Company Quick10K Filing
CM Finance
10-Q 2020-03-31 Filed 2020-05-11
10-Q 2019-12-31 Filed 2020-02-10
10-Q 2019-09-30 Filed 2019-11-12
10-K 2019-06-30 Filed 2019-09-13
10-Q 2019-03-31 Filed 2019-05-07
10-Q 2018-12-31 Filed 2019-02-06
10-Q 2018-09-30 Filed 2018-11-07
10-K 2018-06-30 Filed 2018-09-04
10-Q 2018-03-31 Filed 2018-05-08
10-Q 2017-12-31 Filed 2018-02-07
10-Q 2017-09-30 Filed 2017-11-07
10-K 2017-06-30 Filed 2017-09-06
10-Q 2017-03-31 Filed 2017-05-10
10-Q 2016-12-31 Filed 2017-02-08
10-Q 2016-09-30 Filed 2016-11-09
10-K 2016-06-30 Filed 2016-08-30
10-Q 2016-03-31 Filed 2016-05-09
10-Q 2015-12-31 Filed 2016-02-08
10-Q 2015-09-30 Filed 2015-11-09
10-K 2015-06-30 Filed 2015-09-08
10-Q 2015-03-31 Filed 2015-05-11
10-Q 2014-12-31 Filed 2015-02-09
10-Q 2014-09-30 Filed 2014-11-10
10-K 2014-06-30 Filed 2014-09-08
10-Q 2014-03-31 Filed 2014-05-14
10-Q 2013-12-31 Filed 2014-03-14
8-K 2020-03-10
8-K 2020-03-06
8-K 2019-12-05
8-K 2019-11-06
8-K 2019-10-18
8-K 2019-10-15
8-K 2019-09-10
8-K 2019-09-03
8-K 2019-08-28
8-K 2019-06-27
8-K 2019-06-26
8-K 2019-06-26
8-K 2019-06-21
8-K 2018-11-06
8-K 2018-05-02

CMFN 10Q Quarterly Report

Note 1. Organization
Note 2. Significant Accounting Policies
Note 3. Recent Accounting Pronouncements
Note 4. Investments
Note 5. Notes Payable
Note 6. Indemnification, Guarantees, Commitments and Contingencies
Note 7. Agreements and Related Party Transactions
Note 8. Directors' Fees
Note 9. Net Change in Net Assets Resulting From Operations per Share
Note 10. Distributions
Note 11. Share Repurchase Program
Note 12. Share Transactions
Note 13. Financial Highlights
Note 14. Other Fee Income
Note 15. Tax Information
Note 16. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 d914403dex311.htm
EX-31.2 d914403dex312.htm
EX-32.1 d914403dex321.htm
EX-32.2 d914403dex322.htm

CM Finance Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 d914403d10q.htm INVESTCORP CREDIT MANAGEMENT BDC, INC. INVESTCORP CREDIT MANAGEMENT BDC, INC.
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2020

OR

 

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

COMMISSION FILE NUMBER: 814-01054

INVESTCORP CREDIT MANAGEMENT BDC, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland   46-2883380

(State or other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

280 Park Avenue

39th Floor

New York, NY 10017

(Address of Principal Executive Offices) (Zip Code)

(212) 257-5199

(Registrant’s Telephone Number, Including Area Code)

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 $0.001 per share

   ICMB     The NASDAQ Global Select Market

6.125% Notes due 2023

   CMFNL     The NASDAQ Global Select Market

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, a 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.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

    

Emerging growth company

 

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

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

The number of shares of the issuer’s Common Stock, $0.001 par value, outstanding as of May 8, 2020 was 13,885,335.


Table of Contents
             Page      

PART I. FINANCIAL INFORMATION

  
Item 1.  

Financial Statements

  
 

Consolidated Statements of Assets and Liabilities as of March  31, 2020 (unaudited) and June 30, 2019

     1  
 

Consolidated Statements of Operations for the three and nine months ended March 31, 2020 (unaudited) and March 31, 2019 (unaudited)

     2  
 

Consolidated Statements of Changes in Net Assets for the three and nine months ended March 31, 2020 (unaudited) and March 31, 2019 (unaudited)

     3  
 

Consolidated Statements of Cash Flows for the three and nine months ended March 31, 2020 (unaudited) and March 31, 2019 (unaudited)

     4  
 

Consolidated Schedule of Investments as of March 31, 2020 (unaudited)

     5  
 

Consolidated Schedule of Investments as of June 30, 2019

     8  
 

Notes to Unaudited Consolidated Financial Statements

     11  


Table of Contents

Investcorp Credit Management BDC, Inc. and Subsidiaries

Consolidated Statements of Assets and Liabilities

 

 

 

         March 31,    
2020

(Unaudited)
       June 30, 2019    

Assets

     

Non-controlled, non-affiliated investments, at fair value (amortized cost of $315,310,601 and $ 321,504,359, respectively)

   $ 274,912,817      $ 306,390,993  

Cash

     11,017,825        19,706,281  

Cash, restricted

     21,092,466        6,589,901  

Receivable for investments sold

     1,422,112        820,332  

Interest receivable

     2,737,421        3,090,639  

Payment-in-kind interest receivable

     379,527         

Deferred offering costs

     121,922        121,922  

Other receivables

     1,567,321         

Prepaid expenses and other assets

     424,999        227,924  
  

 

 

 

  

 

 

 

Total Assets

   $     313,676,410      $    336,947,992  
  

 

 

 

  

 

 

 

Liabilities

     

Notes payable:

     

Term loan

   $ 122,000,000      $ 122,000,000  

Revolving credit facility

     11,671,088        11,026,670  

2023 Notes payable

     51,375,000        34,500,000  

Deferred debt issuance costs

     (1,715,535      (2,000,262
  

 

 

 

  

 

 

 

Notes payable, net

     183,330,553        165,526,408  

Payable for investments purchased

     8,858,179        22,276,343  

Dividend payable

     3,415,034        3,404,923  

Deferred financing costs payable

     1,037,000        1,037,000  

Income-based incentive fees payable

     737,659        545,991  

Base management fees payable

     1,296,037         

Accrued provision for taxes

            13,778  

Interest payable

     1,069,895        724,222  

Directors’ fees payable

     21,559        95,240  

Accrued expenses and other liabilities

     856,136        240,197  
  

 

 

 

  

 

 

 

Total Liabilities

     200,622,052        193,864,102  

Commitments and Contingencies (Note 6)

     

Net Assets

     

Common stock, par value $0.001 per share (100,000,000 shares authorized, 13,870,248 and 13,619,690 shares issued and outstanding, respectively)

     13,870        13,620  

Additional paid-in capital

     200,863,603        198,398,831  

Distributable earnings (loss)

     (87,823,115      (55,328,561
  

 

 

 

  

 

 

 

Total Net Assets

     113,054,358        143,083,890  
  

 

 

 

  

 

 

 

Total Liabilities and Net Assets

   $ 313,676,410      $ 336,947,992  
  

 

 

 

  

 

 

 

Net Asset Value Per Share

   $ 8.15      $ 10.51  

See notes to unaudited consolidated financial statements.

 

1


Table of Contents

Investcorp Credit Management BDC, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

 

 

 

        For the three months ended    
March 31,
      For the nine months ended    
March 31,
    2020   2019   2020   2019

Investment Income:

       

Interest income

   $ 7,599,834          $     8,564,501          $   22,912,000          $ 24,700,592      

Payment in-kind interest income

    916,303             3,278,294       953,928  

Dividend income

          15,607             46,882  

Other fee income

    313,543       142,483       629,269       575,003  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment income

    8,829,680       8,722,591       26,819,563       26,276,405  

Expenses:

       

Interest expense

    2,532,121       2,164,625       7,417,144       6,586,019  

Base management fees

    1,359,833       1,369,713       4,084,894       4,126,865  

Income-based incentive fees

    (19,370     723,484       832,472       1,597,526  

Provision for tax expense

    135,024       131,304       145,042       144,250  

Professional fees

    394,868       251,158       1,094,828       717,486  

Allocation of administrative costs from advisor

    352,000       346,777       1,034,000       1,026,473  

Amortization of deferred debt issuance costs

    195,377       195,377       586,131       586,131  

Insurance expense

    100,044       83,987       267,567       252,867  

Directors’ fees

    82,500       101,250       187,500       303,750  

Custodian and administrator fees

    74,637       243,823       282,106       258,823  

Offering expense

    86,906       51,750       224,260       155,250  

Other expenses

    156,428       18,399       433,288       373,613  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

    5,450,368       5,681,647       16,589,232       16,129,053  

Waiver of base management fees

    (63,797           (165,832      

Waiver of income-based incentive fees

    (352     (362,478     (336,971     (384,478
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net expenses

    5,386,219       5,319,169       16,086,429       15,744,575  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

    3,443,461       3,403,422       10,733,134       10,531,830  

Net realized and unrealized gain/(loss) on investments:

       

Net realized gain (loss) from investments

    (7,688,552     (22,553,307     (7,632,194     (22,736,499

Net change in unrealized appreciation (depreciation) in value of investments

    (19,999,276     17,792,347       (25,284,416     2,892,876  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total realized and unrealized gain (loss) on investments

    (27,687,828     (4,760,960     (32,916,610     (19,843,623
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ (24,244,367    $ (1,357,538    $ (22,183,476    $ (9,311,793
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted:

       

Net investment income per share

   $ 0.25      $ 0.25      $ 0.78      $ 0.77  

Earnings per share

   $ (1.76    $ (0.10    $ (1.62    $ (0.68

Weighted average shares of common stock outstanding

      13,791,581       13,613,694       13,694,611       13,634,370  

Distributions paid per common share

   $ 0.25      $ 0.25      $ 0.75      $ 0.75  

See notes to unaudited consolidated financial statements.

 

2


Table of Contents

Investcorp Credit Management BDC, Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets (Unaudited)

 

 

 

     For the three months ended March 31,
     2020   2019

Net assets at beginning of period

    $ 139,557,334            $ 156,436,308        

Increase (decrease) in net assets resulting from operations:

    

Net investment income

     3,443,461       3,403,422  

Net realized gain/(loss) on investments

     (7,688,552     (22,553,307

Net change in unrealized appreciation (depreciation) on investments

     (19,999,276     17,792,347  
  

 

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

     (24,244,367     (1,357,538

Stockholder distributions:

    

Distributions from net investment income

     (3,467,562     (3,403,427
  

 

 

 

 

 

 

 

Net decrease in net assets resulting from stockholder distributions

     (3,467,562     (3,403,427

Capital transactions:

    

Issuance of common shares (113,500 and 0, respectively),

     1,152,025        

Reinvestments of stockholder distributions

     52,528       10,921  

Other paid in capital

     4,400        
  

 

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from capital transactions

     1,208,953       10,921  
  

 

 

 

 

 

 

 

Net increase (decrease) in net assets

     (26,502,976     (4,750,044
  

 

 

 

 

 

 

 

Net assets at end of period

    $     113,054,358      $     151,686,264  
  

 

 

 

 

 

 

 

     For the nine months ended March 31,
     2020   2019

Net assets at beginning of period

    $ 143,083,890      $ 171,522,666  

Increase (decrease) in net assets resulting from operations:

    

Net investment income

     10,733,134       10,531,830  

Net realized gain/(loss) on investments

     (7,632,194     (22,736,499

Net change in unrealized appreciation (depreciation) on investments

     (25,284,416     2,892,876  
  

 

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

     (22,183,476     (9,311,793

Stockholder distributions:

    

Distributions from net investment income

     (10,311,078     (10,226,670
  

 

 

 

 

 

 

 

Net decrease in net assets resulting from stockholder distributions

     (10,311,078     (10,226,670

Capital transactions:

    

Issuance of common shares (227,000 and 0, respectively),

     2,308,590        

Reinvestments of stockholder distributions

     152,032       60,634  

Other paid in capital

     4,400        

Repurchase of common stock

           (358,573
  

 

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from capital transactions

     2,465,022       (297,939
  

 

 

 

 

 

 

 

Net increase (decrease) in net assets

     (30,029,532     (19,836,402
  

 

 

 

 

 

 

 

Net assets at end of period

    $ 113,054,358      $ 151,686,264  
  

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements.

 

3


Table of Contents

Investcorp Credit Management BDC, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

    

For the nine months ended

March 31,

     2020   2019

Cash Flows from Operating Activities

    

Net increase (decrease) in net assets resulting from operations

    $ (22,183,476 )         $ (9,311,793 )     

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

    

Origination and purchase of investments

     (96,950,070     (169,688,427

Payment in-kind interest

     (2,898,767     (953,928

Sales and repayments of investments

     100,625,496       148,306,101  

Net realized (gain) loss on investments

     7,632,194       22,736,499  

Net change in unrealized (appreciation) depreciation on investments

     25,284,416       (2,892,876

Amortization of discount/premium on investments

     (2,215,092     (3,001,812

Amortization of deferred debt issuance costs

     586,131       586,131  

Net (increase) decrease in operating assets:

    

Interest receivable

     353,218       516,572  

Payment-in-kind interest receivable

     (379,527      

Receivable for investments sold

     (601,780     1,971,101  

Other receivables

     (1,567,321     245,550  

Prepaid expenses and other assets

     (197,075     (73,220

Net increase (decrease) in operating liabilities:

    

Payable for investments purchased

     (13,418,164     9,146,987  

Interest payable

     345,673       533,612  

Accrued provision for income taxes

     (13,778     (2,579,337

Directors fees payable

     (73,681     (6,507

Accrued expenses and other liabilities

     615,938       (221,362

Base management fees payable

     1,296,037       49,860  

Income-based incentive fees payable

     191,668       (1,239,902
  

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

     (3,567,960     (5,876,751

Cash Flows from Financing Activities:

    

Payment for deferred financing costs

     (301,404     (1,913,916

Issuance of common shares

     2,308,590        

Distributions to stockholders

     (10,148,935     (10,180,457

Repurchase of common stock

           (358,573

Other paid in capital

     4,400        

Proceeds from 2023 Notes

     16,875,000       34,500,000  

Proceeds from borrowing on revolving credit facility

     19,691,969       27,618,770  

Repayments of borrowing on revolving credit facility

     (19,047,551     (41,441,770
  

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

     9,382,069       8,224,054  
  

 

 

 

 

 

 

 

Net change in cash

     5,814,109       2,347,303  

Cash:

    

Cash and restricted cash at beginning of year

     26,296,182       8,326,714  
  

 

 

 

 

 

 

 

Cash and restricted cash at end of period

    $       32,110,291      $       10,674,017  
  

 

 

 

 

 

 

 

Supplemental and non-cash financing cash flow information:

    

Cash paid for interest

    $ 7,071,471      $ 6,052,407  

Cash paid for taxes

    $ 158,821      $ 2,723,561  

Issuance of shares pursuant to Dividend Reinvestment Plan

    $ 152,032      $ 60,634  

Non-cash purchase of investments

    $ (14,761,547    $  

Non-cash sale of investments

    $ 14,761,547      $  

See notes to unaudited consolidated financial statements.

 

4


Table of Contents

Investcorp Credit Management BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments

(Unaudited)

March 31, 2020

 

Investments(1)(2)

 

Industry

 

Interest Rate

  Initial
Acquisition
Date
    Maturity
Date
    Principal
Amount/
Shares(3)
    Amortized
Cost
    Fair Value     % of
Net
Assets
 

Non-Controlled/Non-Affiliates

             

Senior Secured First Lien Debt Investments

             

1888 Industrial Services, LLC –Term A(4)(11)

  Energy Equipment & Services   3M L + 5.00% PIK (1.00% Floor)     9/30/2016       9/30/2021     $ 5,311,486     $ 5,311,486     $ 5,311,486       4.70%  

1888 Industrial Services, LLC –Term B(4)(11)

  Energy Equipment & Services   3M L + 8.00% PIK (1.00% Floor)     9/30/2016       9/30/2021       13,644,830       7,870,723       4,093,449       3.62%  

1888 Industrial Services, LLC –Term C(4)(11)

  Energy Equipment & Services   3M L + 5.00% PIK (1.00% Floor)     6/25/2019       9/30/2021       667,930       667,930       667,930       0.59%  

1889 Industrial Services, LLC –Term D(4)(11)

  Energy Equipment & Services   3M L + 5.00% PIK (1.00% Floor)     9/19/2019       9/30/2021       102,929       102,929       102,929       0.09%  

1888 Industrial Services, LLC –Term E(4)(5)(11)

  Energy Equipment & Services   3M L + 5.00% PIK (1.00% Floor)     10/18/2019       9/19/2020       461,851       461,851       461,851       0.41%  

1888 Industrial Services, LLC –Revolver(4)(5)(11)

  Energy Equipment & Services   3M L + 5.00% PIK (1.00% Floor)     10/11/2016       9/30/2021       1,896,372       1,896,372       1,896,372       1.68%  

4L Technologies Inc

  Technology Hardware, Storage & Peripheral   3M L + 7.50% (1.00% Floor)     2/4/2020       2/3/2024       1,262,464       1,262,464       1,237,214       1.09%  

ACProducts, Inc.(6)

  Household Durables   1M L + 6.50% (1.00% Floor)     2/14/2020       7/1/2025       5,000,000       5,107,256       4,950,000       4.38%  

Alta Equipment Group, Inc

  Trading Companies & Distributors   3M L + 8.00% (1.00% Floor)     2/7/2020       8/14/2025       8,000,000       7,724,850       7,720,000       6.83%  

Altern Marketing, LLC –Revolver(5)

  Internet & Direct Marketing Retail   3M L + 6.00% (1.00% Floor)     10/7/2019       10/7/2024           (26,316         0.00%  

Altern Marketing, LLC

  Internet & Direct Marketing Retail   3M L + 6.00% (1.00% Floor)     10/7/2019       10/7/2024       6,969,737       6,904,602       6,830,342       6.04%  

Barri Financial Group, LLC

  Consumer Finance   1M L + 7.75% (1.00% Floor)     10/21/2019       10/22/2024       9,937,500       9,709,937       9,540,000       8.44%  

Bioplan USA, Inc.

