2018:


	Nine months ended September 30, 2019			Nine months ended September 30, 2018
Per Share Data: (a)
Net asset value, beginning of year	$	21.75		$	21.81

Net investment income		1.31			1.34
Net realized and unrealized gain		0.07			0.03

Net increase in net assets resulting from operations		1.38			1.37
Distributions to stockholders:
From net investment income		(1.23	)		(1.23	)

Net asset value, end of period	$	21.90		$	21.95

Per share market value, end of period	$	20.65		$	21.38
Total Return (b)		14.06	%		12.13	%
Net assets, end of period	$	925,370		$	927,592
Shares outstanding, end of period		42,260,826			42,260,826
Ratios to average net assets (c):
Net investment income		5.98	%		6.11	%

Operating expenses		4.37	%		4.47	%
Interest and other credit facility expenses		2.37	%		1.90	%

Total expenses		6.74	%		6.37	%

Average debt outstanding	$	556,651		$	510,524
Portfolio turnover ratio		18.3	%		26.1	%

(a)	Calculated using the average shares outstanding method.

(b)

Total return is based on the change in market price per share during the period and takes into account distributions, if any, reinvested in accordance with the dividend reinvestment plan. The market price per share as of December 31, 2018 and December 31, 2017 was $19.19 and $20.21, respectively. Total return does not include a sales load.

(c)	Not annualized for periods less than one year.

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy the asset coverage test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. Our stockholders approved being subject to a 150% asset coverage ratio effective October 12, 2018.

Information about our senior securities is shown in the following table as of each year ended December 31 since the Company commenced operations, unless otherwise noted. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.


Class and Year	Total Amount Outstanding⁽¹⁾			Asset Coverage Per Unit⁽²⁾			Involuntary Liquidating Preference Per Unit⁽³⁾		Average Market Value Per Unit⁽⁴⁾
Revolving Credit Facility
Fiscal 2019 (through September 30, 2019)		$	137,800		$	632		—		N/A
Fiscal 2018			96,400			593		—		N/A
Fiscal 2017			245,600			1,225		—		N/A
Fiscal 2016			115,200			990		—		N/A
Fiscal 2015			207,900			1,459		—		N/A
Fiscal 2014			—			—		—		N/A
Fiscal 2013			—			—		—		N/A
Fiscal 2012			264,452			1,510		—		N/A
Fiscal 2011			201,355			3,757		—		N/A
Fiscal 2010			400,000			2,668		—		N/A
Fiscal 2009			88,114			8,920		—		N/A
2022 Unsecured Notes
Fiscal 2019 (through September 30, 2019)			150,000			689		—		N/A
Fiscal 2018			150,000			923		—		N/A
Fiscal 2017			150,000			748		—		N/A
Fiscal 2016			50,000			430		—		N/A
2022 Tranche C Notes
Fiscal 2019 (through September 30, 2019)			21,000			97		—		N/A
Fiscal 2018			21,000			129		—		N/A
Fiscal 2017			21,000			105		—		N/A
2023 Unsecured Notes
Fiscal 2019 (through September 30, 2019)			75,000			344		—		N/A
Fiscal 2018			75,000			461		—		N/A
Fiscal 2017			75,000			374		—		N/A

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)


Class and Year	Total Amount Outstanding⁽¹⁾			Asset Coverage Per Unit⁽²⁾			Involuntary Liquidating Preference Per Unit⁽³⁾		Average Market Value Per Unit⁽⁴⁾
2042 Unsecured Notes
Fiscal 2017			—			—		—			N/A
Fiscal 2016			100,000			859		—		$	1,002
Fiscal 2015			100,000			702		—			982
Fiscal 2014			100,000			2,294		—			943
Fiscal 2013			100,000			2,411		—			934
Fiscal 2012			100,000			571		—			923
Senior Secured Notes
Fiscal 2017			—			—		—			N/A
Fiscal 2016			75,000			645		—			N/A
Fiscal 2015			75,000			527		—			N/A
Fiscal 2014			75,000			1,721		—			N/A
Fiscal 2013			75,000			1,808		—			N/A
Fiscal 2012			75,000			428		—			N/A
Term Loans
Fiscal 2019 (through September 30, 2019)		$	75,000			344		—			N/A
Fiscal 2018			50,000			308		—			N/A
Fiscal 2017			50,000			250		—			N/A
Fiscal 2016			50,000			430		—			N/A
Fiscal 2015			50,000			351		—			N/A
Fiscal 2014			50,000			1,147		—			N/A
Fiscal 2013			50,000			1,206		—			N/A
Fiscal 2012			50,000			285		—			N/A
Fiscal 2011			35,000			653		—			N/A
Fiscal 2010			35,000			233		—			N/A
NEFPASS Facility
Fiscal 2019 (through September 30, 2019)			30,000			138		—			N/A
Fiscal 2018			30,000			185		—			N/A
SSLP Facility
Fiscal 2019 (through September 30, 2019)			82,185			377		—			N/A
Fiscal 2018			53,785			331		—			N/A
Total Senior Securities
Fiscal 2019 (through September 30, 2019)		$	570,985		$	2,621		—			N/A
Fiscal 2018			476,185			2,930		—			N/A
Fiscal 2017			541,600			2,702		—			N/A
Fiscal 2016			390,200			3,354		—			N/A
Fiscal 2015			432,900			3,039		—			N/A
Fiscal 2014			225,000			5,162		—			N/A
Fiscal 2013			225,000			5,425		—			N/A
Fiscal 2012			489,452			2,794		—			N/A
Fiscal 2011			236,355			4,410		—			N/A
Fiscal 2010			435,000			2,901		—			N/A
Fiscal 2009			88,114			8,920		—			N/A

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

(1)	Total amount of each class of senior securities outstanding at the end of the period presented.

(2)

The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by all senior securities representing indebtedness. This asset coverage ratio is multiplied by one thousand to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total Asset Coverage Per Unit is allocated based on the amount outstanding in each class of debt at the end of the period. As of September 30, 2019, asset coverage was 262.1%.

(3)	The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.

(4)

Not applicable except for the 2042 Unsecured Notes which were publicly traded. The Average Market Value Per Unit is calculated by taking the daily average closing price during the period and dividing it by twenty-five dollars per share and multiplying the result by one thousand to determine a unit price per thousand consistent with Asset Coverage Per Unit. The average market value for the fiscal 2016, 2015, 2014, 2013 and 2012 periods was $100,175, $98,196, $94,301, $93,392, and $92,302, respectively.

Note 9. Crystal Financial LLC

On December 28, 2012, we completed the acquisition of Crystal Capital Financial Holdings LLC (“Crystal Financial”), a commercial finance company focused on providing asset-based and other secured financing solutions (the “Crystal Acquisition”). We invested $275,000 in cash to effect the Crystal Acquisition. Crystal Financial owned approximately 98% of the outstanding ownership interest in Crystal Financial LLC. The remaining financial interest was held by various employees of Crystal Financial LLC, through their investment in Crystal Management LP. Crystal Financial LLC had a diversified portfolio of 23 loans having a total par value of approximately $400,000 at November 30, 2012 and a $275,000 committed revolving credit facility. On July 28, 2016, the Company purchased Crystal Management LP’s approximately 2% equity interest in Crystal Financial LLC for approximately $5,737. Upon the closing of this transaction, the Company holds 100% of the equity interest in Crystal Financial LLC. On September 30, 2016, Crystal Capital Financial Holdings LLC was dissolved. On December 20, 2018, the revolving credit facility was expanded to $330,000.

