THL Credit Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow

10-Q 1 tcrd-10q_20200930.htm 10-Q Q3 2020 tcrd-10q_20200930.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 September 30, 2020

☐	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

FIRST EAGLE ALTERNATIVE CAPITAL BDC, 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.)

500 Boylston St., Suite 1200, Boston, MA		02116
(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	FCRD	NASDAQ Global Select Market
6.75% Senior Notes due 2022	FCRZ	The New York Stock Exchange
6.125% Senior Notes due 2023	FCRW	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	☒	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 November 4, 2020 was 30,109,384.

FIRST EAGLE ALTERNATIVE CAPITAL BDC, INC.

FORM 10-Q FOR THE QUARTER ENDED September 30, 2020

Table of Contents

	INDEX	PAGE NO.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Assets and Liabilities as of September 30, 2020 (unaudited) and December 31, 2019	4

	Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited)	5

	Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2020 and 2019 (unaudited)	6

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)	7

	Consolidated Schedules of Investments as of September 30, 2020 (unaudited) and December 31, 2019	8

	Notes to Consolidated Financial Statements (unaudited)	24

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	67

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	101

Item 4.	Controls and Procedures	102

PART II.	OTHER INFORMATION	103

Item 1.	Legal Proceedings	103

Item 1A.	Risk Factors	103

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	104

Item 3.	Defaults Upon Senior Securities	104

Item 4.	Mine Safety Disclosures	104

Item 5.	Other Information	104

Item 6.	Exhibits	105

SIGNATURES		106

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 First Eagle Alternative Credit, 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;

•

the impact of pandemics or other serious public health epidemics, such as the current novel coronavirus ("COVID-19") pandemic on our operations, our portfolio companies' business, or the global economy;

•

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.

First Eagle Alternative Capital BDC, Inc. and Subsidiaries

Consolidated Statements of Assets and Liabilities

(in thousands, except per share data)

	September 30, 2020 (unaudited)			December 31, 2019
Assets:
Investments at fair value:
Non-controlled, non-affiliated investments (cost of $239,803 and $263,444, respectively)	$	226,667		$	242,189
Controlled investments (cost of $160,446 and $178,769, respectively)		116,695			141,932
Non-controlled, affiliated investments (cost of $2 and $2, respectively)		2			4
Cash		10,536			5,890
Escrows and other receivables		4,745			12,353
Interest, dividends, and fees receivable		3,860			4,623
Deferred tax assets		2,063			2,267
Deferred financing costs		1,009			1,619
Prepaid expenses and other assets		808			829
Due from affiliate		223			192
Total assets	$	366,608		$	411,898
Liabilities:
Loans payable	$	64,661		$	66,161
Notes payable ($111,607 and $111,607 face amounts, respectively, reported net of deferred financing costs of $2,136 and $2,742, respectively)		109,471			108,866
Accrued expenses and other liabilities		2,538			3,434
Deferred tax liability		1,532			1,927
Base management fees payable		—			1,103
Accrued incentive fees		156			568
Accrued interest and fees		158			384
Total liabilities		178,516			182,443
Commitments and contingencies (Note 8)
Net Assets:
Common stock, par value $.001 per share, 100,000 common shares authorized, 30,109 and 30,022 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		30			30
Paid-in capital in excess of par		423,739			415,596
Accumulated deficit		(235,677	)		(186,171	)
Total net assets	$	188,092		$	229,455
Total liabilities and net assets	$	366,608		$	411,898
Net asset value per share	$	6.25		$	7.64

See accompanying notes to these consolidated financial statements.