  Containers & Packaging   1M L + 4.75% (1.00% Floor)     8/9/2018       9/23/2021       13,517,114       13,154,147       11,219,204       9.92%  

BW Gas & Convenience(6)

  Specialty Retail   1M L + 6.25% (1.00% Floor)     3/9/2020       11/18/2024       5,890,149       5,718,543       5,595,642       4.95%  

CareerBuilder, LLC

  Professional Services   1M L + 6.75% (1.00% Floor)     7/27/2017       7/31/2023       8,041,808       7,996,348       7,961,390       7.04%  

CB URS Holdings Corporation

  Road & Rail   1M L + 5.75% (1.00% Floor)     7/31/2019       9/1/2024       4,881,265       4,831,674       3,905,012       3.45%  

Cook & Boardman Group LLC

  Distributors   6M L + 5.75% (1.00% Floor)     10/12/2018       10/17/2025       9,875,000       9,791,287       9,381,250       8.30%  

Deluxe Toronto Ltd.(8)

  Media   1M L + 5.50% (1.00% Floor)     6/29/2018       12/7/2020       4,934,380       4,918,413       3,947,504       3.49%  

Empire Office Inc

  Commercial Services & Supplies   1M L + 7.00% (1.00% Floor)     3/28/2019       4/12/2024       14,250,000       14,010,069       13,537,500       11.97%  

Empire Resorts, Inc.

  Hotels, Restaurants & Leisure   3M L + 2.50% (1.00% Floor)     3/23/2020       3/22/2021       3,846,750       3,846,750       3,846,750       3.40%  

Exela Intermedia LLC

  IT Services   3M L + 6.50% (1.00% Floor)     6/5/2018       7/12/2023       5,665,233       5,702,644       2,832,616       2.51%  

Exela Intermedia LLC

  IT Services   Fixed 10.00%     5/22/2019       7/15/2023       1,000,000       919,590       500,000       0.44%  

FR Flow Control CB LLC –Term B(8)

  Trading Companies & Distributors   3M L + 6.00% (1.00% Floor)     5/10/2019       5/10/2026       5,359,500       5,260,874       5,037,930       4.46%  

FR Flow Control CB LLC –Term C(8)

  Trading Companies & Distributors   3M L + 6.00% (1.00% Floor)     5/10/2019       5/10/2026       2,100,000       2,061,351       1,974,000       1.75%  

Fusion Connect Inc. – Exit Term Loan(6)

  Internet Software & Services   3M L + 9.50% (2.00% Floor)     12/11/2019       12/31/2024       5,850,000       5,736,057       5,850,000       5.18%  

Fusion Connect Inc. – Take-Back Term Loan

  Internet Software & Services   3M L + 8.00% (1.00% Floor)     1/14/2020       7/14/2025       4,665,991       4,665,991       3,732,793       3.30%  

GEE Group, Inc.(7)

  Professional Services   1M L + 18.00%     3/26/2018       3/31/2021       11,052,302       11,052,302       10,223,379       9.04%  

GS Operating, LLC

  Trading Companies & Distributors   3M L + 6.50% (1.50% Floor)     2/24/2020       2/28/2025       10,000,000       9,802,300       9,800,000       8.67%  

See notes to unaudited consolidated financial statements.

 

5


Table of Contents

Investcorp Credit Management BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

(Unaudited)

March 31, 2020

 

Investments(1)(2)

  Industry   Interest Rate     Initial
Acquisition
Date
    Maturity
Date
    Principal
Amount/
Shares(3)
    Amortized
Cost
    Fair Value     % of
Net

Assets
 

Senior Secured First Lien Debt Investments, continued

 

           

Horus Infrastructure IA LLC

  Energy
Equipment &
Services
   
1M L + 3.50%
(1.00% Floor)
 
 
    11/8/2019       10/25/2022     $ 4,937,500     $ 4,479,295     $ 4,443,750       3.93%  

Hyperion Materials & Technologies, Inc.

  Construction
Materials
   
1M L + 5.50%
(1.00% Floor)
 
 
    8/16/2019       8/23/2026       4,987,500       4,892,829       4,688,250       4.15%  

Infrastructure & Energy Alternatives, Inc.

  Construction &
Engineering
    3M L + 6.75%       11/14/2018       9/25/2024       7,222,695       7,016,815       7,078,241       6.26%  

KIK Custom Products Inc

  Chemicals    
1M L + 4.00%
(1.00% Floor)
 
 
    3/11/2019       5/15/2023       5,000,000       4,776,168       4,750,000       4.20%  

Liberty Oilfield Services LLC(8)

  Energy
Equipment &
Services
   
1M L + 7.625%
(1.00% Floor)
 
 
    9/19/2017       9/19/2022       6,258,750       6,192,085       6,133,575       5.43%  

Limbach Holdings Inc(5)

  Construction &
Engineering
   
1M L + 8.00%
(2.00% Floor)

 
    4/11/2019       4/12/2023       9,461,538       9,391,723       9,272,308       8.20%  

Northstar Group Services Inc.

  Construction &
Engineering
   
3M L + 5%
(1.00% Floor)
 
 
    9/5/2019       9/8/2025       4,975,000       4,928,863       4,925,250       4.36%  

One Sky Flight LLC

  Airlines    
1M L + 7.50%
(1.00% Floor)
 
 
    12/19/2019       12/19/2024       9,875,000       9,637,608       9,381,250       8.30%  

Pixelle Specialty Solutions LLC

  Containers &
Packaging
   
3M L + 6.50%
(1.00% Floor)
 
 
    1/31/2020       10/31/2024       6,955,808       6,819,918       6,608,018       5.84%  

Potpourri Group, Inc.

  Retail    
1M L + 8.25%
(1.00% Floor)
 
 
    6/27/2019       7/3/2024       12,265,625       12,135,410       11,775,000       10.42%  

Premiere Global Services, Inc.

  Diversified
Telecommunication
Services
   
2M L + 6.50%
(1.00% Floor)
 
 
    5/6/2016       9/6/2023       10,127,608       9,693,079       6,076,565       5.37%  

ProFrac Services, LLC

  Energy
Equipment &
Services
   
6M L + 5.75%
(1.25% Floor)
 
 
    9/7/2018       9/7/2023       8,401,375       8,350,912       7,561,237       6.69%  

Qualtek USA LLC

  Construction &
Engineering
   
1M L + 5.75%
(1.00% Floor)
 
 
    7/15/2018       7/18/2025       9,625,000       9,483,281       9,047,500       8.00%  

RPX Corporation

  Professional
Services
   
1M L + 6.00%
(1.00% Floor)
 
 
    6/8/2018       6/19/2024       5,341,725       5,313,437       5,288,307       4.68%  

Specialty Building Products Holdings LLC

  Construction
Materials
    1M L + 5.75%       9/25/2018       9/25/2025       1,957,594       1,934,678       1,859,714       1.64%  

Techniplas LLC

  Auto Components     Fixed 10.00%       11/13/2018       5/1/2020       9,500,000       9,425,091       4,750,000       4.20%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Total Senior Secured First Lien Debt Investments

 

    281,077,309       270,933,616       245,795,508       217.41%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Senior Secured Second Lien Debt Investments

             

AP NMT Acquisition BV(8)(9)

  Media    
3M L + 9.00%
(1.00% Floor)
 
 
    8/12/2014       8/13/2022       15,000,000       14,562,754       14,850,000       13.13%  

Premiere Global Services, Inc.

  Diversified
Telecommunication
Services
   
3M L + 9.50%
(1.00% Floor)
 
 
    11/30/2016       6/6/2022       15,788,401       15,546,889       5,525,940       4.89%  

ZeroChaos Parent, LLC

  Professional
Services
   
3M L + 8.25%
(1.00% Floor)
 
 
    11/21/2017       10/31/2023       8,000,000       7,906,991       7,040,000       6.23%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Total Senior Secured Second Lien Debt Investments

 

    38,788,401       38,016,634       27,415,940       24.25%  
         

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited consolidated financial statements.

 

6


Table of Contents

Investcorp Credit Management BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

(Unaudited)

March 31, 2020

 

Investments(1)(2)

  Industry   Interest Rate     Initial
Acquisition
Date
    Maturity
Date
    Principal
Amount/
Shares(3)
    Amortized
Cost
    Fair Value     % of
Net
Assets
 

Equity, Warrants and Other Investments

             

1888 Industrial Services, LLC (Equity Interest)(4)(10)(11)

  Energy Equipment &
Services
        $ 11,880      $ —      $       0.00%  

4L Technologies Inc Common Stock(10)

  Technology
Hardware, Storage &
Peripheral
          149,918        2,171,581        1,499,176       1.33%  

Fusion Connect Inc. Common Stock(10)

  Internet Software &
Services
          22        306        22       0.00%  

Fusion Connect Inc. (Warrants)(10)

  Internet Software &
Services
          202,171        2,814,455        202,171       0.18%  

Limbach Holdings, Inc. (Warrants)(10)

  Construction &
Engineering
        4/12/2024             —          0.00%  

PR Wireless, Inc., $0.01 strike (Warrants)(10)

  Wireless
Telecommunication
Services
        6/27/2027       201        1,374,009            0.00%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity, Warrants and Other Investments

 

    364,193        6,360,351        1,701,369       1.51%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Total Non-Controlled/Non-Affiliates

 

   $  320,229,903       $  315,310,601       $ 274,912,817       243.17%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities in excess other assets

 

    (161,858,459     -143.17%  
             

 

 

   

 

 

 

Net Assets

 

   $ 113,054,358       100.00%  
             

 

 

   

 

 

 

 

 

  (1)

The Company’s investments are generally acquired in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), and, therefore, are generally subject to limitations on resale, and may be deemed to be “restricted securities’’ under the Securities Act of 1933.

 

  (2)

All investments are non-controlled and non-affiliated issuers. All investments are valued in good faith by the board of directors.

 

  (3)

Principal amount includes capitalized PIK interest unless otherwise noted.

 

  (4)

Effective October 1, 2017, AAR Intermediate Holdings, LLC changed its name to 1888 Industrial Services, LLC.

 

  (5)

Refer to Note 6 for more detail on the unfunded commitments.

 

  (6)

Security, or a portion thereof, unsettled as of March 31, 2020.

 

  (7)

First Lien Unitranche Last Out Investment, which accounts for 3.72% of our investment portfolio at fair value.

 

  (8)

The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. Non-qualifying assets represent 11.62% of total assets.

 

  (9)

A portfolio company domiciled in the Netherlands. The jurisdiction of the security issuer may be a different country than the domicile of the portfolio company.

 

  (10)

Securities are non-income producing.

 

  (11)

As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of this portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities.

1M L — 1 month LIBOR (0.99% as of March 31, 2020)

2M L — 2 month LIBOR (1.26% as of March 31, 2020)

3M L — 3 month LIBOR (1.45% as of March 31, 2020)

6M L — 6 month LIBOR (1.18% as of March 31, 2020)

PIK — Payment-In-Kind

See notes to unaudited consolidated financial statements.

 

7


Table of Contents

Investcorp Credit Management BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments

June 30, 2019

 

Investments(1)(2)

 

Industry

 

Interest Rate

  Initial
Acquisition
Date
    Maturity
Date
    Principal
Amount/
Shares(3)
    Amortized
Cost
    Fair Value     % of
Net
Assets
 

Non-Controlled/Non-Affiliates

             

Senior Secured First Lien Debt Investments

             

1888 Industrial Services, LLC – Term A(4)(12)

  Energy Equipment &
Services
  3M L + 5.00%
(1.00% Floor)
    9/30/2016       9/30/2021     $ 4,950,495     $ 4,950,495     $ 4,950,495       3.46%  

1888 Industrial Services, LLC – Term B(3)(4)(12)

  Energy Equipment &
Services
 

3M L + 8.00% PIK

(1.00% Floor)

    9/30/2016       9/30/2021       12,304,681       6,530,574       8,613,277       6.02%  

1888 Industrial Services, LLC – Term C(3)(4)(12)

  Energy Equipment &
Services
  3M L + 5.00%
(1.00% Floor)
    6/25/2019       9/30/2021       632,594       632,594       632,594       0.45%  

1888 Industrial Services, LLC – Revolver(4)(5)(12)

  Energy Equipment &
Services
  3M L + 5.00%
(1.00% Floor)
    10/11/2016       9/30/2021       1,881,188       1,881,188       1,881,188       1.31%  

4L Technologies Inc(6)

  Technology Hardware,
Storage & Peripheral
  3M L + 4.50%
(1.00% Floor)
    8/21/2018       5/8/2020       10,194,409       10,103,240       7,339,974       5.13%  

ACProducts, Inc

  Household Durables   3M L + 5.50%
(1.00% Floor)
    2/26/2019       2/14/2024       9,937,500       9,465,902       9,440,625       6.60%  

Bioplan USA, Inc

  Containers &
Packaging
  3M L + 4.75%
(1.00% Floor)
    8/9/2018       9/23/2021       13,623,828       13,089,944       12,942,636       9.04%  

CareerBuilder, LLC

  Professional Services   3M L + 6.75%
(1.00% Floor)
    7/27/2017       7/31/2023       13,079,231       12,845,118       13,079,231       9.14%  

Carlton Group

  Business Services   3M L + 7.00%
(1.00% Floor)
    3/27/2019       9/30/2022       5,425,670       5,425,670       5,425,670       3.79%  

Cook & Boardman Group, LLC

  Distributors   3M L + 5.75%
(1.00% Floor)
    10/12/2018       10/17/2025       9,950,000       9,857,462       9,850,500       6.89%  

Deluxe Toronto Ltd.(8)

  Media   3M L + 5.50%
(1.00% Floor)
    6/29/2018       12/7/2020       4,949,749       4,916,962       4,949,749       3.46%  

Empire Office Inc

  Commercial Services &
Supplies
  3M L + 7.00%
(1.00% Floor)
    3/28/2019       4/12/2024       14,812,500       14,526,409       14,516,250       10.14%  

Exela Intermedia LLC

  IT Services   3M L + 6.50%
(1.00% Floor)
    6/5/2018       7/12/2023       5,856,626       5,902,727       4,978,132       3.48%  

Exela Intermedia LLC

  IT Services   Fixed 10.00%     5/22/2019       7/15/2023       1,000,000       905,579       820,000       0.57%  

FPC Holdings, Inc.

  Distributors   3M L + 4.50%
(1.00% Floor)
    1/28/2019       4/2/2026       4,987,500       4,891,828       4,912,688       3.43%  

FR Flow Control CB LLC – Term B(6)

  Trading Companies &
Distributors
  3M L + 6.00%
(1.00% Floor)
    5/10/2019       5/10/2026       5,400,000       5,292,000       5,292,000       3.70%  

FR Flow Control CB LLC – Term C(6)

  Trading Companies &
Distributors
  3M L + 6.00%
(1.00% Floor)
    5/10/2019       5/10/2026       2,100,000       2,058,000       2,058,000       1.44%  

Fusion Connect, Inc.(13)(#)

  Internet Software &
Services
  3M L + 7.50%
(1.00% Floor)
    7/21/2018       5/4/2023       11,874,210       11,371,040       8,074,463       5.64%  

Fusion Connect, Inc. – Super Senior Secured(6)

  Internet Software &
Services
  3M L + 10.00%
(1.00% Floor)
    5/16/2019       6/3/2019       401,503       393,473       393,473       0.27%  

Fusion Connect, Inc. – Superpriority Secured Debtor-In-Possession(6)

  Internet Software &
Services
  3M L + 10.00%
(1.00% Floor)
    6/13/2019       10/7/2019       401,503       400,440       383,435       0.27%  

GEE Group, Inc.(6)(7)

  Professional Services   2M L + 18.00%
(1.00% Floor)
    3/26/2018       3/31/2021       11,319,236       11,319,236       11,319,236       7.91%  

Infrastructure & Energy Alternatives, Inc.(#)

  Construction &
Engineering
  3M L + 8.25%     11/14/2018       9/25/2024       11,875,000       11,491,066       11,221,875       7.84%  

Immucor, Inc.

  Health Care
Equipment & Supplies
  3M L + 5.00%
(1.00% Floor)
    6/27/2017       6/15/2021       7,350,000       7,310,573       7,350,000       5.14%  

KIK Custom Products Inc.

  Chemicals   3M L + 4.00%
(1.00% Floor)
    3/11/2019       5/15/2023       5,000,000       4,730,171       4,750,000       3.32%  

Liberty Oilfield Services LLC(8)

  Energy Equipment &
Services
  1M L + 7.625%
(1.00% Floor)
    9/19/2017       9/19/2022       6,358,750       6,272,383       6,358,750       4.44%  

See notes to unaudited consolidated financial statements.

 

8


Table of Contents

Investcorp Credit Management BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

June 30, 2019

 

Investments(1)(2)

  Industry   Interest Rate   Initial
Acquisition
Date
    Maturity
Date
    Principal
Amount/
Shares(3)
    Amortized
Cost
    Fair Value     % of
Net
Assets
 

Senior Secured First Lien Debt Investments, continued

           

Limbach Holdings, Inc.(#)

  Construction &
Engineering
  1M L + 8.00%
(1.00% Floor)
    4/11/2019       4/12/2023     $ 9,230,769     $ 9,143,579     $ 9,138,462       6.39%  

Montreign Operating Company, LLC

  Hotels,
Restaurants &
Leisure
  1M L + 8.25%
(1.00% Floor)
    12/16/2016       1/24/2023       13,064,995       13,140,133       11,105,246       7.76%  

Potpourri Group, Inc.(6)

  Retail   3M L + 8.25%
(1.00% Floor)
    6/27/2019       7/3/2024       12,500,000       12,350,000       12,350,000       8.63%  

PR Wireless LLC(5)

  Wireless
Telecommunication
Services
  3M L + 5.25%
(1.00% Floor)
    11/15/2017       6/29/2020       2,293,932       2,293,932       2,293,932       1.60%  

Premiere Global Services, Inc.(8)

  Diversified
Telecommunication
Services
  3M L + 6.50%
(1.00% Floor)
    5/6/2016       9/6/2023       10,141,266       9,604,558       7,403,124       5.17%  

ProFrac Services LLC

  Energy Equipment &
Services
  3M L + 5.75%
(1.00% Floor)
    9/7/2018       9/7/2023       8,929,431       8,859,820       8,840,137       6.18%  

Qualtek USA LLC

  Construction &
Engineering
  3M L + 5.75%
(1.00% Floor)
    7/15/2018       7/18/2025       9,812,500       9,652,203       9,665,312       6.75%  

RPX Corporation

  Professional Services   3M L + 6.00%     6/8/2018       6/19/2024       9,250,000       9,167,538       9,157,500       6.40%  

Sears Holding Company

  Retail   3M L + 7.25%
(1.00% Floor)
    2/11/2019       2/12/2024       2,000,000       1,981,026       2,000,000       1.40%  

Specialty Building Products Holdings LLC

  Construction
Materials
  3M L + 5.75%     9/25/2018       9/25/2025       6,982,500       6,888,014       6,912,675       4.84%  

Techniplas LLC

  Auto Components   Fixed 10.00%     11/13/2018       5/1/2020       9,500,000       9,185,104       8,835,000       6.17%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Total Senior Secured First Lien Debt Investments

 

    269,371,566       258,829,981       249,235,629       174.17%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Senior Secured Second Lien Debt Investments

             

AP NMT Acquisition BV(8)(9)

  Media   3M L + 9.00%
(1.00% Floor)
    8/12/2014       8/13/2022       15,000,000       14,455,174       14,943,750       10.44%  

Carlton Group

  Business Services   3M L + 11.50%
(1.00% Floor)
    3/27/2019       9/29/2023       2,000,000       2,000,000       2,000,000       1.40%  

Lionbridge Technologies, Inc.(3)

  Commercial
Services & Supplies
  1M L + 9.75%
(1.00% Floor)
    2/6/2017       2/28/2025       12,000,000       11,812,039       12,000,000       8.39%  

Premiere Global Services, Inc.

