THL Credit Earnings 2019-09-30

TCRD 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 tcrd-10q_20190930.htm Q3 10-Q tcrd-10q_20190930.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, 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	☐	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 1, 2019 was 30,285,669.

THL CREDIT, INC.

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

Table of Contents

	INDEX	PAGE NO.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

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

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

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

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

	Consolidated Schedules of Investments as of September 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	68

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	99

Item 4.	Controls and Procedures	99

PART II.	OTHER INFORMATION	100

Item 1.	Legal Proceedings	100

Item 1A.	Risk Factors	100

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	100

Item 3.	Defaults Upon Senior Securities	100

Item 4.	Mine Safety Disclosures	100

Item 5.	Other Information	100

Item 6.	Exhibits	101

SIGNATURES		102

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)

	September 30, 2019			December 31, 2018
Assets:
Investments at fair value:
Non-controlled, non-affiliated investments (cost of $276,994 and $333,023, respectively)	$	260,282		$	313,377
Controlled investments (cost of $170,169 and $181,325, respectively)		143,256			167,733
Non-controlled, affiliated investments (cost of $2 and $25,292, respectively)		4			12,543
Cash		14,278			6,860
Escrows and other receivables		12,181			7,306
Interest, dividends, and fees receivable		4,870			5,480
Deferred tax assets		2,255			2,056
Deferred financing costs		1,756			2,314
Prepaid expenses and other assets		368			198
Distributions receivable		311			207
Due from affiliate		276			377
Deferred offering costs		200			—
Total assets	$	440,037		$	518,451
Liabilities:
Loans payable	$	69,161		$	107,657
Notes payable ($111,607 and $111,607 face amounts, respectively, reported net of deferred financing costs of $2,938 and $3,541, respectively)		108,669			108,067
Accrued expenses and other liabilities		3,090			1,652
Deferred tax liability		1,834			1,972
Base management fees payable		1,215			2,112
Accrued incentive fees		677			677
Accrued interest and fees		319			633
Total liabilities		184,965			222,770
Commitments and contingencies (Note 8)
Net Assets:
Common stock, par value $.001 per share, 100,000 common shares authorized, 30,587 and 32,318 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		31			32
Paid-in capital in excess of par		419,526			431,361
Accumulated deficit		(164,485	)		(135,712	)
Total net assets	$	255,072		$	295,681
Total liabilities and net assets	$	440,037		$	518,451
Net asset value per share attributable to THL Credit, Inc.	$	8.34		$	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 September 30,						For the nine months ended September 30,
	2019			2018			2019			2018
Investment Income:
From non-controlled, non-affiliated investments:
Interest income	$	7,264		$	10,034		$	23,838		$	35,019
Dividend income		—			—			—			17
Other income		276			165			2,475			716
From non-controlled, affiliated investments:
Interest income		—			835			57			1,444
Other income		101			248			493			791
From controlled investments:
Interest income		1,501			1,358			4,280			4,125
Dividend income		3,610			3,334			11,087			8,774
Other income		41			104			116			236
Total investment income		12,793			16,078			42,346			51,122
Expenses:
Interest and fees on borrowings		3,047			3,470			9,688			10,827
Base management fees		1,215			2,240			4,940			6,893
Incentive fees		—			1,658			—			1,649
Administrator expenses		373			512			1,215			1,640
Other general and administrative expenses		375			379			1,107			1,373
Amortization of deferred financing costs		340			317			1,370			937
Professional fees		281			413			1,230			1,124
Directors' fees		169			169			533			566
Total expenses		5,800			9,158			20,083			25,009
Incentive fee waiver		—			(1,658	)		—			(1,658	)
Management fee waiver		—			—			(525	)		—
Total expenses, net of fee waivers		5,800			7,500			19,558			23,351
Income tax provision, excise and other taxes		121			5			359			272
Net investment income		6,872			8,573			22,429			27,499
Realized (Loss) Gain and Change in Unrealized Appreciation (Depreciation) on Investments:
Net realized (loss) gain on investments:
Non-controlled, non-affiliated investments		280			(184	)		(26,203	)		(38,777	)
Non-controlled, affiliated investments		(24,652	)		—			(24,652	)		—
Controlled investments		16,701			(102	)		17,143			241
Foreign currency transactions		(191	)		2			(189	)		(202	)
Net realized loss on investments		(7,862	)		(284	)		(33,901	)		(38,738	)
Net change in unrealized appreciation (depreciation) on investments:
Non-controlled, non-affiliated investments		(4,972	)		(244	)		2,935			26,669
Non-controlled, affiliated investments		24,652			(2,478	)		12,752			619
Controlled investments		(18,694	)		(359	)		(13,323	)		(3,403	)
Translation of assets and liabilities in foreign currencies		251			(261	)		(391	)		933
Net change in unrealized appreciation (depreciation) on investments		1,237			(3,342	)		1,973			24,818
Net change in unrealized (depreciation) attributable to non-controlling interests		—			(102	)		—			(703	)
Net realized and unrealized loss from investments		(6,625	)		(3,728	)		(31,928	)		(14,623	)
Benefit (provision) for taxes on unrealized gain/loss on investments		64			(192	)		335			(346	)
Net increase (decrease) in net assets resulting from operations	$	311		$	4,653		$	(9,164	)	$	12,530
Net investment income per common share:
Basic and diluted	$	0.22		$	0.26		$	0.71		$	0.84
Net increase (decrease) in net assets resulting from operations per common share:
Basic and diluted	$	0.01		$	0.14		$	(0.29	)	$	0.38
Weighted average shares of common stock outstanding:
Basic and diluted		30,992			32,674			31,679			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 nine months ended September 30,
	2019			2018
(Decrease) increase in net assets from operations:
Net investment income	$	22,429		$	27,499
Net realized loss on investments		(33,901	)		(38,738	)
Net change in unrealized appreciation on investments		1,973			24,818
Net change in unrealized (depreciation) attributable to non-controlling interests		—			(703	)
Benefit (provision) for taxes on unrealized gain (loss) on investments		335			(346	)
Net (decrease) increase in net assets resulting from operations		(9,164	)		12,530
Distributions to stockholders:
Distributions to stockholders from net investment income		(19,855	)		(26,466	)
Total distributions to stockholders		(19,855	)		(26,466	)
Capital share transactions:
Repurchase of common stock		(11,590	)		—
Net decrease in net assets from capital share transactions		(11,590	)		—
Total decrease in net assets		(40,609	)		(13,936	)
Net assets at beginning of period		295,681			344,029
Net assets at end of period	$	255,072		$	330,093
Common shares outstanding at end of period		30,587			32,674
Capital share activity:
Shares repurchased		1,730			—

