Company Quick10K Filing
Quick10K
Gladstone Capital
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-10-08 Regulation FD, Exhibits
8-K 2019-10-02 Other Events
8-K 2019-08-21 Other Events, Exhibits
8-K 2019-08-05 Earnings, Exhibits
8-K 2019-07-10 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-07-09 Regulation FD, Exhibits
8-K 2019-05-01 Earnings, Exhibits
8-K 2019-04-09 Regulation FD, Exhibits
8-K 2019-02-07 Shareholder Vote
8-K 2019-02-06 Earnings, Exhibits
8-K 2019-01-08 Regulation FD, Exhibits
8-K 2018-11-14 Earnings, Exhibits
8-K 2018-11-01 Earnings
8-K 2018-10-09 Regulation FD, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-07-10 Regulation FD, Exhibits
8-K 2018-05-10 Other Events, Exhibits
8-K 2018-04-10 Officers, Regulation FD, Other Events, Exhibits
8-K 2018-03-09 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-08 Shareholder Vote
8-K 2018-01-09 Regulation FD, Exhibits
HOG Harley Davidson 4,914
AIN Albany International 2,579
BGS B&G Foods 1,193
UFI Unifi 355
CULP Culp 309
RCKY Rocky Brands 214
CRWS Crown Crafts 54
KBSF KBS Fashion Group 5
CSWC Capital Southwest 0
RAND Rand Capital 0
GLAD 2019-06-30
Note 1. Organization
Note 2. Summary of Significant Accounting Policies
Note 3. Investments
Note 4. Related Party Transactions
Note 5. Borrowings
Note 6. Mandatorily Redeemable Preferred Stock
Note 7. Registration Statement and Common Equity Offerings
Note 8. Net Increase in Net Assets Resulting From Operations per Weighted Average Common Share
Note 9. Distributions To Common Stockholders
Note 10. Commitments and Contingencies
Note 11. Financial Highlights
Note 12. Unconsolidated Significant Subsidiaries
Note 13. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures 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 d780771dex311.htm
EX-31.2 d780771dex312.htm
EX-32.1 d780771dex321.htm
EX-32.2 d780771dex322.htm

Gladstone Capital Earnings 2019-06-30

GLAD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 d780771d10q.htm 10-Q 10-Q
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 JUNE 30, 2019

OR

 

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

FOR THE TRANSITION PERIOD FROM ______ TO _______

COMMISSION FILE NUMBER: 814-00237

 

 

GLADSTONE CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

MARYLAND   54-2040781

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1521 WESTBRANCH DRIVE, SUITE 100  
MCLEAN, VIRGINIA   22102
(Address of principal executive office)   (Zip Code)

(703) 287-5800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

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, $0.001 par value per share   GLAD   Nasdaq Global Select Market
6.00% Series 2024 Term Preferred Stock, $0.001 par value per share   GLADN   Nasdaq Global Select Market
6.125% Notes due 2023, $25.00 par value per note   GLADD   Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

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 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 the 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 per share, outstanding as of August 2, 2019 was 30,345,923.

 

 

 


Table of Contents

GLADSTONE CAPITAL CORPORATION

TABLE OF CONTENTS

 

PART I.    FINANCIAL INFORMATION   
Item 1.    Financial Statements (Unaudited)   
   Consolidated Statements of Assets and Liabilities as of June 30, 2019 and September 30, 2018      2  
   Consolidated Statements of Operations for the three and nine months ended June 30, 2019 and 2018      3  
   Consolidated Statements of Changes in Net Assets for the nine months ended June 30, 2019 and 2018      5  
   Consolidated Statements of Cash Flows for the nine months ended June 30, 2019 and 2018      6  
   Consolidated Schedules of Investments as of June 30, 2019 and September 30, 2018      7  
   Notes to Consolidated Financial Statements      19  
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      44  
   Overview      44  
   Results of Operations      49  
   Liquidity and Capital Resources      57  
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      63  
Item 4.    Controls and Procedures      63  
PART II.    OTHER INFORMATION   
Item 1.    Legal Proceedings      64  
Item 1A.    Risk Factors      64  
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      65  
Item 3.    Defaults Upon Senior Securities      65  
Item 4.    Mine Safety Disclosures      65  
Item 5.    Other Information      65  
Item 6.    Exhibits      66  

SIGNATURES

     67  

 

1


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

 

     June 30,
2019
    September 30,
2018
 

ASSETS

    

Investments, at fair value:

    

Non-Control/Non-Affiliate investments (Cost of $353,525 and $359,304, respectively)

   $ 349,782     $ 325,567  

Affiliate investments (Cost of $38,921 and $54,667, respectively)

     35,707       48,856  

Control investments (Cost of $30,731 and $13,496, respectively)

     22,070       15,623  

Cash and cash equivalents

     227       1,971  

Restricted cash and cash equivalents

     38       33  

Interest receivable, net

     2,912       2,601  

Due from administrative agent

     2,364       2,807  

Deferred financing costs, net

     934       1,363  

Other assets, net

     1,307       687  
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 415,341     $ 399,508  
  

 

 

   

 

 

 

LIABILITIES

    

Borrowings, at fair value (Cost of $59,300 and $110,000, respectively)

   $ 59,473     $ 110,000  

Notes payable, net (Cost of $57,500 as of June 30, 2019)

     55,643        

Mandatorily redeemable preferred stock, $0.001 par value per share, $25 liquidation preference per share; 5,440,000 and 5,440,000 shares authorized, respectively, and 2,070,000 and 2,070,000 shares issued and outstanding, respectively, net

     50,285       50,077  

Accounts payable and accrued expenses

     497       290  

Interest payable

     842       330  

Fees due to Adviser(A)

     1,675       1,084  

Fee due to Administrator(A)

     288       317  

Other liabilities

     452       318  
  

 

 

   

 

 

 

TOTAL LIABILITIES

   $ 169,155     $ 162,416  
  

 

 

   

 

 

 

Commitments and contingencies(B)

    

NET ASSETS

    

Common stock, $0.001 par value per share, 44,560,000 and 44,560,000 shares authorized, respectively, and 29,904,418 and 28,501,980 shares issued and outstanding, respectively

   $ 30     $ 29  

Capital in excess of par value

     354,942       343,076  

Cumulative net unrealized depreciation of investments

     (15,618     (37,421

Cumulative net unrealized appreciation of other

     (173      

Under (over) distributed net investment income

     90       (219

Accumulated net realized losses

     (93,085     (68,373
  

 

 

   

 

 

 

Total distributable loss

     (108,786     (106,013
  

 

 

   

 

 

 

TOTAL NET ASSETS

   $ 246,186     $ 237,092  
  

 

 

   

 

 

 

NET ASSET VALUE PER COMMON SHARE

   $ 8.23     $ 8.32  
  

 

 

   

 

 

 

 

(A) 

Refer to Note 4—Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

(B)

Refer to Note 10—Commitments and Contingencies in the accompanying Notes to Consolidated Financial Statements for additional information.

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

2


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

 

     Three Months Ended
June 30,
    Nine Months Ended
June 30,
 
     2019     2018     2019     2018  

INVESTMENT INCOME

        

Interest income

        

Non-Control/Non-Affiliate investments

   $ 9,256     $ 8,675     $ 27,889     $ 24,642  

Affiliate investments

     1,044       1,243       3,253       3,531  

Control investments

     522       375       1,713       1,438  

Cash and cash equivalents

     14       9       40       28  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income (excluding PIK interest income)

     10,836       10,302       32,895       29,639  

PIK interest income

        

Non-Control/Non-Affiliate investments

     326       1,063       930       3,257  

Affiliate investments

           70       49       209  

Control investments

                 76        
  

 

 

   

 

 

   

 

 

   

 

 

 

Total PIK interest income

     326       1,133       1,055       3,466  

Total interest income

     11,162       11,435       33,950       33,105  

Success fee income

        

Non-Control/Non-Affiliate investments

     458       430       1,129       430  

Prepayment fee income

        

Non-Control/Non-Affiliate investments

     900       440       1,181       592  

Other income

     366       74       1,057       197  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     12,886       12,379       37,317       34,324  
  

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

        

Base management fee(A)

     1,772       1,801       5,424       5,261  

Loan servicing fee(A)

     1,267       1,294       3,762       3,754  

Incentive fee(A)

     1,543       1,499       4,286       4,082  

Administration fee(A)

     288       310       959       894  

Interest expense on borrowings and notes payable

     2,088       1,556       6,071       4,356  

Dividend expense on mandatorily redeemable preferred stock

     776       776       2,328       2,328  

Amortization of deferred financing fees

     344       237       985       777  

Professional fees

     209       200       694       745  

Other general and administrative expenses

     303       266       898       828  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses, before credits from Adviser

     8,590       7,939       25,407       23,025  

Credit to base management fee – loan servicing fee(A)

     (1,267     (1,294     (3,762     (3,754

Credits to fees from Adviser – other(A)

     (650     (262     (2,544     (2,133
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses, net of credits

     6,673       6,383       19,101       17,138  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME

     6,213       5,996       18,216       17,186  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET REALIZED AND UNREALIZED GAIN (LOSS)

        

Net realized gain (loss):

        

Non-Control/Non-Affiliate investments

     (834     158       (25,384     984  

Affiliate investments

     27       41       25       145  

Control investments

                 (9     (32

Other

                       (133
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net realized gain (loss)

     (807     199       (25,368     964  

Net unrealized appreciation (depreciation):

        

Non-Control/Non-Affiliate investments

     5,561       3,755       29,994       7,266  

Affiliate investments

     (1,478     2,252       2,597       4,917  

Control investments

     (460     (109     (10,788     (1,891

Other

     (173           (173     115  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net unrealized appreciation (depreciation)

     3,450       5,898       21,630       10,407  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     2,643       6,097       (3,738     11,371  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

   $ 8,856     $ 12,093     $ 14,478     $ 28,557  
  

 

 

   

 

 

   

 

 

   

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

3


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

 

BASIC AND DILUTED PER COMMON SHARE:

           

Net investment income

   $ 0.21      $ 0.22      $ 0.63      $ 0.64  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net increase in net assets resulting from operations

   $ 0.30      $ 0.45      $ 0.50      $ 1.07  
  

 

 

    

 

 

    

 

 

    

 

 

 

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic and Diluted

     29,491,285        27,134,305        28,876,197        26,788,172  

 

(A) 

Refer to Note 4—Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

 

 

 

 

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

4


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(IN THOUSANDS)

(UNAUDITED)

 

     2019     2018  

NET ASSETS, SEPTEMBER 30

   $ 237,092     $ 219,650  

OPERATIONS

    

Net investment income

     5,986       5,577  

Net realized gain (loss) on investments

     (26,863     574  

Realized gain (loss) on other

           (133

Net unrealized appreciation (depreciation) of investments

     17,169       1,360  

Net unrealized depreciation (appreciation) of other

           (218
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     (3,708     7,160  
  

 

 

   

 

 

 

DISTRIBUTIONS

    

Distributions to common stockholders from net investment income ($0.21 per share)(A)

     (5,986     (5,577

CAPITAL TRANSACTIONS

    

Issuance of common stock

     28       4,567  

Discounts, commissions and offering costs for issuance of common stock

           (83
  

 

 

   

 

 

 

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

     28       4,484  

NET INCREASE (DECREASE) IN NET ASSETS

     (9,666     6,067  
  

 

 

   

 

 

 

NET ASSETS, DECEMBER 31

   $ 227,426     $ 225,717  

OPERATIONS

    

Net investment income

     6,017       5,613  

Net realized gain (loss) on investments

     2,302       324  

Net unrealized appreciation (depreciation) of investments

     1,011       3,034  

Net unrealized depreciation (appreciation) of other

           333  
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     9,330       9,304  

DISTRIBUTIONS

    

Distributions to common stockholders from net investment income ($0.21 per share)(A)

     (6,017     (5,613

CAPITAL TRANSACTIONS

    

Issuance of common stock

     4,258       2,361  

Discounts, commissions and offering costs for issuance of common stock

     (74     (44
  

 

 

   

 

 

 

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

     4,184       2,317  

NET INCREASE (DECREASE) IN NET ASSETS

     7,497       6,008  
  

 

 

   

 

 

 

NET ASSETS, MARCH 31

   $ 234,923     $ 231,725  
  

 

 

   

 

 

 

OPERATIONS

    

Net investment income

     6,213       5,996  

Net realized gain (loss) on investments

     (807     199  

Net unrealized appreciation (depreciation) of investments

     3,623       5,898  

Net unrealized depreciation (appreciation) of other

     (173      
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     8,856       12,093  

DISTRIBUTIONS

    

Distributions to common stockholders from net investment income ($0.19 and $0.21 per share, respectively)(A)

     (5,468     (5,708

Distributions to common stockholders from return of capital ($0.02 and $0.00 per share, respectively)(A)

     (745      
  

 

 

   

 

 

 

Net increase (decrease) in net assets from distributions to stockholders

     (6,213     (5,708

CAPITAL TRANSACTIONS

    

Issuance of common stock

     8,772       6,965  

Discounts, commissions and offering costs for issuance of common stock

     (152     (124
  

 

 

   

 

 

 

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

     8,620       6,841  

NET INCREASE (DECREASE) IN NET ASSETS

     11,263       13,226  
  

 

 

   

 

 

 

NET ASSETS, JUNE 30

   $ 246,186     $ 244,951  
  

 

