Company Quick10K Filing
Gladstone Capital
10-Q 2020-06-30 Filed 2020-07-29
10-Q 2020-03-31 Filed 2020-05-04
10-Q 2019-12-31 Filed 2020-02-05
10-K 2019-09-30 Filed 2019-11-13
10-Q 2019-06-30 Filed 2019-08-05
10-Q 2019-03-31 Filed 2019-05-01
10-Q 2018-12-31 Filed 2019-02-06
10-K 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-07-31
10-Q 2018-03-31 Filed 2018-05-02
10-Q 2017-12-31 Filed 2018-02-05
10-K 2017-09-30 Filed 2017-11-20
10-Q 2017-06-30 Filed 2017-08-02
10-Q 2017-03-31 Filed 2017-05-03
10-Q 2016-12-31 Filed 2017-02-08
10-K 2016-09-30 Filed 2016-11-21
10-Q 2016-06-30 Filed 2016-08-03
10-Q 2016-03-31 Filed 2016-05-04
10-Q 2015-12-31 Filed 2016-02-08
10-K 2015-09-30 Filed 2015-11-23
10-Q 2015-06-30 Filed 2015-07-29
10-Q 2015-03-31 Filed 2015-05-06
10-Q 2014-12-31 Filed 2015-02-02
10-K 2014-09-30 Filed 2014-11-12
10-Q 2014-06-30 Filed 2014-07-30
10-Q 2014-03-31 Filed 2014-04-30
10-Q 2013-12-31 Filed 2014-02-03
10-K 2013-09-30 Filed 2013-11-20
10-Q 2013-06-30 Filed 2013-07-31
10-Q 2013-03-31 Filed 2013-04-30
10-Q 2012-12-31 Filed 2013-01-29
10-K 2012-09-30 Filed 2012-11-13
10-Q 2012-06-30 Filed 2012-08-01
10-Q 2012-03-31 Filed 2012-05-01
10-K 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-03
10-Q 2011-03-31 Filed 2011-05-03
10-Q 2010-12-31 Filed 2011-02-07
10-K 2010-09-30 Filed 2010-11-22
10-Q 2010-06-30 Filed 2010-08-09
10-Q 2010-03-31 Filed 2010-05-04
10-Q 2009-12-31 Filed 2010-02-01
8-K 2020-07-29 Earnings, Exhibits
8-K 2020-07-14 Regulation FD, Exhibits
8-K 2020-05-04
8-K 2020-04-14
8-K 2020-02-06
8-K 2020-02-05
8-K 2020-01-14
8-K 2019-11-13
8-K 2019-10-08
8-K 2019-10-02
8-K 2019-08-21
8-K 2019-08-05
8-K 2019-07-10
8-K 2019-07-09
8-K 2019-05-01
8-K 2019-04-09
8-K 2019-02-07
8-K 2019-02-06
8-K 2019-01-08
8-K 2018-11-14
8-K 2018-11-01
8-K 2018-10-09
8-K 2018-07-31
8-K 2018-07-10
8-K 2018-05-10
8-K 2018-05-02
8-K 2018-04-10
8-K 2018-03-09
8-K 2018-02-08
8-K 2018-02-05
8-K 2018-01-09

GLAD 10Q Quarterly Report

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 (Decrease) 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 d901194dex311.htm
EX-31.2 d901194dex312.htm
EX-32.1 d901194dex321.htm
EX-32.2 d901194dex322.htm

Gladstone Capital Earnings 2020-06-30

Balance SheetIncome StatementCash Flow

10-Q 1 d901194d10q.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, 2020

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   The Nasdaq Stock Market LLC
6.125% Notes due 2023, $25.00 par value per note   GLADD   The Nasdaq Stock Market LLC
5.375% Notes due 2024, $25.00 par value per note   GLADL   The Nasdaq Stock Market LLC

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 July 28, 2020 was 31,192,639.

 

 

 


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, 2020 and September 30, 2019      2  
  Consolidated Statements of Operations for the three and nine months ended June 30, 2020 and 2019      3  
  Consolidated Statements of Changes in Net Assets for the three and nine months ended June 30, 2020 and 2019      5  
  Consolidated Statements of Cash Flows for the nine months ended June 30, 2020 and 2019      6  
  Consolidated Schedules of Investments as of June 30, 2020 and September 30, 2019      7  
  Notes to Consolidated Financial Statements      19  
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      43  
  Overview      43  
  Results of Operations      47  
  Liquidity and Capital Resources      55  
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      62  
Item 4.   Controls and Procedures      62  
PART II.   OTHER INFORMATION   
Item 1.   Legal Proceedings      63  
Item 1A.   Risk Factors      63  
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,
2020
    September 30,
2019
 

ASSETS

    

Investments, at fair value:

    

Non-Control/Non-Affiliate investments (Cost of $422,125 and $361,272, respectively)

   $ 389,967     $ 345,876  

Affiliate investments (Cost of $43,922 and $38,921, respectively)

     39,222       35,421  

Control investments (Cost of $28,522 and $28,259, respectively)

     17,487       21,578  

Cash and cash equivalents

     2,375       15,707  

Restricted cash and cash equivalents

     109       41  

Interest receivable, net

     2,557       2,625  

Due from administrative agent

     4,555       2,826  

Deferred financing costs, net

     582       866  

Other assets, net

     864       1,129  
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 457,718     $ 426,069  
  

 

 

   

 

 

 

LIABILITIES

    

Borrowings, at fair value (Cost of $133,500 and $66,900, respectively)

   $ 133,500     $ 67,067  

Notes payable, net (Cost of $96,313 and $57,500, respectively)

     93,710       55,750  

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 0 and 2,070,000 shares issued and outstanding, respectively, net

     —         50,354  

Accounts payable and accrued expenses

     609       576  

Interest payable

     1,186       842  

Fees due to Adviser(A)

     841       1,452  

Fee due to Administrator(A)

     634       366  

Other liabilities

     441       332  
  

 

 

   

 

 

 

TOTAL LIABILITIES

   $ 230,921     $ 176,739  
  

 

 

   

 

 

 

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 31,192,639 and 30,345,923 shares issued and outstanding, respectively

   $ 31     $ 30  

Capital in excess of par value

     365,336       358,113  

Cumulative net unrealized depreciation of investments

     (47,893     (25,577

Cumulative net unrealized appreciation of other

     —         (167

Under distributed net investment income

     17       136  

Accumulated net realized losses

     (90,694     (83,205
  

 

 

   

 

 

 

Total distributable loss

     (138,570 )      (108,813
  

 

 

   

 

 

 

TOTAL NET ASSETS

   $ 226,797     $ 249,330  
  

 

 

   

 

 

 

NET ASSET VALUE PER COMMON SHARE

   $ 7.27     $ 8.22  
  

 

 

   

 

 

 

 

(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,
 
     2020     2019     2020     2019  

INVESTMENT INCOME

        

Interest income

        

Non-Control/Non-Affiliate investments

   $ 9,100     $ 9,256     $ 27,771     $ 27,889  

Affiliate investments

     1,140       1,044       3,332       3,253  

Control investments

     411       522       1,246       1,713  

Cash and cash equivalents

     1       14       17       40  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income (excluding PIK interest income)

     10,652       10,836       32,366       32,895  

PIK interest income

        

Non-Control/Non-Affiliate investments

     976       326       1,720       930  

Affiliate investments

     —         —         —         49  

Control investments

     —         —         —         76  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total PIK interest income