  Diversified
Telecommunication
Services
  3M L + 9.50%
(1.00% Floor)
    11/30/2016       6/6/2022       15,000,000       14,701,257       9,900,000       6.92%  

TouchTunes Interactive Networks, Inc.

  Media   1M L + 8.25%
(1.00% Floor)
    5/4/2017       5/27/2022       10,451,613       10,440,999       10,451,613       7.30%  

ZeroChaos Parent, LLC

  Professional Services   2M L + 8.25%
(1.00% Floor)
    11/21/2017       10/31/2023       8,000,000       7,890,900       7,860,000       5.49%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Total Senior Secured Second Lien Debt Investments

 

    62,451,613       61,300,369       57,155,363       39.94%  
         

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited consolidated financial statements.

 

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Investcorp Credit Management BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

June 30, 2019

 

Investments(1)(2)

  Industry   Interest Rate     Initial
Acquisition
Date
    Maturity
Date
    Principal
Amount/
Shares(3)
    Amortized
Cost
    Fair Value     % of
Net
Assets
 

Equity, Warrants and Other Investments

             

1888 Industrial Services, LLC (Equity Interest)(4)(10)

  Energy Equipment &
Services
          11,880      $ —      $ 1       0.00%  

Limbach Holdings, Inc.(Warrants)

  Construction
Materials
        4/12/2024             —              0.00%  

PR Wireless, Inc., $0.01 strike (Warrants)(10)

  Wireless
Telecommunication
Services
        6/27/2027       201        1,374,009              0.00%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity, Warrants and Other Investments

 

    12,082        1,374,009        1       0.00%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Total Non-Controlled/Non-Affiliates

 

   $ 331,835,261       $  321,504,359       $ 306,390,993       214.11%  
         

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities in excess other assets

 

    (163,293,325     (114.11%)  
             

 

 

   

 

 

 

Net Assets

 

   $ 143,097,668       100.00%  
             

 

 

   

 

 

 

 

 

  (1)

The Company’s investments are generally acquired in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), and, therefore, are generally subject to limitations on resale, and may be deemed to be “restricted securities’’ under the Securities Act of 1933.

 

  (2)

All investments are non-controlled and non-affiliated issuers. All investments are valued in good faith by the board of directors.

 

  (3)

Principal amount includes capitalized PIK interest unless otherwise noted.

 

  (4)

Effective October 1, 2017, AAR Intermediate Holdings, LLC changed its name to 1888 Industrial Services, LLC.

 

  (5)

Refer to Note 6 for more detail on the unfunded commitments.

 

  (6)

Security, or a portion thereof, unsettled as of June 30, 2019.

 

  (7)

First Lien Unitranche Last Out Investment, which accounts for 3.69% of our investment portfolio at fair value.

 

  (8)

The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. Non-qualifying assets represent 9.85% of total assets.

 

  (9)

A portfolio company domiciled in the Netherlands. The jurisdiction of the security issuer may be a different country than the domicile of the portfolio company.

 

  (10)

Securities are non-income producing.

 

  (12)

As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of this portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities.

 

  (13)

As of 4/1/2019, this investment has been in default.

 

  #

Classified as non-accrual asset.

1M L — 1 month LIBOR (2.40% as of June 30, 2019)

2M L — 2 month LIBOR (2.33% as of June 30, 2019)

3M L — 3 month LIBOR (2.32% as of June 30, 2019)

PIK — Payment-In-Kind

See notes to unaudited consolidated financial statements.

 

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Investcorp Credit Management BDC, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

March 31, 2020

Note 1. Organization

Investcorp Credit Management BDC, Inc. (“ICMB” or the “Company”) (formerly known as CM Finance Inc until August 30, 2019), a Maryland corporation formed in May 2013, 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”), and has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code (the “Code”) for U.S. federal income tax purposes. The Company is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 946 Financial Services – Investment Companies.

On February 11, 2014, the Company completed its initial public offering (the “Offering”), selling 7,666,666 shares of its common stock, par value $0.001, including the underwriters’ over-allotment, at a price of $15.00 per share with net proceeds of approximately $111.5 million.

CM Finance LLC, a Maryland limited liability company, commenced operations in March 2012. Immediately prior to the Offering, CM Finance LLC was merged with and into the Company (the “Merger”). In connection with the Merger, the Company issued 6,000,000 shares of common stock and $39.8 million in debt to the pre-existing CM Finance LLC investors, consisting of funds managed by Cyrus Capital Partners, L.P. (the “Original Investors” or the “Cyrus Funds”). The Company had no assets or operations prior to completion of the Merger and, as a result, the books and records of CM Finance LLC became the books and records of the Company, as the surviving entity. Immediately after the Merger, the Company issued 2,181,818 shares of its common stock to Stifel Venture Corp. (“Stifel”) in exchange for $32.7 million in cash. The Company used all of the proceeds of the sale of shares to Stifel to repurchase 2,181,818 shares of common stock from the Original Investors. Immediately after the completion of the Offering, the Company had 13,666,666 shares outstanding. The Company used a portion of the net proceeds of the Offering to repay 100% of the debt issued to the Original Investors in connection with the Merger.

On August 30, 2019, Investcorp Credit Management US LLC (“Investcorp”), a subsidiary of Investcorp Bank B.S.C., acquired the interests in CM Investment Partners LLC, the Company’s investment adviser (the “Adviser”), which were previously held by the Cyrus Funds and Stifel and paid off certain debt owed by the Adviser, resulting in Investcorp having a majority ownership interest in the Adviser (the “Investcorp Transaction”).

In connection with the Investcorp Transaction, on June 26, 2019, the Company entered into a definitive stock purchase and transaction agreement with Investcorp BDC Holdings Limited (“Investcorp BDC”), an affiliate of Investcorp (the “Stock Purchase Agreement”). Under the Stock Purchase Agreement, Investcorp BDC is required by August 30, 2021 to purchase (i) 680,985 newly issued shares of the Company’s common stock, par value $0.001 per share, at the most recently determined net asset value per share of the Company’s common stock at the time of such purchase, as adjusted as necessary to comply with Section 23 of the 1940 Act, and (ii) 680,985 shares of the Company’s common stock in open-market or secondary transactions.

In connection with the Investcorp Transaction, on June 26, 2019, the Company’s board of directors, including all of the directors who are not “interested persons” of the Company, as defined in Section 2(a)(19) of the 1940 Act (each, an “Independent Director”), unanimously approved a new investment advisory agreement (the “Advisory Agreement”), which was subsequently approved by the Company’s stockholders at a special meeting of stockholders held on August 28, 2019. In connection with the closing of the Investcorp Transaction, on August 30, 2019, the Company entered into the Advisory Agreement and a new administration agreement (the

 

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“Administration Agreement”) with the Adviser as its investment adviser and administrator, respectively. The Advisory Agreement and the Administration Agreement are substantially similar to the Company’s prior investment advisory agreement, dated February 5, 2014, between the Company and the Adviser (the “Prior Advisory Agreement”) and the Company’s prior administration agreement (the “Prior Administration Agreement”), respectively. In addition, on August 30, 2019, the Company changed its name to Investcorp Credit Management BDC, Inc.

The Company’s primary investment objective is to maximize total return to stockholders in the form of current income and capital appreciation by investing directly in debt and related equity of privately held middle-market companies to help these companies fund acquisitions, growth or refinancing. The Company invests primarily in middle-market companies in the form of unitranche loans, standalone first and second lien and mezzanine loans. The Company may also invest in unsecured debt, bonds and in the equity of portfolio companies through warrants and other instruments.

As a BDC, the Company is required to comply with certain regulatory requirements. For instance, as a BDC, the Company 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 total assets are qualifying assets. Qualifying assets include investments in “eligible portfolio companies.” Under the relevant Securities and Exchange Commission (“SEC”) rules, the term “eligible portfolio company” includes all private operating companies, operating companies whose securities are not listed on a national securities exchange, and certain public operating companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized and with their principal of business in the United States.

During the three months ended March 31, 2020, the Company’s operating results were negatively impacted by the uncertainty surrounding the COVID-19 pandemic which has caused severe disruptions in the global economy and negatively impacted the fair value and performance of the Company’s investment portfolio. The Company has closely monitored its portfolio companies throughout this period, including assessing portfolio companies’ operational and liquidity exposure and outlook. For the three months ended March 31, 2020, the resulting changes in net unrealized depreciation on investments were largely due to widening credit spreads as market participants expected a higher yield on similar investments given the significant market volatility generated by the COVID-19 pandemic. For additional information concerning the COVID-19 pandemic and its potential impact on the Company’s business and operating results, see Part II—Other Information, Item 1A. Risk Factors.

From time-to-time, the Company may form taxable subsidiaries that are taxed as corporations for U.S. federal income tax purposes (the “Taxable Subsidiaries”). At March 31, 2020, the Company had no Taxable Subsidiaries. At June 30, 2019, the Company had one Taxable Subsidiary: Zinc Borrower Blocker, LLC. The Taxable Subsidiaries, if any, allow the Company to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements applicable to a RIC under the Code.

Note 2. Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Company.

a. Basis of Presentation

The accompanying consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and all values are stated in U.S. dollars, unless noted otherwise. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the periods included herein as required by U.S. GAAP. These adjustments are normal and recurring in nature.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments and other amounts

 

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reported in the consolidated financial statements and accompanying notes. Management believes that the estimates utilized in preparing the Company’s consolidated financial statements are reasonable and prudent. Actual results could differ materially from these estimates. All material inter-company balances and transactions have been eliminated.

As permitted under Regulation S-X and ASC Topic 946, the Company will generally not consolidate its investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries, CM Finance SPV Ltd. (“SPV”) and CM Finance SPV LLC (“LLC”), which are special purpose vehicles used to finance certain investments, and Zinc Borrower Blocker, LLC in its consolidated financial statements. All intercompany balances and transactions have been eliminated.

b. Revenue Recognition, Security Transactions, and Realized/Unrealized Gains or Losses

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing, commitment, and amendment fees, purchase and original issue discounts associated with loans to portfolio companies are accreted into interest income over the respective terms of the applicable loans. Accretion of discounts or premiums is calculated by the effective interest or straight-line method, as applicable, as of the purchase date and adjusted only for material amendments or prepayments. Upon the prepayment of a loan or debt security, any prepayment penalties are included in other fee income and unamortized fees and discounts are recorded as interest income and are non-recurring in nature.

Loans are placed on non-accrual status when principal or interest payments are past due 90 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment about ultimate collectability of principal. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.

Dividend income is recorded on the ex-dividend date.

Origination, closing, commitment, and amendment fees, purchase and original issue discounts associated with loans to portfolio companies are accreted into interest income over the respective terms of the applicable loans. Accretion of discounts or premiums is calculated by the effective interest or straight-line method, as applicable, as of the purchase date and adjusted only for material amendments or prepayments. Upon the prepayment of a loan or debt security, any prepayment penalties are included in other fee income and unamortized fees and discounts are recorded as interest income and are non-recurring in nature. During the three and nine months ended March 31, 2020, $559,595 and $959,069, respectively, of prepayment penalties and unamortized discounts upon prepayment were recorded as interest income. During the three and nine months ended March 31, 2019, $1,002,568 and $2,018,491, respectively, of prepayment penalties and unamortized discounts upon prepayment were recorded as interest income.

Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are determined by calculating the difference between the net proceeds from the disposition and the amortized cost basis of the investments, without regard to unrealized gains or losses previously recognized. Realized gains or losses on the sale of investments are calculated using the specific identification method. The Company reports changes in fair value of investments as a component of the net change in unrealized appreciation (depreciation) on investments in the Unaudited Consolidated Statements of Operations.

Management reviews all loans that become 90 days or more past due on principal or interest or when there is reasonable doubt that principal or interest will be collected for possible placement on non-accrual status.

 

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Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although management may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. As of March 31, 2020, there were no loans on non-accrual status.

The Company may hold debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on an accrual basis to the extent that such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. The Company earned PIK interest of $916,303 and $3,278,294 during the three and nine months ended March 31, 2020, respectively. The Company earned PIK interest of $0 and $953,928 during the three and nine months ended March 31, 2019, respectively.

c. Paid In Capital

The Company records the proceeds from the sale of its common stock to common stock and additional paid-in capital, net of commissions and marketing support fees.

d. Net Increase in Net Assets Resulting from Operations per Share

The net increase in net assets resulting from operations per share is calculated based upon the weighted average number of shares of common stock outstanding during the reporting period.

e. Distributions

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

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

f. Cash and Restricted Cash

Cash and restricted cash consist of bank demand deposits. The Company deposits its cash in financial institutions, and at times, such balance may be in excess of the Federal Deposit Insurance Corporation insurance limits. All of the Company’s cash deposits are held at large established high credit quality financial institutions and management believes that the risk of loss associated with any uninsured balances is remote. The Company has restrictions on the uses of the cash held by SPV and LLC based on the terms of the Notes Payable. For more information on the Notes Payable, see Note 5.

g. Deferred Offering Costs

Deferred offering costs consist of fees and expenses incurred in connection with the offer and sale of the Company’s common stock and bonds, including legal, accounting, printing fees, and other related expenses, as

 

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well as costs incurred in connection with the filing of a shelf registration statement. These costs are capitalized when incurred and recognized as a reduction of offering proceeds when the offering is completed.

h. Investment Transactions and Expenses

Purchases of loans, including revolving credit agreements, are recorded on a fully committed basis until the funded and unfunded portions are known or estimable, which in many cases may not be until settlement.

Expenses are accrued as incurred.

Deferred debt issuance costs, incurred in connection with the Company’s Notes Payable, are amortized using the straight-line method over the life of the notes.

Offering costs were charged to paid-in capital upon the sale of shares in the Offering.

i. Investment Valuation

The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 – Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its investments and financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 4. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

Fair value is defined as the price that would be received upon a sale of an asset in an orderly transaction between market participants at the measurement date. Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that (a) are independent of us, (b) are knowledgeable, having a reasonable understanding about the asset based on all available information (including information that might be obtained through due diligence efforts that are usual and customary), (c) are able to transact for the asset, and (d) are willing to transact for the asset or liability (that is, they are motivated but not forced or otherwise compelled to do so).

Securities that are traded on securities exchanges (including such securities traded in the after-hour’s market) are valued on the basis of the closing price on the valuation date (if such prices are available). Securities that are traded on more than one securities exchange are valued at the closing price on the primary securities exchange on which such securities are traded on the valuation date (or if reported on the consolidated tape, then their last sales price on the consolidated tape). Listed options for which the last sales price falls between the last “bid” and “ask” prices for such options are valued at their last sales price on the date of the valuation on the primary securities exchange on which such options are traded. Options for which the last sales price on the valuation date does not fall between the last “bid” and “ask” prices are valued at the average of the last “bid” and “ask” prices for such options on that date. To the extent these securities are actively traded, and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy. The Company held no Level 1 investments as of March 31, 2020 and June 30, 2019.

Investments that are not traded on securities exchanges but are traded on the over-the-counter (“OTC”) markets (such as term loans, notes and warrants) are valued using various techniques, which may consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (when observable) and fundamental data relating to the issuer. These investments are categorized in Level 2 of the fair value hierarchy, or in instances when lower relative weight is placed on transaction prices, quotations, or similar observable inputs, they are categorized in Level 3.

 

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Investments for which market quotations are not readily available or may be considered unreliable are fair valued, in good faith, using a method determined to be appropriate in the given circumstances. The valuation methods used include the Cost Approach, the Market Approach and the Income Approach. Inputs used in these approaches may include, but are not limited to, interest rate yield curves, credit spreads, recovery rates, comparable company transactions, trading multiples, and volatilities. The valuation method of the Company may change as changes in the underlying company dictates, such as moving from the Cost Approach to Market Approach when underlying conditions change at the company. Because of the inherent uncertainty of valuation in these circumstances, the fair values for the aforementioned investments may differ significantly from values that would have been used had a ready and liquid market for such investments existed or from the amounts that might ultimately be realized, and such differences could be material.

The Company’s valuation policies and procedures are developed by the Adviser, which is also responsible for ensuring that the valuation policies and procedures are consistently applied across all investments of the Company and approved by the Company’s board of directors. The valuations are continuously monitored and the valuation process for Level 3 investments is completed on a quarterly basis and is designed to subject the valuation of Level 3 investments to an appropriate level of consistency, oversight and review. The valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Adviser responsible for the portfolio investment. These investment professionals prepare the preliminary valuations based on their evaluation of financial and operating data, company specific developments, market valuations of comparable securities from the same company or that of comparable companies as well as any other relevant factors including recent purchases and sales that may have occurred preceding month-end.