 

   

 

 

 

 

(A) 

Refer to Note 9 – Distributions to Common Stockholders in the accompanying Notes to Consolidated Financial Statements for additional information.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

5


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

     Nine Months Ended
June 30,
 
     2019     2018  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net increase (decrease) in net assets resulting from operations

   $ 14,478     $ 28,557  

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

    

Purchase of investments

     (122,324     (96,520

Principal repayments on investments

     98,589       57,096  

Net proceeds from sale of investments

     3,645       1,567  

Increase in investments due to paid-in-kind interest

     (1,422     (3,454

Net change in premiums, discounts and amortization

     407       (45

Net realized loss (gain) on investments

     25,395       (1,097

Net unrealized depreciation (appreciation) of investments

     (21,803     (10,292

Net unrealized appreciation (depreciation) of other

     173       (115

Changes in assets and liabilities:

    

Amortization of deferred financing fees

     985       777  

Decrease (increase) in interest receivable, net

     (311     (1,000

Decrease (increase) in funds due from administrative agent

     443       (150

Decrease (increase) in other assets, net

     (653     2,105  

Increase (decrease) in accounts payable and accrued expenses

     207       (241

Increase (decrease) in interest payable

     512       55  

Increase (decrease) in fees due to Adviser(A)

     591       712  

Increase (decrease) in fee due to Administrator(A)

     (29     66  

Increase (decrease) in other liabilities

     134       (141
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (983     (22,120
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Proceeds from line of credit

     122,800       109,600  

Repayments on line of credit

     (173,500     (85,600

Proceeds from issuance of long-term debt

     57,500        

Deferred financing fees

     (2,204     (1,329

Proceeds from issuance of common stock

     13,058       13,893  

Discounts, commissions and offering costs for issuance of common stock

     (194     (209

Distributions paid to common stockholders

     (18,216     (16,898
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (756     19,457  
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS

     (1,739     (2,663

CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD

     2,004       5,270  
  

 

 

   

 

 

 

CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD

   $ 265     $ 2,607  
  

 

 

   

 

 

 

CASH PAID FOR INTEREST

   $ 5,559     $ 4,301  
  

 

 

   

 

 

 

 

(A) 

Refer to Note 4—Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

6


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

JUNE 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company and Investment(A)(B)(W)(Y)

   Principal/
Shares/
Units(J)(X)
     Cost      Fair Value  

NON-CONTROL/NON-AFFILIATE INVESTMENTS(M) – 142.0%

        

Secured First Lien Debt – 68.8%

        

Aerospace and Defense – 5.1%

        

Antenna Research Associates, Inc. – Line of Credit, $2,500 available (L + 8.3%, 10.6% Cash, Due 11/2021)(C)

   $      $      $  

Antenna Research Associates, Inc. – Term Debt (L + 10.0%, 12.4% Cash, 4.0% PIK,
Due 11/2023)(C)

     12,518        12,518        12,549  
     

 

 

    

 

 

 
        12,518        12,549  

Automobile – 0.8%

        

Meridian Rack & Pinion, Inc. (S) – Term Debt (L + 11.5%, 13.9% Cash, Due 9/2019)(C)(H)(Z)

     4,140        4,140        2,070  

Beverage, Food, and Tobacco – 2.2%

        

Triple H Food Processors, LLC – Line of Credit, $750 available (L + 6.8%, 9.1% Cash, Due 8/2020)(C)

                    

Triple H Food Processors, LLC – Term Debt (L + 8.3%, 10.6% Cash, Due 8/2020)(C)

     5,400        5,400        5,440  
     

 

 

    

 

 

 
        5,400        5,440  

Buildings and Real Estate – 0.9%

        

GFRC 360, LLC – Line of Credit, $50 available (L + 8.0%, 10.4% Cash, Due 9/2020)(C)

     1,150        1,150        1,141  

GFRC 360, LLC – Term Debt (L + 8.0%, 10.4% Cash, Due 9/2020)(C)

     1,000        1,000        993  
     

 

 

    

 

 

 
        2,150        2,134  

Diversified/Conglomerate Service – 30.0%

        

DKI Ventures, LLC – Line of Credit, $2,500 available (L + 8.3%, 10.6% Cash, Due 12/2021)(C)

                    

DKI Ventures, LLC – Delayed Draw Term Loan, $5,000 available (L + 8.3%, 10.6% Cash, Due 12/2023)(C)

                    

DKI Ventures, LLC – Term Debt (L + 8.3%, 10.6% Cash, Due 12/2023)(C)

     6,500        6,500        6,386  

ENET Holdings, LLC – Line of Credit, $1,000 available (L + 7.3%, 9.6% Cash, Due 4/2022)(C)

                    

ENET Holdings, LLC – Term Debt (L + 7.3%, 9.6% Cash, Due 4/2025)(C)

     29,000        29,000        29,000  

R2i Holdings, LLC – Line of Credit, $2,000 available (L + 8.0%, 10.4% Cash, Due 12/2021)(C)

                    

R2i Holdings, LLC – Term Debt (L + 8.0%, 10.4% Cash, Due 12/2023)(C)

     19,875        19,875        19,527  

Travel Sentry, Inc. – Term Debt (L + 8.0%, 10.3% Cash, Due 12/2021)(C)(U)

     6,939        6,939        6,913  

Vision Government Solutions, Inc. – Line of Credit, $1,050 available (L + 8.8%, 11.1% Cash, Due 12/2022)(C)

     1,450        1,444        1,450  

Vision Government Solutions, Inc. – Term Debt (L + 8.8%, 11.1% Cash, Due 12/2022)(C)

     10,600        10,555        10,600  
     

 

 

    

 

 

 
        74,313        73,876  

Healthcare, Education, and Childcare – 8.8%

        

EL Academies, Inc. – Line of Credit, $2,000 available (L + 9.5%, 11.9% Cash, Due 8/2020)(C)

                    

EL Academies, Inc. – Delayed Draw Term Loan, $6,160 available (L + 9.5%, 11.9% Cash, Due 8/2022)(C)

     9,840        9,818        9,791  

EL Academies, Inc. – Term Debt (L + 9.5%, 11.9% Cash, Due 8/2022)(C)

     12,000        11,973        11,940  
     

 

 

    

 

 

 
        21,791        21,731  

Machinery – 2.5%

        

Arc Drilling Holdings LLC – Line of Credit, $875 available (L + 8.0%, 10.4% Cash,
Due 11/2020)(C)

     125        125        125  

Arc Drilling Holdings LLC – Term Debt (L + 9.5%, 11.9% Cash, 3.0% PIK, Due 11/2022)(C)

     5,871        5,871        5,533  

Precision International, LLC – Line of Credit, $500 available (L + 7.5%, 9.9% Cash, Due 9/2021)(C)

                    

Precision International, LLC – Term Debt (10.0% Cash, Due 9/2021)(C)(F)

     436        436        436  
     

 

 

    

 

 

 
        6,432        6,094  

Printing and Publishing – 0.0%

        

Chinese Yellow Pages Company – Line of Credit, $0 available (PRIME + 4.0%, 9.5% Cash, Due 2/2015)(E)(V)

     107        107         

Telecommunications – 18.5%

        

B+T Group Acquisition, Inc.(S) – Line of Credit, $375 available (L + 11.0%, 13.4% Cash, Due 12/2021)(C)

     825        825        822  

B+T Group Acquisition, Inc.(S) – Term Debt (L + 11.0%, 13.4% Cash, Due 12/2021)(C)

     6,000        6,000        5,978  

NetFortris Corp. – Term Debt (L + 9.0%, 11.4% Cash, Due 2/2021)(C)

     23,302        23,263        22,486  

XMedius America, Inc. – Term Debt (L + 9.3%, 11.6% Cash, Due 10/2022)(Q)

     9,240        9,240        9,333  

XMedius Solutions Inc. – Term Debt (L + 9.3%, 11.6% Cash, Due 10/2022)(Q)

     6,885        6,885        6,954  
     

 

 

    

 

 

 
        46,213        45,573  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 173,064      $ 169,467  
     

 

 

    

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

7


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

JUNE 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company and Investment(A)(B)(W)(Y)

   Principal/
Shares/
Units(J)(X)
     Cost      Fair Value  

Secured Second Lien Debt – 55.6%

        

Automobile – 2.0%

        

Sea Link International IRB, Inc. – Term Debt (11.3% Cash, Due 3/2023)(C)(F)

   $ 5,000      $ 4,984      $ 5,006  

Beverage, Food, and Tobacco – 4.3%

        

8th Avenue Food & Provisions, Inc. – Term Debt (L + 7.8%, 10.1% Cash, Due 10/2026)(D)

     3,683        3,708        3,665  

The Mochi Ice Cream Company – Term Debt (L + 10.5%, 12.9% Cash, Due 12/2023)(C)

     6,750        6,728        6,817  
     

 

 

    

 

 

 
        10,436        10,482  

Cargo Transportation – 5.3%

        

AG Transportation Holdings, LLC. – Term Debt (L + 10.0%, 13.3% Cash, Due 12/2020)(C)

     13,000        13,000        13,000  

Chemicals, Plastics, and Rubber – 4.5%

        

Phoenix Aromas & Essential Oils, LLC – Term Debt (L + 9.3%, 11.6% Cash, Due 5/2024)(C)

     10,000        10,000        10,000  

Vertellus Holdings LLC – Term Debt (L + 12.0%, 14.4% Cash, Due 10/2021)(C)

     1,099        1,099        1,093  
     

 

 

    

 

 

 
        11,099        11,093  

Diversified/Conglomerate Manufacturing – 4.2%

        

Alloy Die Casting Co.(S) – Term Debt (L + 4.0%, 6.4% Cash, Due 4/2021)(C)

     5,235        5,235        5,209  

Alloy Die Casting Co.(S) – Term Debt (L + 4.0%, 6.4% Cash, Due 4/2021)(C)

     75        75        75  

Alloy Die Casting Co.(S) – Term Debt (L + 4.0%, 6.4% Cash, Due 4/2021)(C)

     390        390        388  

Tailwind Smith Cooper Intermediate Corporation – Term Debt (L + 9.0%, 11.4% Cash, Due 5/2027)(D)

     5,000        4,751        4,750  
     

 

 

    

 

 

 
        10,451        10,422  

Diversified/Conglomerate Service – 13.6%

        

CHA Holdings, Inc. – Term Debt (L + 8.8%, 11.1% Cash, Due 4/2026)(D)(U)

     3,000        2,946        3,030  

DigiCert Holdings, Inc. – Term Debt (L + 8.0%, 10.4% Cash, Due 10/2025)(D)

     2,400        2,379        2,352  

DiscoverOrg, LLC – Term Debt (L + 8.5%, 10.9% Cash, Due 2/2027)(D)

     3,304        3,275        3,262  

Drive Chassis Holdco, LLC – Term Debt (L + 8.3%, 10.6% Cash, Due 4/2026)(D)

     5,000        4,754        4,800  

Gray Matter Systems, LLC – Term Debt (12.0% Cash, Due 11/2023)(C)(F)

     11,100        11,100        11,072  

Keystone Acquisition Corp. – Term Debt (L + 9.3%, 11.6% Cash, Due 5/2025)(D)(U)

     4,000        3,934        3,880  

LDiscovery, LLC – Term Debt (L + 10.0%, 12.4% Cash, Due 12/2023)(D)

     5,000        4,852        4,975  
     

 

 

    

 

 

 
        33,240        33,371  

Healthcare, Education, and Childcare – 1.2%

        

Medical Solutions Holdings, Inc. – Term Debt (L + 8.3%, 10.6% Cash, Due 6/2025)(D)

     3,000        2,963        2,940  

New Trident Holdcorp, Inc. – Term Debt (L + 10.0%, 12.3% Cash, Due 7/2020)(E)(H)(K)(U)

     4,409        4,409         
     

 

 

    

 

 

 
        7,372        2,940  

Home and Office Furnishings, Housewares and Durable Consumer Products – 4.0%

        

Belnick, Inc. – Term Debt (11.0% Cash, Due 8/2023)(C)(F)

     10,000        10,000        9,925  

Hotels, Motels, Inns, and Gaming – 2.8%

        

Vacation Rental Pros Property Management, LLC – Term Debt (L + 10.0%, 12.4% Cash, 3.0% PIK, Due 6/2023)(C)

     7,535        7,535        6,850  

Machinery – 0.4%

        

CPM Holdings, Inc. – Term Debt (L + 8.3%, 10.6% Cash, Due 11/2026)(D)

     1,000        1,000        980  

Oil and Gas – 12.1%

        

Imperative Holdings Corporation – Term Debt (L + 10.3%, 12.6% Cash, Due 9/2022)(C)

     30,000        30,000        29,850  

Retail Stores – 1.2%

        

United PF Holdings, LLC – Term Debt (L + 8.5%, 10.9% Cash, Due 6/2027)(D)

     3,000        2,955        2,955  
     

 

 

    

 

 

 

Total Secured Second Lien Debt

      $ 142,072      $ 136,874  
     

 

 

    

 

 

 

Unsecured Debt – 1.6%

        

Healthcare, education, and childcare – 1.6%

        

Edmentum Ultimate Holdings, LLC – Term Debt (10.0% PIK, Due 6/2020)(C)(F)

   $ 3,894      $ 3,894      $ 3,855  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