     976       326       1,720       1,055  

Total interest income

     11,628       11,162       34,086       33,950  

Success fee income

        

Non-Control/Non-Affiliate investments

     —         458       350       1,129  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total success fee income

     —         458       350       1,129  

Dividend income

        

Non-Control/Non-Affiliate investments

     —         4       166       489  

Control investments

     49       346       259       518  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total dividend income

     49       350       425       1,007  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income

     52       916       519       1,231  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     11,729       12,886       35,380       37,317  
  

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

        

Base management fee(A)

     1,881       1,772       5,573       5,424  

Loan servicing fee(A)

     1,463       1,267       4,309       3,762  

Incentive fee(A)

     1,275       1,543       3,896       4,286  

Administration fee(A)

     349       288       1,078       959  

Interest expense on borrowings and notes payable

     2,472       2,088       7,591       6,071  

Dividend expense on mandatorily redeemable preferred stock

     —         776       9       2,328  

Amortization of deferred financing costs

     375       344       1,099       985  

Professional fees

     219       209       671       694  

Other general and administrative expenses

     280       303       939       898  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses, before credits from Adviser

     8,314       8,590       25,165       25,407  

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

     (1,463 )      (1,267     (4,309 )      (3,762

Credits to fees from Adviser - other(A)

     (1,205 )      (650     (4,523 )      (2,544
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses, net of credits

     5,646       6,673       16,333       19,101  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME

     6,083       6,213       19,047       18,216  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET REALIZED AND UNREALIZED GAIN (LOSS)

        

Net realized gain (loss):

        

Non-Control/Non-Affiliate investments

     (107 )      (834     (7,611 )      (25,384

Affiliate investments

     —         27       —         25  

Control investments

     —         —         —         (9

Other

     —         —         (1,407 )      —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net realized gain (loss)

     (107 )      (807     (9,018 )      (25,368

Net unrealized appreciation (depreciation):

        

Non-Control/Non-Affiliate investments

     6,484       5,561       (16,762 )      29,994  

Affiliate investments

     3,205       (1,478     (1,200 )      2,597  

Control investments

     (708 )      (460     (4,354 )      (10,788

Other

     —         (173     167       (173
  

 

 

   

 

 

   

 

 

   

 

 

 

 

3


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

 

Total net unrealized appreciation (depreciation)

     8,981        3,450        (22,149 )      21,630  
  

 

 

    

 

 

    

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     8,874        2,643        (31,167 )      (3,738
  

 

 

    

 

 

    

 

 

   

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

   $ 14,957      $ 8,856      $ (12,120   $ 14,478  
  

 

 

    

 

 

    

 

 

   

 

 

 

BASIC AND DILUTED PER COMMON SHARE:

          

Net investment income

   $ 0.20      $ 0.21      $ 0.62     $ 0.63  
  

 

 

    

 

 

    

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ 0.48      $ 0.30      $ (0.39   $ 0.50  
  

 

 

    

 

 

    

 

 

   

 

 

 

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic and Diluted

     31,192,639        29,491,285        30,948,956       28,876,197  

 

(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)

 

     2020     2019  

NET ASSETS, SEPTEMBER 30

   $ 249,330     $ 237,092  

OPERATIONS

    

Net investment income

   $ 6,417     $ 5,986  

Net realized gain (loss) on investments

     (4,434     (26,863

Realized gain (loss) on other

     (1,407     —    

Net unrealized appreciation (depreciation) of investments

     139       17,169  

Net unrealized depreciation (appreciation) of other

     (17     —    
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     698       (3,708
  

 

 

   

 

 

 

DISTRIBUTIONS

    

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

     (6,417     (5,986

CAPITAL TRANSACTIONS

    

Issuance of common stock

     7,315       28  

Discounts, commissions and offering costs for issuance of common stock

     (137     —    
  

 

 

   

 

 

 

Net increase in net assets resulting from capital transactions

     7,178       28  

NET INCREASE (DECREASE) IN NET ASSETS

     1,459       (9,666
  

 

 

   

 

 

 

NET ASSETS, DECEMBER 31

   $ 250,789     $ 227,426  

OPERATIONS

    

Net investment income

   $ 6,547     $ 6,017  

Net realized gain (loss) on investments

     (3,070     2,302  

Net unrealized appreciation (depreciation) of investments

     (31,436     1,011  

Net unrealized depreciation (appreciation) of other

     184       —    
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     (27,775     9,330  

DISTRIBUTIONS

    

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

     (6,547     (6,017

CAPITAL TRANSACTIONS

    

Issuance of common stock

     1,482       4,258  

Discounts, commissions and offering costs for issuance of common stock

     (26     (74
  

 

 

   

 

 

 

Net increase in net assets resulting from capital transactions

     1,456       4,184  

NET INCREASE (DECREASE) IN NET ASSETS

     (32,866     7,497  
  

 

 

   

 

 

 

NET ASSETS, MARCH 31

   $ 217,923     $ 234,923  
  

 

 

   

 

 

 

OPERATIONS

    

Net investment income

   $ 6,083     $ 6,213  

Net realized gain (loss) on investments

     (107     (807

Net unrealized appreciation (depreciation) of investments

     8,981       3,623  

Net unrealized depreciation (appreciation) of other

     —         (173
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     14,957       8,856  
  

 

 

   

 

 

 

DISTRIBUTIONS

    

Distributions to common stockholders from net investment income ($0.20 and $0.19 per share, respectively) (A)

     (6,083     (5,468

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

     —         (745
  

 

 

   

 

 

 
     (6,083     (6,213

CAPITAL TRANSACTIONS

    

Issuance of common stock

     —         8,772  

Discounts, commissions and offering costs for issuance of common stock

     —         (152
  

 

 

   

 

 

 

Net increase in net assets resulting from capital transactions

     —         8,620  

NET INCREASE (DECREASE) IN NET ASSETS

     8,874       11,263  
  

 

 

   

 

 

 

NET ASSETS, JUNE 30

   $ 226,797     $ 246,186  
  

 

 

   

 

 

 

 

(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,  
     2020     2019  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net increase (decrease) in net assets resulting from operations

   $ (12,120   $ 14,478  

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

    

Purchase of investments

     (128,004     (122,324

Principal repayments on investments

     53,294       98,589  

Net proceeds from sale of investments

     2,826       3,645  

Increase in investments due to paid-in-kind interest

     (1,574     (1,422

Net change in premiums, discounts and amortization

     (281     407  

Net realized loss (gain) on investments

     7,622       25,395  

Net realized loss (gain) on other

     1,407       —    

Net unrealized depreciation (appreciation) of investments

     22,316       (21,803

Net unrealized appreciation (depreciation) of other

     (167     173  

Changes in assets and liabilities:

    

Amortization of deferred financing costs

     1,099       985  

Decrease (increase) in interest receivable, net

     68       (311

Decrease (increase) in funds due from administrative agent

     (1,729     443  

Decrease (increase) in other assets, net

     232       (653

Increase (decrease) in accounts payable and accrued expenses

     33       207  

Increase (decrease) in interest payable

     344       512  

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

     (611     591  

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

     268       (29

Increase (decrease) in other liabilities

     109       134  
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (54,868     (983
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Proceeds from line of credit