As of September 30, 2019 Crystal Financial LLC had 33 funded commitments to 28 different issuers with a total par value of approximately $498,923 on total assets of $519,855. As of December 31, 2018 Crystal Financial LLC had 31 funded commitments to 26 different issuers with a total par value of approximately $418,680 on total assets of $486,420. As of September 30, 2019, and December 31, 2018, the largest loan outstanding totaled $37,500 and $37,500, respectively. For the same periods, the average exposure per issuer was $17,819 and $16,103, respectively. Crystal Financial LLC’s credit facility, which is non-recourse to Solar Capital, had approximately $249,713 and $205,990 of borrowings outstanding at September 30, 2019 and December 31, 2018, respectively. For the three months ended September 30, 2019 and 2018, Crystal Financial LLC had net income of $4,518 and $6,485, respectively, on gross income of $13,522 and $11,653, respectively. For the nine months ended September 30, 2019 and 2018, Crystal Financial LLC had net income of $20,163 and $18,609, respectively, on gross income of $46,369 and $33,585, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions.

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

Note 10. Commitments and Contingencies

The Company had unfunded debt and equity commitments to various revolving and delayed draw loans as well as to Crystal Financial LLC. The total amount of these unfunded commitments as of September 30, 2019 and December 31, 2018 is $130,596 and $169,667, respectively, comprised of the following:


	September 30, 2019		December 31, 2018
Crystal Financial LLC*	$	44,263	$	44,263
Kindred Biosciences, Inc		13,795		—
Rubius Therapeutics, Inc		13,430		26,861
GenMark Diagnostics, Inc		10,612		3,010
BAM Capital, LLC		10,300		15,000
Centrexion Therapeutics, Inc		7,569		—
Phynet Dermatology LLC		5,430		12,385
Cerapedics, Inc		5,372		—
PQ Bypass, Inc		4,800		4,800
Cardiva Medical, Inc		4,500		9,000
Enhanced Capital Group, LLC		2,523		—
Solara Medical Supplies, Inc		2,017		1,184
The Hilb Group, LLC & Gencorp Insurance Group, Inc		1,719		—
RS Energy Group U.S., Inc		1,685		1,685
MRI Software LLC		1,402		—
iCIMS, Inc		792		792
Atria Wealth Solutions, Inc		387		1,473
BioElectron Technology Corporation		—		17,500
Tetraphase Pharmaceuticals, Inc		—		13,800
Corindus Vascular Robotics, Inc		—		6,217
Kingsbridge Holdings, LLC		—		4,139
Breathe Technologies, Inc		—		4,000
Delphinus Medical Technologies, Inc		—		1,875
Datto, Inc		—		1,683

Total Commitments	$	130,596	$	169,667

*	The Company controls the funding of the Crystal Financial LLC commitment and may cancel it at its discretion.

The credit agreements of the above loan commitments contain customary lending provisions and/or are subject to the portfolio company’s achievement of certain milestones that allow relief to the Company from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for the Company. As of September 30, 2019 and December 31, 2018, the Company had sufficient cash available and/or liquid securities available to fund its commitments.

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

Note 11. NEF Holdings, LLC

On July 31, 2017, we completed the acquisition of NEF Holdings, LLC (“NEF”), which conducts its business through its wholly-owned subsidiary Nations Equipment Finance, LLC. NEF is an independent equipment finance company that provides senior secured loans and leases primarily to U.S. based companies. We invested $209,866 in cash to effect the transaction, of which $145,000 was invested in the equity of NEF through our wholly-owned consolidated taxable subsidiary NEFCORP LLC and our wholly-owned consolidated subsidiary NEFPASS LLC and $64,866 was used to purchase certain leases and loans held by NEF through NEFPASS LLC. Concurrent with the transaction, NEF refinanced its existing senior secured credit facility into a $150,000 non-recourse facility with an accordion feature to expand up to $250,000. In September 2019, NEF amended the facility, increasing commitments to $213,957 with an accordion feature to expand up to $313,957 and extended the maturity date of the facility to July 31, 2023. At July 31, 2017, NEF also had two securitizations outstanding, with an issued note balance of $94,587, which were later redeemed in 2018.

As of September 30, 2019, NEF had 185 funded equipment-backed leases and loans to 85 different customers with a total net investment in leases and loans of approximately $253,327 on total assets of $313,385. As of December 31, 2018, NEF had 207 funded equipment-backed leases and loans to 82 different customers with a total net investment in leases and loans of approximately $237,221 on total assets of $293,185. As of September 30, 2019 and December 31, 2018, the largest position outstanding totaled $27,152 and $28,474, respectively. For the same periods, the average exposure per customer was $2,980 and $2,893, respectively. NEF’s credit facility, which is non-recourse to Solar Capital, had approximately $126,776 and $119,316 of borrowings outstanding at September 30, 2019 and December 31, 2018, respectively. For the three months ended September 30, 2019 and September 30, 2018, NEF had net income (loss) of ($707) and $149, respectively, on gross income of $8,728 and $7,237, respectively. For the nine months ended September 30, 2019 and September 30, 2018, NEF had net income (loss) of ($206) and $2,937, respectively, on gross income of $24,284 and $21,497, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions.

Note 12. Capital Share Transactions

As of September 30, 2019 and September 30, 2018, 200,000,000 shares of $0.01 par value capital stock were authorized.

Transactions in capital stock were as follows:

Shares

Amount

Three months ended
September 30, 2019

Three months ended
September 30, 2018

Three months ended
September 30, 2019

Three months ended
September 30, 2018

Shares issued in reinvestment of distributions

—

Shares

Amount

Nine months ended
September 30, 2019

Nine months ended
September 30, 2018

Nine months ended
September 30, 2019

Nine months ended
September 30, 2018

Shares issued in reinvestment of distributions

—

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2019

(in thousands, except share amounts)

Note 13. Subsequent Events

The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the consolidated financial statements were issued.

On October 31, 2019, the Company repaid the SSLP Facility in full, extinguishing the debt.

On November 4, 2019, our Board declared a quarterly distribution of $0.41 per share payable on January 3, 2020 to stockholders of record as of December 19, 2019.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Solar Capital Ltd.:

Results of Review of Interim Financial Information

We have reviewed the consolidated statement of assets and liabilities of Solar Capital Ltd. (and consolidated subsidiaries) (the Company), including the consolidated schedule of investments, as of September 30, 2019, the related consolidated statements of operations for the three-month and nine-month periods ended September 30, 2019 and 2018, the related consolidated statements of changes in net assets for the three-month and nine-month periods ended September 30, 2019 and 2018, the related consolidated statements of cash flows for the nine-month periods ended September 30, 2019 and 2018, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of assets and liabilities, including the consolidated schedule of investments, of the Company as of December 31, 2018, and the related consolidated statements of operations, changes in net assets, and cash flows for the year then ended (not presented herein); and in our report dated February 21, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated statement of assets and liabilities, including the consolidated schedule of investments, from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the 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 reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG LLP

New York, New York

November 4, 2019

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

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

Some of the statements in this report constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained herein involve risks and uncertainties, including statements as to:

•

our future operating results;

•

our business prospects and the prospects of our portfolio companies;

•

the impact of investments that we expect to make;

•

our contractual arrangements and relationships with third parties;

•

the dependence of our future success on the general economy and its impact on the industries in which we invest;

•

the ability of our portfolio companies to achieve their objectives;

•

our expected financings and investments;

•

the adequacy of our cash resources and working capital; and

•

the timing of cash flows, if any, from the operations of our portfolio companies.