8


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

JUNE 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company and Investment(A)(B)(W)(Y)

   Principal/
Shares/
Units(J)(X)
    Cost      Fair
Value
 

Preferred Equity – 5.8%

       

Automobile – 0.0%

       

Meridian Rack & Pinion, Inc.(S) – Preferred Stock(E)(G)

     1,449     $ 1,449      $  

Buildings and Real Estate – 0.5%

       

GFRC 360, LLC – Preferred Stock(E)(G)

     1,000       1,025        1,272  

Diversified/Conglomerate Manufacturing – 1.4%

       

Alloy Die Casting Co.(S) – Preferred Stock(E)(G)

     2,192       2,192        3,337  

Diversified/Conglomerate Service – 0.0%

       

Frontier Financial Group Inc. – Preferred Stock(E)(G)

     766       500         

Frontier Financial Group Inc. – Preferred Stock Warrant(E)(G)

     169               
    

 

 

    

 

 

 
       500         

Oil and Gas – 3.4%

       

FES Resources Holdings LLC – Preferred Equity Units(E)(G)

     6,350       6,350        6,350  

Imperative Holdings Corporation – Preferred Equity Units(E)(G)

     13,740       632        2,185  
    

 

 

    

 

 

 
       6,982        8,535  

Telecommunications – 0.5%

       

B+T Group Acquisition, Inc.(S) – Preferred Stock(E)(G)

     5,503       1,799         

NetFortris Corp. – Preferred Stock(E)(G)

     5,656,380       565        1,250  
    

 

 

    

 

 

 
       2,364        1,250  
    

 

 

    

 

 

 

Total Preferred Equity

     $ 14,512      $ 14,394  
    

 

 

    

 

 

 

Common Equity – 10.2%

       

Aerospace and Defense – 1.5%

       

Antenna Research Associates, Inc. – Common Equity Units(E)(G)

     4,283     $ 4,283      $ 3,743  

Automobile – 0.5%

       

Sea Link International IRB, Inc.– Common Equity Units(E)(G)

     588,039       588        1,136  

Beverage, Food, and Tobacco – 0.7%

       

The Mochi Ice Cream Company – Common Stock(E)(G)

     450       450        1,146  

Triple H Food Processors, LLC – Common Stock(E)(G)

     250,000       250        662  
    

 

 

    

 

 

 
       700        1,808  

Buildings and Real Estate – 0.0%

       

GFRC 360, LLC – Common Stock Warrants(E)(G)

     45.0             

Cargo Transportation – 0.9%

       

AG Transportation Holdings, LLC – Member Profit Participation(E)(G)

     18.0     1,000        1,605  

AG Transportation Holdings, LLC – Profit Participation Warrants(E)(G)

     12.0     244        866  
    

 

 

    

 

 

 
       1,244        2,471  

Chemicals, Plastics, and Rubber – 0.2%

       

Vertellus Holdings LLC – Common Stock Units(E)(G)

     879,121       3,018        416  

Diversified/Conglomerate Manufacturing – 1.8%

       

Alloy Die Casting Co.(S) – Common Stock(E)(G)

     270       18        4,316  

Healthcare, Education, and Childcare – 1.8%

       

Edmentum Ultimate Holdings, LLC – Common Stock(E)(G)

     21,429       2,636         

GSM MidCo LLC – Common Stock(E)(G)

     767       767        767  

Leeds Novamark Capital I, L.P. – Limited Partnership Interest ($843 uncalled capital
commitment)(G)(L)(R)

     3.5     2,152        3,747  
    

 

 

    

 

 

 
       5,555        4,514  

Machinery – 0.3%

       

Arc Drilling Holdings LLC – Common Stock(E)(G)

     15,000       1,500        46  

Precision International, LLC – Membership Unit Warrant(E)(G)

     33.3            789  
    

 

 

    

 

 

 
       1,500        835  

Oil and Gas – 0.1%

       

FES Resources Holdings LLC – Common Equity Units(E)(G)

     6,233               

Total Safety Holdings, LLC – Common Equity(E)(G)

     435       499        167  
    

 

 

    

 

 

 
       499        167  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

9


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

JUNE 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company and Investment(A)(B)(W)(Y)

   Principal/
Shares/
Units(J)(X)
    Cost      Fair Value  

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.2%

       

Funko Acquisition Holdings, LLC(S) – Common Units(G)(T)

     23,487       113        387  

Telecommunications – 0.0%

       

B+T Group Acquisition, Inc.(S) – Common Stock Warrant(E)(G)

     1.5             

NetFortris Corp.– Common Stock Warrant(E)(G)

     1       1         
    

 

 

    

 

 

 
       1         

Textiles and Leather – 2.2%

       

Targus Cayman HoldCo, Ltd. – Common Stock(E)(G)

     3,076,414       2,464        5,399  
    

 

 

    

 

 

 

Total Common Equity

     $ 19,983      $ 25,192  
    

 

 

    

 

 

 
    

 

 

    

 

 

 

Total Non-Control/Non-Affiliate Investments

     $ 353,525      $ 349,782  
    

 

 

    

 

 

 

AFFILIATE INVESTMENTS(N) – 14.5%

       

Secured First Lien Debt – 3.2%

       

Diversified/Conglomerate Manufacturing – 3.2%

       

Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 10.5%, 12.9% Cash, Due 2/2022)(C)

   $ 6,200     $ 6,200      $ 5,890  

Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 11.8%, 14.1% Cash, Due 2/2022)(C)

     2,000       2,000        1,910  
    

 

 

    

 

 

 
       8,200        7,800  
    

 

 

    

 

 

 

Total Secured First Lien Debt

     $ 8,200      $ 7,800  
    

 

 

    

 

 

 

Secured Second Lien Debt – 10.2%

       

Diversified Natural Resources, Precious Metals and Minerals – 8.7%

       

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)

   $ 6,000     $ 6,000      $ 6,000  

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)

     8,000       8,000        8,000  

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)

     3,300       3,300        3,300  

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)

     4,000       4,000        4,000  
    

 

 

    

 

 

 
       21,300        21,300  

Personal and Non-Durable Consumer Products (Manufacturing Only) – 1.5%

       

Canopy Safety Brands, LLC – Term Debt (L + 10.5%, 12.9% Cash, Due 7/2022) (C)

     3,750       3,750        3,769  
    

 

 

    

 

 

 

Total Secured Second Lien Debt

     $ 25,050      $ 25,069  
    

 

 

    

 

 

 

Preferred Equity – 0.6%

       

Diversified/Conglomerate Manufacturing – 0.0%

       

Edge Adhesives Holdings, Inc. (S) – Preferred Stock(E)(G)

     2,516     $ 2,516      $  

Diversified Natural Resources, Precious Metals and Minerals – 0.4%

       

Lignetics, Inc. – Preferred Stock(E)(G)

     40,000       800        930  

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.2%

       

Canopy Safety Brands, LLC – Preferred Stock(E)(G)

     500,000       500        621  
    

 

 

    

 

 

 

Total Preferred Equity

     $ 3,816      $ 1,551  
    

 

 

    

 

 

 

Common Equity – 0.5%

       

Diversified Natural Resources, Precious Metals and Minerals – 0.4%

       

Lignetics, Inc. – Common Stock(E)(G)

     152,603     $ 1,855      $ 1,131  

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.1%

       

Canopy Safety Brands, LLC – Common Stock(E)(G)

     500,000              156  
    

 

 

    

 

 

 

Total Common Equity

     $ 1,855      $ 1,287  
    

 

 

    

 

 

 
    

 

 

    

 

 

 

Total Affiliate Investments

     $ 38,921      $ 35,707  
    

 

 

    

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

10


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

JUNE 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company and Investment(A)(B)(W)(Y)

   Principal/
Shares/
Units(J)(X)
     Cost      Fair Value  

CONTROL INVESTMENTS(O) – 9.0%

        

Secured First Lien Debt – 3.8%

        

Diversified/Conglomerate Manufacturing – 2.1%

        

LWO Acquisitions Company LLC – Term Debt (L + 7.5%, 10.0% Cash, Due 6/2021)(E)

   $ 6,000      $ 6,000      $ 5,175  

LWO Acquisitions Company LLC – Term Debt (Due 6/2021)(E)(P)

     10,507        10,507         
     

 

 

    

 

 

 
        16,507        5,175  

Machinery – 1.1%

        

PIC 360, LLC – Term Debt (14.0% Cash, Due 9/2019)(E)(F)(G)

     2,600        2,600        2,600  

Printing and Publishing – 0.6%

        

TNCP Intermediate HoldCo, LLC – Line of Credit, $500 available (8.0% Cash, Due 9/2021)(E)(F)

     1,500        1,461        1,500  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 20,568      $ 9,275  
     

 

 

    

 

 

 

Secured Second Lien Debt – 3.3%

        

Automobile – 3.3%

        

Defiance Integrated Technologies, Inc. – Term Debt (L + 9.5%, 11.9% Cash, Due 8/2023)(E)

   $ 8,065      $ 8,065      $ 8,065  

Unsecured Debt – 0.0%

        

Diversified/Conglomerate Manufacturing – 0.0%

        

LWO Acquisitions Company LLC – Term Debt (Due 6/2020)(E)(P)

   $ 95      $ 95      $  

Common Equity – 1.9%

        

Automobile– 0.8%

        

Defiance Integrated Technologies, Inc. – Common Stock(E)(G)

     33,321      $ 581      $ 2,020  

Diversified/Conglomerate Manufacturing – 0.0%

        

LWO Acquisitions Company LLC – Common Units(E)(G)

     921,000        921         

Machinery – 0.9%

        

PIC 360, LLC – Common Equity Units(E)(G)

     750        1        2,339  

Printing and Publishing – 0.2%

        

TNCP Intermediate HoldCo, LLC – Common Equity Units(E)(G)

     790,000        500        371  
     

 

 

    

 

 

 

Total Common Equity

      $ 2,003      $ 4,730  
     

 

 

    

 

 

 
     

 

 

    

 

 

 

Total Control Investments

      $ 30,731      $ 22,070  
     

 

 

    

 

 

 
     

 

 

    

 

 

 

TOTAL INVESTMENTS – 165.5%

      $ 423,177      $ 407,559  
     

 

 

    

 

 

 

 

(A) 

Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $355.4 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5—Borrowings in the accompanying Notes to Consolidated Financial Statements. Under the Investment Company Act of 1940, as amended, (the “1940 Act”), we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of June 30, 2019, our investments in Leeds Novamark Capital I, L.P. (“Leeds”), Funko Acquisition Holdings, LLC (“Funko”), and XMedius Solutions Inc. (“XMedius”) are considered non-qualifying assets under Section 55 of the 1940 Act. Such non-qualifying assets represent 2.7% of total investments, at fair value, as of June 30, 2019.

(B) 

Unless indicated otherwise, all cash interest rates are indexed to 30-day London Interbank Offered Rate (“LIBOR” or “L”), which was 2.40% as of June 30, 2019. If applicable, paid-in-kind (“PIK”) interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or LIBOR plus a spread. Due dates represent the contractual maturity date.

(C) 

Fair value was based on an internal yield analysis or on estimates of value submitted by ICE Data Pricing and Reference Data, LLC (formerly Standard and Poor’s Securities Evaluations, Inc.).

(D) 

Fair value was based on the indicative bid price on or near June 30, 2019, offered by the respective syndication agent’s trading desk.

(E) 

Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the portfolio company’s securities in order of their relative priority in the capital structure.

(F)

Debt security has a fixed interest rate.

 

11


Table of Contents
(G) 

Security is non-income producing.

(H)

Debt security is on non-accrual status.

(I)

Reserved.

(J)

Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase.

(K)

In February 2019, New Trident Holdcorp, Inc. filed for Chapter 11 bankruptcy protection.

(L)

There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured.

(M)

Non-Control/Non-Affiliate investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities.

(N)

Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.

(O)

Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.

(P)

Debt security does not have a stated interest rate that is payable thereon.

(Q)

Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to occur imminently.

(R)

Fair value was based on net asset value provided by the fund as a practical expedient.

(S)

One of our affiliated funds, Gladstone Investment Corporation, co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.

(T)

Our investment in Funko was valued using Level 2 inputs within the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) fair value hierarchy. Our common units in Funko are convertible to class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of marketability. Funko, Inc. is traded on the Nasdaq Stock Market under the trading symbol “FNKO.” Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

(U)

The cash interest rate on this investment was indexed to 90-day LIBOR, which was 2.32% as of June 30, 2019.

(V)

The cash interest rate on this investment was indexed to the U.S. Prime Rate (“PRIME”), which was 5.50% as of June 30, 2019.

(W)

Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the ASC 820 fair value hierarchy. Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

(X)

Represents the principal balance for debt investments and the number of shares/units held for equity investments. Warrants are represented as a percentage of ownership, as applicable.

(Y)

Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of June 30, 2019.