Valuation models are typically calibrated upon initial funding and are re-calibrated as necessary upon subsequent material events (including, but not limited to additional financing activity, changes in comparable companies, and recent trades). The preliminary valuation conclusions are then documented and discussed with senior management of the Adviser. On a periodic basis and at least once annually, independent valuation firm(s) engaged by the Company conduct independent appraisals and review the Adviser’s preliminary valuations and make their own independent assessment. The Valuation Committee of the Company’s board of directors then reviews the preliminary valuations of the Adviser and that of the independent valuation firms. The Valuation Committee discusses the valuations and makes a recommendation to the Company’s board of directors regarding the fair value of each investment in good faith based on the input of the Adviser and the independent valuation firm(s). Upon recommendation by the Valuation Committee and a review of the valuation materials of the Adviser and the third-party independent valuation firm(s), the board of directors of the Company determines, in good faith, the fair value of each investment.

For more information on the classification of the Company’s investments by major categories, see Note 4.

The fair value of the Company’s assets and liabilities that qualify as financial instruments under U.S. GAAP approximates the carrying amounts presented in the Unaudited Consolidated Statements of Assets and Liabilities.

j. Income Taxes

The Company has elected to be treated and qualifies, for U.S. federal income tax purposes, as a RIC under Subchapter M of the Code. To qualify, and maintain qualification, as a RIC, the Company must, among other things, meet certain source of income and asset diversification requirements and distribute to stockholders, for each taxable year, at least 90% of the Company’s “investment company taxable income,” which is generally the Company’s net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. If the Company continues to qualify as a RIC and continues to satisfy the annual distribution requirement, the Company will not have to pay corporate level U.S. federal income taxes on any income that the Company distributes to its stockholders. The Company intends to make distributions in an amount sufficient to maintain RIC status each year and to avoid any federal income taxes on income.

 

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The Company will also be subject to nondeductible U.S. federal excise taxes if the Company does not distribute to its stockholders at least 98% of net ordinary income, 98.2% of capital gains, if any, and any recognized and undistributed income from prior years for which it paid no U.S. federal income taxes. Additionally, certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state income taxes. The Company recorded a provision for taxes of $135,024 and $145,042 for the three and nine months ended March 31, 2020, respectively, for U.S. federal and state income taxes related to the Taxable Subsidiaries. The Company recorded a provision for taxes of $131,304 and $144,250 for the three and nine months ended March 31, 2019, respectively, for U.S. federal and state income taxes related to the Taxable Subsidiaries.

Book and tax basis differences that are permanent differences are reclassified among the Company’s capital accounts, as appropriate at year-end. Additionally, the tax character of distributions is determined in accordance with the Code, which differs from U.S. GAAP. During the three and nine months ended March 31, 2020, the Company recorded distributions of $3.5 million and $10.3 million, respectively. During the three and nine months ended March 31, 2019, the Company recorded distributions of $3.4 million and $10.2 million, respectively. The tax character of a portion of these distributions may be return of capital.

U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in the current year. The Company’s policy is to recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision.

The Company has analyzed such tax positions and has concluded that no unrecognized tax benefits should be recorded for uncertain tax positions for any tax year since inception. Each of the tax years since inception remains subject to examination by taxing authorities. This conclusion may be subject to review and adjustment at a later date based on factors, including but not limited to, ongoing analysis and changes to laws, regulations, and interpretations thereof.

Permanent differences between investment company taxable income and net investment income for financial reporting purposes are reclassified among capital accounts in the financial statements to reflect their tax character. Differences in classification may also result from the treatment of short-term gains as ordinary income for U.S. federal income tax purposes. During the year ended June 30, 2019, the Company reclassified for book purposes amounts arising from permanent book/tax differences related to the different tax treatment of paydown gains and losses, Taxable Subsidiary partnership investments, nondeductible taxes paid and income/(loss) from wholly owned subsidiaries as follows:

 

     As of
        June 30, 2019        
 

Additional paid-in capital

     $  (46,092

Distributable earnings

     46,092  

The tax character of all distributions paid by the Company during the year ended June 30, 2019 was ordinary income.

 

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At June 30, 2019, the components of distributable earnings on a tax basis detailed below differ from the amounts reflected in the Company’s Consolidated Statement of Assets and Liabilities by temporary and other book/tax differences, primarily relating to the tax treatment of dividends payable and non-deductible incentive fee income unvested, as follows:

 

     As of
        June 30, 2019        
 

Undistributed net investment income

   $ 6,961,406   

Accumulated capital gains (losses) and other

     (21,939,217)    

Capital loss carryover

     (21,270,472)    

Unrealized appreciation (depreciation)

     (15,113,364)    

Distributions payable

     (3,404,923)    
  

 

 

 

Components of tax distributable earnings at year end

    $     (54,766,570)  
  

 

 

 

For U.S. federal income tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. These capital losses can be carried forward for an indefinite period and will retain their character as either short-term or long-term capital losses. As of June 30, 2019, the Company had a net short-term capital loss carryforward of $1,177,259 and a net long-term capital loss carryforward of $20,093,213 available to be carried forward for an indefinite period.

A RIC may elect to defer any capital losses incurred after October 31, 2018 (“post-October”) to the beginning of the following fiscal year. As of June 30, 2019, the Company had a post-October short-term capital loss deferral of $220,936 and a post-October long-term capital loss deferral of $21,718,281. These losses are deemed to arise on July 1, 2019.

k. Capital Gains Incentive Fee

The Advisory Agreement went into effect on August 30, 2019 (the “Commencement Date”). As with the Prior Advisory Agreement, under the Advisory Agreement, the Company has agreed to pay the Adviser a fee for investment advisory and management services consisting of two components — a base management fee (the “Base Management Fee”) and an incentive fee (the “Incentive Fee”). The Incentive Fee, which provides the Adviser with a share of the income that it generates for the Company, has two components, ordinary income (the “Income-Based Fee”) and capital gains (the “Capital Gains Fee”).

Under U.S. GAAP, the Company calculates the Capital Gains Fee payable to the Adviser as if the Company had realized all investments at their fair values as of the reporting date. Accordingly, the Company accrues a provisional Capital Gains Fee taking into account any unrealized gains or losses. As the provisional Capital Gains Fee is subject to the performance of investments until there is a realization event, the amount of provisional Capital Gains Fee accrued at a reporting date may vary from the incentive fee that is ultimately realized and the differences could be material.

Under the Advisory Agreement, the Capital Gains Fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), commencing with the fiscal year ending June 30, 2021, and will equal to 20.0% of the Company’s cumulative aggregate realized capital gains from the Commencement Date through the end of that fiscal year, computed net of the Company’s aggregate cumulative realized capital losses and the Company’s aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid Capital Gains Fees. If such amount is negative, then no Capital Gains Fee will be payable for such year. Additionally, if the Advisory Agreement is terminated as of a date that is not a fiscal year end, the termination date will be treated as though it were a fiscal year end for purposes of calculating and paying the Capital Gains Fee. Therefore, under the Advisory Agreement, the Capital Gains Fee will not be charged until the fiscal year ending June 30, 2021.

 

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As of March 31, 2020, and June 30, 2019, there was no capital gains incentive fee payable to the Adviser under the Advisory Agreement or the Prior Advisory Agreement.

l. Share Repurchase Program

On May 2, 2018, the Company’s board of directors authorized a discretionary repurchase program of up to $5.0 million shares of the Company’s common stock, until the earlier of (i) May 1, 2019 or (ii) the repurchase of $5.0 million in aggregate amount of the common stock unless extended by the Company’s board of directors. On May 1, 2019, the Company’s board of directors extended the share repurchase program until the earlier of (i) May 1, 2020 or (ii) the repurchase of $5.0 million in aggregate amount of the common stock. Under the discretionary repurchase program, the Company may, but is not obligated to, repurchase the outstanding common stock from time to time in the open market provided that the Company complies with the prohibitions under its insider trading policies and procedures and the applicable provisions of the 1940 Act, and the Securities Exchange Act of 1934, as amended. In addition, any repurchases will be conducted in accordance with the 1940 Act. The timing and number of shares to be repurchased will depend on a number of factors, including market conditions and alternative investment opportunities and no assurances can be given that any common stock, or any particular amount, will be purchased. The Company will retire immediately all shares of common stock that are purchased in connection with the share repurchase program. During the three and nine months ended March 31, 2020, the Company did not repurchase shares of its common stock in the open market. During the three months ended March 31, 2019, the Company did not repurchase share of its common stock on the open market. During the nine months ended March 31, 2019, the Company repurchased 42,214 shares of its common stock in the open market for $358,573 (including commissions). Refer to Note 11 for additional information concerning share repurchases.

Note 3. Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial statements upon adoption.

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 (“ASU 2018-13”). ASU 2018-13 will modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. The Company is currently evaluating the impact ASU 2018-13 will have on the Company’s consolidated financial statements and disclosures.

Certain items in the March 31, 2019 consolidated financial statements have been reclassified to conform to the March 31, 2020 presentation with no effect on net income.

Note 4. Investments

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

 

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a. Certain Risk Factors

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

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

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

Credit risk is the potential loss the Company may incur from a failure of an issuer to make payments according to the terms of a contract. The Company is subject to credit risk because of its strategy of investing in the debt of leveraged companies. The Company’s exposure to credit risk on its investments is limited to the fair value of the investments.

b. Investments

Investment purchases, sales and principal payments/paydowns are summarized below for the three and nine months ended March 31, 2020 and March 31, 2019, respectively. These purchase and sale amounts exclude derivative instruments.

 

    Three months ended March 31,     

Nine months ended March 31,

 
    2020      2019      2020      2019  

Investment purchases, at cost (including PIK interest)

  $   37,860,881      $   65,620,872      $   99,848,838      $   170,642,355  

Investment sales and repayments

    41,204,396        46,538,203        100,625,946        147,675,802  

The composition of the Company’s investments as of March 31, 2020, as a percentage of the total portfolio, at amortized cost and fair value, are as follows:

 

    Investment at
    Amortized Cost    
        Percentage             Investments at    
Fair Value
        Percentage      

Senior Secured First Lien Debt Investments

   $ 259,881,314       82.42%      $ 235,572,129       85.69%  

Unitranche First Lien Debt Investment

    11,052,302       3.50     10,223,379       3.72

Senior Secured Second Lien Debt Investment

    38,016,634       12.06     27,415,940       9.97

Equity, Warrants and Other Investments

    6,360,351       2.02     1,701,369       0.62
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $       315,310,601       100.00%      $       274,912,817       100.00%  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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The composition of the Company’s investments as of June 30, 2019, as a percentage of the total portfolio, at amortized cost and fair value, are as follows:

 

    Investment at
    Amortized Cost    
        Percentage             Investments at    
Fair Value
        Percentage      

Senior Secured First Lien Debt Investments

   $ 247,510,745       76.98%      $ 237,916,393       77.66%  

Unitranche First Lien Debt Investment

    11,319,236       3.52       11,319,236       3.69  

Senior Secured Second Lien Debt Investments

    61,300,369       19.07       57,155,363       18.65  

Equity, Warrants and Other Investments

    1,374,009       0.43       1       0.00  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $       321,504,359       100.00%      $       306,390,993       100.00%  
 

 

 

   

 

 

   

 

 

   

 

 

 

The Company uses Global Industry Classification Standard (“GICS”) codes to identify the industry groupings in its portfolio. The following table shows the portfolio composition by industry grouping at fair value at March 31, 2020:

 

Industry Classification

   Investments at
Fair Value
     Percentage of
    Total Portfolio      
 

Energy Equipment & Services

    $ 30,672,578        11.16%  

Professional Services

     30,513,077        11.10%  

Construction & Engineering

     30,323,298        11.03%  

Trading Companies & Distributors

     24,531,930        8.93%  

Media

     18,797,504        6.84%  

Containers & Packaging

     17,827,222        6.48%  

Commercial Services & Supplies

     13,537,500        4.92%  

Retail

     11,775,000        4.28%  

Diversified Telecommunication Services

     11,602,505        4.22%  

Internet Software & Services

     9,784,986        3.56%  

Consumer Finance

     9,540,000        3.47%  

Airlines

     9,381,250        3.41%  

Distributors

     9,381,250        3.41%  

Internet & Direct Marketing Retail

     6,830,342        2.48%  

Construction Materials

     6,547,964        2.38%  

Specialty Retail

     5,595,642        2.04%  

Household Durables

     4,950,000        1.80%  

Auto Components

     4,750,000        1.73%  

Chemicals

     4,750,000        1.73%  

Road & Rail

     3,905,012        1.42%  

Hotels, Restaurants & Leisure

     3,846,750        1.40%  

IT Services

     3,332,617        1.21%  

Technology Hardware, Storage & Peripherals

     2,736,390        1.00%  
  

 

 

    

 

 

 

Total

    $     274,912,817        100.00%  
  

 

 

    

 

 

 

 

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The following table shows the portfolio composition by industry grouping at fair value at June 30, 2019:

 

Industry Classification

   Investments at
Fair Value
     Percentage of
    Total Portfolio      
 

Professional Services

    $ 41,415,967        13.52%  

Energy Equipment & Services

     31,276,442        10.21%  

Media

     30,345,112        9.91%  

Construction & Engineering

     30,025,649        9.80%  

Commercial Services & Supplies

     26,516,250        8.65%  

Diversified Telecommunication Services

     17,303,124        5.65%  

Distributors

     14,763,188        4.82%  

Retail

     14,350,000        4.68%  

Containers & Packaging

     12,942,636        4.22%  

Hotels, Restaurants & Leisure

     11,105,246        3.62%  

Household Durables

     9,440,625        3.08%  

Internet Software & Services

     8,851,371        2.89%  

Auto Components

     8,835,000        2.88%  

Business Services

     7,425,670        2.42%  

Trading Companies & Distributors

     7,350,000        2.40%  

Health Care Equipment & Supplies

     7,350,000        2.40%  

Technology Hardware, Storage & Peripherals

     7,339,974        2.40%  

Construction Materials

     6,912,675        2.26%  

IT Services

     5,798,132        1.89%  

Chemicals

     4,750,000        1.55%  

Wireless Telecommunication Services

     2,293,932        0.75%  
  

 

 

    

 

 

 

Total

    $     306,390,993        100.00%  
  

 

 

    

 

 

 

The following table shows the portfolio composition by geographic grouping at fair value at March 31, 2020:

 

     Fair Value      Percentage of
    Total Portfolio    
 

U.S. Northeast

    $ 74,508,807        27.10%  

U.S. Midwest

     54,354,107        19.77%  

U.S. Southwest

     41,890,629        15.24%  

U.S. Mid-Atlantic

     30,011,575        10.92%  

International

     25,809,434        9.39%  

U.S. West

     24,652,666        8.97%  

U.S. Southeast

     23,685,599        8.61%  
  

 

 

    

 

 

 

Total

    $     274,912,817         100.00%  
  

 

 

    

 

 

 

The following table shows the portfolio composition by geographic grouping at fair value at June 30, 2019:

 

     Fair Value      Percentage of
Total Portfolio
 

U.S. Northeast

    $ 112,966,230        36.87%  

U.S. Midwest

     48,834,830        15.94%  

U.S. Southeast

     45,178,967        14.74%  

International

     27,243,499        8.89%  

U.S. West

     25,235,056        8.24%  

U.S. Mid-Atlantic

     23,738,962        7.75%  

U.S. Southwest

     23,193,449        7.57%  
  

 

 

    

 

 

 

Total

    $     306,390,993         100.00%  
  

 

 

    

 

 

 

 

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The Company’s primary investment objective is to maximize total return to stockholders in the form of current income and capital appreciation by investing directly in debt and related equity of privately held middle-market companies to help these companies fund acquisitions, growth or refinancing. During the nine months ended March 31, 2020, the Company made investments in eleven new portfolio companies of approximately $82.5 million to which it was not previously contractually committed to provide financial support. During the nine months ended March 31, 2020, the Company made investments of $14.1 million in four existing portfolio companies to which it was previously committed to provide financial support through the terms of the revolvers and delayed draw term loans. The details of the Company’s investments have been disclosed on the Unaudited Consolidated Schedule of Investments.

c. Derivatives

Derivative contracts include total return swaps and embedded derivatives in Notes Payable. The Company may enter into derivative contracts as part of its investment strategies.

The Company and UBS entered into a total return swap (“TRS”) transactions whereby the Company will receive the total return of the Term Notes and the Revolving Notes (as defined in Note 5) purchased by UBS and pay the Financing Rate and the Revolver Financing Rate (both as defined in Note 5). Therefore, amounts required for the future satisfaction of the swaps may be greater or less than the amount recorded. Realized and change in unrealized gains and losses on total return swaps, if any, are included in the net realized gain or loss on derivative, and net change in unrealized appreciation (depreciation) on derivative in the Consolidated Statements of Operations. On December 5, 2016, the TRS on the Revolving Notes expired in accordance with its terms.

In connection with the TRS transactions, the Company entered into an International Swap and Derivatives Association Agreement (“ISDA Agreement”) with UBS. The ISDA Agreement includes provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Agreement, the Company typically may offset with the counterparty certain derivative payable and/or receivable with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination.

The Company’s ISDA Agreement may contain provisions for early termination of over-the-counter derivative transactions in the event the net assets of the Company decline below specific levels (“net asset contingent features”). If these levels are triggered, the Company’s counterparty has the right to terminate such transaction and require the Company to pay or receive a settlement amount in connection with the terminated transaction.

The Company has determined that the Term Notes payable from SPV to UBS related to the Term Financing (discussed further in Note 5) contains an embedded derivative. SPV is obligated to pay UBS the net appreciation (depreciation) of the SPV Assets, as defined below, as well as pay any income generated by the SPV Assets until maturity. Therefore, amounts required for the future satisfaction of the note may be greater or less than the amount recorded. Realized and change in unrealized gains and losses on the embedded derivative is included in the net realized gain or loss on derivatives, and net change in unrealized appreciation (depreciation) on derivative in the Unaudited Consolidated Statements of Operations.

At March 31, 2020 and June 30, 2019, the Company held no derivative contracts.

 

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The following table reflects the amount of gains (losses) on derivatives included in the Unaudited Consolidated Statements of Operations for the three and nine months ended March 31, 2020 and March 31, 2019, respectively. None of the derivatives were designated as hedging instruments under U.S. GAAP.

