THL Credit Earnings 2019-06-30

TCRD 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 tcrd-10q_20190630.htm 10-Q tcrd-10q_20190630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019

☐	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 814-00789

THL CREDIT, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		27-0344947
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

100 Federal St., 31^st Floor, Boston, MA		02110
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: 800-450-4424

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

Title of Each Class	Trading Symbols	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	TCRD	NASDAQ Global Select Market
6.75% Senior Notes due 2022	TCRZ	The New York Stock Exchange
6.125% Senior Notes due 2023	TCRW	The New York Stock Exchange

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, as amended, during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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	☐ (Do not check if a smaller reporting company)	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 Securities Exchange Act of 1934). Yes ☐ No ☒

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding at August 7, 2019 was 31,064,603.

THL CREDIT, INC.

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

Table of Contents

	INDEX	PAGE NO.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Assets and Liabilities as of June 30, 2019 (unaudited) and December 31, 2018	4

	Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)	5

	Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2019 and 2018 (unaudited)	6

	Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)	7

	Consolidated Schedules of Investments as of June 30, 2019 (unaudited) and December 31, 2018	8

	Notes to Consolidated Financial Statements (unaudited)	25

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	69

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	100

Item 4.	Controls and Procedures	101

PART II.	OTHER INFORMATION	102

Item 1.	Legal Proceedings	102

Item 1A.	Risk Factors	102

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	103

Item 3.	Defaults Upon Senior Securities	103

Item 4.	Mine Safety Disclosures	103

Item 5.	Other Information	103

Item 6.	Exhibits	104

SIGNATURES		105

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report, and other statements that we may make, may contain forward-looking statements with respect to future financial or business performance, strategies or expectations, anticipated share repurchases or lack thereof, our plans and expectations about future investments, amount and timing of distributions, if any, and the future liquidity of the company. Forward-looking statements are typically identified by words or phrases such as “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” or similar expressions.

Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to factors previously identified elsewhere in this filing, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

•

the introduction, withdrawal, success and timing of business initiatives and strategies;

•

changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in the value of our assets;

•

the relative and absolute investment performance and operations of our investment adviser;

•

the impact of increased competition;

•

the impact of future acquisitions and divestitures;

•

the resolution of legal proceedings;

•

our business prospects and the prospects of our portfolio companies;

•

the impact, extent and timing of technological changes and the adequacy of intellectual property protection;

•

the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or THL Credit Advisors LLC, the Advisor;

•

the ability of the Advisor to identify suitable investments for us and to monitor and administer our investments;

•

our contractual arrangements and relationships with third parties;

•

any future financings by us;

•

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

•

fluctuations in foreign currency exchange rates;

•

the impact of changes to tax legislation and, generally, our tax position;

•

our ability to exit a control investment in a timely manner; and

•

the ability to fund Logan JV’s unfunded commitments to the extent approved by each member of the Logan JV investment committee

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Assets and Liabilities

(in thousands, except per share data)

(unaudited)

	June 30, 2019			December 31, 2018
Assets:
Investments at fair value:
Non-controlled, non-affiliated investments (cost of $296,338 and $333,023, respectively)	$	284,598		$	313,377
Controlled investments (cost of $186,966 and $181,325, respectively)		178,746			167,733
Non-controlled, affiliated investments (cost of $25,292 and $25,292, respectively)		641			12,543
Cash		4,038			6,860
Interest, dividends, and fees receivable		5,934			5,480
Escrow and other receivables		5,639			7,306
Deferred tax assets		2,188			2,056
Deferred financing costs		1,871			2,314
Prepaid expenses and other assets		501			198
Distributions receivable		311			207
Due from affiliate		224			377
Total assets	$	484,691		$	518,451
Liabilities:
Loans payable	$	102,749		$	107,657
Notes payable ($111,607 and $111,607 face amounts, respectively, reported net of deferred financing costs of $3,142 and $3,541, respectively)		108,466			108,067
Accrued expenses and other liabilities		2,471			1,652
Deferred tax liability		1,831			1,972
Base management fees payable (net of waiver of $525 and $0, respectively)		1,290			2,112
Accrued incentive fees		676			677
Accrued interest and fees		423			633
Total liabilities		217,906			222,770
Commitments and contingencies (Note 8)
Net Assets:
Common stock, par value $.001 per share, 100,000 common shares authorized, 31,419 and 32,318 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		31			32
Paid-in capital in excess of par		425,288			431,361
Accumulated deficit		(158,534	)		(135,712	)
Total net assets	$	266,785		$	295,681
Total liabilities and net assets	$	484,691		$	518,451
Net asset value per share attributable to THL Credit, Inc.	$	8.49		$	9.15