We generally use words such as “anticipates,” “believes,” “expects,” “intends” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including any factors set forth in “Risk Factors” and elsewhere in this report.

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including any annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

Solar Capital LLC, a Maryland limited liability company, was formed in February 2007 and commenced operations on March 13, 2007 with initial capital of $1.2 billion of which 47.04% was funded by affiliated parties.

Solar Capital Ltd. (“Solar Capital”, the “Company”, “we” or “our”), a Maryland corporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946. In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

On February 9, 2010, we priced our initial public offering, selling 5.68 million shares of our common stock. Concurrent with our initial public offering, Michael S. Gross, our Chairman, Co-Chief Executive Officer and

President, and Bruce Spohler, our Co-Chief Executive Officer and Chief Operating Officer, collectively purchased an additional 0.6 million shares of our common stock through a private placement transaction exempt from registration under the Securities Act (the “Concurrent Private Placement”).

We invest primarily in privately held U.S. middle-market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in leveraged middle-market companies in the form of senior secured loans, stretch-senior loans, unitranche loans, leases and to a lesser extent, unsecured loans and equity securities. From time to time, we may also invest in public companies that are thinly traded. Our business is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our investments generally range between $5 million and $100 million each, although we expect that this investment size will vary proportionately with the size of our capital base and/or with strategic initiatives. Our investment activities are managed by Solar Capital Partners, LLC (the “Investment Adviser”) and supervised by our board of directors, a majority of whom are non-interested, as such term is defined in the 1940 Act. Solar Capital Management, LLC (the “Administrator”) provides the administrative services necessary for us to operate.

In addition, we may invest a portion of our portfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended to enhance our overall returns. These investments may include, but are not limited to, direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outside of the United States.

As of September 30, 2019, the Investment Adviser has directly invested approximately $8.7 billion in more than 385 different portfolio companies since 2006. Over the same period, the Investment Adviser completed transactions with approximately 200 different financial sponsors.

Recent Developments

On October 31, 2019, the Company repaid the SSLP Facility in full, extinguishing the debt.

On November 4, 2019, our Board declared a quarterly distribution of $0.41 per share payable on January 3, 2020 to stockholders of record as of December 19, 2019.

Investments

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make. As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” The definition of “eligible portfolio company” includes certain public companies that do not have any securities listed on a national securities exchange and companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.

Revenue

We generate revenue primarily in the form of interest and dividend income from the securities we hold and capital gains, if any, on investment securities that we may sell. Our debt investments generally have a stated term of three to seven years and typically bear interest at a floating rate usually determined on the basis of a benchmark London interbank offered rate (“LIBOR”), commercial paper rate, or the prime rate. Interest on our debt investments is generally payable monthly or quarterly but may be bi-monthly or semi-annually. In addition,

our investments may provide payment-in-kind (“PIK”) interest. Such amounts of accrued PIK interest are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investment being called by the issuer. We may also generate revenue in the form of commitment, origination, structuring fees, fees for providing managerial assistance and, if applicable, consulting fees, etc.

Expenses

All investment professionals of the investment adviser and their respective staffs, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for by Solar Capital Partners. We bear all other costs and expenses of our operations and transactions, including (without limitation):

•

the cost of our organization and public offerings;

•

the cost of calculating our net asset value, including the cost of any third-party valuation services;

•

the cost of effecting sales and repurchases of our shares and other securities;

•

interest payable on debt, if any, to finance our investments;

•

fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and advisory fees;

•

transfer agent and custodial fees;

•

fees and expenses associated with marketing efforts;

•

federal and state registration fees, any stock exchange listing fees;

•

federal, state and local taxes;

•

independent directors’ fees and expenses;

•

brokerage commissions;

•

fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums;

•

direct costs and expenses of administration, including printing, mailing, long distance telephone and staff;

•

fees and expenses associated with independent audits and outside legal costs;

•

costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws; and

•

all other expenses incurred by either Solar Capital Management or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion of overhead and other expenses incurred by Solar Capital Management in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and their respective staffs.

We expect our general and administrative operating expenses related to our ongoing operations to increase moderately in dollar terms. During periods of asset growth, we generally expect our general and administrative operating expenses to decline as a percentage of our total assets and increase during periods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities, among others, may also increase or reduce overall operating expenses based on portfolio performance, interest rate benchmarks, and offerings of our securities relative to comparative periods, among other factors.

Portfolio and Investment Activity

During the three months ended September 30, 2019, we invested approximately $116.2 million across 24 portfolio companies. This compares to investing approximately $116.1 million in 28 portfolio companies for the three months ended September 30, 2018. Investments sold, prepaid or repaid during the three months ended September 30, 2019 totaled approximately $111.4 million versus approximately $161.2 million for the three months ended September 30, 2018.

At September 30, 2019, our portfolio consisted of 110 portfolio companies and was invested 29.2% in cash flow senior secured loans, 29.7% in asset-based senior secured loans / Crystal, 21.8% in equipment senior secured financings / NEF, and 19.3% in life science senior secured loans, in each case, measured at fair value, versus 110 portfolio companies invested 36.7% in cash flow senior secured loans, 27.6% in asset-based senior secured loans / Crystal, 21.1% in equipment senior secure financings / NEF, and 14.6% in life science senior secured loans, in each case, measured at fair value, at September 30, 2018.

At September 30, 2019, 76.8% or $1.13 billion of our income producing investment portfolio^* is floating rate and 23.2% or $340.4 million is fixed rate, measured at fair value. At September 30, 2018, 76.2% or $1.06 billion of our income producing investment portfolio* is floating rate and 23.8% or $331.5 million is fixed rate, measured at fair value. As of September 30, 2019 and 2018, we had one and zero issuers on non-accrual status, respectively.

Since inception through September 30, 2019, Solar Capital and its predecessor companies have invested approximately $6.2 billion in more than 275 portfolio companies. Over the same period, Solar Capital has completed transactions with more than 150 different financial sponsors.

*	We have included Crystal Financial LLC and NEF Holdings LLC within our income producing investment portfolio.

Crystal Financial LLC

On December 28, 2012, we completed the acquisition of Crystal Capital Financial Holdings LLC (“Crystal Financial”), a commercial finance company focused on providing asset-based and other secured financing solutions (the “Crystal Acquisition”). We invested $275 million in cash to effect the Crystal Acquisition. Crystal Financial owned approximately 98% of the outstanding ownership interest in Crystal Financial LLC. The remaining financial interest was held by various employees of Crystal Financial LLC, through their investment in Crystal Management LP. Crystal Financial LLC had a diversified portfolio of 23 loans having a total par value of approximately $400 million at November 30, 2012 and a $275 million committed revolving credit facility. On July 28, 2016, the Company purchased Crystal Management LP’s approximately 2% equity interest in Crystal Financial LLC for approximately $5.7 million. Upon the closing of this transaction, the Company holds 100% of the equity interest in Crystal Financial LLC. On September 30, 2016, Crystal Capital Financial Holdings LLC was dissolved. On December 20, 2018, the revolving credit facility was expanded to $330 million.