 

      For the three months ended March 31,       For the nine months ended March 31,  
    2020      2019     2020      2019  

Total Return Swaps

  $      $ (4,087   $      $ (328,385

Embedded Derivatives—Notes Payable

        —            4,087           —           328,385  
 

 

 

    

 

 

   

 

 

    

 

 

 

Total

  $      $     $      $  
 

 

 

    

 

 

   

 

 

    

 

 

 

d. Fair Value Measurements

ASC 820 defines fair value 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. ASC 820 also establishes a framework for measuring fair value and a valuation hierarchy that prioritizes the inputs used in the valuation of an asset or liability based upon their transparency. The valuation hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assets and liabilities measured at fair value have been classified in the following three categories:

Level 1 – valuation is based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 – valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly; (c) inputs other than quoted prices that are observable for the asset or liability; or (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – valuation is based on unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, that is, an exit price from the perspective of a market participant that holds the asset or owes the liability. Therefore, unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Unobservable inputs are developed based on the best information available under the circumstances, which might include the Company’s own data. The Company’s own data used to develop unobservable inputs is adjusted if information is reasonably available without undue cost and effort that indicates that market participants would use different assumptions.

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of the market and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

 

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Estimates of fair value for cash and restricted cash are measured using observable, quoted market prices, or Level 1 inputs. All other fair value significant estimates are measured using unobservable inputs, or Level 3 inputs.

The following table summarizes the classifications within the fair value hierarchy of the Company’s assets and liabilities measured at fair value as of March 31, 2020:

 

       Level 1          Level 2        Level 3      Total  

Assets

           

Investments

           

Senior Secured First Lien Debt Investments

    $ —       $ —       $ 245,795,508       $ 245,795,508

Senior Secured Second Lien Debt Investments

     —          —          27,415,940        27,415,940

Equity, Warrants and Other Investments

     —          —          1,701,369        1,701,369
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

       —            —         $   274,912,817       $    274,912,817
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes the classifications within the fair value hierarchy of the Company’s assets and liabilities measured at fair value as of June 30, 2019:

 

       Level 1          Level 2        Level 3      Total  

Assets

           

Investments

           

Senior Secured First Lien Debt Investments

    $ —       $ —       $ 249,235,629       $ 249,235,629  

Senior Secured Second Lien Debt Investments

     —          —          57,155,363        57,155,363  

Equity, Warrants and Other Investments

     —          —          1        1  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

       —            —         $   306,390,993       $    306,390,993  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the nine months ended March 31, 2020:

 

    Senior Secured
First Lien
  Debt Investments  
    Senior Secured
Second Lien
    Debt Investments    
    Unsecured
Debt
  Investment  
      Equity, Warrants  
and Other
Investments
    Total
  Investments  
 

Balance as of June 30, 2019

   $     249,235,629      $     57,155,363    $         —      $    $   306,390,993

Purchases (including PIK interest)

    99,060,438       788,400     —         —         99,848,838  

Sales

    (76,173,883     (24,451,613     —         —         (100,625,496

Amortization

    1,835,615       379,477     —         —         2,215,092  

Net realized gains (losses)

    (7,632,194     —         —         —         (7,632,194

Transfers in

    9,775,204       —         —         4,986,343     14,761,547  

Transfers out

    (14,761,547     —         —         —         (14,761,547

Net change in unrealized (depreciation) appreciation

    (15,543,754     (6,455,687     —         (3,284,975)       (25,284,416
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of March 31, 2020

   $ 245,795,508      $ 27,415,940    $ —      $ 1,701,369    $ 274,912,817
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in unrealized gains (losses) relating to assets still held as of March 31, 2020

   $ (23,627,819    $ (6,257,114    $ —      $ (3,284,974)      $ (33,169,907
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the nine months ended March 31, 2019:

 

    Senior Secured
First Lien
  Debt Investments  
    Senior Secured
Second Lien
    Debt Investments    
    Unsecured
Debt
    Investments    
      Equity, Warrants  
and Other
Investments
    Total
Investments
 

Balance as of June 30, 2018

   $   165,136,316      $   127,200,954      $     731,742      $ 523,001      $ 293,592,013  

Purchases (including PIK
interest)

    153,163,986       16,706,250       —         —         169,870,236  

Sales

    (75,079,552     (72,596,250     —         —         (147,675,802

Amortization

    1,008,043       1,993,768       —         —         3,001,811  

Net realized gains (losses)

    93,750       (22,688,414     —         —         (22,594,664

Transfers in

    —         —         —         —         —    

Transfers out

    —         —         —         —         —    

Net change in unrealized (depreciation) appreciation

    (5,735,827     8,837,442     (731,742     523,000       2,892,873  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of March 31, 2019

   $ 238,586,716      $ 59,453,750    $ —      $ 1,046,001      $ 299,086,467  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in unrealized gains (losses) relating to assets and liabilities still held as of March 31, 2019

   $ (5,320,245    $ (4,097,477    $ —      $       523,000      $ (8,894,722
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Total
Return
            Swaps             
     Embedded
Derivatives -
Notes
            Payable             
    Total
Derivatives
 

Balance as of June 30, 2018

    $ (229,918)     $         229,918      $ —  

Net change in unrealized (depreciation) appreciation

     328,385        (328,385                     —    
  

 

 

    

 

 

   

 

 

 

Balance as of March 31, 2019

    $ 98,467       $ (98,467    $ —  
  

 

 

    

 

 

   

 

 

 

Change in unrealized gains (losses) relating to assets and liabilities still held as of March 31, 2019

    $       5,928,968       $ (5,928,968    $ —  
  

 

 

    

 

 

   

 

 

 

Transfers into Level 3 during or at the end of the reporting period are reported under Level 1 or Level 2 as of the beginning of the period. Transfers out of Level 3 during or at the end of the reporting period are reported under Level 3 as of the beginning of the period. Changes in unrealized gains (losses) relating to Level 3 instruments are included in net change in unrealized (depreciation) appreciation on investments and derivatives on the Unaudited Consolidated Statements of Operations.

During the three and nine months ended March 31, 2020 and March 31, 2019, the Company did not transfer any investments among levels 1, 2 and 3.

The following tables present the ranges of significant unobservable inputs used to value the Company’s Level 3 investments as of March 31, 2020 and June 30, 2019. These ranges represent the significant unobservable inputs that were used in the valuation of each type of investment. These inputs are not representative of the inputs that could have been used in the valuation of any one investment. For example, the highest market yield presented in the table for senior secured notes is appropriate for valuing a specific

 

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investment but may not be appropriate for valuing any other investment. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the Company’s Level 3 investments.

 

    Fair Value as of
March 31,
2020
    Valuation
Methodology
  Unobservable
Input(s)
  Weighted
Average
  Range

Senior Secured First Lien Debt Investments

  $ 165,388,514     Yield Analysis   Market Yields   15.4%   6.6% - 24.2%

Unitranche First Lien Debt Investments

    10,223,380     Discounted Cash Flow   Discount Rate   21.0%   21.0% - 21.0%

Senior Secured First Lien Debt Investments

    26,693,197     Recovery Analysis   Recoverable Amount   N/A   N/A

Senior Secured First Lien Debt Investments

    43,490,417     Recent Purchase   Recent Purchase   N/A   N/A

Senior Secured Second Lien Debt Investments

    21,890,000     Yield Analysis   Market Yield   12.8%   10.9% - 14.7%

Senior Secured Second Lien Debt Investments

    5,525,940     Recovery Analysis   Recoverable Amount   N/A   N/A

Equity, Warrants, and Other Investments

    1,701,369     Recent Purchase   Recent Purchase   N/A   N/A

Equity, Warrants, and Other Investments

    —       EV Multiple   EBITDA Multiple   0.0x   0.0x - 0.0x

 

    Fair Value as of
June 30, 2019
    Valuation
Methodology
  Unobservable
Input(s)
  Weighted
Average
  Range

Senior Secured First Lien Debt Investments

  $ 58,178,487     Yield Analysis   Market Yields   12.1%   5.5% - 24.9%

Unitranche First Lien Debt Investments

    11,319,236     Discounted Cash Flow   Discount Rate   21.8%   20.6% - 23.1%

Senior Secured First Lien Debt Investments

    127,490,234     Discounted Cash Flow   Discount Rate   10.1%   5.1% - 26.3%

Senior Secured First Lien Debt Investments

    21,179,709     Broker Quoted   Market Comparable   79.6%   65.0% - 101.3%

Senior Secured First Lien Debt Investments

    31,067,964     Recent Purchase   Recent Purchase   N/A   N/A

Senior Secured Second Lien Debt Investments

    2,000,000     Yield Analysis   Market Yield   16.7%   16.2% - 17.2%

Senior Secure Second Lien Debt Investments

    55,155,363     Discounted Cash Flow   Discount Rate   15.1%   9.6% - 31.1%

Equity, Warrants, and Other Investments

    1     EV Multiple   EBITDA Multiple   0.0x   0.0x - 0.0x

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value. Significant increases in illiquidity discounts, PIK discounts and market yields would result in significantly lower fair value measurements.

Note 5. Notes Payable

On May 23, 2013, as amended on June 6, 2013, December 4, 2013, September 26, 2014, July 20, 2015, August 14, 2015, February 28, 2017 and November 20, 2017 and June 21, 2019, the Company, through SPV, entered into a $122.0 million financing transaction (the “Term Financing”) due December 5, 2021 with

 

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UBS. The Term Financing is collateralized by the portion of the Company’s assets held by SPV (the “SPV Assets”) and pledged as collateral as noted in the Consolidated Schedule of Investments. Prior to June 21, 2019, borrowings under the Term Financing bore interest (i) at a rate per annum equal to one-month London Interbank Offered Rate (“LIBOR”) plus 2.75% through December 4, 2018, and (ii) at a rate per annum equal to one-month LIBOR plus 2.55% from December 5, 2018 through December 5, 2020 (the “Term Financing Rate”). The Company also incurred an annual fee of approximately 1% of the outstanding borrowings under the Term Financing.

On June 21, 2019, the Company amended the Term Financing to increase the Term Financing by $20.0 million from $102.0 million to $122.0 million. On March 30, 2020, with the consent of UBS, the Company can opt (the “Option”) to increase the Term Financing by up to $53.0 million, expanding the Term Financing to $175.0 million. Borrowings under the Term Financing, as amended, bear interest (a) with respect to the $102.0 million (i) at a rate per annum equal to one-month LIBOR plus 2.55% through December 4, 2019, and (ii) at a rate per annum equal to one-month LIBOR plus 3.55% from December 5, 2019 through December 4, 2020, and (iii) at a rate per annum equal to one-month LIBOR plus 3.15% (if the Option was not exercised) or 2.90% if the Option was exercised from December 5, 2020 through December 5, 2021 and (b) with respect to the additional $20.0 million increase in the Term Financing, (i) at a rate per annum equal to one-month LIBOR plus 3.15% through April 14, 2020, which is the date before the Option Exercise Date, and (ii) at a rate per annum equal to one-month LIBOR plus 2.90% from the Option Exercise Date through December 5, 2021.

As of March 31 2020 and June 30, 2019, there were $122.0 million and $122.0 million borrowings outstanding under the Term Financing, respectively.

On November 20, 2017, the Company entered into a $50 million revolving financing facility (the “2017 UBS Revolving Financing”) with UBS. On June 21, 2019, the Company amended the 2017 UBS Revolving Financing to reduce the size of the facility to $30.0 million. Borrowings under the 2017 UBS Revolving Financing generally bear interest at a rate per annum equal to one-month LIBOR plus 3.55% (the “Revolver Financing Rate”). The Company pays a fee on any undrawn amounts of 2.50% per annum; provided that if 50% or less of the 2017 UBS Revolving Financing is drawn, the fee will be 2.75% per annum. Any amounts borrowed under the 2017 UBS Revolving Financing will mature, and all accrued and unpaid interest will be due and payable, on December 7, 2020. As of March 31, 2020, and June 30, 2019, there were $11.7 million and $11.0 million in borrowings outstanding under the 2017 UBS Revolving Financing, respectively.

As of December 31, 2017, SPV issued and sold an additional $50.0 million notes (the “2017 Revolving Notes”) secured by the SPV Assets to UBS. Cash is only exchanged when the 2017 Revolving Notes are drawn. Under the terms of the Indenture under which the 2017 Revolving Notes were issued (the “2017 Revolver Indenture”), the holders of the 2017 Revolving Notes are entitled to (i) periodic interest payments equal to their pro rata portion of the interest collected on the SPV Assets and (ii) their pro-rata portion of the net appreciation (depreciation) on the SPV Assets at maturity (the “Total Return of the 2017 Revolving Notes”).

The fair value of the Company’s Notes Payable is estimated based on the rate at which similar facilities would be priced. At March 31, 2020 and June 30, 2019, the fair value of the Notes Payable was estimated at $122.0 million and $133.0 million, respectively, which the Company concluded was a Level 3 fair value.

On July 2, 2018, the Company closed the public offering of $30 million in aggregate principal amount of 6.125% notes due 2023 (the “Existing Notes”). On July 12, 2018, the underwriters exercised their over-allotment option to purchase an additional $4.5 million in aggregate principal amount of the Existing Notes. The total net proceeds to the Company from the Existing Notes, including the exercise of the underwriters’ over-allotment option, after deducting underwriting discounts and commissions of approximately $1.0 million and estimated offering expenses of approximately $230,000, were approximately $33.2 million.

 

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On October 18, 2019, the Company closed the public offering of $15 million in aggregate principal amount of additional 6.125% notes due 2023 (the “Notes,” and together with the Existing Notes, the “2023 Notes”). The Notes constitute a further issuance of, rank equally in right of payment with, and form a single series with the $34.5 million in Existing Notes that the Company initially issued on July 2, 2018 and July 12, 2018. On November 7, 2019, the underwriters exercised their option to purchase an additional $1.875 million in aggregate principal of the Notes. The total net proceeds received by the Company from the sale of the Notes, including the exercise of the underwriters’ option, was approximately $16.4 million, based on the purchase price paid by the underwriters of 96.875% of the aggregate principal amount of the Notes, after deducting estimated offering expenses of approximately $255,000 payable by the Company.

The 2023 Notes will mature on July 1, 2023 and bear interest at a rate of 6.125%. The 2023 Notes are direct unsecured obligations and rank pari passu, which means equal in right of payment, with all outstanding and future unsecured indebtedness issued by the Company. Because the 2023 Notes are not secured by any of the Company’s assets, they are effectively subordinated to all of the Company’s existing and future secured unsubordinated indebtedness (or any indebtedness that is initially unsecured as to which the Company subsequently grants a security interest), to the extent of the value of the assets securing such indebtedness. The 2023 Notes are structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries and financing vehicles, including, without limitation, borrowings under the Term Financing and the 2017 UBS Revolving Financing. The 2023 Notes are obligations exclusively of the Company and not of any of the Company’s subsidiaries. None of the Company’s subsidiaries is a guarantor of the 2023 Notes and the 2023 Notes will not be required to be guaranteed by any subsidiary the Company may acquire or create in the future.

The 2023 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after July 1, 2020. Interest on the 2023 Notes is payable quarterly on January 1, April 1, July 1 and October 1 of each year. The 2023 Notes are listed on the NASDAQ Global Select Market (“NASDAQ”) under the trading symbol “CMFNL.” The Company may from time to time repurchase the 2023 Notes in accordance with the 1940 Act and the rules promulgated thereunder.

As of March 31, 2020 and June 30, 2019, the outstanding principal balance of the 2023 Notes was approximately $51.4 million and $34.5 million, respectively, and had an estimated fair value of $32.2 million and $34.7 million, respectively, based on the closing price as of March 31, 2020 and June 30, 2019, respectively, as traded on NASDAQ.

Cash, restricted (as shown on the Unaudited Consolidated Statements of Assets and Liabilities) is held by the trustee of the Term Financing, and the 2017 UBS Revolving Financing, and is restricted to purchases of investments by SPV and LLC that must meet certain eligibility criteria identified by the Indenture. As of March 31, 2020, SPV and LLC had aggregate assets of $206.5 million, which included $198.0 million of the Company’s portfolio investments at fair value, no accrued interest receivable and $8.5 million in cash held by the trustees of the Term Financing and the 2017 UBS Revolving Financing (together, the “UBS Financing Facility”, or the “Financing Facilities”). As of June 30, 2019, SPV and LLC had aggregate assets of $234.5 million, which included $232.8 million of the Company’s portfolio investments at fair value, $0.7 million of accrued interest receivable and $1.0 million in cash held by the trustee of the Term Financing. For the three and nine months ended March 31, 2020, the weighted average outstanding debt balance and the weighted average stated interest rate under the Financing Facilities was $126.0 million and 4.97%, respectively and $134.4 million and 4.83%, respectively. For the three and nine months ended March 31, 2019, the weighted average outstanding debt balance and the weighted average stated interest rate under the Financing Facilities was $102.9 million and 5.05%, respectively, and $106.9 million and 4.99%, respectively.

Note 6. Indemnification, Guarantees, Commitments and Contingencies

In the normal course of business, the Company enters into contracts that provide a variety of representations and warranties and general indemnifications. Such contracts include those with certain service

 

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providers, brokers and trading counterparties. Any exposure to the Company under these arrangements is unknown as it would involve future claims that may be made against the Company; however, based on the Company’s experience, the risk of loss is remote and no such claims are expected to occur. As such, the Company has not accrued any liability in connection with such indemnifications.

The Company’s Board of Directors declared the following quarterly distributions:

 

Declared  

    Ex-Date     

 

    Record Date    

 

    Pay Date    

      Amount           Fiscal Quarter    
August 28, 2019   September 25, 2019   September 26, 2019   October 16, 2019   $0.2500   1st 2020
November 6, 2019   December 12, 2019   December 13, 2019   January 2, 2020   $0.2500   2nd 2020
February 4, 2020   March 12, 2020   March 13, 2020   April 4, 2020   $0.2500   3rd 2020

Loans purchased by the Company may include revolving credit agreements or other financing commitments obligating the Company to advance additional amounts on demand. The Company generally sets aside sufficient liquid assets to cover its unfunded commitments, if any.

The following table details the unfunded commitments as of March 31, 2020:

 

Investments

   Unfunded
    Commitment    
     Fair
    Value    
     Annual
    Non-use    
Fee
         Expiration    
Date
 

1888 Industrial Services, LLC – Revolver

    $ 626,762      $     —            0.5%                  9/30/21  

1888 Industrial Services, LLC – Term E

     128,812                   —            9/19/22  

Altern Marketing, LLC

     2,631,579                   0.5%          10/7/24  

Limbach Holdings Inc

     5,538,462                   2.0%          4/12/24  
  

 

 

    

 

 

       

Total Unfunded Commitments

    $   8,925,615               
  

 

 

    

 

 

       

The following table details the unfunded commitments as of June 30, 2019:

 

Investments

   Unfunded
    Commitment    
     Fair
    Value    
     Annual
    Non-use    
Fee
         Expiration    
Date
 

1888 Industrial Services, LLC

    $ 494,050      $     —            0.5%                  9/30/21  

Fusion Connect Inc.

     391,465                   —            10/3/19  

Limbach Holdings Inc.

     5,769,230                   2.0%          4/12/23  
  

 

 

    

 

 

       

Total Unfunded Commitments

    $   6,655,745               
  

 

 

    

 

 

       

Note 7. Agreements and Related Party Transactions

Advisory Agreement

Effective August 30, 2019, or the Commencement Date, the Company became party to the Advisory Agreement with the Adviser. See below for a description of the prior agreement. Under the Advisory Agreement, the Base Management Fee is calculated at an annual rate of 1.75% of the Company’s gross assets, including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such amount, “Gross Assets”). The Base Management Fee is payable quarterly in arrears and the Base Management Fees for any partial month or quarter will be appropriately pro-rated.

For the three and nine months ended March 31, 2020, $1,359,833 and $4,084,894, respectively, in Base Management Fees were earned by the Adviser, of which $63,797 and $165,832, respectively, was waived. As of March 31, 2020, $1,296,037 of such fees were payable. For the three and nine months ended March 31, 2019, $1,369,713 and $4,126,865, respectively, in Base Management Fees were earned by the Adviser under the Prior Advisory Agreement, of which $1,369,713 was payable at March 31, 2019.

 

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Under the Advisory Agreement, for the period from the Commencement Date through the end of the first and second fiscal quarters after the Commencement Date, the Base Management Fee is calculated based on the value of the Company’s Gross Assets as of the end of such quarter. Subsequently, the Base Management Fee will be calculated based on the average value of the Company’s Gross Assets at the end of the two most recently completed fiscal quarters. Base Management Fees for any partial month or quarter will be appropriately pro-rated.

Under the Advisory Agreement, the Income-Based Fee is calculated and payable quarterly in arrears based on the Company’s Pre-Incentive Fee Net Investment Income (as defined below) for the immediately preceding fiscal quarter, subject to a total return requirement (the “Total Return Requirement”) and deferral of non-cash amounts, and is 20.0% of the amount, if any, by which the Company’s Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of our net assets attributable to its common stock, for the immediately preceding fiscal quarter, exceeds a 2.0% (which is 8.0% annualized) hurdle rate and a “catch-up” provision measured as of the end of each fiscal quarter. Under this provision, in any fiscal quarter, the Adviser receives no Incentive Fee until the Company’s Pre-Incentive Fee Net Investment Income equals the hurdle rate of 2.0%, but then receives, as a “catch-up,” 100% of the Company’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 2.5% (which is 10.0% annualized). The effect of the “catch-up” provision is that, subject to the Total Return Requirement and deferral provisions discussed below, if Pre-Incentive Fee Net Investment Income exceeds 2.5% in any fiscal quarter, the Adviser receives 20.0% of our Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply.

“Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or other fees that we receive from portfolio companies) accrued during the fiscal quarter, minus the Company’s operating expenses for the quarter (including the Base Management Fee, expenses payable under the Administration Agreement and any interest expense and any distributions paid on any issued and outstanding preferred stock, but excluding the Incentive Fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount (“OID”), debt instruments with payment-in-kind (“PIK”) interest and zero coupon securities), accrued income that we have not yet received in cash.

Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

No Income-Based Fee is payable under the Advisory Agreement except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the fiscal quarter for which fees are being calculated and the Lookback Period exceeds the cumulative Incentive Fees accrued and/or paid for the Lookback Period.

For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum of Pre-Incentive Fee Net Investment Income, realized gains and losses and unrealized appreciation and depreciation of the Company for the then current fiscal quarter and the Lookback Period. The “Lookback Period” means (1) through June 30, 2022, the period that on the last day of the fiscal quarter in which the Commencement Date occurs and ends on the last day of the fiscal quarter immediately preceding the fiscal quarter for which the Income-Based Fee is being calculated, and (2) after June 30, 2022, the eleven fiscal quarters immediately preceding the fiscal quarter for which the Income-Based Fee is being calculated.

For the three and nine months ended March 31, 2020, the Company incurred $0 and $832,472, respectively, of incentive fees related to pre-incentive fee net investment income, of which $0 and $336,971 was waived. As of March 31, 2020, $737,659 incentive fees related to Income-Based Fees incurred by the Company

 

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were generated from deferred interest (i.e. PIK and certain discount accretion) and are not payable until such amounts are received in cash. This amount is net of $19,370 that is a reversal from a prior period of deferred incentive fee. For the three and nine months ended March 31, 2019, the Company incurred $723,484 and $1,597,526 of Income-Based Fees, of which $362,478 and $384,478, respectively, was waived. As of March 31, 2019, $1,054,776 of such Income-Based Fees were payable to the Adviser under the Prior Advisory Agreement, and $541,560 of Income-Based Fees incurred by the Company were generated from deferred interest (i.e., PIK and certain discount accretion) and are not payable until such amounts are received in cash.

Under the Advisory Agreement, the Capital Gains Fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), commencing with the fiscal year ending June 30, 2021, and will equal to 20.0% of our cumulative aggregate realized capital gains from the Commencement Date through the end of that fiscal year, computed net of the Company’s aggregate cumulative realized capital losses and our aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid Capital Gains Fees. If such amount is negative, then no Capital Gains Fee will be payable for such year. Additionally, if the Advisory Agreement is terminated as of a date that is not a fiscal year end, the termination date will be treated as though it were a fiscal year end for purposes of calculating and paying the Capital Gains Fee. For the avoidance of doubt, realized capital gains, realized capital losses, unrealized capital appreciation and unrealized capital depreciation with respect to the Company’s portfolio as of the end of the fiscal year ended June 30, 2020 will be excluded from the calculations of the Capital Gains Fee.

Under U.S. GAAP, the Company calculates the Capital Gains Fee as if it had realized all assets at their fair values as of the reporting date. Accordingly, the Company accrues a provisional Capital Gains Fee taking into account any unrealized gains or losses. As the provisional Capital Gains Fee is subject to the performance of investments until there is a realization event, the amount of the provisional Capital Gains Fee accrued at a reporting date may vary from the Capital Gains Fee that is ultimately realized and the differences could be material.

As of March 31, 2020, there was no Capital Gains Fee accrued, earned or payable to the Adviser under the Advisory Agreement. As of June 30, 2019, there was no Capital Gains Fee accrued, earned or payable to the Adviser under the Prior Advisory Agreement.

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

Messrs. Mauer and Jansen, together, hold an approximate 24% interest in the Adviser. Investcorp holds an approximate 76% ownership interest in the Adviser. Pursuant to the Advisory Agreement, the Company has agreed to pay to the Adviser a base management fee and an incentive fee. Mr. Mauer, an interested member of the Board, has a direct or indirect pecuniary interest in the Adviser. The incentive fee will be computed and paid on income that we may not have yet received in cash at the time of payment. This fee structure may create an incentive for the Adviser to invest in certain types of speculative securities. Additionally, the Company will rely on investment professionals from the Adviser to assist the Board with the valuation of the Company’s portfolio investments. The Adviser’s management fee and incentive fee is based on the value of our investments and, therefore, there may be a conflict of interest when personnel of the Adviser are involved in the valuation process for the Company’s portfolio investments.

 

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Prior Advisory Agreement

The following is a description of the Prior Advisory Agreement, which was terminated on August 30, 2019. Pursuant to the Prior Advisory Agreement, the Company agreed to pay to the Adviser a Base Management Fee of 1.75% of gross assets, as adjusted, including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents and “fair value of derivatives associated with our financing”, and the Incentive Fee consisting of two parts.

Under the Prior Advisory Agreement, the first part of the Incentive Fee, or the Income-Based Fee, which was calculated and payable quarterly in arrears, equaled 20.0% of the “pre-incentive fee net investment income” (as defined in the Prior Advisory Agreement) for the immediately preceding quarter, subject to a hurdle rate of 2.0% per quarter (8.0% annualized), and was subject to a “catch-up” feature. The Incentive Fee was subject to a total return requirement, which provided that no Incentive Fee in respect of the Company’s pre-incentive fee net investment income would be payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding quarters exceeded the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. The net pre-incentive fee investment income used to calculate the Income-Based Fee was also included in the amount of the Company’s gross assets used to calculate the 1.75% Base Management Fee.

Under the Prior Advisory Agreement, the second part of the incentive fee, or the Capital Gains Fee, was calculated and payable in arrears as of the end of each calendar year and equaled 20.0% of the aggregate cumulative realized capital gains from inception through the end of each calendar year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gain incentive fees.

With respect to the incentive fee expense accrual relating to the Capital Gains Fee, U.S. GAAP requires that the Capital Gains Fee accrual consider the cumulative aggregate unrealized appreciation in the calculation, as a Capital Gains Fee would be payable if such unrealized appreciation were realized, even though such unrealized appreciation is not permitted to be considered in calculating the fee actually payable under the Prior Advisory Agreement.

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

Administration Agreement

Pursuant to the Administration Agreement, the Adviser furnishes the Company with office facilities and equipment and provides it with the clerical, bookkeeping, recordkeeping and other administrative services necessary to conduct day-to-day operations. Under the Administration Agreement, the Adviser performs, or oversees the performance of the Company’s required administrative services, which includes, among other things, being responsible for the financial records which it is required to maintain and preparing reports to its stockholders and reports filed with the SEC. In addition, the Adviser assists the Company in determining and publishing its net asset value, oversees the preparation and filing of its tax returns and the printing and dissemination of reports and other materials to its stockholders, and generally oversees the payment of its expenses and the performance of administrative and professional services rendered to it by others. Under the Administration Agreement, the Adviser also provides managerial assistance on the Company’s behalf to those portfolio companies that have accepted its offer to provide such assistance. In addition, the Adviser may satisfy certain of its obligations to the Company under the Administration Agreement through the services agreement

 

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with Investcorp International Inc., an affiliate of Investcorp, including supplying the Company with accounting and back-office professionals upon the request of the Adviser. The Company incurred costs of $352,000 and $1,034,000 under the Administration Agreement for the three and nine months ended March 31, 2020, respectively. The Company incurred costs of $346,777 and $1,026,473 under the Prior Administration Agreement for the three and nine months ended March 31, 2019, respectively.

As of March 31, 2020, and June 30, 2019, the Company recorded no accrued expenses or other liabilities for reimbursement of expenses owed to the Adviser under the Administration Agreement and the Prior Administration Agreement, respectively.

Stock Purchase Agreement

The Company is party to the Stock Purchase Agreement with Investcorp BDC, pursuant to which, Investcorp BDC is required by August 30, 2021 to purchase (i) 680,985 newly issued shares of the Company’s common stock, par value $0.001 per share at the most recently determined net asset value per share of the Company’s common stock at the time of such purchase, as adjusted as necessary to comply with Section 23 of the 1940 Act, and (ii) 680,985 shares of the Company’s common stock in open-market or secondary transactions.

As of March 31, 2020, Investcorp BDC had purchased 227,000 newly issued shares of the Company’s common stock pursuant to the requirement under the Stock Purchase Agreement. See “Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” for more information.

As of March 31, 2020, Investcorp BDC had purchased 203,659 shares of the Company’s common stock in open-market transactions pursuant to its obligation under the Stock Purchase Agreement.

Co-investment Exemptive Relief

On March 19, 2019, the SEC issued an order granting the Company’s application for exemptive relief to co-invest, subject to the satisfaction of certain conditions, in certain private placement transactions with other funds managed by the Adviser or its affiliates and any future funds that are advised by the Adviser or its affiliated investment advisers (the “Exemptive Relief”). Under the terms of the Exemptive Relief, in order for the Company to participate in a co-investment transaction a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Company’s independent directors must conclude that (i) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to the Company and its stockholders and do not involve overreaching in respect of the Company or its stockholders on the part of any person concerned, and (ii) the proposed transaction is consistent with the interests of the Company’s stockholders and is consistent with the Company’s investment objectives and strategies.

License Agreement

The Company has entered into a license agreement with the Adviser under which the Adviser has agreed to grant us a non-exclusive, royalty-free license to use the name “Investcorp.” Under this agreement, we have a right to use the “Investcorp” name for so long as the Adviser or one of its affiliates remains our investment adviser. Other than with respect to this limited license, the Company has no legal right to the “Investcorp” name. This license agreement will remain in effect for so long as the Advisory Agreement with the Adviser is in effect and Investcorp is the majority owner of the Adviser.

Note 8. Directors’ Fees

Each of the Company’s independent directors receives (i) an annual fee of $75,000, and (ii) $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending in person or telephonically each regular board of directors meeting and each special telephonic meeting. The Company’s

 

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independent directors also receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with each committee meeting attended in person and each telephonic committee meeting. The chairman of the audit committee receives an annual fee of $7,500. The chairperson of the valuation committee, the nominating and corporate governance committee and the compensation committee receives an annual fee of $2,500, $2,500 and $2,500, respectively. The Company has obtained directors’ and officers’ liability insurance on behalf of the Company’s directors and officers. Independent directors have the option of having their directors’ fees paid in shares of the Company’s common stock issued at a price per share equal to the greater of net asset value or the market price at the time of payment. For the three and nine months ended March 31, 2020, the Company recorded directors’ fees of $82,500 and $187,500, of which $21,559 were payable at March 31, 2020. For the three and nine months ended March 31, 2019, the Company recorded directors’ fees of $101,250 and $303,750, of which $92,789 were payable at March 31, 2019.

Note 9. Net Change in Net Assets Resulting from Operations Per Share

Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

The following table sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations:

 

         Three months ended March 31,            Nine months ended March 31,    
     2020    2019    2020    2019

Net increase (decrease) in net assets resulting from operations

   $(24,244,367)    $(1,357,538)    $(22,183,476)    $(9,311,793)

Weighted average shares of common stock outstanding

      13,791,581      13,613,694      13,694,611      13,634,370

Basic/diluted net increase (decrease) in net assets from operations per share

   $           (1.76)    $         (0.10)    $           (1.62)    $         (0.68)

On March 4, 2020, the Company issued 113,500 shares of common stock, par value $0.001 per share (the “Common Stock”), to Investcorp BDC at a price of $10.15 per share for an aggregate offering price of $1,152,025. On December 4, 2019, the Company issued 113,500 shares of the Common Stock to Investcorp BDC at a price of $10.19 per share for an aggregate offering price of $1,156,565.

The sales of the Common Stock were made pursuant to the Stock Purchase Agreement. The issuance of the Common Stock is exempt from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) thereof and Regulation D thereunder. Investcorp BDC is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act.

 

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Note 10. Distributions

The following table reflects the cash dividend distributions per share that the Company declared and/or paid to its stockholders since the Offering in February 2014. Stockholders of record as of each respective record date were entitled to receive the distribution:

 

Declaration Date

   Record Date            Payment Date        Amount
Per
        Share        
 

March 14, 2014

   March 24, 2014    March 31, 2014    $     0.1812      

May 14, 2014

   June 16, 2014    July 1, 2014    $ 0.3375        

September 4, 2014

   September 18, 2014    October 1, 2014    $ 0.3375        

November 6, 2014

   December 18, 2014    January 5, 2015    $ 0.3375        

January 28, 2015

   March 18, 2015    April 2, 2015    $ 0.3469        

May 6, 2015

   June 8, 2015    July 5, 2015    $ 0.3469        

June 10, 2015*

   September 1, 2015    September 15, 2015    $ 0.4300        

June 10, 2015

   September 18, 2015    October 2, 2015    $ 0.3469        

November 3, 2015

   December 18, 2015    January 5, 2016    $ 0.3469        

February 2, 2016

   March 18, 2016    April 7, 2016    $ 0.3516        

April 28, 2016

   June 17, 2016    July 7, 2016    $ 0.3516        

August 25, 2016

   September 16, 2016    October 6, 2016    $ 0.3516        

November 3, 2016

   December 16, 2016    January 5, 2017    $ 0.3516        

November 3, 2016

   March 17, 2017    April 6, 2017    $ 0.2500        

May 2, 2017

   June 16, 2017    July 6, 2017    $ 0.2500        

August 24, 2017

   September 8, 2017    October 5, 2017    $ 0.2500        

November 7, 2017

   December 15, 2017    January 4, 2018    $ 0.2500        

February 6, 2018

   March 16, 2018    April 5, 2018    $ 0.2500        

May 2, 2018

   June 15, 2018    July 5, 2018    $ 0.2500        

August 23, 2018

   September 18, 2018    October 5, 2018    $ 0.2500        

November 6, 2018

   December 14, 2018    January 3, 2019    $ 0.2500        

February 5, 2019

   March 15, 2019    April 4, 2019    $ 0.2500        

May 1, 2019

   June 14, 2019    July 5, 2019    $ 0.2500        

August 28, 2019

   September 26, 2019    October 16, 2019    $ 0.2500        

November 6, 2019

   December 13, 2019    January 2, 2020    $ 0.2500        

February 4, 2020

   March 13, 2020    April 2, 2020    $ 0.2500        

May 7, 2020

   June 19, 2020    July 10, 2020    $ 0.1500        

May 7, 2020*

   June 19, 2020    July 10, 2020    $ 0.0300        

 

*

Special distribution

The following table reflects, for U.S. federal income tax purposes, the sources of the cash distributions that the Company has paid on its common stock during the nine months ended March 31, 2020 and March 31, 2019:

 

     Nine months ended March 31,  
     2020      2019  
       Distribution Amount            Percentage              Distribution Amount              Percentage      

Ordinary income and short-term capital gains

    $             10,311,078                     100%        $                 10,226,670                     100%   

Long-term capital gains

     —           —            —           —      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

    $ 10,311,078         100%        $ 10,226,670         100%   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Note 11. Share Repurchase Program

As described in Note 2, the Company has a share repurchase program under which the Company may repurchase up to $5.0 million shares of its common stock until the earlier of (i) May 1, 2019 or (ii) the repurchase of $5.0 million in aggregate amount of its common stock unless extended by the Company’s board of directors. On May 1, 2019, the Company’s board of directors extended the share repurchase program until the earlier of (i) May 1, 2020 or (ii) the repurchase of $5.0 million in aggregate amount of the common stock. During the three and nine months ended March 31, 2020, the Company did not repurchase shares of its common stock on the open market. During the three months ended March 31, 2019, the Company did not repurchase shares of its common stock on the open market. During the nine months ended March 31, 2019, the Company repurchased 42,214 shares of its common stock on the open market for $358,573 (including commissions). The following table summarizes the Company’s share repurchases under the share repurchase program for the three and nine months ended March 31, 2020 and March 31, 2019.

 

         Three months ended    
March 31,
     Nine months ended
      March 31,
 
         2020              2019              2020              2019      

Number of shares repurchased

     —          —          —          42,214  

Cost of shares repurchased, including commissions

    $         —       $             —       $         —       $     358,531  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average price per share

    $ —       $ —       $ —       $ 8.14  

Net asset value per share at period end

     —          —          —         $ 11.14  

Weighted average discount to period end net asset value

     —          —          —          24.18

Note 12. Share Transactions

The following table summarizes the total shares for the nine months ended March 31, 2020 and March 31, 2019.

 

     Nine months ended March 31,  
     2020      2019  
     Shares      Amount      Shares     Amount  

Balance at beginning of period

     13,619,690      $ 199,947,288        13,649,504     $ 200,203,363  

Issuance of common shares

     227,000        2,308,590               

Reinvestments of stockholder distributions

     23,558        152,032        6,417       60,634  

Retirement of repurchased shares

                   (42,214     (358,573
  

 

 

    

 

 

    

 

 

   

 

 

 

Balance at end of period

     13,870,248      $  202,407,910        13,613,707     $  199,905,424  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Note 13. Financial Highlights

The following represents the per share data and the ratios to average net assets for Investcorp Credit Management BDC, Inc.:

 

     For the nine months ended
March 31,
 
     2020        2019  

Per Share Data:(1)

       

Net asset value, beginning of period

    $ 10.51            $ 12.57     

Net investment income

     0.79             0.77     

Net realized and unrealized gains (losses)

     (2.40)              (1.46)      
  

 

 

      

 

 

 

Net increase (decrease) in net assets resulting from operations

     (1.61)              (0.69)      

Capital transactions(2)

       

Share repurchases

     —               0.01     

Dividends from net investment income

     (0.75)              (0.75)      

Distributions from net realized gains

     —               —       
  

 

 

      

 

 

 

Net decrease in net assets resulting from capital transactions

     (0.75)              (0.74)      

Offering costs

     —               —       
  

 

 

      

 

 

 

Net asset value, end of period

    $ 8.15              $ 11.14     
  

 

 

      

 

 

 

Market value per share, end of period

    $ 2.46              $ 7.38     

Total return based on market value(3)(4)

     (61.98)%          (7.76)%  

Shares outstanding at end of period

             13,870,248             13,613,707     

Ratio/Supplemental Data:

       

Net assets, at end of period

    $ 113,054,358              $ 151,686,264     

Ratio of total expenses to average net assets(5)

     16.92%            13.50%  

Ratio of net expenses to average net assets(5)

     16.41%            13.18%  

Ratio of interest expense and fees and amortization of deferred debt issuance costs to average net assets

     8.16%            6.00%  

Ratio of net investment income before fee waiver to average net assets

     10.61%            8.49%  

Ratio of net investment income after fee waiver to average net assets

     10.95%            8.81%  

Total Notes Payable

    $ 185,046,088            $ 140,500,000     

Asset Coverage Ratio(6)

     1.61             2.08     

Portfolio Turnover Rate(4)

     37%            46%  

 

*

Net asset value at beginning of period reflects the deduction of the sales load of $0.25 per share paid by the stockholder from the $15.00 offering price.

(1) 

The per share data was derived by using the shares outstanding during the period.

(2) 

The per share data for dividends and distributions declared reflects the actual amount of the dividends and distributions declared per share during the period.

(3)

Total returns are historical and are calculated by determining the percentage change in the market value with all dividends distributions, if any, reinvested. Dividends and distributions are assumed to be reinvested at prices obtained under the company’s dividend reinvestment plan. Total investment return does not reflect sales load.

(4) 

Not annualized.

(5) 

Annualized.

(6) 

Asset coverage ratio is equal to (i) the sum of (A) net assets at the end of the period and (B) debt outstanding at the end of the period, divided by (ii) total debt outstanding at the end of the period.

 

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Total return is calculated based on a time-weighted rate of return methodology for the stockholders and is not annualized. Total return is reflected after all investment-related and operating expenses. An individual stockholder’s return may vary from these returns based on the timing of capital transactions. The ratios to average stockholders’ capital are calculated based on the monthly average stockholders’ capital during the period.

The ratios to average stockholders’ capital are calculated based on the monthly average stockholders’ capital during the period. Credit facility related expenses include interest expense and amortization of deferred debt issuance costs.

Note 14. Other Fee Income

The other fee income consists of structuring fee income, amendment fee income and royalty income. The following tables summarize the Company’s other fee income for the three and nine months ended March 31, 2020 and March 31, 2019:

 

         For the three months ended March 31,          For the nine months ended March 31,  
     2020      2019      2020      2019  

Loan Amendment/Consent Fee

    $         313,543         $         142,483       $         629,269       $         575,003  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Fee Income

    $ 313,543         $ 142,483       $ 629,269       $ 575,003  
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 15. Tax Information

As of March 31, 2020, the Company’s aggregate investment unrealized appreciation and depreciation based on cost for U.S. federal income tax purposes were as follows:

 

Tax cost

    $     315,310,601     
  

 

 

 

Gross unrealized appreciation

     488,931     

Gross unrealized depreciation

     (40,886,715)    
  

 

 

 

Net unrealized investment depreciation

    $         (40,397,784)    
  

 

 

 

As of June 30, 2019, the Company’s aggregate investment unrealized appreciation and depreciation based on cost for U.S. federal income tax purposes were as follows:

 

Tax cost

    $     321,504,360     
  

 

 

 

Gross unrealized appreciation

     3,259,980     

Gross unrealized depreciation

     (18,373,346)      
  

 

 

 

Net unrealized investment depreciation

    $         (15,113,366)    
  

 

 

 

Note 16. 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.

Subsequent to the three months ended March 31, 2020 through May 7, 2020, the Company invested $2.0 million in 2 existing portfolio companies and received no payment or sales proceeds.

Our dividend framework provides a quarterly base dividend and is supplemented (when applicable) by additional dividends determined by the level of overearnings on a net investment income basis relative to the base dividend level.

 

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On May 7, 2020, the Company’s Board of Directors (the “Board”) declared a distribution for the quarter ending June 30, 2020 of $0.15 per share, payable on July 10, 2020, to stockholders of record as of June 19, 2020. In addition, the Board declared a supplemental distribution of $0.03 per share, payable on July 10, 2020, to stockholders of record as of June 19, 2020.

The share repurchase program expired on May 1, 2020. In total, the Company repurchased 84,841 shares of its common stock for a total cost of $748,709 under this share repurchase program.

On April 15, 2020, the Company decided not to exercise the Option under the Term Financing and repaid $20.0 million of the Term Financing.

COVID-19

In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) as a pandemic. Shortly thereafter, the United States declared a national emergency with respect to COVID-19. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The outbreak has become increasingly widespread in the United States, including in the markets in which the Company operates. The Company has been and continues to assess the effects of COVID-19 on its portfolio companies, and is taking steps to help mitigate the adverse consequences to each of its businesses stemming from COVID-19; however, though the magnitude of the impact remains to be seen, its portfolio companies and by extension its operating results will be adversely impacted by COVID-19.

Any of the foregoing factors, or other cascading effects of COVID-19 that are not currently foreseeable, could materially increase the Company’s costs, negatively impact its investment income and damage the Company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted.

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

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

 

   

our, or our portfolio companies’, future business, operations, operating results or prospects;

 

   

the return or impact of current and future investments;

 

   

the impact of global health epidemics, such as the current novel coronavirus (“COVID-19”) pandemic, on our or our portfolio companies’ business and the global economy;

 

   

the impact of fluctuations in interest rates on our business;

 

   

the impact of a protracted decline in the liquidity of credit markets on our business;

 

   

our contractual arrangements and relationships with Investcorp Credit Management US LLC (“Investcorp”) and its affiliates

 

   

our contractual arrangements and relationships with lenders and other third parties;

 

   

actual and potential conflicts of interest with CM Investment Partners LLC (the “Adviser”);

 

   

the dependence of our future success on the general economy, interest rates and the effects of each on the industries in which we invest;

 

   

changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, including changes from the impact of the current COVID-19 pandemic and sharp declines in energy prices;

 

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the ability of our portfolio companies to achieve their objectives or service their debt obligations to us, including as a result of the current COVID-19 pandemic;

 

   

our ability to continue to effectively manage our business due to the disruptions caused by the current COVID-19 pandemic;

 

   

the use of borrowed money to finance a portion of our investments;

 

   

the adequacy of our financing sources and working capital;

 

   

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

 

   

the ability of the Adviser to locate suitable investments for us and to monitor and administer our investments;

 

   

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

 

   

our ability to qualify and maintain our qualification as a regulated investment company (“RIC”) and as a business development company (“BDC”); and

 

   

the effect of changes to tax legislation and our tax position and other legislative and regulatory changes.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,” “plan” or similar words.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this report on Form 10-Q. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or SEC rule or regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

Investcorp Credit Management BDC, Inc. (“ICMB,” the “Company”, “us”, “we” or “our”), a Maryland corporation formed in May 2013, 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”). In addition, for U.S. federal income tax purposes, we have elected to be treated and intend to continue to qualify as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code (the “Code”). On August 30, 2019, we changed our name from CM Finance Inc to Investcorp Credit Management BDC, Inc.

Our primary investment objective is to maximize total return to stockholders in the form of current income and capital appreciation by investing directly in debt and related equity of privately held middle market companies to help these companies fund acquisitions, growth or refinancing. We invest primarily in middle-market companies in the form of unitranche loans, standalone first and second lien and mezzanine loans. We may also invest in unsecured debt, bonds and in the equity of portfolio companies through warrants and other instruments.

On February 5, 2014, we priced our initial public offering, selling 7,666,666 shares of our common stock, par value $0.001, including the underwriters’ over-allotment, at a price of $15.00 per share with net proceeds of approximately $111.5 million.

 

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CM Finance LLC, a Maryland limited liability company, commenced operations in March 2012. Immediately prior to our initial public offering, CM Finance LLC merged with and into us (the “Merger”). In connection with the Merger, we issued 6,000,000 shares of common stock and $39.8 million in debt to the pre-existing CM Finance LLC investors, consisting of certain funds (the “Cyrus Funds”) managed by Cyrus Capital. CM Finance Inc had no assets or operations prior to completion of the Merger and, as a result, the books and records of CM Finance LLC became our books and records, as the surviving entity. Immediately after the Merger, we issued 2,181,818 shares of our common stock to Stifel Venture Corp. (“Stifel”) in exchange for $32.7 million in cash. We used all of the proceeds of the sale of shares to Stifel, to repurchase 2,181,818 shares of common stock from the Cyrus Funds. Immediately after the completion of the initial public offering, we had 13,666,666 shares outstanding. We also used a portion of the net proceeds of the initial public offering to repay 100% of the debt issued to the Cyrus Funds in connection with the Merger.

On August 30, 2019, Investcorp Credit Management (“Investcorp”) acquired an approximate 76% ownership interest in the Adviser through the acquisition of the interests held by the Cyrus Funds and Stifel and through a direct purchase of equity from the Adviser (the “Investcorp Transaction”). Investcorp is a leading global credit investment platform with assets under management of $12.9 billion as of March 31, 2020. Investcorp manages funds that invest primarily in senior secured corporate debt issued by mid and large-cap corporations in Western Europe and the United States.

In connection with the Investcorp Transaction, on June 26, 2019, our board of directors, including all of the directors who are not “interested persons” of the Company, as defined in Section 2(a)(19) of the 1940 Act (each, an “Independent Director”), unanimously approved a new investment advisory agreement (the “Advisory Agreement”) and recommended that the Advisory Agreement be submitted to our stockholders for approval, which our stockholders approved at the Special Meeting of Stockholders held on August 28, 2019.

In addition, on June 26, 2019, we entered into a definitive stock purchase and transaction agreement with Investcorp BDC Holdings Limited (“Investcorp BDC”), an affiliate of Investcorp (the “Stock Purchase Agreement”), pursuant to which, Investcorp BDC is required by August 30, 2021 to purchase (i) 680,985 newly issued shares of our common stock, par value $0.001 per share, at the most recently determined net asset value per share of our common stock at the time of such purchase, as adjusted as necessary to comply with Section 23 of the 1940 Act, and (ii) 680,985 shares of our common stock in open-market or secondary transactions.

As of March 31, 2020, Investcorp BDC had purchased 227,000 newly issued shares of our common stock pursuant to the requirement under the Stock Purchase Agreement. See “Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” for more information. As of March 31, 2020, Investcorp BDC had purchased 203,659 shares of our common stock in open-market transactions pursuant to its obligation under the Stock Purchase Agreement.

At the Closing, we entered into the Advisory Agreement with the Adviser, pursuant to which we have agreed to pay the Adviser a fee for investment advisory and management services consisting of two components — a base management fee (the “Base Management Fee”) and an incentive fee (the “Incentive Fee”). The Base Management Fee is equal to 1.75% of our gross assets, payable in arrears on a quarterly basis. The Incentive Fee, which provides the Adviser with a share of the income that it generates for the Company, has two components, ordinary income (the “Income-Based Fee”) and capital gains (the “Capital Gains Fee”). The Income-Based Fee is equal to 20.0% of pre-incentive fee net investment income, subject to an annualized hurdle rate of 8.0% with a “catch up” fee for returns between the 8.0% hurdle and 10.0%. The Capital Gains Fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), commencing with the fiscal year ending June 30, 2021, and will equal to 20.0% of the Company’s cumulative aggregate realized capital gains from the Commencement Date through the end of that fiscal year, computed net of the Company’s aggregate cumulative realized capital losses and the Company’s aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid Capital Gains

 

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Fees. The Advisory Agreement has substantially the same terms as the prior investment advisory agreement, dated February 5, 2014, between us and the Adviser (the “Prior Advisory Agreement”).

At the Closing, we entered into a new administration agreement with the Adviser (the “Administration Agreement”). Under the Administration Agreement, the Adviser provides us with our chief financial officer, accounting and back-office professionals, equipment and clerical, bookkeeping, recordkeeping and other administrative services. The terms of the Administration Agreement, including the reimbursement of expenses by the Company to the Adviser, are identical to those contained in the Company’s prior administration agreement with the Adviser (the “Prior Administration Agreement”).

During the three months ended March 31, 2020, our operating results were negatively impacted by the uncertainty surrounding the COVID-19 pandemic which has caused severe disruptions in the global economy and negatively impacted the fair value and performance of our investment portfolio. We have closely monitored our portfolio companies throughout this period, including assessing portfolio companies’ operational and liquidity exposure and outlook. For the three months ended March 31, 2020, the resulting changes in net unrealized depreciation on investments were largely due to widening credit spreads as market participants expected a higher yield on similar investments given the significant market volatility generated by the COVID-19 pandemic. For additional information concerning the COVID-19 pandemic and its potential impact on our business and our operating results, see Part II—Other information, Item 1A. Risk Factors.

From time to time, we may form taxable subsidiaries (the “Taxable Subsidiaries”) that are taxed as corporations for federal income tax purposes. At March 31, 2020, we had no Taxable Subsidiaries. At June 30, 2019, we had one Taxable Subsidiary: Zinc Borrower Blocker, LLC. The Taxable Subsidiaries, if any, allow the Company to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements applicable to a RIC under the Code.

We are generally permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. Recent legislation has modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements were met. On May 2, 2018, our board of directors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the board, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act. As a result, our asset coverage requirements for senior securities changed from 200% to 150%, effective as of May 2, 2019.

On March 19, 2019, the SEC issued an order granting our application for exemptive relief to co-invest, subject to the satisfaction of certain conditions, in certain private placement transactions with other funds managed by the Adviser or its affiliates and any future funds that are advised by the Adviser or its affiliated investment advisers (the “Exemptive Relief”). Under the terms of the Exemptive Relief, in order for us to participate in a co-investment transaction a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors must conclude that (i) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our shareholders and do not involve overreaching in respect of us or our shareholders on the part of any person concerned, and (ii) the proposed transaction is consistent with the interests of our shareholders and is consistent with our investment objectives and strategies.

Critical accounting policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes

 

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in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. Management considers the following critical accounting policies important to understanding the financial statements. In addition to the discussion below, our critical accounting policies are further described in the notes to our consolidated financial statements.

Valuation of portfolio investments

We value our portfolio investments at fair value based upon the principles and methods of valuation set forth in policies adopted by our board of directors. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that (a) are independent of us, (b) are knowledgeable, having a reasonable understanding about the asset based on all available information (including information that might be obtained through due diligence efforts that are usual and customary), (c) are able to transact for the asset, and (d) are willing to transact for the asset or liability (that is, they are motivated but not forced or otherwise compelled to do so).

Investments for which market quotations are readily available are valued at such market quotations unless the quotations are deemed not to represent fair value. We generally obtain market quotations from recognized exchanges, market quotation systems, independent pricing services or one or more broker dealers or market makers.

Debt and equity securities for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued at fair value as determined in good faith by our board of directors. Because a readily available market value for many of the investments in our portfolio is often not available, we value many of our portfolio investments at fair value as determined in good faith by our board of directors using a consistently applied valuation process in accordance with a documented valuation policy that has been reviewed and approved by our board of directors. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that we may ultimately realize. In addition, changes in the market environment and other events may have differing impacts on the market quotations used to value some of our investments than on the fair values of our investments for which market quotations are not readily available. Market quotations may also be deemed not to represent fair value in certain circumstances where we believe that facts and circumstances applicable to an issuer, a seller or purchaser, or the market for a particular security causes current market quotations not to reflect the fair value of the security. Examples of these events could include cases where a security trades infrequently, causing a quoted purchase or sale price to become stale, where there is a “forced” sale by a distressed seller, where market quotations vary substantially among market makers, or where there is a wide bid-ask spread or significant increase in the bid ask spread.

Those investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in determining the fair value of our investments include, as relevant and among other factors: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, merger and acquisition comparables, our principal market (as the reporting entity) and enterprise values.

 

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

 

   

our quarterly valuation process begins with each portfolio company or investment being initially valued by the members of the Adviser’s investment team responsible for the portfolio investment;

 

   

preliminary valuation conclusions are then documented and discussed by our senior management and the Adviser;

 

   

on a periodic basis, at least once annually, the valuation for each portfolio investment is reviewed by an independent valuation firm engaged by our board of directors;

 

   

the valuation committee of our board of directors then reviews these preliminary valuations and makes a recommendation to our board of directors regarding the fair value of each investment; and

 

   

the board of directors then reviews and discusses these preliminary valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of the Adviser, the independent valuation firm and the valuation committee.

When valuing all of our investments, we strive to maximize the use of observable inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available under the circumstances.

Our investments are categorized based on the types of inputs used in their valuation. The level in the U.S. GAAP valuation hierarchy in which an investment falls is based on the lowest level input that is significant to the valuation of the investment in its entirety. Investments are classified by U.S. GAAP into the three broad levels as follows:

 

Level 1 –

valuation is based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 –

valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly; (c) inputs other than quoted prices that are observable for the asset or liability; or (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3 –

valuation is based on unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, that is, an exit price from the perspective of a market participant that holds the asset or owes the liability. Therefore, unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Unobservable inputs are developed based on the best information available under the circumstances, which might include the Company’s own data. The Company’s own data used to develop unobservable inputs is adjusted if information is reasonably available without undue cost and effort that indicates that market participants would use different assumptions.

 

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As of March 31, 2020, all of our investments were classified as Level 3 investments. As of June 30, 2019, all of our investments were classified as Level 3 investments.

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

Revenue recognition

Our revenue recognition policies are as follows:

Net realized gains (losses) on investments: Gains or losses on the sale of investments are calculated using the specific identification method.

Interest Income: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing, commitment, and amendment fees, purchase and original issue discounts associated with loans to portfolio companies are accreted into interest income over the respective terms of the applicable loans. Accretion of discounts or premiums is calculated by the effective interest or straight-line method, as applicable, as of the purchase date and adjusted only for material amendments or prepayments. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized fees and discounts are recorded as interest income and are non-recurring in nature.

Structuring fees and similar fees are recognized as income as earned, usually when received. Structuring fees, excess deal deposits, net profits interests and overriding royalty interests are included in other fee income.

We may hold debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected.

Non-accrual: Loans are placed on non-accrual status when principal or interest payments are past due 90 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment about ultimate collectability of principal. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. PIK interest is not accrued if we do not expect the issuer to be able to pay all principal and interest when due. As of March 31, 2020, we had no investments on non-accrual status. As of June 30, 2019, we had one investment on non-accrual status, Fusion Connect Inc., which represented approximately 3.0% of our portfolio at fair value.

Financing Facility

We have, through CM Finance SPV Ltd. (“CM SPV”), our wholly owned subsidiary, entered into a $122.0 million term secured financing facility (the “Term Financing”), due December 5, 2021 with UBS AG, London Branch (together with its affiliates “UBS”). The Term Financing is collateralized by a portion of the debt investments in our portfolio. Prior to amending the Term Financing on June 21, 2019, borrowings under the Term Financing bear interest (i) at a rate per annum equal to one-month LIBOR plus 2.75% through December 4, 2018, and (ii) at a rate per annum equal to one-month LIBOR plus 2.55% from December 5, 2018 through December 5, 2020 (the “Term Financing Rate”). We also incurred an annual fee of approximately 1% of the outstanding borrowings under the Term Financing. On June 21, 2019, we amended the Term Financing and increase the Term Financing by $20.0 million from $102.0 million to $122.0 million. On April 14, 2020, with the consent of UBS, we can opt (the “Option’) to increase our Term Financing by up to $53.0 million, expanding the Term Financing to $175.0 million.

 

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Borrowings under the Term Financing, as amended, bear interest (a) with respect to the $102.0 million (i) at a rate per annum equal to one-month LIBOR plus 2.55% through December 4, 2019, and (ii) at a rate per annum equal to one-month LIBOR plus 3.55% from December 5, 2019 through December 4, 2020, and (iii) at a rate per annum equal to one-month LIBOR plus 3.15% (if the Option was not exercised) or 2.90% if the Option was exercised from December 5, 2020 through December 5, 2021, and (b) with respect to the additional $20.0 million increase in the Term Financing, (i) at a rate per annum equal to one-month LIBOR plus 3.15% through April 14, 2020, which is the date before the Option Exercise Date, and (ii) at a rate per annum equal to one-month LIBOR plus 2.90% from the Option Exercise Date through December 5, 2021.

As of both March 31, 2020 and June 30, 2019, there were $122.0 million borrowings outstanding under the Term Financing.

On November 20, 2017, we entered into a $50 million revolving financing facility (the “2017 UBS Revolving Financing”) with UBS. On June 21, 2019, we amended the 2017 UBS Revolving Financing to reduce the size of the 2017 UBS Revolving Financing to $30.0 million and extend the maturity date (as amended, the “Revolving Financing”). Borrowings under the Revolving Financing will generally bear interest at a rate per annum equal to one-month LIBOR plus 3.15%. The Company will pay a fee on any undrawn amounts of 2.25% per annum; provided that if 50% or less of the Revolving Financing is drawn, the fee will be 2.50% per annum. Any amounts borrowed under the Revolving Financing will mature, and all accrued and unpaid interest will be due and payable, on December 7, 2020. As of March 31, 2020, there were $11.7 million borrowings outstanding under the Revolving Facility. As of June 30, 2019, there were $11.0 million borrowings outstanding under the Revolving Financing. We refer to the Term Financing and the Revolving Financing together as the “Financing Facilities.”

Notes due 2023

On July 2, 2018, we closed the public offering of $30 million in aggregate principal amount of 6.125% notes due 2023 (the “Existing Notes”). On July 12, 2018, the underwriters exercised their over-allotment option to purchase an additional $4.5 million in aggregate principal amount of the Existing Notes. The total net proceeds to us from the Existing Notes, including the exercise of the underwriters’ over-allotment option, after deducting underwriting discounts and commissions of approximately $1.0 million and estimated offering expenses of approximately $230,000, were approximately $33.2 million.

On October 18, 2019, we closed the public offering of $15 million in aggregate principal amount of additional 6.125% notes due 2023 (the “Notes,” and together with the Existing Notes, the “2023 Notes”). The Notes constitute a further issuance of, rank equally in right of payment with, and form a single series with the $34.5 million in Existing Notes that we initially issued on July 2, 2018 and July 12, 2018. On November 7, 2019, the underwriters exercised their option to purchase an additional $1.875 million in aggregate principal of the Notes. The total net proceeds received by us from the sale of the Notes, including the exercise of the underwriters’ over-allotment option, was approximately $16.4 million, based on the purchase price paid by the underwriters of 96.875% of the aggregate principal amount of the Notes, after deducting estimated offering expenses of approximately $255,000 payable by us.

The 2023 Notes will mature on July 1, 2023 and bear interest at a rate of 6.125%. The 2023 Notes are direct unsecured obligations and rank pari passu, which means equal in right of payment, with all outstanding and future unsecured indebtedness issued by us. Because the 2023 Notes are not secured by any of our assets, they are effectively subordinated to all of our existing and future secured unsubordinated indebtedness (or any indebtedness that is initially unsecured as to which we subsequently grant a security interest), to the extent of the value of the assets securing such indebtedness. The 2023 Notes are structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries and financing vehicles, including, without limitation, borrowings under the Term Financing and the Revolving Financing. The 2023 Notes are obligations exclusively of Investcorp Credit Management BDC, Inc. and not of any of its subsidiaries. None of our subsidiaries is a guarantor of the 2023 Notes and the 2023 Notes will not be required to be guaranteed by any subsidiary we may acquire or create in the future.

 

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The 2023 Notes may be redeemed in whole or in part at any time or from time to time at our option on or after July 1, 2020. Interest on the Notes is payable quarterly on January 1, April 1, July 1 and October 1 of each year. The 2023 Notes are listed on the NASDAQ Global Select Market under the trading symbol “CMFNL.” We may from time to time repurchase the 2023 Notes in accordance with the 1940 Act and the rules promulgated thereunder. As of March 31, 2020 and June 30, 2019, the outstanding principal balance of the 2023 Notes was approximately $51.4 million and 34.5 million, respectively, and had an estimated fair value of $32.2 million and $34.7 million, respectively, based on the closing price as of March 31, 2020 and June 30, 2019, respectively, as traded on NASDAQ.

The indenture under which the 2023 Notes are issued (the “Indenture”) contains certain covenants, including covenants (i) requiring our compliance with the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a) of the 1940 Act, whether or not we continue to be subject to such provisions of the 1940 Act; (ii) requiring our compliance, under certain circumstances, with the requirements set forth in Section 18(a)(1)(B) as modified by Section 61(a) of the 1940 Act, whether or not we continue to be subject to such provisions of the 1940 Act, prohibiting the declaration of any cash dividend or distribution upon any class of our capital stock (except to the extent necessary for us to maintain its treatment as a RIC under Subchapter M of the Code), or purchasing any such capital stock, if our asset coverage, as defined in the 1940 Act, is below 150% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution, or purchase; and (iii) requiring us to provide financial information to the holders of the Notes and the Trustee if we cease to be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These covenants are subject to limitations and exceptions that are described in the Indenture.

Investments

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

As a BDC, we are required to comply with certain regulatory requirements. For instance, as a BDC, we may not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million. In each case, the company must be organized in the United States. As of March 31, 2020, and June 30, 2019, approximately 10.25% and 9.78% of our total assets at fair value were non-qualifying assets, respectively.

To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. As a RIC, we generally will not have to pay corporate-level taxes on any income we distribute to our stockholders.

Revenues

We generate revenues primarily in the form of interest on the debt we hold. We also generate revenue from royalty income, loan amendment and consent fees, dividends on our equity interests and capital gains on the sale of warrants and other debt or equity interests that we acquire. Our investments in fixed income instruments generally have an expected maturity of three to five years, although we have no lower or upper constraint on maturity. Interest on our debt investments is generally payable quarterly or semi-annually. Payments of principal of our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments and preferred stock investments may defer payments of cash interest or dividends or PIK interest. Any outstanding principal amount of our debt investments

 

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and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of prepayment fees, commitment, origination, structuring or due diligence fees, fees for providing significant managerial assistance, consulting fees and other investment related income.

Expenses

Our primary operating expenses include the payment of the Base Management Fee and, depending on our operating results, the Income-Based Fee and/or Capital Gains Fee, expenses reimbursable by us under the Advisory Agreement, administration fees, and our allocable portion of overhead expenses under the Administration Agreement. The Base Management Fee and incentive compensation remunerates the Adviser for work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation, those relating to:

 

   

our organization and our offering;

 

   

valuing our assets and calculating our net asset value per share (including the cost and expenses of any independent valuation firm(s));

 

   

fees and expenses payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments;

 

   

valuing our assets and calculating our net asset value per share (including the cost and expenses of any independent valuation firm(s));

 

   

interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts;

 

   

offerings of our common stock and other securities;

 

   

administration fees and expenses, if any, payable under the Administration Agreement (including our allocable portion of the Adviser’s overhead in performing its obligations under the Administration Agreement, including rent, equipment and the allocable portion of the cost of our chief compliance officer, chief financial officer and his staffs’ compensation and compensation-related expenses);

 

   

transfer agent and custody fees and expenses;

 

   

federal and state registration fees;

 

   

costs of registration and listing our shares on any securities exchange;

 

   

federal, state and local taxes;

 

   

independent directors’ fees and expenses;

 

   

costs of preparing and filing reports or other documents required by the SEC or other regulators;

 

   

costs of any reports, proxy statements or other notices to stockholders including printing costs;

 

   

costs associated with individual or group stockholders;

 

   

costs and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums;

 

   

direct costs and expenses of administration and operation, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; and

 

   

all other non-investment advisory expenses incurred by us or the Adviser in connection with administering our business.

 

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Portfolio and investment activity

Portfolio composition

We invest primarily in middle-market companies in the form of unitranche loans and standalone first and second lien loans. We may also invest in unsecured debt, bonds and in the equity of portfolio companies through warrants and other instruments.

At March 31, 2020, our investment portfolio of $274.9 million (at fair value) consisted of debt and equity investments in 38 portfolio companies, of which 85.7% were first lien investments, 10.0% were second lien investments, 3.7% were unitranche first lien debt investments, and 0.6% were in equities, warrants, or other positions. At March 31, 2020, our average and largest portfolio company investment at fair value was $7.2 and $14.9 million, respectively.

At June 30, 2019, our investment portfolio of $306.4 million (at fair value) consisted of investments in 33 portfolio companies, of which 77.6% were first lien investments, 18.7% were second lien investments, 3.7% were unitranche first lien debt investments, and none were in equity and warrants, or other positions. At June 30, 2019, our average and largest portfolio company investment at fair value was $9.3 million and $17.3 million, respectively.

As of March 31, 2020 and June 30, 2019, respectively, our weighted average total yield of debt and income producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 10.19% and 10.50%. As of March 31, 2020 and June 30, 2019, respectively, our weighted average total yield on investments at amortized cost (which includes interest income and amortization of fees and discounts) was 10.05% and 10.25%.

 

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We use Global Industry Classification Standard (“GICS”) codes to identify the industry groupings. At March 31, 2020 and June 30, 2019, respectively, the industry composition of our portfolio in accordance with the GICS codes at fair value was as follows:

 

    

Percentage of
Total Portfolio
at March  31,
2020

    

Percentage of
Total Portfolio
at June  30,
2019

 

Energy Equipment & Services

     11.16%        10.21%  

Professional Services

     11.10           13.52     

Construction & Engineering

     11.03           9.80   

Trading Companies & Distributors

     8.93         2.40   

Media

     6.84         9.91   

Containers & Packaging

     6.48           4.22   

Commercial Services & Supplies

     4.92         8.65   

Retail

     4.28         4.68   

Diversified Telecommunication Services

     4.22         5.65   

Internet Software & Services

     3.56         2.89   

Consumer Finance

     3.47         —     

Airlines

     3.41         —     

Distributors

     3.41         4.82   

Internet & Direct Marketing Retail

     2.48           —     

Construction Materials

     2.38         2.26   

Specialty Retail

     2.04         —   

Household Durables

     1.80         3.08   

Auto Components

     1.73         2.88   

Chemicals

     1.73         1.55   

Road & Rail

     1.42         —     

Hotels, Restaurants & Leisure

     1.40         3.62   

IT Services

     1.21         1.89   

Technology Hardware, Storage and Peripherals

     1.00         2.40   

Business Services

     —           2.42   

Health Care Equipment & Supplies

     —           2.40   

Wireless Telecommunication Services

     —           0.75   
  

 

 

    

 

 

 
       100.00%          100.00%  
  

 

 

    

 

 

 

During the three months ended March 31, 2020, we added six new investments totaling approximately $36.9 million. Four of these investments were in new portfolio companies. Of the new investments, 100.0% consisted of first lien investments. In particular, our investments in the energy equipment and services industries, which comprise 11.16% of our portfolio as of March 31, 2020, have been negatively affected by the economic uncertainty caused by COVID-19.

At March 31, 2020, 98.1% of our debt investments bore interest based on floating rates based on indices such as LIBOR (in certain cases, subject to interest rate floors), and 1.9% bore interest at fixed rates. At June 30, 2019, 95.8% of our debt investments bore interest based on floating rates based on indices such as LIBOR (in certain cases, subject to interest rate floors), and 4.2% bore interest at fixed rates.

Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of March 31, 2020, we had four investments with aggregate unfunded commitments of $8.9 million, and as of June 30, 2019, we had three investments with aggregate unfunded commitments of $6.7 million. We generally set aside sufficient liquid assets to cover our unfunded commitments, if any.

 

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Table of Contents

Asset Quality

In addition to various risk management and monitoring tools, we use the Adviser’s investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in our portfolio. This investment rating system uses a five-level numeric rating scale. The following is a description of the conditions associated with each investment rating:

 

Investment Rating 1

   Investments that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original investment.

Investment Rating 2

   Investments that are performing within expectations and whose risks remain neutral compared to the expected risk at the time of the original investment. All new loans will initially be rated 2.

Investment Rating 3

   Investments that are performing below expectations and that require closer monitoring, but where no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with their financial covenants.

Investment Rating 4

   Investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are often in workout. Investments with a rating of 4 will be those for which some loss of return but no loss of principal is expected.

Investment Rating 5

   Investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are almost always in workout. Investments with a rating of 5 will be those for which some loss of return and principal is expected.

If the Adviser determines that an investment is underperforming, or circumstances suggest that the risk associated with a particular investment has significantly increased, the Adviser will increase its monitoring intensity and prepare regular updates for the investment committee, summarizing current operating results and material impending events and suggesting recommended actions. While the investment rating system identifies the relative risk for each investment, the rating alone does not dictate the scope and/or frequency of any monitoring that will be performed. The frequency of the Adviser’s monitoring of an investment will be determined by a number of factors, including, but not limited to, the trends in the financial performance of the portfolio company, the investment structure and the type of collateral securing the investment.

The following table shows the investment rankings of the investments in our portfolio:

 

     As of March 31, 2020      As of June 30, 2019  
     Fair Value      % of
Portfolio
     Number of
Investments
     Fair Value      % of
Portfolio
   Number of
Investments
 

1

    $ 6,133,575        2.2%        1       $ 6,358,750        2.1%        1  

2

       224,654,798        81.7         42          223,645,544        73.0         32  

3

     38,598,504        14.0         8        67,535,327        22.0         8  

4

     5,525,940        2.1         1        8,851,371        2.9         3  

5

            —         1        1        —           1