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	For the three months ended June 30,						For the six months ended June 30,
	2019			2018			2019			2018
Investment Income:
From non-controlled, non-affiliated investments:
Interest income	$	8,150		$	12,780		$	16,564		$	24,986
Dividend income		—			17			—			17
Other income		1,745			432			2,199			551
From non-controlled, affiliated investments:
Interest income		34			609			67			609
Other income		195			288			392			543
From controlled investments:
Interest income		1,430			1,363			2,778			2,767
Dividend income		3,770			2,827			7,477			5,440
Other income		38			41			75			133
Total investment income		15,362			18,357			29,552			35,046
Expenses:
Interest and fees on borrowings		3,243			3,791			6,641			7,357
Base management fees		1,815			2,333			3,725			4,652
Incentive fees		—			(9	)		—			(9	)
Administrator expenses		392			537			842			1,128
Other general and administrative expenses		362			573			734			996
Amortization of deferred financing costs		335			312			1,030			620
Professional fees		552			373			949			710
Directors' fees		176			204			364			398
Total expenses		6,875			8,114			14,285			15,852
Management fee waiver		(525	)		—			(525	)		—
Total expenses, net of management fee waivers		6,350			8,114			13,760			15,852
Income tax provision, excise and other taxes		161			144			238			268
Net investment income		8,851			10,099			15,554			18,926
Realized Gain (Loss) and Change in Unrealized Appreciation (Depreciation) on Investments:
Net realized (loss) gain on investments:
Non-controlled, non-affiliated investments		(24,066	)		(22,254	)		(26,483	)		(35,467	)
Non-controlled, affiliated investments		—			(3,125	)		—			(3,125	)
Controlled investments		—			245			442			343
Foreign currency transactions		(1	)		(202	)		2			(203	)
Net realized loss on investments		(24,067	)		(25,336	)		(26,039	)		(38,452	)
Net change in unrealized appreciation (depreciation) on investments:
Non-controlled, non-affiliated investments		18,588			16,349			7,907			26,919
Non-controlled, affiliated investments		(12,343	)		3,091			(11,901	)		3,091
Controlled investments		(540	)		(2,723	)		5,371			(3,044	)
Translation of assets and liabilities in foreign currencies		(323	)		533			(641	)		1,193
Net change in unrealized appreciation on investments		5,382			17,250			736			28,159
Net change in unrealized depreciation attributable to non-controlling interests		—			(353	)		—			(601	)
Net realized and unrealized loss from investments		(18,685	)		(8,439	)		(25,303	)		(10,894	)
Benefit (provision) for taxes on unrealized gain/loss on investments		164			(121	)		271			(154	)
Net (decrease) increase in net assets resulting from operations	$	(9,670	)	$	1,539		$	(9,478	)	$	7,878
Net investment income per common share:
Basic and diluted	$	0.28		$	0.31		$	0.49		$	0.58
Net (decrease) increase in net assets resulting from operations per common share:
Basic and diluted	$	(0.30	)	$	0.05		$	(0.30	)	$	0.24
Weighted average shares of common stock outstanding:
Basic and diluted		31,769			32,674			32,028			32,674

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets

(in thousands)

(unaudited)

	For the six months ended June 30,
	2019			2018
(Decrease) increase in net assets from operations:
Net investment income	$	15,554		$	18,926
Net realized loss on investments		(26,039	)		(38,452	)
Net change in unrealized appreciation on investments		736			28,159
Net change in unrealized (depreciation) attributable to non-controlling interests		—			(601	)
Benefit (provision) for taxes on unrealized (loss) gain on investments		271			(154	)
Net (decrease) increase in net assets resulting from operations		(9,478	)		7,878
Distributions to stockholders:
Distributions to stockholders from net investment income		(13,399	)		(17,644	)
Total distributions to stockholders		(13,399	)		(17,644	)
Capital share transactions:
Repurchase of common stock		(6,019	)		—
Net decrease in net assets from capital share transactions		(6,019	)		—
Total decrease in net assets		(28,896	)		(9,766	)
Net assets at beginning of period		295,681			344,029
Net assets at end of period	$	266,785		$	334,263
Common shares outstanding at end of period		31,419			32,674
Capital share activity:
Shares repurchased		899			—

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	For the six months ended June 30,
	2019			2018
Cash flows from operating activities:
Net (decrease) increase in net assets resulting from operations	$	(9,478	)	$	7,878
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities:
Net change in unrealized appreciation on investments		(736	)		(27,559	)
Net realized loss on investments		28,594			38,660
Net realized (gain) loss on foreign exchange currency transactions		(2	)		163
Increase in investments due to interest paid-in-kind		(1,340	)		(468	)
Amortization of deferred financing costs		1,030			620
Accretion of discounts on investments and other fees		(666	)		(1,920	)
Changes in operating assets and liabilities:
Purchases of investments		(80,225	)		(36,418	)
Proceeds from sale and paydown of investments		84,564			69,134
(Increase) decrease in interest, dividends and fees receivable		(455	)		121
Decrease in deferred offering costs		—			148
Decrease (increase) in due from affiliates		154			(163	)
(Increase) decrease in deferred tax asset		(130	)		614
Decrease in prepaid expenses and other assets		1,484			228
Increase (decrease) in accrued expenses and other liabilities		835			(295	)
Decrease in accrued credit facility fees and interest		(210	)		(214	)
Decrease in deferred tax liability		(141	)		(503	)
Decrease in base management fees payable, net		(823	)		(223	)
Decrease in accrued incentive fees payable, net		—			(84	)
Net cash provided by operating activities		22,455			49,719
Cash flows from financing activities:
Repurchase of common stock		(6,019	)		—
Borrowings under credit facility		52,700			31,000
Repayments under credit facility		(58,250	)		(54,088	)
Distributions paid to stockholders		(13,399	)		(17,644	)
Financing costs paid		(309	)		(59	)
Net cash (used in) financing activities		(25,277	)		(40,791	)
Net (decrease) increase in cash		(2,822	)		8,928
Cash, beginning of period		6,860			3,617
Cash, end of period	$	4,038		$	12,545
Supplemental Disclosure of Cash Flow Information:
Cash interest paid	$	6,334		$	6,919
Income taxes paid	$	6		$	6
PIK income earned	$	1,407		$	772

Non-cash Operating Activities:

See Note 5 in the notes to consolidated financial statements for non-cash restructurings.

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Schedules of Investments

June 30, 2019

(dollar amounts in thousands)

(unaudited)

Initial

Maturity/

Principal⁽⁵⁾

Acquisition

Dissolution

No. of Shares /

Type of Investment/Portfolio company ^(1)(2)(3)

Industry

Interest Rate⁽⁴⁾

Date

No. of Units

Amortized Cost

Fair Value ⁽⁶⁾

Non-controlled/non-affiliated investments

—106.68% of net asset value

First lien senior secured debt

—92.89% of net asset value

Canada

—7.63% of net asset value

Fairstone Financial Inc. ^(7)(22)

Financial services

9.0% (LIBOR + 7.0%)

3/31/2017

3/31/2023

15,305

15,001

15,458

PDFTron Systems Inc. ⁽⁷⁾

IT services

8.2% (LIBOR + 5.8%)

5/15/2019

5/15/2024

5,000

4,951

4,900

PDFTron Systems Inc. ^(7)(10)(27)

IT services

8.2% (LIBOR + 5.8%)

5/15/2019

5/15/2024

—

(11

)

—

PDFTron Systems Inc. ^(7)(9)(10)

IT services

8.2% (LIBOR + 5.8%)

5/15/2019

5/15/2024

—

)

—

Subtotal Canada

20,305

19,936

20,358

Midwest

—7.50% of net asset value

1-800 Hansons, LLC

Consumer products and services

9.8% (LIBOR + 7.5%) (9.8% Cash + 1.0% PIK)

10/19/2017

10/19/2022

3,755

3,709

3,530

1-800 Hansons, LLC ⁽⁹⁾

Consumer products and services

8.8% (LIBOR + 6.5%)

10/19/2017

10/19/2022

116

112

109

IRC Opco LLC

Healthcare

7.9% (LIBOR + 5.5%)

1/4/2019

1/4/2024

5,427

5,380

5,427

IRC Opco LLC ⁽⁹⁾

Healthcare

7.9% (LIBOR + 5.5%)

1/4/2019

1/4/2024

218

211

218

Matilda Jane Holdings, Inc.

Consumer products and services

10.9% (LIBOR + 8.5%)

4/28/2017

4/28/2022

11,408

11,261

10,723

Subtotal midwest

20,924

20,673

20,007

Northeast

—12.70% of net asset value

Certify, Inc.

IT services

8.2% (LIBOR + 5.8%)

2/28/2019

2/28/2024

1,544

1,522

1,521

Certify, Inc. ⁽²⁸⁾

IT services

8.2% (LIBOR + 5.8%)

2/28/2019

2/28/2024

Certify, Inc. ^{(9) (10)}

IT services

8.2% (LIBOR + 5.8%)

2/28/2019

2/28/2024

—

)

—

DataOnline Corp.

IT services

8.3% (LIBOR + 5.8%)

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-08-08	Earnings, Exhibits
8-K	2019-06-17	Shareholder Vote
8-K	2019-05-09	Earnings, Exhibits
8-K	2019-03-26	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-03-06	Earnings, Exhibits
8-K	2019-01-10	Amend Bylaw, Exhibits
8-K	2018-11-07	Earnings, Exhibits
8-K	2018-11-05	Leave Agreement
8-K	2018-10-05	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2018-08-08	Earnings, Exhibits
8-K	2018-06-07	Shareholder Vote
8-K	2018-04-02	Officers, Exhibits
8-K	2018-03-12	Other Events, Exhibits

HEES	H&E Equipment Services	860
FLY	Fly Leasing	675
FTEO	Fronteo	177
ACV	Alberto-Culver	0
CMFN	CM Finance	0
KCAP	Kcap Financial	0
FDUS	Fidus Investment	0
SLRC	Solar Capital	0
GAIN	Gladstone Investment Corporation	0
HTGC	Hercules Capital	0

EX-31.1	tcrd-ex311_8.htm
EX-31.2	tcrd-ex312_9.htm
EX-32.1	tcrd-ex321_7.htm
EX-32.2	tcrd-ex322_6.htm