(Z)

Subsequent to June 30, 2019, the investment maturity date was extended to December 2019.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

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GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2018

(DOLLAR AMOUNTS IN THOUSANDS)

 

Company and Investment(A)(B)(W)(Y)

   Principal/
Shares/
Units(J)(X)
     Cost      Fair Value  

NON-CONTROL/NON-AFFILIATE INVESTMENTS(M) – 137.3%

        

Secured First Lien Debt – 75.3%

        

Automobile – 1.3%

        

Meridian Rack & Pinion, Inc. (S) – Term Debt (L + 11.5%, 13.8% Cash, Due 6/2019) (C)

   $ 4,140      $ 4,140      $ 3,105  

Beverage, Food, and Tobacco – 2.6%

        

Triple H Food Processors, LLC – Line of Credit, $750 available (L + 6.8%, 9.0% Cash, Due 8/2020)(C)

                    

Triple H Food Processors, LLC – Term Debt (L + 8.3%, 10.5% Cash, Due 8/2020)(C)

     6,000        6,000        6,135  
     

 

 

    

 

 

 
        6,000        6,135  

Buildings and Real Estate – 0.9%

        

GFRC Holdings, LLC – Line of Credit, $0 available (L + 8.0%, 10.3% Cash, Due 9/2018)(E)

     1,150        1,150        1,150  

GFRC Holdings, LLC – Term Debt (L + 8.0%, 10.3% Cash, Due 9/2018)(E)

     1,000        1,000        1,000  
     

 

 

    

 

 

 
        2,150        2,150  

Diversified/Conglomerate Service – 21.3%

        

IA Tech, LLC – Term Debt (L + 11.0%, 13.3% Cash, Due 6/2023)(C)

     30,000        30,000        30,900  

Travel Sentry, Inc. – Term Debt (L + 8.0%, 10.4% Cash, Due 12/2021)(C)(U)

     8,415        8,415        8,646  

Vision Government Solutions, Inc. – Line of Credit, $0 available (L + 8.8%, 11.0% Cash, Due 6/2021)(C)

     1,450        1,446        1,305  

Vision Government Solutions, Inc. – Delayed Draw Term Loan, $900 available (10.0% Cash, Due 6/2021)(C)(F)

     1,600        1,596        1,448  

Vision Government Solutions, Inc. – Term Debt (L + 8.8%, 11.0% Cash, Due 6/2021)(C)

     9,000        8,978        8,100  
     

 

 

    

 

 

 
        50,435        50,399  

Healthcare, Education, and Childcare – 9.7%

        

EL Academies, Inc. – Line of Credit, $2,000 available (L + 9.5%, 11.8% Cash, Due 8/2020)(C)

                    

EL Academies, Inc. – Delayed Draw Term Loan, $1,010 available (L + 9.5%, 11.8% Cash, Due 8/2022)(C)

     8,990        8,990        9,069  

EL Academies, Inc. – Term Debt (L + 9.5%, 11.8% Cash, Due 8/2022)(C)

     12,000        12,000        12,105  

TWS Acquisition Corporation – Term Debt (L + 8.0%, 10.3% Cash, Due 7/2020)(Q)(AA)

     2,000        2,000        2,000  
     

 

 

    

 

 

 
        22,990        23,174  

Machinery – 2.7%

        

Arc Drilling Holdings LLC – Line of Credit, $1,000 available (L + 8.0%, 10.3% Cash, Due 11/2020)(C)

                    

Arc Drilling Holdings LLC – Term Debt (L + 9.5%, 11.8% Cash, 3.0% PIK, Due 11/2022)(C)

     5,960        5,960        5,454  

Precision International, LLC – Term Debt (10.0%, Due 9/2021)(C)(F)

     836        836        836  
     

 

 

    

 

 

 
        6,796        6,290  

Oil and Gas – 17.0%

        

Impact! Chemical Technologies, Inc. – Line of Credit, $0 available (L + 8.8%, 11.0% Cash, Due 12/2020)(C)

     2,500        2,500        2,497  

Impact! Chemical Technologies, Inc. – Term Debt (L + 8.8%, 11.0% Cash, Due 12/2020)(C)

     20,000        20,000        19,975  

WadeCo Specialties, Inc. – Line of Credit, $1,100 available (L + 7.0%, 9.3% Cash, Due 3/2019)(C)

     900        900        909  

WadeCo Specialties, Inc. – Term Debt (L + 7.0%, 9.3% Cash, Due 3/2019)(C)

     9,691        9,691        9,788  

WadeCo Specialties, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 3/2019)(C)

     7,000        7,000        7,035  
     

 

 

    

 

 

 
        40,091        40,204  

Printing and Publishing – 0.0%

        

Chinese Yellow Pages Company – Line of Credit, $0 available (PRIME + 4.0%, 9.3% Cash, Due 2/2015)(E)(V)

     107        107         

Telecommunications – 19.8%

        

Applied Voice & Speech Technologies, Inc. – Term Debt (L + 9.3%, 11.5% Cash, Due 10/2022)(C)

     10,100        10,100        9,948  

B+T Group Acquisition, Inc.(S) – Term Debt (L + 11.0%, 13.3% Cash, Due 12/2019)(C)

     6,000        6,000        6,000  

NetFortris Corp. – Term Debt (L + 8.4%, 10.7% Cash, Due 2/2021)(C)

     23,700        23,700        23,522  

XMedius Solutions Inc. – Term Debt (L + 9.3%, 11.5% Cash, Due 10/2022)(C)

     7,493        7,493        7,521  
     

 

 

    

 

 

 
        47,293        46,991  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 180,002      $ 178,448  
     

 

 

    

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

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GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2018

(DOLLAR AMOUNTS IN THOUSANDS)

 

Company and Investment(A)(B)(W)(Y)

   Principal/
Shares/
Units(J)(X)
     Cost      Fair Value  

Secured Second Lien Debt – 53.5%

        

Automobile – 2.1%

        

Sea Link International IRB, Inc. – Term Debt (11.3% Cash, Due 3/2023)(C)(F)

   $ 5,000      $ 4,980      $ 5,094  

Beverage, Food, and Tobacco – 2.9%

        

The Mochi Ice Cream Company – Term Debt (L + 10.5%, 12.8% Cash, Due 12/2023)(C)

     6,750        6,726        6,767  

Cargo Transportation– 5.5%

        

AG Transportation Holdings, LLC. – Term Debt (L + 10.0%, 13.3% Cash, Due 3/2020)(C)

     13,000        13,000        13,097  

Chemicals, Plastics, and Rubber – 0.5%

        

Vertellus Holdings LLC – Term Debt (L + 12.0%, 14.3% Cash, Due 10/2021)(C)

     1,099        1,099        1,096  

Diversified/Conglomerate Manufacturing – 8.7%

        

Alloy Die Casting Co.(S) – Term Debt (L + 4.0%, 6.3% Cash, Due 4/2021)(C)

     5,235        5,235        4,934  

Alloy Die Casting Co.(S) – Term Debt (L + 4.0%, 6.3% Cash, Due 4/2021)(C)

     75        75        71  

Alloy Die Casting Co.(S) – Term Debt (L + 4.0%, 6.3% Cash, Due 4/2021)(C)

     390        390        368  

United Flexible, Inc. – Term Debt (L + 9.3%, 11.5% Cash, Due 2/2022)(C)

     15,300        15,232        15,300  
     

 

 

    

 

 

 
        20,932        20,673  

Diversified/Conglomerate Service – 12.1%

        

CHA Holdings, Inc. – Term Debt (L + 8.8%, 11.1% Cash, Due 4/2026)(D)(U)

     3,000        2,942        3,030  

DigiCert Holdings, Inc. – Term Debt (L + 8.0%, 10.3% Cash, Due 10/2025)(D)

     3,000        2,977        2,989  

Gray Matter Systems, LLC – Delayed Draw Term Loan, $2,000 available (12.0% Cash, Due 11/2023)(C)(F)

                    

Gray Matter Systems, LLC – Term Debt (12.0% Cash, Due 11/2023)(C)(F)

     11,100        11,100        11,045  

Keystone Acquisition Corp. – Term Debt (L + 9.3%, 11.6% Cash, Due 5/2025)(D)(U)

     4,000        3,929        4,015  

LDiscovery, LLC – Term Debt (L + 10.0%, 12.3% Cash, Due 12/2023)(D)

     5,000        4,836        4,400  

Red Ventures, LLC – Term Debt (L + 8.0%, 10.3% Cash, Due 11/2025)(D)(AA)

     3,125        3,069        3,188  
     

 

 

    

 

 

 
        28,853        28,667  

Healthcare, Education, and Childcare – 10.0%

        

Medical Solutions Holdings, Inc. – Term Debt (L + 8.3%, 10.5% Cash, Due 6/2025)(D)

     3,000        2,960        3,000  

Merlin International, Inc. – Term Debt (L + 10.0%, 12.3% Cash, Due 10/2022)(C)

     20,000        20,000        20,600  

New Trident Holdcorp, Inc. – Term Debt (L + 10.0%, 5.5% Cash, 6.8% PIK, Due 7/2020)(E)

     4,382        4,382         
     

 

 

    

 

 

 
        27,342        23,600  

Home and Office Furnishings, Housewares and Durable Consumer Products – 4.3%

        

Belnick, Inc. – Term Debt (11.0% Cash, Due 8/2023)(C)(F)

     10,000        10,000        10,125  

Hotels, Motels, Inns, and Gaming – 2.6%

        

Vacation Rental Pros Property Management, LLC – Term Debt (L + 10.0%, 12.3% Cash, 3.0% PIK, Due 6/2023)(C)

     7,366        7,366        6,337  

Oil and Gas – 3.2%

        

Francis Drilling Fluids, Ltd. – Term Debt (L + 10.4%, 12.6% Cash, Due 4/2020) (E)(H)(I)

     18,510        18,427        5,281  

Francis Drilling Fluids, Ltd. – Term Debt (L + 9.3%, 11.5% Cash, Due 4/2020) (E)(H)(I)

     8,473        8,434        2,417  
     

 

 

    

 

 

 
        26,861        7,698  

Personal and Non-Durable Consumer Products (Manufacturing Only) – 1.6%

        

Canopy Safety Brands, LLC – Term Debt (L + 10.5%, 12.8% Cash, Due 7/2022) (C)

     3,750        3,750        3,802  
     

 

 

    

 

 

 

Total Secured Second Lien Debt

      $ 150,909      $ 126,956  
     

 

 

    

 

 

 

Unsecured Debt – 1.5%

        

Healthcare, education, and childcare – 1.5%

        

Edmentum Ultimate Holdings, LLC – Term Debt (10.0% PIK, Due 6/2020)(C)(F)

   $ 3,613      $ 3,613      $ 3,603  

Preferred Equity – 1.9%

        

Automobile – 0.0%

        

Meridian Rack & Pinion, Inc. (S) – Preferred Stock(E)(G)

     1,449      $ 1,449      $  

Buildings and Real Estate – 0.1%

        

GFRC Holdings, LLC – Preferred Stock(E)(G)

     1,000        1,025        305  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

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GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2018

(DOLLAR AMOUNTS IN THOUSANDS)

 

Company and Investment(A)(B)(W)(Y)

   Principal/
Shares/
Units(J)(X)
    Cost      Fair
Value
 

Diversified/Conglomerate Manufacturing – 0.5%

       

Alloy Die Casting Co.(S) – Preferred Stock(E)(G)

     2,192       2,192        533  

United Flexible, Inc. – Preferred Stock(E)(G)

     538       538        708  
    

 

 

    

 

 

 
       2,730        1,241  

Diversified/Conglomerate Service – 0.0%

       

Frontier Financial Group Inc. – Preferred Stock(E)(G)

     766       500         

Frontier Financial Group Inc. – Preferred Stock Warrant(E)(G)

     169               
    

 

 

    

 

 

 
       500         

Oil and Gas – 0.9%

       

Chemical & Injection Holdings Company, LLC – Preferred Equity Units(E)(G)

     13,830       618        2,137  

Francis Drilling Fluids, Ltd. – Preferred Equity Units(E)(G)(I)

     1,656       1,215         
    

 

 

    

 

 

 
       1,833        2,137  

Telecommunications – 0.4%

       

B+T Group Acquisition, Inc.(S) – Preferred Stock(E)(G)

     5,503       1,799         

NetFortris Corp. – Preferred Stock(E)(G)

     2,677,070       268        803  
    

 

 

    

 

 

 
       2,067        803  
    

 

 

    

 

 

 

Total Preferred Equity

     $ 9,604      $ 4,486  
    

 

 

    

 

 

 

Common Equity – 5.1%

       

Aerospace and Defense – 0.3%

       

FedCap Partners, LLC – Class A Membership Units ($0 Uncalled Commitment)(G)(K)(R)

     80     $ 1,449      $ 616  

Automobile– 0.4%

       

Sea Link International IRB, Inc.– Common Equity Units(E)(G)

     494,902       495        857  

Beverage, Food, and Tobacco – 0.3%

       

The Mochi Ice Cream Company – Common Stock(E)(G)

     450       450        230  

Triple H Food Processors, LLC – Common Stock(E)(G)

     250,000       250        595  
    

 

 

    

 

 

 
       700        825  

Buildings and Real Estate – 0.0%

       

GFRC Holdings, LLC – Common Stock Warrants(E)(G)

     45.0             

Cargo Transportation – 0.9%

       

AG Transportation Holdings, LLC – Member Profit Participation(E)(G)

     18.0     1,000        1,375  

AG Transportation Holdings, LLC – Profit Participation Warrants(E)(G)

     12.0     244        692  
    

 

 

    

 

 

 
       1,244        2,067  

Chemicals, Plastics, and Rubber – 0.2%

       

Vertellus Holdings LLC – Common Stock Units(E)(G)

     879,121       3,017        404  

Diversified/Conglomerate Manufacturing – 0.9%

       