See accompanying notes to these consolidated financial statements.

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	For the nine months ended September 30,
	2019			2018
Cash flows from operating activities:
Net (decrease) increase in net assets resulting from operations	$	(9,164	)	$	12,530
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Net change in unrealized appreciation on investments		(1,973	)		(24,115	)
Net realized loss on investments		42,818			37,215
Net realized loss on foreign exchange currency transactions		189			161
Increase in investments due to interest paid-in-kind		(2,049	)		(1,524	)
Amortization of deferred financing costs		1,370			937
Accretion of discounts on investments and other fees		(918	)		(2,590	)
Changes in operating assets and liabilities:
Purchases of investments		(99,368	)		(56,708	)
Proceeds from sale and paydown of investments		151,906			115,075
Decrease in interest, dividends and fees receivable		610			829
(Increase) decrease in deferred offering costs		(196	)		148
(Increase) decrease in escrow and other receivables		(4,875	)		1,746
Decrease in due from affiliates		101			29
(Increase) decrease in deferred tax asset		(199	)		605
(Increase) decrease in prepaid expenses and other assets		(182	)		233
Increase (decrease) in accrued expenses and other liabilities		1,570			(473	)
Decrease in accrued credit facility fees and interest		(314	)		(176	)
Decrease in deferred tax liability		(138	)		(301	)
Decrease in base management fees payable, net		(897	)		(316	)
Decrease in other deferred liabilities		—			(41	)
Decrease in accrued incentive fees payable, net		—			(116	)
Net cash provided by operating activities		78,291			83,148
Cash flows from financing activities:
Repurchase of common stock		(11,590	)		—
Borrowings under credit facility		78,450			69,500
Repayments under credit facility		(117,529	)		(123,088	)
Distributions paid to stockholders		(19,855	)		(26,466	)
Financing and offering costs paid		(349	)		(152	)
Net cash (used in) financing activities		(70,873	)		(80,206	)
Net increase in cash		7,418			2,942
Cash, beginning of period		6,860			3,617
Cash, end of period	$	14,278		$	6,559
Supplemental Disclosure of Cash Flow Information:
Cash interest paid	$	9,312		$	10,138
Income taxes paid	$	6		$	20
PIK income earned	$	1,925		$	1,821