First Eagle Alternative Capital BDC, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	For the three months ended September 30,						For the nine months ended September 30,
	2020			2019			2020			2019
Investment Income:
From non-controlled, non-affiliated investments:
Cash interest income	$	4,217		$	6,935		$	13,298		$	23,162
PIK interest income		338			329			806			676
Other income		102			276			224			2,475
From non-controlled, affiliated investments:
Cash interest income		—			—			—			57
Other income		48			101			189			493
From controlled investments:
Cash interest income		2			1,120			(247	)		3,550
PIK interest income		—			381			—			730
Dividend income		2,579			3,610			7,873			11,087
Other income		43			41			113			116
Total investment income		7,329			12,793			22,256			42,346
Expenses:
Interest and fees on borrowings		2,439			3,047			7,687			9,688
Base management fees		895			1,215			2,795			4,940
Incentive fees		—			—			(411	)		—
Administrator expenses		268			373			882			1,215
Other general and administrative expenses		598			375			1,323			1,107
Amortization of deferred financing costs		319			340			1,516			1,370
Professional fees		347			281			1,171			1,230
Directors' fees		191			169			543			533
Total expenses		5,057			5,800			15,506			20,083
Management fee waiver		(895	)		—			(895	)		(525	)
Total expenses, net of management fee waivers		4,162			5,800			14,611			19,558
Excise and other taxes		(15	)		121			71			359
Net investment income		3,182			6,872			7,574			22,429
Realized (Loss) Gain and Change in Unrealized Appreciation (Depreciation) on Investments:
Net realized (loss) gain on investments:
Non-controlled, non-affiliated investments		(84	)		280			(25,589	)		(26,203	)
Non-controlled, affiliated investments		(19	)		(24,652	)		(2,493	)		(24,652	)
Controlled investments		(17,387	)		16,701			(17,650	)		17,143
Foreign currency transactions		—			(191	)		—			(189	)
Net realized loss on investments		(17,490	)		(7,862	)		(45,732	)		(33,901	)
Net change in unrealized appreciation (depreciation) on investments:
Non-controlled, non-affiliated investments		6,375			(4,972	)		8,119			2,935
Non-controlled, affiliated investments		—			24,652			(2	)		12,752
Controlled investments		23,017			(18,694	)		(6,914	)		(13,323	)
Translation of assets and liabilities in foreign currencies		—			251			—			(391	)
Net change in unrealized appreciation on investments		29,392			1,237			1,203			1,973
Net realized and unrealized gain (loss) from investments		11,902			(6,625	)		(44,529	)		(31,928	)
Benefit for taxes on unrealized loss on investments		165			64			192			335
Net increase (decrease) in net assets resulting from operations	$	15,249		$	311		$	(36,763	)	$	(9,164	)
Net investment income per common share:
Basic and diluted	$	0.10		$	0.22		$	0.24		$	0.71
Net increase (decrease) in net assets resulting from operations per common share:
Basic and diluted	$	0.49		$	0.01		$	(1.16	)	$	(0.29	)
Weighted average shares of common stock outstanding:
Basic and diluted		31,237			30,992			31,785			31,679

See accompanying notes to these consolidated financial statements.

First Eagle Alternative Capital BDC, Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets

(in thousands)

(unaudited)

	2020			2019
Net assets at January 1,	$	229,455		$	295,681
Decrease in net assets from operations:
Net investment income		2,661			6,704
Net realized loss on investments		(1,614	)		(1,972	)
Net change in unrealized depreciation on investments		(67,673	)		(4,645	)
Benefit for taxes on unrealized loss on investments		470			107
Net (decrease) increase in net assets resulting from operations		(66,156	)		194
Distributions to stockholders:
Distributions to stockholders from net investment income		(6,233	)		(6,768	)
Total distributions to stockholders		(6,233	)		(6,768	)
Capital share transactions:
Repurchase of common stock		(2,161	)		(1,323	)
Net decrease in net assets from capital share transactions		(2,161	)		(1,323	)
Total decrease in net assets		(74,550	)		(7,897	)
Net assets at March 31,	$	154,905		$	287,784
Increase (decrease) in net assets from operations:
Net investment income		1,731			8,851
Net realized loss on investments		(26,628	)		(24,067	)
Net change in unrealized appreciation on investments		39,483			5,382
(Provision) benefit for taxes on unrealized loss on investments		(443	)		164
Net increase (decrease) in net assets resulting from operations		14,143			(9,670	)
Distributions to stockholders:
Distributions to stockholders from net investment income		(3,530	)		(6,633	)
Total distributions to stockholders		(3,530	)		(6,633	)
Capital share transactions:
Issuance of common stock		30,000			—
Repurchase of common stock		—			(4,696	)
Net increase (decrease) in net assets from capital share transactions		30,000			(4,696	)
Total increase (decrease) in net assets		40,613			(20,999	)
Net assets at June 30,	$	195,518		$	266,785
Increase in net assets from operations:
Net investment income		3,182			6,872
Net realized loss on investments		(17,490	)		(7,862	)
Net change in unrealized appreciation on investments		29,392			1,237
Benefit for taxes on unrealized loss on investments		165			64
Net increase in net assets resulting from operations		15,249			311
Distributions to stockholders:
Distributions to stockholders from net investment income		(3,011	)		(6,453	)
Total distributions to stockholders		(3,011	)		(6,453	)
Capital share transactions:
Repurchase of common stock		—			(5,571	)
Purchase of common stock in tender offer		(19,664	)		—
Net decrease in net assets from capital share transactions	$	(19,664	)	$	(5,571	)
Total decrease in net assets	$	(7,426	)	$	(11,713	)
Net assets at September 30,	$	188,092		$	255,072
Common shares outstanding at end of period		30,109			30,587
Capital share activity:
Shares issued		5,618			—
Shares repurchased		341			1,730
Shares purchased in tender offer		5,189			—

See accompanying notes to these consolidated financial statements.