Alloy Die Casting Co.(S) – Common Stock(E)(G)

     270       18         

United Flexible, Inc. – Common Stock(E)(G)

     1,158       148        2,247  
    

 

 

    

 

 

 
       166        2,247  

Healthcare, Education, and Childcare – 1.4%

       

Edmentum Ultimate Holdings, LLC – Common Stock(E)(G)

     21,429       2,636         

EL Academies, Inc. – Common Stock(E)(G)

     649       649        844  

Leeds Novamark Capital I, L.P. – Limited Partnership Interest ($843 uncalled capital commitment)(G)(L)(R)

     3.5     2,152        2,695  
    

 

 

    

 

 

 
       5,437        3,539  

Machinery – 0.1%

       

Arc Drilling Holdings LLC – Common Stock(E)(G)

     16.7     1,500         

Precision International, LLC – Membership Unit Warrant(E)(G)

     33.3            296  
    

 

 

    

 

 

 
       1,500        296  

Oil and Gas – 0.1%

       

Francis Drilling Fluids, Ltd. – Common Equity Units(E)(G)(I)

     1,656       1         

W3, Co. – Common Equity(E)(G)

     435       499        133  
    

 

 

    

 

 

 
       500        133  

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.5%

       

Canopy Safety Brands, LLC – Participation Warrant(E)(G)

     1       500        418  

Funko Acquisition Holdings, LLC(S) – Common Units(G)(T)

     39,483       167        672  
    

 

 

    

 

 

 
       667        1,090  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

15


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2018

(DOLLAR AMOUNTS IN THOUSANDS)

 

Company and Investment(A)(B)(W)(Y)

   Principal/
Shares/
Units(J)(X)
     Cost      Fair Value  

Telecommunications – 0.0%

        

NetFortris Corp.– Common Stock Warrant(E)(G)

     1        1         
     

 

 

    

 

 

 

Total Common Equity

      $ 15,176      $ 12,074  
     

 

 

    

 

 

 

Total Non-Control/Non-Affiliate Investments

      $ 359,304      $ 325,567  
     

 

 

    

 

 

 

AFFILIATE INVESTMENTS(N) – 20.6%

        

Secured First Lien Debt – 7.1%

        

Diversified/Conglomerate Manufacturing – 7.1%

        

Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 10.5%, 12.8% Cash, Due 2/2019)(C)

   $ 6,200      $ 6,200      $ 6,061  

Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 11.8%, 14.0% Cash, Due 2/2019)(C)

     1,600        1,600        1,572  

LWO Acquisitions Company LLC – Line of Credit, $0 available (L + 5.5%, 7.8% Cash, 2.0% PIK, Due 12/2019)(C)

     3,205        3,205        3,105  

LWO Acquisitions Company LLC – Term Debt (L + 8.5%, 10.8% Cash, 2.0% PIK, Due 12/2019)(C)

     11,166        11,166        6,089  
     

 

 

    

 

 

 
        22,171        16,827  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 22,171      $ 16,827  
     

 

 

    

 

 

 

Secured Second Lien Debt – 9.0%

        

Diversified Natural Resources, Precious Metals and Minerals – 9.0%

        

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)

   $ 6,000      $ 6,000      $ 6,014  

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)

     8,000        8,000        8,020  

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)

     3,300        3,300        3,308  

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)

     4,000        4,000        4,010  
     

 

 

    

 

 

 
        21,300        21,352  
     

 

 

    

 

 

 

Total Secured Second Lien Debt

      $ 21,300      $ 21,352  
     

 

 

    

 

 

 

Unsecured Debt – 0.0%

        

Diversified/Conglomerate Manufacturing – 0.0%

        

LWO Acquisitions Company LLC – Term Debt (Due 6/2020)(C)(P)

   $ 95      $ 95      $ 52  

Preferred Equity – 1.4%

        

Diversified/Conglomerate Manufacturing – 1.0%

        

Edge Adhesives Holdings, Inc. (S) – Preferred Stock(E)(G)

     2,516      $ 2,516      $ 2,381  

Diversified Natural Resources, Precious Metals and Minerals – 0.4%

        

Lignetics, Inc. – Preferred Stock(E)(G)

     40,000        800        882  
     

 

 

    

 

 

 

Total Preferred Equity

      $ 3,316      $ 3,263  
     

 

 

    

 

 

 

Common Equity – 3.1%

        

Diversified/Conglomerate Manufacturing – 0.0%

        

LWO Acquisitions Company LLC – Common Units(E)(G)

     921,000      $ 921      $  

Diversified Natural Resources, Precious Metals and Minerals – 0.3%

        

Lignetics, Inc. – Common Stock(E)(G)

     152,603        1,855        806  

Textiles and Leather – 2.8%

        

Targus Cayman HoldCo, Ltd. – Common Stock(E)(G)

     3,076,414        5,009        6,556  
     

 

 

    

 

 

 

Total Common Equity

      $ 7,785      $ 7,362  
     

 

 

    

 

 

 

Total Affiliate Investments

      $ 54,667      $ 48,856  
     

 

 

    

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

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GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2018

(DOLLAR AMOUNTS IN THOUSANDS)

 

Company and Investment(A)(B)(W)(Y)

   Principal/
Shares/
Units(J)(X)
     Cost      Fair Value  

CONTROL INVESTMENTS(O) – 6.6%

        

Secured First Lien Debt – 1.8%

        

Machinery – 1.2%

        

PIC 360, LLC – Term Debt (14.0% Cash, Due 9/2019)(E)(F)

   $ 2,850      $ 2,850      $ 2,850  

Printing and Publishing – 0.6%

        

TNCP Intermediate HoldCo, LLC – Line of Credit, $500 available (8.0% Cash, Due 9/2021)(E)(F)

   $ 1,500        1,500        1,500  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 4,350      $ 4,350  
     

 

 

    

 

 

 

Secured Second Lien Debt – 3.4%

        

Automobile – 3.4%

        

Defiance Integrated Technologies, Inc. – Term Debt (L + 9.5%, 11.8% Cash, Due 8/2023)(E)

   $ 8,065      $ 8,065      $ 8,065  

Common Equity – 1.4%

        

Automobile – 0.5%

        

Defiance Integrated Technologies, Inc. – Common Stock(E)(G)

     33,321      $ 580      $ 1,088  

Machinery – 0.7%

        

PIC 360, LLC – Common Equity Units(E)(G)

     750        1        1,622  

Printing and Publishing – 0.2%

        

TNCP Intermediate HoldCo, LLC – Common Equity Units(E)(G)

     790,000        500        498  
     

 

 

    

 

 

 

Total Common Equity

      $ 1,081      $ 3,208  
     

 

 

    

 

 

 

Total Control Investments

      $ 13,496      $ 15,623  
     

 

 

    

 

 

 

TOTAL INVESTMENTS(Z) – 164.5%

      $ 427,467      $ 390,046  
     

 

 

    

 

 

 

 

(A) 

Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $332.3 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5—Borrowings in the accompanying Notes to Consolidated Financial Statements. Under the 1940 Act, we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of September 30, 2018, our investments in FedCap Partners, LLC (“FedCap”), Leeds, Funko, and XMedius are considered non-qualifying assets under Section 55 of the 1940 Act. Such non-qualifying assets represent 2.9% of total investments, at fair value, as of September 30, 2018.

(B) 

Unless indicated otherwise, all cash interest rates are indexed to 30-day LIBOR, which was 2.27% as of September 30, 2018. If applicable, paid-in-kind (“PIK”) interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or LIBOR plus a spread. Due dates represent the contractual maturity date.

(C) 

Fair value was based on an internal yield analysis or on estimates of value submitted by ICE Data Pricing and Reference Data, LLC (“ICE”) (formerly Standard and Poor’s Securities Evaluations, Inc.).

(D) 

Fair value was based on the indicative bid price on or near September 30, 2018, offered by the respective syndication agent’s trading desk.

(E) 

Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the portfolio company’s securities in order of their relative priority in the capital structure.

(F)

Debt security has a fixed interest rate.

(G) 

Security is non-income producing.

(H)

Debt security is on non-accrual status.

(I)

On September 29, 2018, Francis Drilling Fluids, Ltd. filed for Chapter 11 bankruptcy protection.

(J)

Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase.

(K)

There are certain limitations on our ability to transfer our units owned, withdraw or resign prior to dissolution of the entity, which must occur no later than May 3, 2020.

(L)

There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured.

(M)

Non-Control/Non-Affiliate investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities.

(N)

Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.

(O)

Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.

(P)

Debt security does not have a stated interest rate that is payable thereon.

(Q)

Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to occur imminently.

(R)

Fair value was based on net asset value provided by the fund as a practical expedient.

(S)

One of our affiliated funds, Gladstone Investment Corporation, co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.

(T) 

Our investment in Funko was valued using Level 2 inputs within the ASC 820 fair value hierarchy. Our common units in Funko are convertible to class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of marketability. Funko, Inc. is traded on the Nasdaq Stock Market under the trading symbol “FNKO.” Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

 

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(U)

The cash interest rate on this investment was indexed to 90-day LIBOR, which was 2.40% as of September 30, 2018.

(V)

The cash interest rate on this investment was indexed to PRIME, which was 5.25% as of September 30, 2018.

(W)

Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the ASC 820 fair value hierarchy. Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

(X)

Represents the principal balance for debt investments and the number of shares/units held for equity investments. Warrants are represented as a percentage of ownership, as applicable.

(Y)

Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of September 30, 2018.

(Z)

Cumulative gross unrealized depreciation for federal income tax purposes is $62.7 million; cumulative gross unrealized appreciation for federal income tax purposes is $15.4 million. Cumulative net unrealized depreciation is $47.4 million, based on a tax cost of $437.4 million.

(AA)

Investment was exited subsequent to September 30, 2018.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

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GLADSTONE CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)

NOTE 1. ORGANIZATION

Gladstone Capital Corporation was incorporated under the Maryland General Corporation Law on May 30, 2001 and completed an initial public offering on August 24, 2001. The terms “the Company,” “we,” “our” and “us” all refer to Gladstone Capital Corporation and its consolidated subsidiaries. We are an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and are applying the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services-Investment Companies” (“ASC 946”). In addition, we have elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States (“U.S.”). Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established lower middle market companies (which we generally define as companies with annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $3 million to $15 million) in the U.S. that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains.

Gladstone Business Loan, LLC (“Business Loan”), a wholly-owned subsidiary of ours, was established on February 3, 2003, for the sole purpose of holding certain investments pledged as collateral to our line of credit. The financial statements of Business Loan are consolidated with those of Gladstone Capital Corporation. We also have significant subsidiaries (as defined under Rule 1-02(w) of the U.S. Securities and Exchange Commission’s (“SEC”) Regulation S-X) whose financial statements are not consolidated with ours. Refer to Note 12 – Unconsolidated Significant Subsidiaries for additional information regarding our unconsolidated significant subsidiaries.

We are externally managed by Gladstone Management Corporation (the “Adviser”), an affiliate of ours and an SEC registered investment adviser, pursuant to an investment advisory and management agreement (the “Advisory Agreement”). Administrative services are provided by our affiliate, Gladstone Administration, LLC (the “Administrator”), an affiliate of ours and the Adviser, pursuant to an administration agreement (the “Administration Agreement”). Refer to Note 4—Related Party Transactions for additional information regarding these arrangements.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Statements and Basis of Presentation

We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, we have not included in this quarterly report all of the information and notes required by GAAP for annual financial statements. The accompanying Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with Article 6 of Regulation S-X, we do not consolidate portfolio company investments. Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, codified in ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries. In our opinion, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations for the three and nine months ended June 30, 2019 are not necessarily indicative of results that ultimately may be achieved for the fiscal year ending September 30, 2019 or any future interim periods. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, as filed with the SEC on November 14, 2018.

 

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Use of Estimates

Preparing financial statements requires management to make estimates and assumptions that affect the amounts reported in our accompanying Consolidated Financial Statements and these Notes to Consolidated Financial Statements. Actual results may differ from those estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation in the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements. Reclassifications did not impact net increase in net assets resulting from operations, total assets, total liabilities, or total net assets, or Consolidated Statements of Cash Flows classifications.

Investment Valuation Policy

Accounting Recognition

We record our investments at fair value in accordance with the FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) and the 1940 Act. Investment transactions are recorded on the trade date. Realized gains or losses are generally measured by the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, and include investments charged off during the period, net of recoveries. Unrealized appreciation or depreciation primarily reflects the change in investment fair values, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Board Responsibility

In accordance with the 1940 Act, our Board of Directors has the ultimate responsibility for reviewing and determining, in good faith, the fair value of our investments for which market quotations are not readily available based on our investment valuation policy (which has been approved by our Board of Directors) (the “Policy”). Such review occurs in three phases. First, prior to its quarterly meetings, the Board of Directors receives written valuation recommendations and supporting materials provided by professionals of the Adviser and Administrator with oversight and direction from the chief valuation officer (the “Valuation Team”). Second, the Valuation Committee of our Board of Directors (comprised entirely of independent directors) meets to review the valuation recommendations and supporting materials presented by the chief valuation officer. Third, after the Valuation Committee concludes its meeting, it and the chief valuation officer present the Valuation Committee’s findings to the entire Board of Directors so that the full Board of Directors may review and determine in good faith the fair value of such investments in accordance with the Policy.