As of September 30, 2019, Crystal Financial LLC had 33 funded commitments to 28 different issuers with a total par value of approximately $498.9 million on total assets of $519.9 million. As of December 31, 2018, Crystal Financial LLC had 31 funded commitments to 26 different issuers with a total par value of approximately $418.7 million on total assets of $486.4 million. As of September 30, 2019 and December 31, 2018, the largest loan outstanding totaled $37.5 million and $37.5 million, respectively. For the same periods, the average exposure per issuer was $17.8 million and $16.1 million, respectively. Crystal Financial LLC’s credit facility, which is non-recourse to Solar Capital, had approximately $249.7 million and $206.0 million of borrowings outstanding at September 30, 2019 and December 31, 2018, respectively. For the three months ended September 30, 2019 and September 30, 2018, Crystal Financial LLC had net income of $4.5 million and $6.5 million, respectively, on gross income of $13.5 million and $11.7 million, respectively. For the nine months

ended September 30, 2019 and September 30, 2018, Crystal Financial LLC had net income of $20.2 million and $18.6 million, respectively, on gross income of $46.4 million and $33.6 million, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in Crystal Financial LLC’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that Crystal Financial LLC will be able to maintain consistent dividend payments to us.

NEF Holdings, LLC

On July 31, 2017, we completed the acquisition of NEF Holdings, LLC (“NEF”), which conducts its business through its wholly-owned subsidiary Nations Equipment Finance, LLC. NEF is an independent equipment finance company that provides senior secured loans and leases primarily to U.S. based companies. We invested $209.9 million in cash to effect the transaction, of which $145.0 million was invested in the equity of NEF through our wholly-owned consolidated taxable subsidiary NEFCORP LLC and our wholly-owned consolidated subsidiary NEFPASS LLC and $64.9 million was used to purchase certain leases and loans held by NEF through NEFPASS LLC. Concurrent with the transaction, NEF refinanced its existing senior secured credit facility into a $150.0 million non-recourse facility with an accordion feature to expand up to $250.0 million. In September 2019, NEF amended the facility, increasing commitments to $214.0 million with an accordion feature to expand up to $314.0 million and extended the maturity date of the facility to July 31, 2023. At July 31, 2017, NEF also had two securitizations outstanding, with an issued note balance of $94.6 million, which were later redeemed in 2018.

As of September 30, 2019, NEF had 185 funded equipment-backed leases and loans to 85 different customers with a total net investment in leases and loans of approximately $253.3 million on total assets of $313.4 million. As of December 31, 2018, NEF had 207 funded equipment-backed leases and loans to 82 different customers with a total net investment in leases and loans of approximately $237.2 million on total assets of $293.2 million. As of September 30, 2019 and December 31, 2018, the largest position outstanding totaled $27.2 million and $28.5 million, respectively. For the same periods, the average exposure per customer was $3.0 million and $2.9 million, respectively. NEF’s credit facility, which is non-recourse to Solar Capital, had approximately $126.8 million and $119.3 million of borrowings outstanding at September 30, 2019 and December 31, 2018, respectively. For the three months ended September 30, 2019 and September 30, 2018, NEF had net income (loss) of ($0.7 million) and $0.1 million, respectively, on gross income of $8.7 million and $7.2 million, respectively. For the nine months ended September 30, 2019 and September 30, 2018, NEF had net income (loss) of ($0.2 million) and $2.9 million, respectively, on gross income of $24.3 million and $21.5 million, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions.

Critical Accounting Policies

The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies. Within the context of these critical accounting policies and disclosed subsequent events herein, we are not currently aware of any other reasonably likely events or circumstances that would result in materially different amounts being reported.

Valuation of Portfolio Investments

We conduct the valuation of our assets, pursuant to which our net asset value is determined, at all times consistent with GAAP, and the 1940 Act. Our valuation procedures are set forth in more detail below:

which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we may utilize independent third-party valuation firms to assist us in determining the fair value of material assets. Accordingly, such investments go through our multi-step valuation process as described below. In each case, independent valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations. Debt investments with maturities of 60 days or less shall each be valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of the Investment Adviser, does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our Board. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our Board. Such determination of fair values involves subjective judgments and estimates.

(1)

(2)

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

(3)

(4)

the audit committee of the Board reviews the preliminary valuation of the Investment Adviser and that of the independent valuation firm, if any, and responds to the valuation recommendation of the independent valuation firm to reflect any comments; and

(5)

2019, there has been no change to the Company’s valuation approaches or techniques and the nature of the related inputs considered in the valuation process.

Accounting Standards Codification (“ASC”) Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.

Level 3: Unobservable inputs for the asset or liability.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.

Valuation of 2022 Unsecured Notes

The Company has made an election to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 825-10. We believe accounting for the 2022 Unsecured Notes at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility.

Revenue Recognition

The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non-accrual status when principal or interest/dividend cash payments are past due 30 days or more (90 days or more for equipment financing) and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on investments may be recognized as income or applied to principal depending upon management’s judgment. Some of our investments may have contractual PIK interest or dividends. PIK interest and dividends computed at the contractual rate are accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at the maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends is reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual

status if the Company again believes that PIK is expected to be realized. Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the effective interest method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Capital structuring fees are recorded as other income when earned.

The typically higher yields and interest rates on PIK securities, to the extent we invested, reflects the payment deferral and increased credit risk associated with such instruments and that such investments may represent a significantly higher credit risk than coupon loans. PIK securities may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. PIK interest has the effect of generating investment income and increasing the incentive fees payable at a compounding rate. In addition, the deferral of PIK interest also increases the loan-to-value ratio at a compounding rate. PIK securities create the risk that incentive fees will be paid to the Investment Adviser based on non-cash accruals that ultimately may not be realized, but the Investment Adviser will be under no obligation to reimburse the Company for these fees. For the three and nine months ended September 30, 2019, capitalized PIK income totaled $0.3 million and $1.0 million, respectively. For the three and nine months ended September 30, 2018, capitalized PIK income totaled $0.05 million and $0.1 million, respectively.

Net Realized Gain or Loss and Net Change in Unrealized Gain or Loss

We generally measure realized gain or loss 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, but considering unamortized origination or commitment fees and prepayment penalties. The net change in unrealized gain or loss reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gain or loss, when gains or losses are realized. Gains or losses on investments are calculated by using the specific identification method.

Income Taxes

Solar Capital, a U.S. corporation, has elected to be treated, and intends to qualify annually, as a RIC under Subchapter M of the Code. In order to qualify for taxation as a RIC, the Company is required, among other things, to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. Depending on the level of taxable income earned in a given tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues an estimated excise tax, if any, on estimated excess taxable income.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify and eliminate certain disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact of ASU 2018-13 on its consolidated financial statements and disclosures.

periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company has adopted ASU 2017-08 and determined that the adoption has not had a material impact on its consolidated financial statements and disclosures.

RESULTS OF OPERATIONS

Results comparisons are for the three and nine months ended September 30, 2019 and 2018:

Investment Income

For the three and nine months ended September 30, 2019, gross investment income totaled $39.7 million and $117.7 million, respectively. For the three and nine months ended September 30, 2018, gross investment income totaled $37.1 million and $115.3 million, respectively. The change in gross investment income for the year over year periods was generally due to the increase in the size of the income-producing portfolio year over year.