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

September 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

—102.04% of net asset value

First lien senior secured debt

—87.33% of net asset value

Canada

—1.92% of net asset value

PDFTron Systems Inc. ⁽⁷⁾

IT services

7.8% (LIBOR + 5.8%)

5/15/2019

5/15/2024

5,000

4,954

4,903

PDFTron Systems Inc. ^(7)(10)(25)

IT services

7.8% (LIBOR + 5.8%)

5/15/2019

5/15/2024

—

(10

)

—

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

IT services

7.8% (LIBOR + 5.8%)

5/15/2019

5/15/2024

—

)

—

Subtotal Canada

5,000

4,939

4,903

Midwest

—7.59% of net asset value

1-800 Hansons, LLC

Consumer products and services

9.6% (LIBOR + 7.5%) (8.6% Cash + 1.0% PIK)

10/19/2017

10/19/2022

3,755

3,713

3,530

1-800 Hansons, LLC ^(9)(10)

Consumer products and services

8.6% (LIBOR + 6.5%)

10/19/2017

10/19/2022

—

)

—

IRC Opco LLC

Healthcare

7.3% (LIBOR + 5.3%)

1/4/2019

1/4/2024

5,414

5,369

5,414

IRC Opco LLC ⁽⁹⁾

Healthcare

7.5% (LIBOR + 5.3%)

1/4/2019

1/4/2024

Matilda Jane Holdings, Inc.

Consumer products and services

10.6% (LIBOR + 8.5%)

4/28/2017

4/28/2022

11,427

11,292

10,399

Subtotal midwest

20,623

20,392

19,370

Northeast

—17.21% of net asset value

Certify, Inc.

IT services

7.8% (LIBOR + 5.8%)

2/28/2019

2/28/2024

1,544

1,523

1,521

Certify, Inc. ⁽²⁶⁾

IT services

7.8% (LIBOR + 5.8%)

2/28/2019

2/28/2024

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

IT services

7.8% (LIBOR + 5.8%)

2/28/2019

2/28/2024

—

)

—

Communication Technology Intermediate ⁽⁷⁾

Business services

8.1% (LIBOR + 6.0%)

8/26/2019

8/26/2024

8,113

7,953

Communication Technology Intermediate ⁽⁷⁾⁽⁹⁾⁽¹⁰⁾

Business services

8.1% (LIBOR + 6.0%)

10-Q	2019-09-30	Quarter: 2019-09-30
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	2019-11-04	Earnings, Exhibits
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

FTAI	Fortress Transportation & Infrastructure Investors	1,259
HEES	H&E Equipment Services	860
INB	Integrated Biopharma	263
FTEO	Fronteo	177
IFRX	Inflarx	72
GAIN	Gladstone Investment Corporation	0
SAF	Safeco	0
SCA	Syncora Holdings	0
GSVC	GSV Capital	0
NSS	NS Group	0

EX-31.1	tcrd-ex311_9.htm
EX-31.2	tcrd-ex312_6.htm
EX-32.1	tcrd-ex321_8.htm
EX-32.2	tcrd-ex322_7.htm