     179,800       122,800  

Repayments on line of credit

     (113,200     (173,500

Redemption of preferred stock

     (51,750     —    

Proceeds from issuance of long term debt

     38,813       57,500  

Deferred financing costs

     (1,677     (2,204

Proceeds from issuance of common stock

     8,797       13,058  

Discounts, commissions and offering costs for issuance of common stock

     (132     (194

Distributions paid to common stockholders

     (19,047     (18,216
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     41,604       (756
  

 

 

   

 

 

 

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

     (13,264     (1,739

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

     15,748       2,004  
  

 

 

   

 

 

 

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

   $ 2,484     $ 265  
  

 

 

   

 

 

 

CASH PAID FOR INTEREST

   $ 7,247     $ 5,559  
  

 

 

   

 

 

 

 

(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, 2020

(UNAUDITED)

(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) – 171.9%

        

Secured First Lien Debt – 84.9%

        

Aerospace and Defense – 5.3%

        

Antenna Research Associates, Inc. – Term Debt (L + 10.0%, 12.0% Cash, 4.0% PIK, Due 11/2023)(E)

   $ 12,031      $ 12,031      $ 12,031  

Beverage, Food, and Tobacco – 11.0%

        

Café Zupas – Line of Credit, $4,000 available (L + 7.4%, 8.9% Cash, Due 12/2024)(C)

     —          —          —    

Café Zupas – Delayed Draw Term Loan, $3,030 available (L + 7.4%, 8.9% Cash, Due 12/2024)(C)

     1,970        1,970        1,891  

Café Zupas – Term Debt (L + 7.4%, 8.9% Cash, Due 12/2024)(C)

     24,000        24,000        23,040  
  

 

 

    

 

 

    

 

 

 
        25,970        24,931  

Buildings and Real Estate – 0.8%

        

GFRC 360, LLC – Line of Credit, $400 available (L + 8.0%, 9.0% Cash, Due 9/2020)(C)

     800        800        772  

GFRC 360, LLC – Term Debt (L + 8.0%, 9.0% Cash, Due 9/2020)(C)

     1,000        1,000        965  
     

 

 

    

 

 

 
        1,800        1,737  

Diversified/Conglomerate Service – 31.9%

        

DKI Ventures, LLC – Line of Credit, $2,500 available (L + 8.3%, 9.3% Cash, 2.0% PIK, Due 12/2021)(C)

     —          —          —    

DKI Ventures, LLC – Term Debt (L + 8.3%, 9.3% Cash, 2.0% PIK, Due 12/2023)(C)

     5,941        5,941        4,693  

ENET Holdings, LLC – Term Debt (10.2% Cash, Due 12/2022)(C)(F)

     1,000        1,000        835  

ENET Holdings, LLC – Term Debt (10.2% Cash, Due 4/2025)(C)(F)

     29,000        29,000        24,215  

R2i Holdings, LLC – Line of Credit, $1,171 available (8.0% Cash, Due 12/2021)(C)(F)

     829        829        763  

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

     19,625        19,625        18,055  

Universal Survey Center, Inc. – Line of Credit, $500 available (L + 7.3%, 9.3% Cash, Due 9/2022)(Q)(Z)

     500        500        500  

Universal Survey Center, Inc. – Term Debt (L + 7.3%, 9.3% Cash, Due 9/2024)(Q)(Z)

     13,225        13,225        13,225  

Vision Government Solutions, Inc. – Line of Credit, $2,500 available (L + 8.8%, 9.8% Cash, Due 12/2022)(C)

     —          —          —    

Vision Government Solutions, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 12/2022)(C)

     10,225        10,192        9,995  
     

 

 

    

 

 

 
        80,312        72,281  

Healthcare, Education, and Childcare – 21.6%

        

ALS Education, LLC – Line of Credit, $2,500 available (L + 7.5%, 9.0% Cash, Due 5/2025)(C)

     1,500        1,500        1,500  

ALS Education, LLC – Term Debt (L + 7.5%, 9.0% Cash, Due 5/2025)(C)

     21,670        21,670        21,670  

EL Academies, Inc. – Delayed Draw Term Loan, $0 available (L + 8.8%, 9.8% Cash, Due 8/2022)(C)

     16,000        15,984        14,800  

EL Academies, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 8/2022)(C)

     12,000        11,981        11,100  
     

 

 

    

 

 

 
        51,135        49,070  

Machinery – 2.6%

        

Arc Drilling Holdings LLC – Line of Credit, $875 available (L + 8.0%, 9.3% Cash, Due 11/2020)(C)

     125        125        118  

Arc Drilling Holdings LLC – Term Debt (L + 9.5%, 10.8% Cash, 3.0% PIK, Due 11/2022)(C)

     5,900        5,900        5,597  

Precision International, LLC – Line of Credit, $500 available (L + 7.5%, 7.7% Cash, Due 9/2021)(C)

                    

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

     286        286        276  
     

 

 

    

 

 

 
        6,311        5,991  

Printing and Publishing – 0.0%

        

Chinese Yellow Pages Company – Line of Credit, $0 available (PRIME + 4.0%, 7.3% Cash, Due 2/2015)(E)(V)

     107        107        —    

Telecommunications – 11.7%

        

B+T Group Acquisition, Inc.(S) – Line of Credit, $0 available (L + 11.0%, 13.0% Cash, Due 12/2021)(C)(H)

     1,200        1,200        1,101  

B+T Group Acquisition, Inc.(S) – Term Debt (L + 11.0%, 13.0% Cash, Due 12/2021)(C)(H)

     6,000        6,000        5,505  

NetFortris Corp. – Term Debt (L + 9.0%, 9.5% Cash, Due 2/2021)(C)

     23,302        23,286        19,923  
     

 

 

    

 

 

 
        30,486        26,529  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 208,152      $ 192,570  
     

 

 

    

 

 

 

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, 2020

(UNAUDITED)

(DOLLAR AMOUNTS IN THOUSANDS)

 

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

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

Secured Second Lien Debt – 73.2%

        

Automobile – 4.1%

        

Sea Link International IRB, Inc. – Term Debt (13.3% PIK, Due 3/2023)(C)(F)

   $ 10,226      $ 10,226      $ 9,357  

Beverage, Food, and Tobacco – 1.5%

        

8th Avenue Food & Provisions, Inc. – Term Debt (L + 7.8%, 7.9% Cash, Due 10/2026)(D)

     3,683        3,705        3,489  

Cargo Transportation – 13.3%

        

AG Transportation Holdings, LLC – Term Debt (L + 10.0%, 13.3% Cash, Due 12/2021)(C)

     13,000        12,968        12,545  

American Trailer Rental Group LLC – Term Debt (L + 8.9%, 10.4% Cash, Due 8/2025)(C)

     18,000        18,000        17,595  
     

 

 

    

 

 

 
        30,968        30,140  

Chemicals, Plastics, and Rubber – 4.8%

        

Phoenix Aromas & Essential Oils, LLC – Term Debt (L + 9.5%, 10.5% Cash, 2.0% PIK, Due 5/2024)(C)

     10,085        10,085        9,782  

Vertellus Holdings LLC – Term Debt (L + 12.0%, 13.0% Cash, Due 10/2021)(C)

     1,099        1,099        1,038  
     

 

 

    

 

 

 
        11,184        10,820  

Diversified/Conglomerate Manufacturing – 14.1%

        

Magpul Industries Corp. – Term Debt (L + 11.5%, 12.5% Cash, Due 5/2026)(C)

     28,000        28,000        28,000  

Tailwind Smith Cooper Intermediate Corporation – Term Debt (L + 9.0%, 9.2% Cash, Due 5/2027)(D)

     5,000        4,770        3,950  
     

 

 

    

 

 

 
        32,770        31,950  

Diversified/Conglomerate Service – 14.8%

        

CHA Holdings, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 4/2026)(D)(U)

     3,000        2,952        2,640  

Drive Chassis Holdco, LLC – Term Debt (L + 8.3%, 8.4% Cash, Due 4/2026)(D)

     5,000        4,779        4,325  

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

     11,100        11,100        10,601  

Keystone Acquisition Corp. – Term Debt (L + 9.3%, 10.3% Cash, Due 5/2025)(D)(U)

     4,000        3,943        3,200  

Prophet Brand Strategy – Delayed Draw Term Loan, $5,000 available (L + 8.5%, 10.5% Cash, Due 2/2025)(C)

     —          —          —    

Prophet Brand Strategy – Term Debt (L + 8.5%, 10.5% Cash, Due 2/2025)(C)

     13,000        13,000        12,870  
     

 

 

    

 

 

 
        35,774        33,636  

Healthcare, Education, and Childcare – 2.4%

        

Medical Solutions Holdings, Inc. – Term Debt (L + 8.4%, 9.4% Cash, Due 6/2025)(D)

     3,000        2,968        2,700  

Medical Solutions Holdings, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 6/2025)(D)

     3,000        2,945        2,760  
     

 

 

    

 

 

 
        5,913        5,460  

Home and Office Furnishings, Housewares and Durable Consumer Products – 4.2%

        

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

     10,000        10,000        9,575  

Hotels, Motels, Inns, and Gaming – 2.9%

        

Vacation Rental Pros Property Management, LLC – Term Debt (L + 10.0%, 11.0% Cash, 3.0% PIK, Due 6/2023)(C)

     7,991        7,991        6,595  

Machinery – 0.4%

        

CPM Holdings, Inc. – Term Debt (L + 8.3%, 8.4% Cash, Due 11/2026)(D)

     1,000        1,000        850  

Oil and Gas – 10.7%

        

Imperative Holdings Corporation – Term Debt (L + 10.3%, 12.3% Cash, Due 9/2022)(C)

     28,000        28,000        24,220  
     

 

 

    

 

 

 

Total Secured Second Lien Debt

      $ 177,531      $ 166,092  
     

 

 

    

 

 

 

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, 2020

(UNAUDITED)

(DOLLAR AMOUNTS IN THOUSANDS)

 

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

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

Unsecured Debt – 1.8%

       

Diversified/Conglomerate Service – 0.0%

       

Frontier Financial Group Inc. – Convertible Debt (6.0%, Due 6/2022)(E)(F)

   $ 98     $ 98      $ 9  

Healthcare, education, and childcare – 1.8%

       

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

     4,305       4,305        4,133  
    

 

 

    

 

 

 

Total Unsecured Debt

     $ 4,403      $ 4,142  
    

 

 

    

 

 

 

Preferred Equity – 2.2%

       

Beverage, Food, and Tobacco – 0.0%

       

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

     75       75        —    

Buildings and Real Estate – 0.7%

       

GFRC 360, LLC – Preferred Stock(E)(G)

     1,000       1,025        1,537  

Diversified/Conglomerate Service – 0.0%

       

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

     766       500        —    

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

     168       —          —    
    

 

 

    

 

 

 
       500        —    

Oil and Gas – 0.7%

       

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

     6,350       6,350        —    

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

     13,740       632        1,551  
    

 

 

    

 

 

 
       6,982        1,551  

Telecommunications – 0.8%

       

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

     6,130       2,024        —    

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

     7,890,860       789        1,846  
    

 

 

    

 

 

 
       2,813        1,846  
    

 

 

    

 

 

 

Total Preferred Equity

     $ 11,395      $ 4,934  
    

 

 

    

 

 

 

Common Equity – 9.8%

       

Aerospace and Defense – 1.5%

       

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

     4,283     $ 4,283      $ 3,482  

Automobile– 0.1%

       

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

     823,333       823        238  

Beverage, Food, and Tobacco – 0.0%

       

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

     250,000       250        —    

Buildings and Real Estate – 0.0%

       

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

     45.0     —          —    

Cargo Transportation – 1.9%

       

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

     27.0     1,350        2,456  

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

     5.0     244        591  

American Trailer Rental Group LLC – Common Stock(E)(G)

     6,667       1,000        1,061  
    

 

 

    

 

 

 
       2,594        4,108  

Chemicals, Plastics, and Rubber – 0.5%

       

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

     879,121       3,018        1,061  

Healthcare, Education, and Childcare – 2.2%

       

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

     21,429       2,636        —    

GSM MidCo LLC – Common Stock(E)(G)

     767       767        951  

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

     3.5     2,152        3,957  
    

 

 

    

 

 

 
       5,555        4,908  

Machinery – 0.5%

       

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

     15,000       1,500        643  

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

     33.3     —          553  
    

 

 

    

 

 

 
       1,500        1,196  

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        298  
    

 

 

    

 

 

 
       499        298  

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, 2020

(UNAUDITED)

(DOLLAR AMOUNTS IN THOUSANDS)

 

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

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

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%

       

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

     12,180       59        48  

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 – 3.0%

       

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

     3,076,414       2,062        6,890  
    

 

 

    

 

 

 

Total Common Equity

     $ 20,644      $ 22,229  
    

 

 

    

 

 

 
    

 

 

    

 

 

 

Total Non-Control/Non-Affiliate Investments

     $ 422,125      $ 389,967  
    

 

 

    

 

 

 

AFFILIATE INVESTMENTS(N) – 17.3%

       

Secured First Lien Debt – 3.6%

       

Diversified/Conglomerate Manufacturing – 3.6%

       

Edge Adhesives Holdings, Inc. (S) – Line of Credit, $400 available (L + 8.0%, 10.0% Cash, Due 12/2020)(C)

   $ 280     $ 280      $ 269  

Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 10.5%, 12.5% Cash, Due 2/2022)(C)

     6,200       6,200        5,952  

Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 11.8%, 13.8% Cash, Due 2/2022)(C)

     2,000       2,000        1,920  
    

 

 

    

 

 

 
     $ 8,480      $ 8,141  
    

 

 

    

 

 

 

Secured Second Lien Debt – 11.6%

       

Diversified Natural Resources, Precious Metals and Minerals – 11.6%

       

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C)

   $ 6,000     $ 6,000      $ 6,000  

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C)

     8,000       8,000        8,000  

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C)

     3,300       3,300        3,300  

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C)

     4,000       4,000        4,000  

Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C)

     5,000       5,000        5,000  
    

 

 

    

 

 

 
     $ 26,300      $ 26,300  
    

 

 

    

 

 

 

Preferred Equity – 1.4%

       

Diversified/Conglomerate Manufacturing – 0.4%

       

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

     5,466     $ 5,466      $ 963  

Diversified Natural Resources, Precious Metals and Minerals – 0.7%

       

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

     68,880       1,321        1,534  

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.3%

       

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

     500,000       500        672  
    

 

 

    

 

 

 

Total Preferred Equity

     $ 7,287      $ 3,169  
    

 

 

    

 

 

 

Common Equity – 0.7%

       

Diversified Natural Resources, Precious Metals and Minerals – 0.7%

       

Lignetics, Inc. – Common Stock(E)(G)

     152,603     $ 1,855      $ 1,612  

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%

       

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

     500,000       —          —    
    

 

 

    

 

 

 

Total Common Equity

     $ 1,855      $ 1,612  
    

 

 

    

 

 

 
    

 

 

    

 

 

 

Total Affiliate Investments

     $ 43,922      $ 39,222  
    

 

 

    

 

 

 

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, 2020

(UNAUDITED)

(DOLLAR AMOUNTS IN THOUSANDS)

 

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

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

CONTROL INVESTMENTS(O) – 7.7%

        

Secured First Lien Debt – 2.4%

        

Diversified/Conglomerate Manufacturing – 1.8%

        

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

   $ 6,000      $ 6,000      $ 3,990  

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

     10,632        10,632        —    
     

 

 

    

 

 

 
        16,632        3,990  

Printing and Publishing – 0.6%

        

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

     1,500        1,478        1,500  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 18,110      $ 5,490  
     

 

 

    

 

 

 

Secured Second Lien Debt – 3.6%

        

Automobile– 3.6%

        

Defiance Integrated Technologies, Inc. – Term Debt (L + 9.5%, 11.0% Cash, Due 5/2026)(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      $ —    

Preferred Equity – 0.1%

        

Automobile– 0.1%

        

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

     6,043      $ 250      $ 250  

Common Equity – 1.6%

        

Automobile– 0.4%

        

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

     33,321      $ 580      $ 807  

Diversified/Conglomerate Manufacturing – 0.0%

        

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

     921,000        921        —    

Machinery – 1.1%

        

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

     750        1        2,538  

Printing and Publishing – 0.1%

        

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

     790,000        500        337  
     

 

 

    

 

 

 

Total Common Equity

      $ 2,002      $ 3,682  
     

 

 

    

 

 

 
     

 

 

    

 

 

 

Total Control Investments

      $ 28,522      $ 17,487  
     

 

 

    

 

 

 
     

 

 

    

 

 

 

TOTAL INVESTMENTS – 196.9%

      $ 494,569      $ 446,676  
     

 

 

    

 

 

 

 

(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 $409.9 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, 2020, our investments in Leeds Novamark Capital I, L.P. (“Leeds”) and Funko Acquisition Holdings, LLC (“Funko”) are considered non-qualifying assets under Section 55 of the 1940 Act. Such non-qualifying assets represent 0.9% of total investments, at fair value, as of June 30, 2020.

(B) 

Unless indicated otherwise, all cash interest rates are indexed to 30-day London Interbank Offered Rate (“LIBOR” or “L”), which was 0.16% as of June 30, 2020. 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”).

(D) 

Fair value was based on the indicative bid price on or near June 30, 2020, 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)

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)

Reserved.

(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.

 

11


Table of Contents
(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 Global Select 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 0.30% as of June 30, 2020.

(V)

The cash interest rate on this investment was indexed to the U.S. Prime Rate (“PRIME”), which was 3.25% as of June 30, 2020.

(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, 2020.

(Z)

Investment was exited subsequent to June 30, 2020.

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

 

12


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2019

(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) – 138.7%

        

Secured First Lien Debt – 65.6%

        

Aerospace and Defense – 4.8%

        

Antenna Research Associates, Inc. – Term Debt (L + 10.0%, 12.0% Cash, 4.0% PIK, Due 11/2023)(C)

   $ 12,124      $ 12,124      $ 12,033  

Automobile – 0.0%

        

Meridian Rack & Pinion, Inc. (S) – Term Debt (L + 11.5%, 13.5% Cash, Due 12/2019)(E)(H)

     4,140        4,140        112  

Buildings and Real Estate – 0.9%

        

GFRC 360, LLC – Line of Credit, $50 available (L + 8.0%, 10.0% Cash, Due 9/2020)(C)

     1,150        1,150        1,143  

GFRC 360, LLC – Term Debt (L + 8.0%, 10.0% Cash, Due 9/2020)(C)

     1,000        1,000        994  
     

 

 

    

 

 

 
        2,150        2,137  

Diversified/Conglomerate Service – 28.4%

        

DKI Ventures, LLC – Line of Credit, $2,500 available (L + 8.3%, 10.3% Cash, Due 12/2021)(C)

     —          —          —    

DKI Ventures, LLC – Delayed Draw Term Loan, $5,000 available (L + 8.3%, 10.3% Cash, Due 12/2023)(C)

     —          —          —    

DKI Ventures, LLC – Term Debt (L + 8.3%, 10.3% Cash, Due 12/2023)(C)

     6,054        6,054        5,827  

ENET Holdings, LLC – Line of Credit, $1,000 available (L + 7.3%, 9.3% Cash, Due 4/2022)(C)

     —          —          —    

ENET Holdings, LLC – Term Debt (L + 7.3%, 9.3% Cash, Due 4/2025)(C)

     29,000        29,000        28,420  

R2i Holdings, LLC – Line of Credit, $2,000 available (L + 8.0%, 10.0% Cash, Due 12/2021)(C)

     —          —          —    

R2i Holdings, LLC – Term Debt (L + 8.0%, 10.0% Cash, Due 12/2023)(C)

     19,625        19,625        18,987  

Travel Sentry, Inc. – Term Debt (L + 8.0%, 10.1% Cash, Due 12/2021)(C)(U)

     6,939        6,939        6,930  

Vision Government Solutions, Inc. – Line of Credit, $2,500 available (L + 8.8%, 10.8% Cash, Due 12/2022)(C)

     —          —          —    

Vision Government Solutions, Inc. – Term Debt (L + 8.8%, 10.8% Cash, Due 12/2022)(C)

     10,600        10,558        10,547  
     

 

 

    

 

 

 
        72,176        70,711  

Healthcare, Education, and Childcare – 11.2%

        

EL Academies, Inc. – Line of Credit, $2,000 available (L + 8.8%, 10.8% Cash, Due 8/2020)(C)

     —          —          —    

EL Academies, Inc. – Delayed Draw Term Loan, $0 available (L + 8.8%, 10.8% Cash, Due 8/2022)(C)

     16,000        15,980        15,940  

EL Academies, Inc. – Term Debt (L + 8.8%, 10.8% Cash, Due 8/2022)(C)

     12,000        11,975        11,955  
     

 

 

    

 

 

 
        27,955        27,895  

Machinery – 2.5%

        

Arc Drilling Holdings LLC – Line of Credit, $875 available (L + 8.0%, 10.0% Cash, Due 11/2020)(C)

     125        125        125  

Arc Drilling Holdings LLC – Term Debt (L + 9.5%, 11.5% Cash, 3.0% PIK, Due 11/2022)(C)

     5,916        5,916        5,663  

Precision International, LLC – Line of Credit, $500 available (L + 7.5%, 9.5% Cash, Due 9/2021)(C)

     —          —          —    

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

     436        436        437  
     

 

 

    

 

 

 
        6,477        6,225  

Printing and Publishing – 0.0%

        

Chinese Yellow Pages Company – Line of Credit, $0 available (PRIME + 4.0%, 9.0% Cash, Due 2/2015)(E)(V)

     107        107        —    

Telecommunications – 17.8%

        

B+T Group Acquisition, Inc.(S) – Line of Credit, $435 available (L + 11.0%, 13.0% Cash,
Due 12/2021)(C)

     765        765        759  

B+T Group Acquisition, Inc.(S) – Term Debt (L + 11.0%, 13.0% Cash, Due 12/2021)(C)

     6,000        6,000        5,955  

NetFortris Corp. – Term Debt (L + 9.0%, 11.0% Cash, Due 2/2021)(C)

     23,302        23,269        22,137  

XMedius America, Inc. – Term Debt (L + 9.3%, 11.3% Cash, Due 10/2022)(Q)

     8,690        8,690        8,777  

XMedius Solutions Inc. – Term Debt (L + 9.3%, 11.3% Cash, Due 10/2022)(Q)

     6,683        6,683        6,749  
     

 

 

    

 

 

 
        45,407        44,377  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 170,536      $ 163,490  
     

 

 

    

 

 

 

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

 

13


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

 

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

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

Secured Second Lien Debt – 59.6%

        

Automobile – 4.0%

        

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

   $ 10,000      $ 9,986      $ 9,913  

Beverage, Food, and Tobacco – 4.2%

        

8th Avenue Food & Provisions, Inc. – Term Debt (L + 7.8%, 9.8% Cash, Due 10/2026)(D)

     3,683        3,707        3,628  

The Mochi Ice Cream Company – Term Debt (L + 10.5%, 12.5% Cash, Due 12/2023)(C)

     6,750        6,729        6,843  
     

 

 

    

 

 

 
        10,436        10,471  

Cargo Transportation – 5.2%

        

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

     13,000        13,000        12,967  

Chemicals, Plastics, and Rubber – 4.4%

        

Phoenix Aromas & Essential Oils, LLC – Term Debt (L + 9.5%, 11.5% Cash, Due 5/2024)(C)

     10,000        10,000        9,838  

Vertellus Holdings LLC – Term Debt (L + 12.0%, 14.0% Cash, Due 10/2021)(C)

     1,099        1,099        1,085  
     

 

 

    

 

 

 
        11,099        10,923  

Diversified/Conglomerate Manufacturing – 1.9%

        

Tailwind Smith Cooper Intermediate Corporation – Term Debt (L + 9.0%, 11.0% Cash, Due 5/2027)(D)

     5,000        4,756        4,700  

Diversified/Conglomerate Service – 18.5%

        

CHA Holdings, Inc. – Term Debt (L + 8.8%, 10.8% Cash, Due 4/2026)(D)(U)

     3,000        2,947        3,030  

DigiCert Holdings, Inc. – Term Debt (L + 8.0%, 10.0% Cash, Due 10/2025)(D)(AA)

     2,400        2,379        2,388  

DiscoverOrg, LLC – Term Debt (L + 8.5%, 10.5% Cash, Due 2/2027)(D)

     3,303        3,275        3,287  

Drive Chassis Holdco, LLC – Term Debt (L + 8.3%, 10.3% Cash, Due 4/2026)(D)

     5,000        4,760        4,700  

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

     11,100        11,100        10,989  

Keystone Acquisition Corp. – Term Debt (L + 9.3%, 11.3% Cash, Due 5/2025)(D)(U)

     4,000        3,936        3,880  

LDiscovery, LLC – Term Debt (L + 10.0%, 12.0% Cash, Due 12/2023)(D)

     5,000        4,858        4,938  

Prophet Brand Strategy – Delayed Draw Term Loan, $5,000 available (L + 9.5%, 11.5% Cash, Due 2/2025)(C)

     —          —          —    

Prophet Brand Strategy – Term Debt (L + 9.5%, 11.5% Cash, Due 2/2025)(C)

     13,000        13,000        13,000  
     

 

 

    

 

 

 
        46,255        46,212  

Healthcare, Education, and Childcare – 1.1%

        

Medical Solutions Holdings, Inc. – Term Debt (L + 8.3%, 10.3% Cash, Due 6/2025)(D)

     3,000        2,964        2,850  

New Trident Holdcorp, Inc. – Term Debt (L + 10.0%, 12.1% Cash, Due 7/2020)(E)(H)(K)(U)

     4,409        4,409        —    
     

 

 

    

 

 

 
        7,373        2,850  

Home and Office Furnishings, Housewares and Durable Consumer Products – 3.9%

        

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

     10,000        10,000        9,800  

Hotels, Motels, Inns, and Gaming – 2.9%

        

Vacation Rental Pros Property Management, LLC – Term Debt (L + 10.0%, 12.0% Cash, 3.0% PIK, Due 6/2023)(C)

     7,593        7,593        7,209  

Machinery – 0.4%

        

CPM Holdings, Inc. – Term Debt (L + 8.3%, 10.3% Cash, Due 11/2026)(D)

     1,000        1,000        990  

Oil and Gas – 11.9%

        

Imperative Holdings Corporation – Term Debt (L + 10.3%, 12.3% Cash, Due 9/2022)(C)

     30,000        30,000        29,625  

Retail Stores – 1.2%

        

United PF Holdings, LLC – Term Debt (L + 8.5%, 10.5% Cash, Due 6/2027)(D)

     3,000        2,956        2,970  
     

 

 

    

 

 

 

Total Secured Second Lien Debt

      $ 154,454      $ 148,630  
     

 

 

    

 

 

 

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

 

14


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

 

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

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

Unsecured Debt – 1.6%

        

Healthcare, education, and childcare – 1.6%

        

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

   $ 3,993      $ 3,993      $ 3,933  

Preferred Equity – 3.3%

        

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        1,273  

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 – 2.1%

        

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

     6,350        6,350        3,236  

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

     13,740        632        2,030  
     

 

 

    

 

 

 
        6,982        5,266  

Telecommunications – 0.7%

        

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

     5,503        1,799        —    

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

     7,890,860        789        1,734  
     

 

 

    

 

 

 
        2,588        1,734  
     

 

 

    

 

 

 

Total Preferred Equity

      $ 12,544      $ 8,273  
     

 

 

    

 

 

 

Common Equity – 8.6%

        

Aerospace and Defense – 1.3%

        

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

     4,283      $ 4,283      $ 3,131  

Automobile– 0.5%

        

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

     823,333        824        1,152  

Beverage, Food, and Tobacco – 0.8%

        

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

     450        450        1,365  

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

     250,000        250        650  
     

 

 

    

 

 

 
        700        2,015  

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        1,511  

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

     12.0%        244        747  
     

 

 

    

 

 

 
        1,244        2,258  

Chemicals, Plastics, and Rubber – 0.2%

        

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

     879,121        3,018        525  

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        777  

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

     3.5%        2,152        4,060  
     

 

 

    

 

 

 
        5,555        4,837  

Machinery – 0.5%

        

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

     15,000        1,500        415  

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

     33.3%        —           783  
     

 

 

    

 

 

 
        1,500        1,198  

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        160  
     

 

 

    

 

 

 
        499        160  

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

 

15


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

 

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

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

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

       

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

     12,180       59        170  

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 – 2.4%

       

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

     3,076,414       2,062        6,104  
    

 

 

    

 

 

 

Total Common Equity

     $ 19,745      $ 21,550  
    

 

 

    

 

 

 
    

 

 

    

 

 

 

Total Non-Control/Non-Affiliate Investments

     $ 361,272      $ 345,876  
    

 

 

    

 

 

 

AFFILIATE INVESTMENTS(N) – 14.2%

       

Secured First Lien Debt – 3.2%

       

Diversified/Conglomerate Manufacturing – 3.2%

       

Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 10.5%, 12.5% Cash, Due 2/2022)(C)

   $ 6,200     $ 6,200      $ 6,045  

Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 11.8%, 13.8% Cash, Due 2/2022)(C)

     2,000       2,000        1,960  
    

 

 

    

 

 

 
       8,200        8,005  
    

 

 

    

 

 

 

Total Secured First Lien Debt

     $ 8,200      $ 8,005  
    

 

 

    

 

 

 

Secured Second Lien Debt – 10.0%

       

Diversified Natural Resources, Precious Metals and Minerals – 8.5%

       

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

   $ 6,000     $ 6,000      $ 5,940  

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

     8,000       8,000        7,920  

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

     3,300       3,300        3,267  

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

     4,000       4,000        3,960  
    

 

 

    

 

 

 
       21,300        21,087  

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

       

Canopy Safety Brands, LLC – Term Debt (L + 10.5%, 12.5% Cash, Due 7/2022) (C)

     3,750       3,750        3,759  
    

 

 

    

 

 

 

Total Secured Second Lien Debt

     $ 25,050      $ 24,846  
    

 

 

    

 

 

 

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 – 0.3%

       

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

     40,000       800        947  

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.3%

       

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

     500,000       500        634  
    

 

 

    

 

 

 

Total Preferred Equity

     $ 3,816      $ 1,581  
    

 

 

    

 

 

 

Common Equity – 0.4%

       

Diversified Natural Resources, Precious Metals and Minerals – 0.3%

       

Lignetics, Inc. – Common Stock(E)(G)

     152,603     $ 1,855      $ 805  

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

       

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

     500,000       —          184  
    

 

 

    

 

 

 

Total Common Equity

     $ 1,855      $ 989  
    

 

 

    

 

 

 
    

 

 

    

 

 

 

Total Affiliate Investments

     $ 38,921      $ 35,421  
    

 

 

    

 

 

 

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

 

16


Table of Contents

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

 

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

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

CONTROL INVESTMENTS(O) – 8.7%

        

Secured First Lien Debt – 2.8%

        

Diversified/Conglomerate Manufacturing – 2.2%

        

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

   $ 6,000      $ 6,000      $ 5,218  

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

     10,632        10,632        —    
     

 

 

    

 

 

 
        16,632        5,218  

Printing and Publishing – 0.6%

        

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

     1,500        1,465        1,500  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 18,097      $ 6,718  
     

 

 

    

 

 

 

Secured Second Lien Debt – 3.2%

        

Automobile– 3.2%

        

Defiance Integrated Technologies, Inc. – Term Debt (L + 9.5%, 11.5% 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 – 2.7%

        

Automobile– 1.7%

        

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

     33,321      $ 580      $ 4,287  

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        2,311  

Printing and Publishing – 0.1%

        

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

     790,000        500        197  
     

 

 

    

 

 

 

Total Common Equity

      $ 2,002      $ 6,795  
     

 

 

    

 

 

 
     

 

 

    

 

 

 

Total Control Investments

      $ 28,259      $ 21,578  
     

 

 

    

 

 

 
     

 

 

    

 

 

 

TOTAL INVESTMENTS(Z) – 161.6%

      $ 428,452      $ 402,875  
     

 

 

    

 

 

 

 

(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 $369.0 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, 2019, our investments in Leeds, Funko, and XMedius Solutions Inc. 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 September 30, 2019.

(B) 

Unless indicated otherwise, all cash interest rates are indexed to 30-day LIBOR, which was 2.02% as of September 30, 2019. If applicable, 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.

(D)

Fair value was based on the indicative bid price on or near September 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.

(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.

 

17


Table of Contents
(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 Global Select 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 2.09% as of September 30, 2019.

(V)

The cash interest rate on this investment was indexed to PRIME, which was 5.00% as of September 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 September 30, 2019.

(Z)

Cumulative gross unrealized depreciation for federal income tax purposes is $55.6 million; cumulative gross unrealized appreciation for federal income tax purposes is $19.8 million. Cumulative net unrealized depreciation is $35.8 million, based on a tax cost of $438.6 million.

(AA)

Investment was exited subsequent to September 30, 2019.

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

 

18


Table of Contents

GLADSTONE CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 2020

(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 (as amended and/or restated from time to time, the “Advisory Agreement”). Administrative services are provided by 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, 2020 are not necessarily indicative of results that ultimately may be achieved for the fiscal year ending September 30, 2020 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, 2019, as filed with the SEC on November 13, 2019 and amended on December 16, 2019.

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.

 

19


Table of Contents

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 Data Pricing and Reference Data, LLC (“ICE”), 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.

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.

 

20


Table of Contents

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 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.

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.

 

21


Table of Contents

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. As of June 30, 2020, loans to B+T Group Acquisition Inc. (“B+T”) were on non-accrual status with an aggregate debt cost basis of $7.2 million, or 1.6% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of approximately $6.6 million, or 1.6% of the fair value of all debt investments in our portfolio. As of September 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 $0.1 million, or 0.0% 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, 2020 and September 30, 2019, we held five and ten OID loans, respectively, primarily from the syndicated loans in our portfolio. We recorded OID income of $46 thousand and $0.3 million during the three and nine months ended June 30, 2020, respectively, and $35 thousand and $0.1 million during the three and nine months ended June 30, 2019, respectively. The unamortized balance of OID investments as of June 30, 2020 and September 30, 2019 totaled $0.6 million and $0.8 million, respectively. As of June 30, 2020 and September 30, 2019, we had seven and four investments which had a PIK interest component, respectively. We recorded PIK interest income of $1.0 million and $1.7 million during the three and nine months ended June 30, 2020, respectively, as compared to $0.3 million and $1.1 million during the three and nine months ended June 30, 2019, respectively. We collected $0 in PIK interest in cash during the three and nine months ended June 30, 2020 and 2019.

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.

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.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents are generally cash and cash equivalents held in escrow received as part of an investment exit. Restricted cash and cash equivalents are carried at cost, which approximates fair value.

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.

 

22


Table of Contents

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 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 March 2020, the FASB issued Accounting Standards Update 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 was effective immediately. The adoption of ASU 2020-04 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.

 

23


Table of Contents

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 NAV as a practical expedient are not categorized within the fair value hierarchy.

As of June 30, 2020, 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 NAV as a practical expedient. As of September 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, which was valued using Level 2 inputs, and our investment in Leeds, which was valued using NAV as a practical expedient.

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, 2020 and 2019, there were no investments transferred into or out of Levels 1, 2 or 3 of the valuation hierarchy.

As of June 30, 2020 and September 30, 2019, 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, 2020:

         

Secured first lien debt

   $ 206,201     $ —        $ —       $ 206,201  

Secured second lien debt

     200,457       —          —         200,457  

Unsecured debt

     4,142       —          —         4,142  

Preferred equity

     8,353       —          —         8,353  

Common equity/equivalents

     23,566 (A)      —          48 (B)      23,518  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Investments at June 30, 2020

   $ 442,719     $ —        $ 48     $ 442,671  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

24


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, 2019:

         

Secured first lien debt

   $ 178,213     $ —        $ —       $ 178,213  

Secured second lien debt

     181,541       —          —         181,541  

Unsecured debt

     3,933       —          —         3,933  

Preferred equity

     9,854       —          —         9,854  

Common equity/equivalents

     25,274 (A)      —          170 (B)      25,104  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Investments at September 30, 2019

   $ 398,815     $ —        $ 170     $ 398,645  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(A)

Excludes our investment in Leeds with a fair value of $4.0 million and $4.1 million as of June 30, 2020 and September 30, 2019, respectively. Leeds was valued using NAV 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, 2020 and September 30, 2019, 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, 2020     September 30, 2019  

Non-Control/Non-Affiliate Investments

   

Secured first lien debt

  $ 192,570     $ 163,490  

Secured second lien debt

    166,092       148,630  

Unsecured debt

    4,142       3,933  

Preferred equity

    4,934       8,273  

Common equity/equivalents

    18,224 (A)      17,320 (B) 
 

 

 

   

 

 

 

Total Non-Control/Non-Affiliate Investments

  $ 385,962     $ 341,646  
 

 

 

   

 

 

 

Affiliate Investments

   

Secured first lien debt

  $ 8,141     $ 8,005  

Secured second lien debt

    26,300       24,846  

Preferred equity

    3,169       1,581  

Common equity/equivalents

    1,612       989  
 

 

 

   

 

 

 

Total Affiliate Investments

  $ 39,222     $ 35,421  
 

 

 

   

 

 

 

Control Investments

   

Secured first lien debt

  $ 5,490     $ 6,718  

Secured second lien debt

    8,065       8,065  

Preferred equity

    250       —    

Common equity/equivalents

    3,682       6,795  
 

 

 

   

 

 

 

Total Control Investments

  $ 17,487     $ 21,578  
 

 

 

   

 

 

 

Total Investments at Fair Value Using Level 3 Inputs

  $ 442,671     $ 398,645  
 

 

 

   

 

 

 

 

(A)

Excludes our investments in Leeds and Funko with fair values of $4.0 million and $48 thousand, respectively, as of June 30, 2020. Leeds was valued using NAV as a practical expedient, and Funko was valued using Level 2 inputs.

(B)

Excludes our investments in Leeds and Funko with fair values of $4.1 million and $0.2 million, respectively, as of September 30, 2019. Leeds was valued using NAV as a practical expedient, and Funko was valued using Level 2 inputs.

 

25


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, 2020 and September 30, 2019. 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,
2020
     September 30,
2019
     Valuation
Techniques/
Methodologies
   Unobservable
Input
   June 30,
2020
     September 30,
2019
 

Secured first lien debt(A)

   $ 188,680      $ 171,383      Yield Analysis    Discount Rate     
9.0% - 22.9% /
14.2%
 
 
    
9.8% - 18.0% /
12.4%
 
 
     17,521        6,830      TEV    EBITDA multiple     

5.0x - 5.0x /

5.0x

 

 

    

6.5x - 6.5x /

6.5x

 

 

            EBITDA     
$6,217 - $6,217 /
$6,217
 
 
    
$830 - $830 /
$830
 
 
            Revenue multiple     

0.3x - 0.3x /

0.3x

 

 

    

0.3x - 0.3x /

0.3x

 

 

            Revenue     
$7,337 - $13,300 /
$12,807
 
 
    
$6,663 - $18,978 /
$17,959
 
 

Secured second lien debt

     168,478        136,115      Yield Analysis    Discount Rate     
10.8% - 21.8% /
14.6%

 
    
11.5% - 16.8% /
12.6%

 
     23,914        37,361      Market Quote    IBP     
79.0% - 94.8% /
86.4%
 
 
    
94.0% - 101.0% /
97.3
 
     8,065        8,065      TEV    EBITDA multiple     

5.1x - 5.1x /

5.1x

 

 

    

5.4x - 6.5x /

5.8x

 

 

            EBITDA     
$3,330 - $3,330 /
$3,330

 
    
$3,571 - $37,311 /
$15,498
 
 

Unsecured debt

     4,133        3,933      Yield Analysis    Discount Rate     
12.9% - 12.9% /
12.9%
 
 
    
12.2% - 12.2% /
12.2%
 
 
     9         TEV    Revenue multiple     

0.3x - 1.4x /

0.8x

 

 

     —    
            Revenue     
$891 - $13,300 /
$6,999

 
     —    

Preferred and common equity / equivalents(B)

     31,871        34,958      TEV    EBITDA multiple     

3.1x - 9.6x /

6.1x

 

 

    

3.3x - 8.9x /

6.4x

 

 

  

 

 

    

 

 

             
            EBITDA     
$483 - $95,222 /
$16,463

 
    
$715 - $48,973 /
$14,853

 
            Revenue multiple     

0.3x - 1.4x /

0.8x

 

 

    

0.3x - 1.4x /

0.8x

 

 

            Revenue     
$891 - $57,516 /
$22,797

 
    
$1,033 - $61,584 /
$25,814
 
 

Total Level 3 Investments, at Fair Value

   $ 442,671      $ 398,645              
  

 

 

    

 

 

             

 

(A)

Fair value as of June 30, 2020 includes one proprietary debt investment totaling $13.7 million, which was valued using the expected payoff amount as the unobservable input. Fair value as of September 30, 2019 includes two proprietary debt investments totaling $15.5 million, which were valued using the expected payoff amount as the unobservable input.

(B)

Fair value as of June 30, 2020 excludes our investments in Leeds and Funko with fair values of $4.0 million and $48 thousand, respectively, as of June 30, 2020. Fair value as of September 30, 2019 excludes our investments in Leeds and Funko with fair values of $4.1 million and $0.2 million, respectively, as of September 30, 2019. Leeds was valued using NAV as a practical expedient and Funko was valued using Level 2 inputs as of both June 30, 2020 and September 30, 2019.

 

26


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, 2020 and 2019 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, 2020

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

Fair Value as of March 31, 2020

   $ 187,597     $ 174,822     $ 3,969     $ 7,088      $ 20,462     $ 393,938  

Total gains (losses):

             

Net realized gain (loss)(A)

     (92     (40     —         —          25       (107

Net unrealized appreciation (depreciation)(B)

     (87     4,407       (30     1,015        3,057       8,362  

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

     534       458       —         —          —         992  

New investments, repayments and settlements: (C)

             

Issuances/originations

     25,528       30,559       203       250        —         56,540  

Settlements/repayments

     (7,372     (9,789     —         —          —         (17,161

Net proceeds from sales

     93       40       —         —          (26     107  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Fair Value as of June 30, 2020

   $ 206,201     $ 200,457     $ 4,142     $ 8,353      $ 23,518     $ 442,671  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

 

Nine months ended June 30, 2020

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

Fair Value as of September 30, 2019

   $ 178,213     $ 181,541     $ 3,933     $ 9,854     $ 25,104     $ 398,645  

Total gains (losses):

            

Net realized gain (loss)(A)

     (4,232     (4,449     —         (1,449     2,533       (7,597

Net unrealized appreciation (depreciation)(B)

     (14,568     (10,156     (201     (5,522     65       (30,382

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

     4,647       4,745       —         1,449       (2,550     8,291  

New investments, repayments and settlements: (C)

            

Issuances/originations

     67,088       56,709       410       4,021       1,350       129,578  

Settlements/repayments

     (25,040     (27,973     —         —         —         (53,013

Net proceeds from sales

     93       40       —         —         (2,984     (2,851
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair Value as of June 30, 2020

   $ 206,201     $ 200,457     $ 4,142     $ 8,353     $ 23,518     $ 442,671  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

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

Net proceeds from sales

     90       (3     —         —          —         87  

Transfers

     —         —         —         —          —         —    
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Fair Value as of June 30, 2019

   $ 186,542     $ 170,008</