Expenses

Expenses totaled $21.3 million and $62.3 million, respectively, for the three and nine months ended September 30, 2019, of which $11.3 million and $33.9 million, respectively, were base management fees and performance-based incentive fees and $7.5 million and $22.0 million, respectively, were interest and other credit facility expenses. Administrative services and other general and administrative expenses totaled $2.4 million and $6.5 million, respectively, for the three and nine months ended September 30, 2019. Expenses totaled $18.7 million and $58.9 million, respectively, for the three and nine months ended September 30, 2018, of which $11.0 million and $33.4 million, respectively, were base management fees and performance-based incentive fees and $5.5 million and $17.5 million, respectively, were interest and other credit facility expenses. Administrative services and other general and administrative expenses totaled $2.2 million and $7.9 million, respectively, for the three and nine months ended September 30, 2018. Expenses generally consist of management and performance-based incentive fees, interest and other credit facility expenses, administrative services fees, insurance expenses, legal fees, directors’ fees, transfer agency fees, printing and proxy expenses, audit and tax services expenses, and other general and administrative expenses. Interest and other credit facility expenses generally consist of interest, unused fees, agency fees and loan origination fees, if any, among others. The increase in expenses for the three and nine months ended September 30, 2019 versus the three and nine months ended September 30, 2018 was primarily due to higher interest expense resulting from an increase in average borrowings to support a larger average income producing investment portfolio.

Net Investment Income

The Company’s net investment income totaled $18.4 million and $55.3 million, or $0.44 and $1.31, per average share, respectively, for the three and nine months ended September 30, 2019. The Company’s net investment income totaled $18.4 million and $56.4 million, or $0.44 and $1.34, per average share, respectively, for the three and nine months ended September 30, 2018.

Net Realized Gain (Loss)

The Company had investment sales and prepayments totaling approximately $111 million and $276 million, respectively, for the three and nine months ended September 30, 2019. Net realized losses over the same periods were ($0.1) million and ($0.5) million, respectively. The Company had investment sales and prepayments totaling approximately $161 million and $505 million, respectively, for the three and nine months ended September 30, 2018. Net realized gains over the same periods were $0.7 million and $1.2 million, respectively. Net realized losses for the three months ended September 30, 2019 were primarily related to the termination of warrants. Net realized losses for the nine months ended September 30, 2019 were primarily related to the exit of

our investments in ARK Real Estate Partners. Net realized gains for the three and nine months ended September 30, 2018 were related to the sale of select assets and the redemption of our warrants in Claret Medical.

Net Change in Unrealized Gain (Loss)

For the three and nine months ended September 30, 2019, net change in unrealized gain (loss) on the Company’s assets and liabilities totaled ($4.7) million and $3.3 million, respectively. For the three and nine months ended September 30, 2018, net change in unrealized gain (loss) on the Company’s assets and liabilities totaled ($1.0) million and $0.3 million, respectively. Net unrealized loss for the three months ended September 30, 2019 is primarily due to depreciation in the value of our investments in IHS Intermediate, Inc., SOAGG LLC and NEF Holdings LLC, among others, partially offset by appreciation on our investments in PPT Management Holdings, LLC and iCIMS, Inc., among others. Net unrealized gain for the nine months ended September 30, 2019 is primarily due to appreciation in the value of our investments in Crystal Financial LLC, Rug Doctor and PPT Management Holdings, LLC, among others, partially offset by depreciation on our investments in IHS Intermediate, Inc., American Teleconferencing Services, Ltd. and Aegis Toxicology Sciences Corporation, among others. Net unrealized loss for the three months ended September 30, 2018 is primarily due to depreciation in the value of our investments in Rug Doctor and NEF Holdings LLC, among others. Partially offsetting the net change in unrealized loss was appreciation on our investments in Crystal Financial LLC and Bishop Lifting Products, Inc., among others. Net unrealized gain for the nine months ended September 30, 2018 is primarily due to appreciation in the value of our investments in Rug Doctor and Bishop Lifting Products, Inc., among others. Partially offsetting the net change in unrealized gain was depreciation on our investments in Crystal Financial LLC and Kore Wireless Group, Inc., among others.

Net Increase in Net Assets From Operations

For the three and nine months ended September 30, 2019, the Company had a net increase in net assets resulting from operations of $13.7 million and $58.2 million, respectively. For the same periods, earnings per average share were $0.32 and $1.38, respectively. For the three and nine months ended September 30, 2018, the Company had a net increase in net assets resulting from operations of $18.1 million and $58.0 million, respectively. For the same periods, earnings per average share were $0.43 and $1.37, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s liquidity and capital resources are generated and generally available through its Credit Facility, the 2022 Unsecured Notes, the 2022 Tranche C Notes, the NEFPASS Facility, the SSLP Facility and the 2023 Unsecured Notes (collectively the “Credit Facilities”), through cash flows from operations, investment sales, prepayments of senior and subordinated loans, income earned on investments and cash equivalents, and periodic follow-on equity and/or debt offerings. As of September 30, 2019, we had a total of $470.0 million of unused borrowing capacity under the Credit Facilities, subject to borrowing base limits.

We may from time to time issue equity and/or debt securities in either public or private offerings. The issuance of such securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful. The primary uses of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders, or for other general corporate purposes.

On December 28, 2017, the Company closed a private offering of $21 million of the 2022 Tranche C Notes with a fixed interest rate of 4.50% and a maturity date of December 28, 2022. Interest on the 2022 Tranche C Notes is due semi-annually on June 28 and December 28. The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers.

On November 22, 2017, we issued $75 million in aggregate principal amount of publicly registered 2023 Unsecured Notes for net proceeds of $73.8 million. Interest on the 2023 Unsecured Notes is paid semi-annually on January 20 and July 20, at a fixed rate of 4.50% per year, commencing on January 20, 2018. The 2023 Unsecured Notes mature on January 20, 2023.

On February 15, 2017, the Company closed a private offering of $100 million of the 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On November 8, 2016, the Company closed a private offering of $50 million of the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On January 11, 2013, the Company closed its most recent follow-on public equity offering of 6.3 million shares of common stock raising approximately $146.9 million in net proceeds. The primary uses of the funds raised were for investments in portfolio companies, reductions in revolving debt outstanding and for other general corporate purposes.

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

Cash Equivalents

We deem certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities as cash equivalents. The Company makes purchases that are consistent with its purpose of making investments in securities described in paragraphs 1 through 3 of Section 55(a) of the 1940 Act. From time to time, including at or near the end of each fiscal quarter, we consider using various temporary investment strategies for our business. One strategy includes taking proactive steps by utilizing cash equivalents as temporary assets with the objective of enhancing our investment flexibility pursuant to Section 55 of the 1940 Act. More specifically, from time-to-time we may purchase U.S. Treasury bills or other high-quality, short-term debt securities at or near the end of the quarter and typically close out the position on a net cash basis subsequent to quarter end. We may also utilize repurchase agreements or other balance sheet transactions, including drawing down on our credit facilities, as deemed appropriate. The amount of these transactions or such drawn cash for this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined. We held approximately $160 million in cash equivalents as of September 30, 2019.