There is no single standard for determining fair value (especially for privately-held businesses), as fair value depends upon the specific facts and circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by the chief valuation officer, uses the Policy, and each quarter the Valuation Committee and Board of Directors review the Policy to determine if changes thereto are advisable and whether the Valuation Team has applied the Policy consistently.

Use of Third Party Valuation Firms

The Valuation Team engages third party valuation firms to provide independent assessments of fair value of certain of our investments.

ICE (formerly Standard and Poor’s Securities Evaluations, Inc.), a valuation specialist, generally provides estimates of fair value on our proprietary debt investments. The Valuation Team generally assigns ICE’s estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the applicable portfolio company. The Valuation Team corroborates ICE’s estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Team’s estimate of value on a specific debt investment may significantly differ from ICE’s. When this occurs, our Valuation Committee and Board of Directors review whether the Valuation Team has followed the Policy and whether the Valuation Team’s recommended fair value is reasonable in light of the Policy and other facts and circumstances before determining fair value.

 

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We may engage other independent valuation firms to provide earnings multiple ranges, as well as other information, and evaluate such information for incorporation into the total enterprise value (“TEV”) of certain of our investments. Generally, at least once per year, we engage an independent valuation firm to value or review the valuation of each of our significant equity investments, which includes providing the information noted above. The Valuation Team evaluates such information for incorporation into our TEV, including review of all inputs provided by the independent valuation firm. The Valuation Team then makes a recommendation to our Valuation Committee and Board of Directors as to the fair value. Our Board of Directors reviews the recommended fair value, and whether it is reasonable in light of the Policy, and other relevant facts and circumstances before determining fair value.

Valuation Techniques

In accordance with ASC 820, the Valuation Team uses the following techniques when valuing our investment portfolio:

 

   

Total Enterprise Value — In determining the fair value using a TEV, the Valuation Team first calculates the TEV of the portfolio company by incorporating some or all of the following factors: the portfolio company’s ability to make payments and other specific portfolio company attributes; the earnings of the portfolio company (the trailing or projected twelve month revenue or EBITDA); EBITDA obtained from our indexing methodology whereby the original transaction EBITDA at the time of our closing is indexed to a general subset of comparable disclosed transactions and EBITDA from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries, and other pertinent factors. The Valuation Team generally reviews industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team generally allocates the TEV to the portfolio company’s securities based on the facts and circumstances of the securities, which typically results in the allocation of fair value to securities based on the order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our equity investments and, in the circumstances where we have the ability to effectuate a sale of a portfolio company, our debt investments.

TEV is primarily calculated using EBITDA; however, TEV may also be calculated using revenue multiples or a discounted cash flow (“DCF”) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate adjustments for nonperformance and liquidity risks. Generally, the Valuation Team uses a DCF analysis to calculate TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio company or for debt of credit impaired portfolio companies.

 

   

Yield Analysis — The Valuation Team generally determines the fair value of our debt investments for which we do not have the ability to effectuate a sale of the applicable portfolio company using the yield analysis, which includes a DCF calculation and assumptions that the Valuation Team believes market participants would use, including, estimated remaining life, current market yield, current leverage, and interest rate spreads. This technique develops a modified discount rate that incorporates risk premiums including, among other things, increased probability of default, increased loss upon default and increased liquidity risk. Generally, the Valuation Team uses the yield analysis to corroborate both estimates of value provided by ICE and market quotes.

 

   

Market Quotes — For our investments for which a limited market exists, we generally base fair value on readily available and reliable market quotations which are corroborated by the Valuation Team (generally by using the yield analysis explained above). In addition, the Valuation Team assesses trading activity for similar investments and evaluates variances in quotations and other market insights to determine if any available quoted prices are reliable. Typically, the Valuation Team uses the lower indicative bid price (“IBP”) in the bid-to-ask price range obtained from the respective originating syndication agent’s trading desk on or near the valuation date. The Valuation Team may take further steps to consider additional information to validate that price in accordance with the Policy. For securities that are publicly traded, we generally base fair value on the closing market price of the securities we hold as of the reporting date. For restricted securities that are publicly traded, we generally base fair value on the closing market price of the securities we hold as of the reporting date less a discount for the restriction, which includes consideration of the nature and term to expiration of the restriction.

 

   

Investments in Funds — For equity investments in other funds for which we cannot effectuate a sale of the fund, the Valuation Team generally determines the fair value of our invested capital at the Net Asset Value (“NAV”) provided by the fund. Any invested capital that is not yet reflected in the NAV provided by the fund is valued at par value. The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying entity.

 

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In addition to the valuation techniques listed above, the Valuation Team may also consider other factors when determining the fair value of our investments, including: the nature and realizable value of the collateral, including external parties’ guaranties, any relevant offers or letters of intent to acquire the portfolio company, timing of expected loan repayments, and the markets in which the portfolio company operates.

Fair value measurements of our investments may involve subjective judgments and estimates and due to the uncertainty inherent in valuing these securities, the determinations of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be materially affected if the determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities. Additionally, changes in the market environment and other events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded.

Refer to Note 3—Investments for additional information regarding fair value measurements and our application of ASC 820.

Revenue Recognition

Interest Income Recognition

Interest income, including the amortization of premiums, acquisition costs and amendment fees, the accretion of original issue discounts (“OID”), and paid-in-kind (“PIK”) interest, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan for financial reporting purposes until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis depending upon management’s judgment. Generally, non-accrual loans are restored to accrual status when past due principal and interest are paid and, in management’s judgment, are likely to remain current, or due to a restructuring such that the interest income is deemed to be collectible. At June 30, 2019, loans to Meridian Rack & Pinion, Inc. and New Trident Holdcorp, Inc. were on non-accrual status with an aggregate debt cost basis of approximately $8.5 million, or 2.2% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of approximately $2.1 million, or 0.6% of the fair value of all debt investments in our portfolio. At September 30, 2018, loans to Francis Drilling Fluids, Inc. (“FDF”) were on non-accrual status with an aggregate debt cost basis of approximately $26.9 million, or 6.9% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of approximately $7.7 million, or 2.1% of the fair value of all debt investments in our portfolio.

We currently hold, and we expect to hold in the future, some loans in our portfolio that contain OID or PIK provisions. We recognize OID for loans originally issued at discounts and recognize the income over the life of the obligation based on an effective yield calculation. PIK interest, computed at the contractual rate specified in a loan agreement, is added to the principal balance of a loan and recorded as income over the life of the obligation. Thus, the actual collection of PIK income may be deferred until the time of debt principal repayment. To maintain our ability to be taxed as a RIC, we may need to pay out both OID and PIK non-cash income amounts in the form of distributions, even though we have not yet collected the cash on either.

As of June 30, 2019 and September 30, 2018, we held nine and six OID loans, respectively, primarily from the syndicated loans in our portfolio. We recorded OID income of $35 thousand and $0.1 million for the three and nine months ended June 30, 2019, respectively, and $12 thousand and $0.1 million during the three and nine months ended June 30, 2018, respectively. The unamortized balance of OID investments as of each of June 30, 2019 and September 30, 2018 totaled $0.9 million and $0.4 million, respectively. As of June 30, 2019 and September 30, 2018, we had four and five investments which had a PIK interest component, respectively. We recorded PIK interest income of $0.3 million and $1.1 million during the three and nine months ended June 30, 2019, respectively, as compared to $1.1 million and $3.5 million during the three and nine months ended June 30, 2018, respectively. We collected $0 in PIK interest in cash during the three and nine months ended June 30, 2019, as compared to $0 and $0.8 million during the three and nine months ended June 30, 2018.

Success Fee Income Recognition

We record success fees as income when earned, which often occurs upon receipt of cash. Success fees are generally contractually due upon a change of control in a portfolio company, typically resulting from an exit or sale, and are non-recurring.

 

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Dividend Income Recognition

We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we have the option to collect such amounts in cash or other consideration.

Deferred Financing and Offering Costs

Deferred financing and offering costs consist of costs incurred to obtain financing, including lender fees and legal fees. Certain costs associated with our revolving line of credit are deferred and amortized using the straight-line method, which approximates the effective interest method, over the term of the revolving line of credit. Costs associated with the issuance of our notes payable are presented as discounts to the principal amount of the notes payable and are amortized using the straight-line method, which approximates the effective interest method, over the term of the notes. Costs associated with the issuance of our mandatorily redeemable preferred stock are presented as discounts to the liquidation value of the mandatorily redeemable preferred stock and are amortized using the straight-line method, which approximates the effective interest method, over the term of the respective series of preferred stock. Refer to Note 5 — Borrowings and Note 6 — Mandatorily Redeemable Preferred Stock for further discussion.

Related Party Fees

We are party to the Advisory Agreement with the Adviser, which is owned and controlled by our chairman and chief executive officer. In accordance with the Advisory Agreement, we pay the Adviser fees as compensation for its services, consisting of a base management fee and an incentive fee. Additionally, we pay the Adviser a loan servicing fee as compensation for its services as servicer under the terms of our Fifth Amended and Restated Credit Agreement with KeyBank National Association (“KeyBank”), as administrative agent, lead arranger and a lender (our “Credit Facility”). These fees are accrued at the end of the quarter when the services are performed and generally paid the following quarter.

We are also party to the Administration Agreement with the Administrator, which is owned and controlled by our chairman and chief executive officer, whereby we pay separately for administrative services. Refer to Note 4—Related Party Transactions for additional information regarding these related party fees and agreements.

Recent Accounting Pronouncements

In July 2019, the FASB issued Accounting Standards Update 2019-07, “Codification Updates to SEC Sections – Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization and Miscellaneous Updates (SEC Update)” (“ASU 2019-07”). ASU 2019-07 aligns the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. ASU 2019-07 is effective immediately. The adoption of ASU 2019-07 did not have a material impact on our financial position, results of operations or cash flows.

In August 2018, the FASB issued Accounting Standards Update 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value” (“ASU 2018-13”), which modifies the disclosure requirements in ASC 820. We are currently assessing the impact of ASU 2018-13 and do not anticipate a material impact on our disclosures. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted.

In November 2016, the FASB issued Accounting Standards Update 2016-18, “Restricted Cash (a consensus of the Emerging Issues Task Force)” (“ASU 2016-18”), which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years and we adopted ASU 2016-18 effective October 1, 2018. The adoption of ASU 2016-18 did not have a material impact on our financial position, results of operations or cash flows.

In August 2016, the FASB issued Accounting Standards Update 2016-15, “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (“ASU 2016-15”), which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. We have assessed the impact of ASU 2016-15 and do not anticipate a material impact on our cash flows. ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years and we adopted ASU 2016-15 effective October 1, 2018. The adoption of ASU 2016-15 did not have a material impact on our financial position, results of operations or cash flows.

 

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In January 2016, the FASB issued Accounting Standards Update 2016-01, “Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”), which changes how entities measure certain equity investments and how entities present changes in the fair value of financial liabilities measured under the fair value option that are attributable to instrument-specific credit risk. ASU 2016-01 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years and we adopted ASU 2016-01 effective October 1, 2018. The adoption of ASU 2016-01 did not have a material impact on our financial position, results of operations or cash flows.

In May 2014, the FASB issued Accounting Standards Update 2014-09,Revenue from Contracts with Customers(“ASU 2014-09”), which was amended in March 2016 by FASB Accounting Standards Update 2016-08, “Principal versus Agent Considerations” (“ASU 2016-08”), in April 2016 by FASB Accounting Standards Update 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”), in May 2016 by FASB Accounting Standards Update 2016-12, “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), and in December 2016 by FASB Accounting Standards Update 2016-20, “Technical Corrections and Improvements to Topic 606” (“ASU 2016-20”). ASU 2014-09, as amended, supersedes or replaces nearly all GAAP revenue recognition guidance. The new guidance establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time and will expand disclosures about revenue. In July 2015, the FASB issued Accounting Standards Update 2015-14,Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09. ASU 2014-09, as amended by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20, is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those years and we adopted ASU 2014-09, as amended, effective October 1, 2018. The adoption of ASU 2014-09, as amended, did not result in a material change in the timing of revenue recognition or a material impact on our financial position, results of operations, or cash flows from adopting this standard.

NOTE 3. INVESTMENTS

Fair Value

In accordance with ASC 820, the fair value of each investment is determined to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between willing market participants on the measurement date. This fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.

 

   

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical financial instruments in active markets;

 

   

Level 2 — inputs to the valuation methodology include quoted prices for similar financial instruments in active or inactive markets, and inputs that are observable for the financial instrument, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers; and

 

   

Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants would use when pricing the financial instrument and can include the Valuation Team’s assumptions based upon the best available information.

When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable inputs (or components that are actively quoted and can be validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Investments in funds measured using net asset value as a practical expedient are not categorized within the fair value hierarchy.

As of June 30, 2019, all of our investments were valued using Level 3 inputs within the ASC 820 fair value hierarchy, except for our investment in Funko Acquisition Holdings, LLC (“Funko”), which was valued using Level 2 inputs, and our investment in Leeds Novamark Capital I, L.P. (“Leeds”), which was valued using net asset value as a practical expedient. As of September 30, 2018, all of our investments were valued using Level 3 inputs within the ASC 820 fair value hierarchy, except for our investment in Funko, which was valued using Level 2 inputs, and our investments in FedCap Partners, LLC (“FedCap”) and Leeds, which were valued using net asset value as a practical expedient.