First Eagle Alternative Capital BDC, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	For the nine months ended September 30,
	2020			2019
Cash flows from operating activities:
Net decrease in net assets resulting from operations	$	(36,763	)	$	(9,164	)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by operating activities:
Net change in unrealized appreciation on investments		(1,203	)		(1,973	)
Net realized loss on investments		44,339			42,818
Net realized gain on foreign exchange currency transactions		—			189
Increase in investments due to interest paid-in-kind		(699	)		(2,049	)
Amortization of deferred financing costs		1,516			1,370
Accretion of discounts on investments and other fees		(505	)		(918	)
Changes in operating assets and liabilities:
Purchases of investments		(50,319	)		(99,368	)
Proceeds from sales and paydowns of investments		54,480			151,906
Decrease in interest, dividends and fees receivable		763			610
Decrease (increase) in escrow and other receivables

10-Q	2020-09-30	Filed 2020-11-04
10-Q	2020-06-30	Filed 2020-08-06
10-Q	2020-03-31	Filed 2020-05-07
10-K	2019-12-31	Filed 2020-03-05
10-Q	2019-09-30	Filed 2019-11-04
10-Q	2019-06-30	Filed 2019-08-08
10-Q	2019-03-31	Filed 2019-05-09
10-K	2018-12-31	Filed 2019-03-06
10-Q	2018-09-30	Filed 2018-11-07
10-Q	2018-06-30	Filed 2018-08-08
10-Q	2018-03-31	Filed 2018-05-02
10-K	2017-12-31	Filed 2018-03-06
10-Q	2017-09-30	Filed 2017-11-09
10-Q	2017-06-30	Filed 2017-08-03
10-Q	2017-03-31	Filed 2017-05-04
10-K	2016-12-31	Filed 2017-03-09
10-Q	2016-09-30	Filed 2016-11-09
10-Q	2016-06-30	Filed 2016-08-04
10-Q	2016-03-31	Filed 2016-05-05
10-K	2015-12-31	Filed 2016-03-10
10-Q	2015-09-30	Filed 2015-11-05
10-Q	2015-06-30	Filed 2015-08-06
10-Q	2015-03-31	Filed 2015-05-11
10-K	2014-12-31	Filed 2015-03-10
10-Q	2014-09-30	Filed 2014-11-06
10-Q	2014-06-30	Filed 2014-08-11
10-Q	2014-03-31	Filed 2014-05-12
10-K	2013-12-31	Filed 2014-03-07
10-Q	2013-09-30	Filed 2013-11-04
10-Q	2013-06-30	Filed 2013-08-06
10-Q	2013-03-31	Filed 2013-05-06
10-K	2012-12-31	Filed 2013-03-04
10-Q	2012-09-30	Filed 2012-11-06
10-Q	2012-06-30	Filed 2012-07-30
10-Q	2012-03-31	Filed 2012-05-03
10-K	2011-12-31	Filed 2012-03-08
10-Q	2011-09-30	Filed 2011-11-01
10-Q	2011-06-30	Filed 2011-08-01
10-Q	2011-03-31	Filed 2011-05-09
10-K	2010-12-31	Filed 2011-03-14
10-Q	2010-09-30	Filed 2010-11-09
10-Q	2010-06-30	Filed 2010-08-09

8-K	2020-11-04
8-K	2020-10-20
8-K	2020-08-03
8-K	2020-07-23
8-K	2020-06-23
8-K	2020-06-22
8-K	2020-05-28
8-K	2020-05-07
8-K	2020-04-20
8-K	2020-04-17
8-K	2020-04-17
8-K	2020-04-15
8-K	2020-03-13
8-K	2020-03-05
8-K	2020-01-31
8-K	2019-12-17
8-K	2019-12-08
8-K	2019-11-04
8-K	2019-08-08
8-K	2019-06-17
8-K	2019-05-09
8-K	2019-03-26
8-K	2019-03-06
8-K	2019-01-10
8-K	2018-11-07
8-K	2018-11-05
8-K	2018-10-05
8-K	2018-08-08
8-K	2018-06-07
8-K	2018-05-02
8-K	2018-04-02
8-K	2018-03-12
8-K	2018-03-06

EX-31.1	tcrd-ex311_7.htm
EX-31.2	tcrd-ex312_6.htm
EX-31.3	tcrd-ex313_106.htm
EX-32.1	tcrd-ex321_8.htm
EX-32.2	tcrd-ex322_9.htm
EX-32.3	tcrd-ex323_107.htm

TCRD 10Q Quarterly Report

THL Credit Earnings 2020-09-30