Debt

Unsecured Notes

Revolving & Term Loan Facilities

On August 28, 2019, the Company repaid its existing senior secured credit agreement due September 2021 and entered into a new Credit Facility. The Credit Facility is composed of $470 million of revolving credit and $75 million of term loans. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of 2.00-2.25% or the alternate base rate plus 1.00%-1.25%. The Credit Facility has no LIBOR floor requirement. The Credit Facility matures in August 2024 and includes ratable amortization in the final year. The Credit Facility may be increased up to $800 million with additional new lenders or an increase in commitments from current lenders. The Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Credit Facility contains certain financial covenants that among other things, requires the Company to maintain a minimum shareholder’s equity and a minimum asset coverage ratio. At September 30, 2019, outstanding USD equivalent borrowings under the Credit Facility totaled $212.8 million, composed of $137.8 million of revolving credit and $75.0 million of term loans.

On May 31, 2019, the Company as transferor and SSLP 2016-1, LLC, a wholly-owned subsidiary of the Company, as borrower entered into amendment number two to the $200 million SSLP Facility with Wells Fargo Bank, NA acting as administrative agent. The Company acts as servicer under the SSLP Facility. The SSLP Facility is scheduled to mature on May 31, 2024. The SSLP Facility generally bears interest at a rate of LIBOR plus 2.25%. The Company and SSLP 2016-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The SSLP Facility also includes usual and customary events of default for credit facilities of this nature. There were $82.2 million of borrowings outstanding as of September 30, 2019.

On September 26, 2018, NEFPASS SPV LLC, a newly formed wholly-owned subsidiary of NEFPASS LLC, as borrower entered into the NEFPASS Facility with Keybank acting as administrative agent. The Company acts as servicer under the NEFPASS Facility. The NEFPASS Facility is scheduled to mature on September 26, 2023. The NEFPASS Facility generally bears interest at a rate of LIBOR plus 2.15%. NEFPASS and NEFPASS SPV LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The NEFPASS Facility also includes usual and customary events of default for credit facilities of this nature. There were $30.0 million of borrowings outstanding as of September 30, 2019.

Certain covenants on our issued debt may restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code. At September 30, 2019, the Company was in compliance with all financial and operational covenants required by our Credit Facilities.

Contractual Obligations

A summary of our significant contractual payment obligations is as follows as of September 30, 2019:

Payments Due by Period (in millions)


	Total		Less than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Revolving credit facilities(1)	$	250.0	$	—	$	—	$	250.0	$	—
Unsecured senior notes		246.0		—		150.0		96.0		—
Term Loans		75.0		—		—		75.0		—

(1)	As of September 30, 2019, we had a total of $470.0 million of unused borrowing capacity under our revolving credit facilities, subject to borrowing base limits.


Class and Year	Total Amount Outstanding(1)		Asset Coverage Per Unit(2)		Involuntary Liquidating Preference Per Unit(3)		Average Market Value Per Unit(4)
Revolving Credit Facility
Fiscal 2019 (through September 30, 2019)	$	137,800	$	632		—		N/A
Fiscal 2018		96,400		593		—		N/A
Fiscal 2017		245,600		1,225		—		N/A
Fiscal 2016		115,200		990		—		N/A
Fiscal 2015		207,900		1,459		—		N/A
Fiscal 2014		—		—		—		N/A
Fiscal 2013		—		—		—		N/A
Fiscal 2012		264,452		1,510		—		N/A
Fiscal 2011		201,355		3,757		—		N/A
Fiscal 2010		400,000		2,668		—		N/A
Fiscal 2009		88,114		8,920		—		N/A
2022 Unsecured Notes
Fiscal 2019 (through September 30, 2019)		150,000		689		—		N/A
Fiscal 2018		150,000		923		—		N/A
Fiscal 2017		150,000		748		—		N/A
Fiscal 2016		50,000		430		—		N/A
2022 Tranche C Notes
Fiscal 2019 (through September 30, 2019)		21,000		97		—		N/A
Fiscal 2018		21,000		129		—		N/A
Fiscal 2017		21,000		105		—		N/A


Class and Year	Total Amount Outstanding(1)		Asset Coverage Per Unit(2)		Involuntary Liquidating Preference Per Unit(3)		Average Market Value Per Unit(4)
2023 Unsecured Notes
Fiscal 2019 (through September 30, 2019)		75,000		344		—		N/A
Fiscal 2018		75,000		461		—		N/A
Fiscal 2017		75,000		374		—		N/A
2042 Unsecured Notes
Fiscal 2017		—		—		—		N/A
Fiscal 2016		100,000		859		—	$	1,002
Fiscal 2015		100,000		702		—		982
Fiscal 2014		100,000		2,294		—		943
Fiscal 2013		100,000		2,411		—		934
Fiscal 2012		100,000		571		—		923
Senior Secured Notes
Fiscal 2017		—		—		—		N/A
Fiscal 2016		75,000		645		—		N/A
Fiscal 2015		75,000		527		—		N/A
Fiscal 2014		75,000		1,721		—		N/A
Fiscal 2013		75,000		1,808		—		N/A
Fiscal 2012		75,000		428		—		N/A
Term Loans
Fiscal 2019 (through September 30, 2019)	$	75,000		344		—		N/A
Fiscal 2018		50,000		308		—		N/A
Fiscal 2017		50,000		250		—		N/A
Fiscal 2016		50,000		430		—		N/A
Fiscal 2015		50,000		351		—		N/A
Fiscal 2014		50,000		1,147		—		N/A
Fiscal 2013		50,000		1,206		—		N/A
Fiscal 2012		50,000		285		—		N/A
Fiscal 2011		35,000		653		—		N/A
Fiscal 2010		35,000		233		—		N/A
NEFPASS Facility
Fiscal 2019 (through September 30, 2019)		30,000		138		—		N/A
Fiscal 2018		30,000		185		—		N/A
SSLP Facility
Fiscal 2019 (through September 30, 2019)		82,185		377		—		N/A
Fiscal 2018		53,785		331		—		N/A
Total Senior Securities
Fiscal 2019 (through September 30, 2019)	$	570,985	$	2,621		—		N/A
Fiscal 2018		476,185		2,930		—		N/A
Fiscal 2017		541,600		2,702		—		N/A
Fiscal 2016		390,200		3,354		—		N/A
Fiscal 2015		432,900		3,039		—		N/A
Fiscal 2014		225,000		5,162		—		N/A
Fiscal 2013		225,000		5,425		—		N/A
Fiscal 2012		489,452		2,794		—		N/A
Fiscal 2011		236,355		4,410		—		N/A
Fiscal 2010		435,000		2,901		—		N/A
Fiscal 2009		88,114		8,920		—		N/A

(1)	Total amount of each class of senior securities outstanding (in thousands) at the end of the period presented.

(2)

(3)	The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.

(4)

We have also entered into two contracts under which we have future commitments: the Advisory Agreement, pursuant to which Solar Capital Partners, LLC has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which the Administrator has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance. Payments under the Advisory Agreement are equal to (1) a percentage of the value of our average gross assets and (2) a two-part incentive fee. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent, technology systems, insurance and our allocable portion of the costs of our chief financial officer and chief compliance officer and their respective staffs. Either party may terminate each of the Advisory Agreement and administration agreement without penalty upon 60 days’ written notice to the other. See note 3 to our Consolidated Financial Statements.

On July 31, 2017, the Company, NEFPASS LLC and NEFCORP LLC entered into a servicing agreement. NEFCORP LLC was engaged to provide NEFPASS LLC with administrative services related to the loans and capital leases held by NEFPASS LLC. NEFPASS LLC may terminate this agreement upon 30 days’ written notice to NEFCORP LLC.

Off-Balance Sheet Arrangements

From time-to-time and in the normal course of business, the Company may make unfunded capital commitments to current or prospective portfolio companies. Typically, the Company may agree to provide delayed-draw term loans or, to a lesser extent, revolving loan or equity commitments. These unfunded capital commitments always take into account the Company’s liquidity and cash available for investment, portfolio and issuer diversification, and other considerations. Accordingly, the Company had the following unfunded capital commitments at September 30, 2019 and December 31, 2018, respectively:


	September 30, 2019		December 31, 2018
*(in millions)*
Crystal Financial LLC*	$	44.3	$	44.3
Kindred Biosciences, Inc.		13.8		—
Rubius Therapeutics, Inc.		13.4		26.8
GenMark Diagnostics, Inc.		10.6		3.0
BAM Capital, LLC		10.3		15.0
Centrexion Therapeutics, Inc.		7.6		—
Phynet Dermatology LLC		5.4		12.4
Cerapedics, Inc.		5.4		—
PQ Bypass, Inc.		4.8		4.8
Cardiva Medical, Inc.		4.5		9.0
Enhanced Capital Group, LLC		2.5		—
Solara Medical Supplies, Inc.		2.0		1.2
The Hilb Group, LLC & Gencorp Insurance Group, Inc.		1.7		—
RS Energy Group U.S., Inc.		1.7		1.7
MRI Software LLC		1.4		—
iCIMS, Inc.		0.8		0.8
Atria Wealth Solutions, Inc.		0.4		1.5
BioElectron Technology Corporation		—		17.5
Tetraphase Pharmaceuticals, Inc.		—		13.8
Corindus Vascular Robotics, Inc.		—		6.2
Kingsbridge Holdings, LLC		—		4.1
Breathe Technologies, Inc.		—		4.0
Delphinus Medical Technologies, Inc.		—		1.9
Datto, Inc.		—		1.7

Total Commitments	$	130.6	$	169.7

*	The Company controls the funding of the Crystal Financial LLC commitment and may cancel it at its discretion.

In the normal course of its business, we invest or trade in various financial instruments and may enter into various investment activities with off-balance sheet risk, which may include forward foreign currency contracts. Generally, these financial instruments represent future commitments to purchase or sell other financial

instruments at specific terms at future dates. These financial instruments contain varying degrees of off-balance sheet risk whereby changes in the market value or our satisfaction of the obligations may exceed the amount recognized in our Consolidated Statements of Assets and Liabilities.

Distributions

The following table reflects the cash distributions per share on our common stock for the two most recent fiscal years and the current fiscal year to date:

Date Declared

Record Date

Payment Date

Amount

Fiscal 2019

November 4, 2019

December 19, 2019

January 3, 2020

0.41

August 5, 2019

September 19, 2019

October 2, 2019

0.41

May 6, 2019

June 20, 2019

July 2, 2019

0.41

February 21, 2019

March 21, 2019

April 3, 2019

0.41

Total 2019

1.64

Fiscal 2018

November 5, 2018

December 20, 2018

January 4, 2019

0.41

August 2, 2018

September 20, 2018

October 2, 2018

0.41

May 7, 2018

June 21, 2018

July 3, 2018

0.41

February 22, 2018

March 22, 2018

April 3, 2018

0.41

Total 2018

1.64

Fiscal 2017

November 2, 2017

December 21, 2017

January 4, 2018

0.40

August 1, 2017

September 21, 2017

October 3, 2017

0.40

May 2, 2017

June 22, 2017

July 5, 2017

0.40

February 22, 2017

March 23, 2017

April 4, 2017

0.40

Total 2017

1.60

Tax characteristics of all distributions will be reported to stockholders on Form 1099 after the end of the calendar year. Future quarterly distributions, if any, will be determined by our Board. We expect that our distributions to stockholders will generally be from accumulated net investment income, from net realized capital gains or non-taxable return of capital, if any, as applicable.

We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC tax treatment, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.

We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future be limited in our ability to make

distributions. Also, our revolving credit facility may limit our ability to declare distributions if we default under certain provisions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of the tax benefits available to us as a regulated investment company. In addition, in accordance with GAAP and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind interest, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a regulated investment company.

With respect to the distributions to stockholders, income from origination, structuring, closing and certain other upfront fees associated with investments in portfolio companies are treated as taxable income and accordingly, distributed to stockholders.

Related Parties

We have entered into a number of business relationships with affiliated or related parties, including the following:

•

We have entered into the Advisory Agreement with Solar Capital Partners. Mr. Gross, our Chairman, Co-Chief Executive Officer and President and Mr. Spohler, our Co-Chief Executive Officer, Chief Operating Officer and board member, are managing members and senior investment professionals of, and have financial and controlling interests in, the Investment Adviser. In addition, Mr. Peteka, our Chief Financial Officer, Treasurer and Secretary serves as the Chief Financial Officer for Solar Capital Partners.

•

The Administrator provides us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our Administration Agreement. We reimburse the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and the compensation of our chief compliance officer, our chief financial officer and their respective staffs.

•

We have entered into a license agreement with the Investment Adviser, pursuant to which the Investment Adviser has granted us a non-exclusive, royalty-free license to use the name “Solar Capital.”

The Investment Adviser may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Investment Adviser presently serves as investment adviser to Solar Senior Capital Ltd., a publicly traded BDC, which focuses on investing in senior secured loans, including first lien and second lien debt instruments. In addition, Michael S. Gross, our Chairman, Co-Chief Executive Officer and President, Bruce Spohler, our Co-Chief Executive Officer and Chief Operating Officer, and Richard L. Peteka, our Chief Financial Officer, serve in similar capacities for Solar Senior Capital Ltd. and SCP Private Credit Income BDC LLC. The Investment Adviser and certain investment advisory affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Investment Adviser’s allocation procedures. On June 13, 2017, the Adviser received an exemptive order that permits the Company to participate in negotiated co-investment transactions with certain affiliates, in a manner consistent with the Company’s investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, and pursuant to various conditions (the “Order”). If the Company is unable to rely on the Order for a particular opportunity, such opportunity will be

allocated first to the entity whose investment strategy is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more than one entity’s investment strategy, on an alternating basis. Although the Adviser’s investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, the Company and its Unitholders could be adversely affected to the extent investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated with, our executive officers, directors and members of the Adviser.

Related party transactions may occur among Solar Capital Ltd., Crystal Financial LLC, Equipment Operating Leases LLC, Loyer Capital LLC and NEF Holdings LLC. These transactions may occur in the normal course of business. No administrative fees are paid to Solar Capital Partners by Crystal Financial LLC, Equipment Operating Leases LLC, Loyer Capital LLC or NEF Holdings LLC.

In addition, we have adopted a formal code of ethics that governs the conduct of our officers and directors. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Maryland General Corporation Law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. During the nine months ended September 30, 2019, certain of the investments in our comprehensive investment portfolio had floating interest rates. These floating rate investments were primarily based on floating LIBOR and typically have durations of one to three months after which they reset to current market interest rates. Additionally, some of these investments have LIBOR floors. The Company also has revolving credit facilities that are generally based on floating LIBOR. Assuming no changes to our balance sheet as of September 30, 2019 and no new defaults by portfolio companies, a hypothetical one percent decrease in LIBOR on our comprehensive floating rate assets and liabilities would reduce our net investment income by eight cents per average share over the next twelve months. Assuming no changes to our balance sheet as of September 30, 2019 and no new defaults by portfolio companies, a hypothetical one percent increase in LIBOR on our comprehensive floating rate assets and liabilities would increase our net investment income by approximately twelve cents per average share over the next twelve months. However, we may hedge against interest rate fluctuations from time-to-time by using standard hedging instruments such as futures, options, swaps and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in any benefits of certain changes in interest rates with respect to our portfolio of investments. At September 30, 2019, we have no interest rate hedging instruments outstanding on our balance sheet.


Increase (Decrease) in LIBOR		(1.00	%)		1.00	%
Increase (Decrease) in Net Investment Income Per Share Per Year	($	0.08	)	$	0.12

We may also have exposure to foreign currencies through various investments. These investments are converted into U.S. dollars at the balance sheet date, exposing us to movements in foreign exchange rates. In order to reduce our exposure to fluctuations in foreign exchange rates, we may borrow from time-to-time in such currencies under our multi-currency revolving credit facility or enter into forward currency or similar contracts.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of September 30, 2019 (the end of the period covered by this report), we, including our Co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including the Co-Chief Executive Officers and Chief Financial Officer, concluded that our

disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

(b) Changes in Internal Controls Over Financial Reporting

Management has not identified any change in the Company’s internal control over financial reporting that occurred during the third quarter of 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

We, Solar Capital Management, LLC and Solar Capital Partners, LLC are not currently subject to any material pending legal proceedings threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition or results of operations beyond what has been disclosed within these financial statements.

Item 1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in the February 21, 2019 filing of our Annual Report on Form 10-K, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. There have been no material changes during the period ended September 30, 2019 to the risk factors discussed in “Risk Factors” in the February 21, 2019 filing of our Annual Report on Form 10-K. In addition, please see our risk factors within our Form N-2 filed on June 21, 2019.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

We did not engage in unregistered sales of securities during the quarter ended September 30, 2019.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

On October 31, 2019, Solar Capital Ltd. (the “Company”) terminated, and extinguished its debt under, the $200 million revolving credit facility with Wells Fargo Bank, NA as administrative agent (the “SSLP Facility”),

pursuant to which the Company’s wholly-owned subsidiary, SSLP 2016-1, LLC, was the borrower and the Company was the servicer. The SSLP Facility was scheduled to mature on May 31, 2024 and generally bore interest at a rate of LIBOR plus 2.25%. There were (i) no material circumstances surrounding the termination of the SSLP Facility, and (ii) no early termination penalties incurred by the Company.

Item 6.

Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:


Exhibit Number		Description

3.1		Articles of Amendment and Restatement(1)

3.2		Amended and Restated Bylaws(1)

4.1		Form of Common Stock Certificate(2)

4.2		Indenture, dated as of November 16, 2012, between the Registrant and U.S. Bank National Association as trustee(3)

4.3		Second Supplemental Indenture, dated November 22, 2017, relating to the 4.50% Notes due 2023, between the Registrant and U.S. Bank National Association as trustee, including the Form of 4.50% Notes due 2023(8)

4.4		In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, certain instruments respecting long-term debt of the Registrant have been omitted but will be furnished to the SEC upon request

10.1		Dividend Reinvestment Plan(1)

10.2		Form of Senior Secured Credit Agreement by and between the Registrant, Citibank, N.A., as administrative agent, the lenders party thereto and JPMorgan Chase Bank, N.A., as syndication agent*

10.6		Third Amended and Restated Investment Advisory and Management Agreement by and between the Registrant and Solar Capital Partners, LLC(7)

10.7		Form of Custodian Agreement(6)

10.8		Amended and Restated Administration Agreement by and between Registrant and Solar Capital Management, LLC(5)

10.9		Form of Indemnification Agreement by and between Registrant and each of its directors(1)

10.10		Trademark License Agreement by and between Registrant and Solar Capital Partners, LLC(1)

10.11		Form of Share Purchase Agreement by and between Registrant and Solar Capital Investors II, LLC(2)

10.12		Form of Registration Rights Agreement(4)

10.13		Form of Subscription Agreement(4)

10.14		Consent and Omnibus Amendment to Transaction Documents by and among the Registrant, SSLP 2016-1, LLC, each of the Conduit Lenders and Institutional Lenders and Wells Fargo Bank, N.A., as administrative agent and collateral agent(9)

10.15		Amendment No. 2 to Loan and Servicing Agreement by and among SSLP 2016-1 LLC, as borrower, the Registrant as servicer and transferor, each of the conduit lenders, institutional lenders and lender agents from time to time party hereto and Wells Fargo Bank, N.A. as the administrative agent and collateral agent(11)


Exhibit Number		Description

14.1		Code of Ethics(10)

31.1		Certification of Co-Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*

31.2		Certification of Co-Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*

31.3		Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*

32.1		Certification of Co-Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*

32.2		Certification of Co-Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*

32.3		Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*

(1)	Previously filed in connection with Solar Capital Ltd.’s registration statement on Form N-2 Pre-Effective Amendment No. 7 (File No. 333-148734) filed on January 7, 2010.

(2)	Previously filed in connection with Solar Capital Ltd.’s registration statement on Form N-2 (File No 333-148734) filed on February 9, 2010.

(3)	Previously filed in connection with Solar Capital Ltd.’s registration statement on Form N-2 Post-Effective Amendment No. 6 (File No. 333-172968) filed on November 16, 2012.

(4)	Previously filed in connection with Solar Capital Ltd.’s report on Form 8-K filed on November 29, 2010.

(5)	Previously filed in connection with Solar Capital Ltd.’s registration statement on Form N-2 Post-Effective Amendment No. 10 (File No. 333-172968) filed on November 12, 2013.

(6)	Previously filed in connection with Solar Capital Ltd.’s report on Form 10-K filed on February 25, 2014.

(7)	Previously filed in connection with Solar Capital Ltd.’s report on Form 10-Q filed on August 6, 2018.

(8)	Previously filed in connection with Solar Capital Ltd.’s registration statement on Form N-2 Post-Effective Amendment No. 5 (File No. 333-194870) filed on November 22, 2017.

(9)	Previously filed in connection with Solar Capital Ltd.’s report on Form 10-K filed on February 21, 2019.

(10)	Previously filed in connection with Solar Capital Ltd.’s report on Form 10-Q filed on May 6, 2019.

(11)	Previously filed in connection with Solar Capital Ltd.’s report on Form 10-Q filed on August 5, 2019.

*	Filed herewith.

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 on November 4, 2019.


SOLAR CAPITAL LTD.

By:		/s/ MICHAEL S. GROSS
		Michael S. Gross Co-Chief Executive Officer (Principal Executive Officer)

By:		/s/ BRUCE J. SPOHLER
		Bruce J. Spohler Co-Chief Executive Officer (Principal Executive Officer)

By:		/s/ RICHARD L. PETEKA
		Richard L. Peteka Chief Financial Officer (Principal Financial and Accounting Officer)