 

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We transfer investments in and out of Level 1, 2, and 3 of the valuation hierarchy as of the beginning balance sheet date, based on changes in the use of observable and unobservable inputs utilized to perform the valuation for the period. During the nine months ended June 30, 2018, we transferred our investment in Funko from Level 3 to Level 2 as a result of the initial public offering of Funko, Inc. in November 2017 as our units in Funko can be converted into common shares of Funko, Inc. upon meeting certain requirements. During the nine months ended June 30, 2019, there were no investments transferred into or out of Levels 1, 2 or 3 of the valuation hierarchy.

As of June 30, 2019 and September 30, 2018, our investments, by security type, at fair value were categorized as follows within the ASC 820 fair value hierarchy:

 

           Fair Value Measurements  
     Fair Value     Quoted Prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
    Significant
Unobservable
Inputs

(Level 3)
 

As of June 30, 2019:

         

Secured first lien debt

   $ 186,542     $      $     $ 186,542  

Secured second lien debt

     170,008                    170,008  

Unsecured debt

     3,855                    3,855  

Preferred equity

     15,945                    15,945  

Common equity/equivalents

     27,462 (A)             387 (B)      27,075  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Investments at June 30, 2019

   $ 403,812     $      $ 387     $ 403,425  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents
           Fair Value Measurements  
     Fair Value     Quoted Prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
    Significant
Unobservable
Inputs

(Level 3)
 

As of September 30, 2018:

         

Secured first lien debt

   $ 199,625     $      $     $ 199,625  

Secured second lien debt

     156,373                    156,373  

Unsecured debt

     3,655                    3,655  

Preferred equity

     7,749                    7,749  

Common equity/equivalents

     19,333 (A)             672 (B)      18,661  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Investments at September 30, 2018

   $ 386,735     $      $ 672     $ 386,063  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(A)

Excludes our investment in Leeds with fair value of $3.7 million as of June 30, 2019. Excludes our investments in FedCap and Leeds with fair values of $0.6 million and $2.7 million, respectively, as of September 30, 2018. FedCap and Leeds were valued using net asset value as a practical expedient.

(B)

Fair value was determined based on the closing market price of shares of Funko, Inc. (our units in Funko can be converted into common shares of Funko, Inc.) at the reporting date less a discount for lack of marketability as our investment was subject to certain restrictions.

The following table presents our portfolio investments, valued using Level 3 inputs within the ASC 820 fair value hierarchy and carried at fair value as of June 30, 2019 and September 30, 2018, by caption on our accompanying Consolidated Statements of Assets and Liabilities, and by security type:

 

    

Total Recurring Fair Value Measurements
Reported in

Consolidated Statements of Assets and Liabilities
Using Significant Unobservable Inputs
(Level 3)

 
     June 30, 2019     September 30, 2018  

Non-Control/Non-Affiliate Investments

    

Secured first lien debt

   $ 169,467     $ 178,448  

Secured second lien debt

     136,874       126,956  

Unsecured debt

     3,855       3,603  

Preferred equity

     14,394       4,486  

Common equity/equivalents

     21,058 (A)      8,091 (B) 
  

 

 

   

 

 

 

Total Non-Control/Non-Affiliate Investments

   $ 345,648     $ 321,584  
  

 

 

   

 

 

 

Affiliate Investments

    

Secured first lien debt

   $ 7,800     $ 16,827  

Secured second lien debt

     25,069       21,352  

Unsecured debt

           52  

Preferred equity

     1,551       3,263  

Common equity/equivalents

     1,287       7,362  
  

 

 

   

 

 

 

Total Affiliate Investments

   $ 35,707     $ 48,856  
  

 

 

   

 

 

 

Control Investments

    

Secured first lien debt

   $ 9,275     $ 4,350  

Secured second lien debt

     8,065       8,065  

Common equity/equivalents

     4,730       3,208  
  

 

 

   

 

 

 

Total Control Investments

   $ 22,070     $ 15,623  
  

 

 

   

 

 

 

Total Investments at Fair Value Using Level 3 Inputs

   $ 403,425     $ 386,063  
  

 

 

   

 

 

 

 

  (A)

Excludes our investments in Leeds and Funko with fair values of $3.7 million and $0.4 million, respectively, as of June 30, 2019. Leeds was valued using net asset value as a practical expedient, and Funko was valued using Level 2 inputs.

  (B)

Excludes our investments in FedCap, Leeds, and Funko with fair values of $0.6 million, $2.7 million, and $0.7 million, respectively, as of September 30, 2018. FedCap and Leeds were valued using net asset value as a practical expedient, and Funko was valued using Level 2 inputs.

 

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Table of Contents

In accordance with ASC 820, the following table provides quantitative information about our Level 3 fair value measurements of our investments as of June 30, 2019 and September 30, 2018. The table below is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements. The weighted average calculations in the table below are based on the principal balances for all debt related calculations and on the cost basis for all equity related calculations for the particular input.

 

     Quantitative Information about Level 3 Fair Value Measurements
     Fair Value as of               

Range / Weighted Average as of

     June 30,
2019
     September 30,
2018
     Valuation
Techniques/
Methodologies
  

Unobservable

Input

  

June 30,

2019

  

September 30,

2018

Secured first lien debt(A)

   $ 177,267      $ 193,125      Yield
Analysis
   Discount Rate   

9.9% – 20.9% /

12.9%

  

6.9% - 24.3% 

/ 12.7%

     9,275        6,500      TEV    EBITDA multiple   

3.3x – 3.3x

/3.3x

  

3.3x – 3.3x 

/ 3.3x

                        EBITDA   

$1,734 - $1,734

/ $1,734

  

$1,507 - $1,507 

/ $1,507

                        Revenue
multiple
  

0.3x – 0.3x

/ 0.3x

  

0.3x – 0.5x

/ 0.4x

                        Revenue   

$6,929 - $20,701

/$19,554

  

$4,909 - $7,400

/$5,933

Secured second lien debt(B)

     124,354        119,988      Yield
Analysis
   Discount Rate   

6.7% - 18.5%

/12.4%

  

10.7% - 23.2%

/12.6%

     37,589        20,622      Market
Quote
   IBP   

95.0% - 101.0%

/ 97.9%

  

88.0% - 102.0%

/ 97.6%

     8,065        15,763      TEV    EBITDA multiple   

5.5x – 6.5x

/5.8x

  

5.5x – 6.6x

/5.8x

                        EBITDA   

$2,703 - $37,311

/ $14,936

  

$2,500 - $55,375

/ $13,341

Unsecured debt

     3,855        3,655      Yield
Analysis
   Discount Rate    11.1% - 11.1% / 11.1%   

10.2% - 20.3%

/ 10.4%

Preferred and common equity / equivalents(C)

     43,020        26,410      TEV    EBITDA multiple   

3.3x – 10.3x /

6.6x

  

3.3x – 11.9x /

 6.6x

                        EBITDA   

$715 - $45,165  

/$11,132

  

$459 -$39,352

/$14,216

                        Revenue
multiple
  

0.3x – 1.5x /

0.7x

  

0.3x – 1.5x /

0.7x

                        Revenue   

$935 - $566,755

/$321,123

  

$473 -$543,360  

/$313,688

  

 

 

    

 

 

             

Total Level 3 Investments, at Fair Value

   $ 403,425      $ 386,063              
  

 

 

    

 

 

             

 

(A)

Fair value as of June 30, 2019 includes two proprietary debt investments totaling $16.3 million, which were valued using the expected payoff amount as the unobservable input. Fair value as of September 30, 2018 includes one proprietary debt investment totaling $2.0 million, which was valued using the expected payoff amount as the unobservable input.

(B)

Fair value as of September 30, 2018 includes one proprietary debt investment totaling $2.0 million, which was valued using the expected payoff amount as the unobservable input.

(C)

Fair value as of June 30, 2019 excludes our investments in Leeds and Funko with fair values of $3.7 million and $0.4 million, respectively, as of June 30, 2019. Fair value as of September 30, 2018 excludes our investments in FedCap, Leeds and Funko with fair values of $0.6 million, $2.7 million, and $0.7 million, respectively, as of September 30, 2018. FedCap and Leeds were valued using net asset value as a practical expedient and Funko was valued using Level 2 inputs as of both June 30, 2019 and September 30, 2018.

 

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Table of Contents

Fair value measurements can be sensitive to changes in one or more of the valuation inputs. Changes in discount rates, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase/(decrease) in market yields, discount rates, or an increase/(decrease) in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a corresponding increase/(decrease), respectively, in the fair value of certain of our investments.

Changes in Level 3 Fair Value Measurements of Investments

The following tables provide the changes in fair value, broken out by security type, during the three and nine months ended June 30, 2019 and 2018 for all investments for which we determine fair value using unobservable (Level 3) inputs.

 

     Fair Value Measurements Using Significant Unobservable Inputs (Level 3)  

Three months ended June 30, 2019

   Secured
First Lien
Debt
    Secured
Second
Lien Debt
    Unsecured
Debt
    Preferred
Equity
    Common
Equity/
Equivalents
    Total  

Fair Value as of March 31, 2019

   $ 189,281     $ 148,691     $ 3,771     $ 15,591     $ 26,038     $ 383,372  

Total gains (losses):

            

Net realized gain (loss)(A)

     (90     3                         (87

Net unrealized appreciation (depreciation)(B)

     (737     767       (10     354       2,445       2,819  

Reversal of prior period net (appreciation) depreciation on realization(B)

     (450     1                         (449

New investments, repayments and settlements: (C)

            

Issuances/originations

     36,323       23,057       94                   59,474  

Settlements/repayments

     (37,875     (2,508                 (1,408     (41,791

Sales

     90       (3                       87  

Transfers

                                    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair Value as of June 30, 2019

   $ 186,542     $ 170,008     $ 3,855     $ 15,945     $ 27,075     $ 403,425  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Fair Value Measurements Using Significant Unobservable Inputs (Level 3)  
     Secured     Secured                 Common        

Nine months ended June 30, 2019

   First Lien
Debt
    Second
Lien Debt
    Unsecured
Debt
    Preferred
Equity
    Equity/
Equivalents
    Total  

Fair Value as of September 30, 2018

   $ 199,625     $ 156,373     $ 3,655     $ 7,749     $ 18,661     $ 386,063  

Total gains (losses):

 

Net realized gain (loss)(A)

     (90     (25,631           (1,226     2,083       (24,864

Net unrealized appreciation (depreciation)(B)

     (8,683     (257     (81     1,825       9,178       1,982  

Reversal of prior period net (appreciation) depreciation on realization(B)

     292       18,981             1,027       (2,133     18,167  

New investments, repayments and settlements: (C)

 

Issuances/originations

     80,476       33,182       281       5,312       4,494       123,745  

Settlements/repayments

     (55,168     (41,287                 (2,543     (98,998

Sales

     90       (3           (528     (2,229     (2,670

Transfers

     (30,000     28,650             1,786       (436      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair Value as of June 30, 2019

   $ 186,542     $ 170,008     $ 3,855     $ 15,945     $ 27,075     $ 403,425  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     Fair Value Measurements Using Significant Unobservable Inputs (Level 3)  
     Secured     Secured                  Common         

Three months ended June 30, 2018

   First Lien
Debt
    Second
Lien Debt
    Unsecured
Debt
    Preferred
Equity
     Equity/
Equivalents
     Total  

Fair Value as of March 31, 2018

   $ 195,793     $ 180,045     $ 3,540     $ 6,175      $ 13,447      $ 399,000  

Total gains (losses):

 

Net unrealized appreciation (depreciation)(B)

     (1,544     3,922       (13     1,066        2,152        5,583  

Reversal of prior period net (appreciation) depreciation on realization(B)

           (440                         (440

New investments, repayments and settlements: (C)

 

Issuances/originations

     7,106       13,925       85                     21,116  

Settlements/repayments

     (1,859     (22,363                         (24,222
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Fair Value as of June 30, 2018

   $ 199,496     $ 175,089     $ 3,612     $ 7,241      $ 15,599      $ 401,037  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

     Secured     Secured                 Common        

Nine Months Ended June 30, 2018

   First Lien
Debt
    Second
Lien Debt
    Unsecured
Debt
    Preferred
Equity
    Equity/
Equivalents
    Total  

Fair Value as of September 30, 2017

   $ 173,896     $ 155,249     $ 3,324     $ 6,561     $ 10,947     $ 349,977  

Total gains (losses):

            

Net realized gain (loss)(A)

     (3     37             597       (31     600  

Net unrealized appreciation (depreciation)(B)

     (1,434     6,775       (5     2,138       3,132       10,606  

Reversal of prior period net (appreciation) depreciation on realization(B)

           (545           (725           (1,270

New investments, repayments and settlements: (C)

            

Issuances/originations

     56,427       41,084       293       125       1,521       99,450  

Settlements/repayments

     (19,230     (37,636                       (56,866

Sales

     3       (38           (1,296     30       (1,301

Transfers

     (10,163     10,163             (159           (159
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair Value as of June 30, 2018

   $ 199,496     $ 175,089     $
 
 
3,612
 
 
  $ 7,241     $ 15,599     $ 401,037  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(A)

Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of Operations for the corresponding period.

(B) 

Included in net unrealized appreciation (depreciation) on investments on our accompanying Consolidated Statements of Operations for the corresponding period.

(C) 

Includes increases in the cost basis of investments resulting from new portfolio investments, accretion of discounts, PIK, and other non-cash disbursements to portfolio companies, as well as decreases in the cost basis of investments resulting from principal repayments or sales, the amortization of premiums and acquisition costs and other cost-basis adjustments.

 

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Table of Contents

Investment Activity

Proprietary Investments

As of June 30, 2019 and September 30, 2018, we held 37 and 39 proprietary investments with an aggregate fair value of $359.0 million and $357.6 million, or 88.1% and 91.7% of the total portfolio at fair value, respectively. The following significant proprietary investment transactions occurred during the nine months ended June 30, 2019:

 

   

In October 2018, our investment in TWS Acquisition Corporation paid off at par for net proceeds of $2.0 million.

 

   

In November 2018, we invested $16.7 million in Antenna Research Associates, Inc. through a combination of secured first lien debt and equity.

 

   

In December 2018, we invested $20.0 million in R2i Holdings, LLC through secured first lien debt.

 

   

In December 2018, we invested $6.5 million in DKI Ventures, LLC through secured first lien debt.

 

   

In December 2018, our investment in FDF was restructured upon its emergence from Chapter 11 bankruptcy protection. As part of the restructure, our existing $27.0 million debt investment in FDF was converted to $1.35 million of preferred equity and common equity units in a new entity, FES Resources Holdings, LLC (“FES Resources”). We also invested an additional $5.0 million in FES Resources through a combination of preferred equity and common equity units. In conjunction with the restructure, we recorded a net realized loss of $26.9 million associated with our investment in FDF.

 

   

In January 2019, our investment in Merlin International, Inc. paid off, which resulted in success fee income of $0.6 million and a prepayment fee of $0.3 million. In connection with the payoff, we received net cash proceeds of $20.9 million, including the repayment of our debt investment of $20.0 million at par.

 

   

In February 2019, our investment in United Flexible, Inc. paid off, which resulted in a realized gain of $2.1 million. In connection with the payoff, we received net cash proceeds of $18.1 million, including the repayment of our debt investment of $15.3 million at par.

 

   

In March 2019, two of our portfolio companies, Impact! Chemical Technologies, Inc. (“Impact”) and WadeCo Specialties, Inc. (“WadeCo”), merged to form Imperative Holdings Corporation (“Imperative”). In connection with the merger, we received a principal repayment of $10.9 million and our first lien loans to Impact and WadeCo were restructured into one $30.0 million second lien debt investment in Imperative.

 

   

In April 2019, we invested $35.0 million in ENET Holdings, LLC through secured first lien debt. In May 2019, we sold $6.0 million of our investment in ENET Holdings, LLC.

 

   

In May 2019, we invested $10.0 million in Phoenix Aromas Holdings, LLC through secured second lien debt.

 

   

In May 2019, one of our fund investments, FedCap Partners, LLC, sold its final investment and we recognized a realized loss of $0.8 million.

 

   

In May 2019, our investment in IA Tech, LLC paid off, which resulted in a prepayment fee of $0.9 million. In connection with the payoff, we received net cash proceeds of $30.9 million, including the repayment of our debt investment of $30.0 million at par.

Syndicated Investments

As of June 30, 2019 and September 30, 2018, we held 16 and 11 syndicated investments with an aggregate fair value of $48.5 million and $32.4 million, or 11.9% and 8.3% of the total portfolio at fair value, respectively. The following significant syndicated investment transactions occurred during the nine months ended June 30, 2019:

 

   

In October, November and December 2018, we invested a total of $3.7 million in 8th Avenue Food & Provisions, Inc. through secured second lien debt.

 

   

In November 2018, we invested $2.0 million in GOBP Holdings, Inc. through secured second lien debt.

 

   

In November 2018, our investment in Red Ventures, LLC paid off at par for net proceeds of $3.1 million.

 

   

In December 2018, we invested $1.0 million in CPM Holdings, Inc. through secured second lien debt.

 

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In February 2019, we invested $3.3 million in DiscoverOrg, LLC through secured second lien debt.

 

   

In April 2019, we invested $5.0 million in Drive Chassis Holdco, LLC through secured second lien debt.

 

   

In June 2019, we invested $5.0 million in Tailwind Smith Cooper Intermediate Corporation through secured second lien debt.

 

   

In June 2019, we invested $3.0 million in United PF Holdings, LLC through secured second lien debt.

 

   

In June 2019, our investment in GOBP Holdings, Inc. paid off at par for net proceeds of $2.0 million.

Investment Concentrations

As of June 30, 2019, our investment portfolio consisted of investments in 53 portfolio companies located in 25 states in 19 different industries, with an aggregate fair value of $407.6 million. The five largest investments at fair value as of June 30, 2019 totaled $130.6 million, or 32.1% of our total investment portfolio, as compared to the five largest investments at fair value as of September 30, 2018 totaling $122.8 million, or 31.5% of our total investment portfolio. As of June 30, 2019 and September 30, 2018, our average investment by obligor was $8.0 million and $8.5 million at cost, respectively.

The following table outlines our investments by security type as of June 30, 2019 and September 30, 2018:

 

     June 30, 2019      September 30, 2018  
     Cost     Fair Value      Cost     Fair Value  

Secured first lien debt

   $ 201,832        47.7   $ 186,542        45.8    $ 206,523        48.3   $ 199,625        51.2

Secured second lien debt

     175,187        41.4       170,008        41.7        180,274        42.2       156,373        40.1  

Unsecured debt

     3,989        0.9       3,855        0.9        3,708        0.9       3,655        0.9  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total debt investments

     381,008        90.0       360,405        88.4        390,505        91.4       359,653        92.2  

Preferred equity

     18,328        4.3       15,945        3.9        12,920        3.0       7,749        2.0  

Common equity/equivalents

     23,841        5.7       31,209        7.7        24,042        5.6       22,644        5.8  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total equity investments

     42,169        10.0       47,154        11.6        36,962        8.6       30,393        7.8  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total Investments

   $ 423,177        100.0   $ 407,559        100.0    $ 427,467        100.0   $ 390,046        100.0
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Our investments at fair value consisted of the following industry classifications as of June 30, 2019 and September 30, 2018:

 

     June 30, 2019     September 30, 2018  

Industry Classification

   Fair Value      Percentage
of Total
Investments
    Fair Value      Percentage
of Total
Investments
 

Diversified/Conglomerate Service

   $ 107,247        26.3   $ 79,066        20.3

Telecommunications

     46,823        11.5       47,794        12.3  

Oil and Gas

     38,552        9.5       50,172        12.9  

Healthcare, Education and Childcare

     33,040        8.1       53,916        13.8  

Diversified/Conglomerate Manufacturing

     31,050        7.6       43,421        11.1  

Diversified Natural Resources, Precious Metals and Minerals

     23,361        5.7       23,040        5.9  

Automobile

     18,297        4.5       18,209        4.7  

Beverage, Food and Tobacco

     17,730        4.4       13,727        3.5  

Aerospace and Defense

     16,292        4.0       616        0.1  

Cargo Transportation

     15,471        3.8       15,164        3.9  

Machinery

     12,848        3.2       11,058        2.8  

Chemicals, Plastics and Rubber

     11,509        2.8       1,500        0.4  

Home and Office Furnishings, Housewares and Durable Consumer Products

     9,925        2.4       10,125        2.6  

Hotels, Motels, Inns, and Gaming

     6,850        1.7       6,337        1.6  

Textiles and Leather

     5,399        1.3       6,556        1.7  

Personal and Non-Durable Consumer Products

     4,933        1.2       4,892        1.3  

Buildings and Real Estate

     3,406        0.8       2,455        0.6  

Other, < 2.0%

     4,826        1.2       1,998        0.5  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Investments

   $ 407,559        100.0   $ 390,046        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Our investments at fair value were included in the following U.S. geographic regions and other countries as of June 30, 2019 and September 30, 2018:

 

     June 30, 2019     September 30, 2018  

Location

   Fair Value      Percentage of
Total Investments
    Fair Value      Percentage of
Total Investments
 

South

   $ 172,363        42.3   $ 168,917        43.3

West

     119,788        29.4       114,286        29.3  

Midwest

     56,759        13.9       61,733        15.8  

Northeast

     51,695        12.7       37,589        9.7  

Canada

     6,954        1.7       7,521        1.9  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Investments

   $ 407,559        100.0   $ 390,046        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

The geographic composition indicates the location of the headquarters for our portfolio companies. A portfolio company may have additional locations in other geographic regions.

Investment Principal Repayments

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of June 30, 2019:

 

          Amount  

For the remaining three months ending September 30:

   2019    $ 7,683  

For the fiscal years ending September 30:

   2020      25,551  
   2021      71,596  
   2022      73,518  
   2023      77,006  
   Thereafter      126,738  
     

 

 

 
  

Total contractual repayments

   $ 382,092  
   Adjustments to cost basis of debt investments      (1,085)  
   Investments in equity securities      42,169  
     

 

 

 
  

Investments held as of June 30, 2019 at Cost:

   $ 423,177  
     

 

 

 

Receivables from Portfolio Companies

Receivables from portfolio companies represent non-recurring costs incurred on behalf of such portfolio companies and are included in other assets on our accompanying Consolidated Statements of Assets and Liabilities. We generally maintain an allowance for uncollectible receivables from portfolio companies when the receivable balance becomes 90 days or more past due or if it is determined, based upon management’s judgment, that the portfolio company is unable to pay its obligations. We write-off accounts receivable when we have exhausted collection efforts and have deemed the receivables uncollectible. As of June 30, 2019 and September 30, 2018, we had gross receivables from portfolio companies of $0.9 million and $0.3 million, respectively. The allowance for uncollectible receivables was $17 thousand and $32 thousand as of June 30, 2019 and September 30, 2018, respectively.

NOTE 4. RELATED PARTY TRANSACTIONS

Transactions with the Adviser

We have been externally managed by the Adviser pursuant to the Advisory Agreement since October 1, 2004 pursuant to which we pay the Adviser a base management fee and an incentive fee for its services. We have entered into the Administration Agreement with the Administrator (discussed further below) to provide administrative services. On July 9, 2019, our Board of Directors, including a majority of the directors who are not parties to the Advisory Agreement or interested persons of such party, unanimously approved the annual renewal of the Advisory Agreement through August 31, 2020.

We also pay the Adviser a loan servicing fee for its role of servicer pursuant to our Credit Facility. The entire loan servicing fee paid to the Adviser by Business Loan is non-contractually, unconditionally and irrevocably credited against the base management fee otherwise payable to the Adviser, since Business Loan is a consolidated subsidiary of ours, and overall, the base management fee (including any loan servicing fee) cannot exceed 1.75% of total assets (as reduced by cash and cash equivalents pledged to creditors) during any given fiscal year pursuant to the Advisory Agreement.

Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer), serve as directors and executive officers of the Adviser, which is 100% indirectly owned and controlled by Mr. Gladstone. Robert Marcotte (our president) also serves as an executive managing director of the Adviser.

 

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The following table summarizes the base management fee, incentive fee, and loan servicing fee and associated non-contractual, unconditional and irrevocable credits reflected in our accompanying Consolidated Statements of Operations:

 

     Three Months Ended
June 30,
    Nine Months Ended
June 30,
 
     2019     2018     2019     2018  

Average total assets subject to base management fee(A)

   $ 405,029     $ 411,657     $ 413,257     $ 400,838  

Multiplied by prorated annual base management fee of 1.75%

     0.4375     0.4375     1.3125     1.3125
  

 

 

   

 

 

   

 

 

   

 

 

 

Base management fee(B)

   $ 1,772     $ 1,801     $ 5,424     $ 5,261  

Portfolio company fee credit

     (484     (170     (1,169     (1,001

Syndicated loan fee credit

     (115     (92     (290     (276
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Base Management Fee

   $ 1,173     $ 1,539     $ 3,965     $ 3,984  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loan servicing fee(B)

     1,267       1,294       3,762       3,754  

Credit to base management fee – loan servicing fee(B)

     (1,267     (1,294     (3,762     (3,754
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Loan Servicing Fee

   $     $     $     $  
  

 

 

   

 

 

   

 

 

   

 

 

 

Incentive fee(B)

     1,543       1,499       4,286       4,082  

Incentive fee credit

     (51           (1,085     (856
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Incentive Fee

   $ 1,492     $ 1,499     $ 3,201     $ 3,226  
  

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio company fee credit

     (484     (170     (1,169     (1,001

Syndicated loan fee credit

     (115     (92     (290     (276

Incentive fee credit

     (51           (1,085     (856
  

 

 

   

 

 

   

 

 

   

 

 

 

Credits to Fees From Adviser – other(B)

   $ (650   $ (262   $ (2,544   $ (2,133
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  (A) 

Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.

  (B)

Reflected, on a gross basis, as a line item on our accompanying Consolidated Statements of Operations.

Base Management Fee

The base management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 1.75%, computed on the basis of the value of our average total assets at the end of the two most recently-completed quarters (inclusive of the current quarter), which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings and adjusted appropriately for any share issuances or repurchases during the period.

Additionally, pursuant to the requirements of the 1940 Act, the Adviser makes available significant managerial assistance to our portfolio companies. The Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than managerial assistance. Such services may include: (i) assistance obtaining, sourcing or structuring credit facilities, long term loans or additional equity from unaffiliated third parties; (ii) negotiating important contractual financial relationships; (iii) consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising add