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Definitive Additional Materials

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Nik Singhal

Brian Beades

212.810.5427

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•

GAAP Net Investment Income (“NII”) of $0.14 per share providing fourth quarter distribution coverage of 100%.  

•

Net Asset Value (“NAV”) per share decreased 2.5% or $0.16 per share to $6.33 per share on a quarter-over-quarter basis, primarily due to net unrealized depreciation on certain legacy assets.

•

Net leverage of 0.70x was up from 0.61x in comparison to the previous quarter, driven by net new investment deployment. Total liquidity for portfolio company investments, including cash, was approximately $187 million, subject to leverage and borrowing base restrictions.

•

Gross deployments of approximately $304 million included first or second lien loans to 25 new portfolio companies

•

Number of portfolio companies increased from 27 to 47

•

First lien investments increased from 24% of the portfolio by FMV to 34%

•

First and second lien (i.e. secured) investments increased from 47% of the portfolio by FMV to 57%

•

Net Leverage ratio: increased from 0.36x to 0.70x

Q4 2019

Q3 2019

Q4 2018

($'s in millions, except per share data)

Total Amount

Per Share

Total Amount

Per Share

Total Amount

Per Share

Net Investment Income/(loss)

$9.6

$0.14

$9.6

$0.14

$11.8

$0.17

Net realized and unrealized gains/(losses)

$(11.2)

$(0.16)

$(22.3)

$(0.32)

$(46.4)

$(0.66)

Deferred taxes

—

—

—

—

$2.2

$0.03

Basic earnings/(losses)

$(1.6)

$(0.02)

$(12.7)

$(0.18)

$(32.4)

$(0.46)

Distributions declared

$9.6

$0.14

$9.6

$0.14

$12.6

$0.18

Net Investment Income/(loss), as adjusted¹

$9.6

$0.14

$9.6

$0.14

$11.8

$0.17

Basic earnings/(losses), as adjusted¹

$(1.6)

$(0.02)

$(12.7)

$(0.18)

$(32.4)

$(0.46)

2019 Totals

2018 Totals

($'s in millions, except per share data)

Total Amount

Per Share

Total Amount

Per Share

Net Investment Income/(loss)

$41.9

$0.61

$47.4

$0.66

Net realized and unrealized gains/(losses)

$(48.8)

$(0.71)

$(56.6)

$(0.79)

Basic earnings/(losses)

$(6.9)

$(0.10)

$(9.2)

$(0.13)

Distributions declared

$44.1

$0.64

$51.3

$0.72

Net Investment Income/(loss), as adjusted¹

$41.9

$0.61

$47.4

$0.66

Basic earnings/(losses), as adjusted¹

$(6.9)

$(0.10)

$(9.2)

$(0.13)

($'s in millions, except per share data)

As of December 31, 2019

As of September 30, 2019

As of December 31,

2018

Total assets

$774.1

$742.7

$693.6

Investment portfolio, at fair market value

$749.9

$725.9

$671.7

Debt outstanding

$313.6

$276.1

$186.4

Total net assets

$435.6

$446.8

$487.0

Net asset value per share

$6.33

$6.49

$7.07

Net leverage ratio²

0.70x

0.61x

0.36x

•

On October 29, 2019, the Company’s Board of Directors approved the application of the modified asset coverage requirement set forth in Section 61(a)(2) of the Investment Company Act, as amended by the Small Business Credit Availability Act (“SBCAA”). As a result, effective on October 29, 2020 (unless the Company receives earlier stockholder approval), the Company’s asset coverage requirement will be reduced from 200% to 150% (in other words, regulatory cap on maximum leverage would increase from 1.00x to 2.00x). Additionally, the Company intends to seek stockholder approval to reduce the minimum asset coverage ratio of 150%, to become effective the date after the annual meeting of stockholders, to be held on May 1, 2020. If such stockholder approval is obtained, the reduced ratio shall become effective on the day after the annual meeting. Simultaneous with the 150% minimum asset coverage ratio becoming effective, our management fee and incentive fees will be reduced as follow: (i) our management fee will be reduced from 1.75% of our total assets to 1.50% of our total assets, provided that the rate will be further reduced to 1.00% on assets that exceed 200% of our net asset value; (ii) our incentive fee based on net investment income will be reduced from 20% over a 7% hurdle to 17.5% over a 7% hurdle; and (iii) our incentive fee based on net capital gains will be reduced from 20% to 17.5%. The Company expects that it would incrementally increase leverage to a range from 0.95x to 1.25x debt-to-equity. The Company will file a proxy statement relating to its 2020 annual meeting of stockholders within 120 days after December 31, 2019.

•

The non-core legacy asset book comprised 16% of our total portfolio by fair market value as of December 31, 2019, an improvement from 18% at the end of the prior quarter and 33% at the end of the prior year. This includes 13% in income-producing investments, 1% in non-earning equities and 2% in non-accrual investments by fair market value. Our investments in AGY Holding, Sur La Table and Red Apple comprise 61% of the non-core book by fair market value.

•

Under our existing share repurchase program, during the fourth quarter of 2019, no shares were repurchased. Cumulative repurchases since BlackRock entered into the investment management agreement with the Company in early 2015 totals approximately 7.3 million shares for $50.4 million, representing 80.4% of total share repurchase activity, on a dollar basis, since inception.  Since the inception of our share repurchase program through December 31, 2019, we have purchased approximately 9.0 million shares at an average price of $6.94 per share, including brokerage commissions, for a total of $62.7 million. On October 29, 2019, the Company’s Board of Directors renewed the authorization for the Company to purchase up to a total of 5,000,000 shares, effective until the earlier of November 3, 2020 or such time that all of the authorized shares have been repurchased. As of December 31, 2019, 5,000,000 shares remained authorized for repurchase.

($’s in millions)

Three Months

Ended

December 31, 2019

Three Months

Ended

December 31, 2018

Year

Ended

December 31, 2019

Year

Ended

December 31, 2018

Investment deployments

$73.0

$32.0

$303.5

$308.6

Investment exits

$38.1

$94.7

$176.7

$338.4

Number of portfolio company investments at the end of period

47

27

47

27

Weighted average yield of debt and income producing equity securities,

oat fair market value

10.9%

11.5%

10.9%

11.5%

% of Portfolio invested in Secured debt, at fair market value

57%

47%

57%

47%

% of Portfolio invested in Unsecured debt, at fair market value

22%

23%

22%

23%

% of Portfolio invested in Equity, at fair market value

21%

30%

21%

30%

Average investment by portfolio company, at amortized cost

(excluding investments below $5.0 million)

$21.9

$34.1

$21.9

$34.1

•

We deployed $73.0 million during the quarter while exits of investments totaled $38.1 million, resulting in a $34.9 million net increase in our portfolio due to investment activity.  

▪

Our deployments consisted of five new portfolio companies and four investments into existing portfolio companies, which primarily consisted of the following:

▪

$11.9 million funded L + 9.00% second lien term loan to Cambrex Corporation, a pharmaceutical contract development and manufacturing organization;

▪

$9.1 million funded L + 7.75% first lien term loan to Barri Financial Group, LLC, a consumer finance company primarily serving the Hispanic community;

▪

$7.5 million funded L + 7.50% first lien term loan to One Sky Flight, LLC, a private aviation company;

▪

$2.4 million funded L + 8.00% first lien term loan to Marketlive, LLC et al., a provider of cloud commerce solutions; and

▪

$1.6 million funded L + 6.50% first lien term loan (with two unfunded delayed draw term loans of $0.5 million and $0.4 million, respectively) to Kellermeyer Bergensons Services, LLC, a professional janitorial services company;

▪

$36.4 million of incremental L + 11.00% unsecured debt to Gordon Brothers Finance Company (“GBFC unsecured debt”) to fund portfolio growth.

▪

Our repayments were primarily concentrated in one portfolio company exit, three partial repayments, and a partial redemption of one of our non-core legacy positions:

▪

$6.4 million repayment of Construction Supply Acquisition LLC, first lien term loan;

▪

$16.9 million partial repayment of GBFC unsecured debt;

▪

$4.3 million partial repayment of Juul Labs, Inc., first lien term loan;

▪

$4.1 million partial repayment of First Boston Construction Holdings, LLC, which consisted of $3.3 million in subordinated debt and $0.8 million in LLC units; and

▪

$1.6 million partial redemption of our preferred stock investment in Advantage Insurance Inc, a non-core legacy position.

•

Our $96.3 million equity investment in BCIC Senior Loan Partners (“SLP”) generated a yield of greater than 11% in 2019. Total committed capital and outstanding investments, at par, amounted to $271.2 million and $268.6 million, respectively, to 22 borrowers. During the fourth quarter, SLP’s exits and repayments were approximately $22.3 million, which primarily consisted of exits to our investments in NSM Sub Holdings Corp. and F.M.I. Intermediate Holdings, LLC, and one partial repayment from AP Exhaust Acquisition, LLC.

•

As of December 31, 2019, there were four non-accrual investment positions, representing approximately 2.4% and 6.9% of total debt and preferred stock investments, at fair value and cost, respectively, as compared to non-accrual investment positions of approximately 1.6% and 7.1% of total debt and preferred stock investments at fair value and cost, respectively, at December 31, 2018. Our average internal investment rating at fair market value at December 31, 2019 was 1.39 as compared to 1.38 as of the prior quarter end.

•

During the quarter ended December 31, 2019, net realized and unrealized losses were $11.2 million, primarily due to depreciation in portfolio valuations during the quarter.

•

NII was $9.6 million, or $0.14 per share, for the three months ended December 31, 2019.  Relative to distributions declared of $0.14 per share, our NII distribution coverage was 100% for the quarter.

•

For the quarter ended December 31, 2019, we incurred base management fees of $3.3 million, and incentive management fees based on income of $2.1 million, of which our advisor has voluntarily and partially waived incentive fees of $1.1 million, resulting in net incentive fees of $1.0 million for the period. The payment of the $1.0 million net incentive fees based on income was deferred pursuant to our investment management agreement. Including this voluntary partial waiver, $23.4 million of incentive management fees have been waived on a cumulative basis since March 2017. For incentive management fees based on gains, there was no accrual or payment as of December 31, 2019.

•

Tax characteristics of all 2019 distributions were reported to stockholders on Form 1099 after the end of the calendar year.  Our 2019 distributions of $0.64 per share were comprised of $0.63 per share from various sources of income and $0.01 per share of return of capital.  Our return of capital distributions totaled $1.99 per share from inception to December 31, 2019.  At our discretion, we may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income.  We will accrue excise tax on estimated undistributed taxable income as required. There was no undistributed taxable income carried forward from 2019.

•

At December 31, 2019, we had $14.7 million in cash and cash equivalents and $172.6 million of availability under our credit facility, subject to leverage restrictions, resulting in approximately $187.3 million of availability for portfolio company investments.

•

Net leverage, adjusted for available cash, receivables for investments sold, payables for investments purchased and unamortized debt issuance costs, was 0.70x at quarter-end, and our 235% asset coverage ratio provided the Company with available debt capacity under its asset coverage requirements of $112.1 million.  Further, as of quarter-end, approximately 80% of our assets were invested in qualifying assets, exceeding the 70% regulatory requirement of a business development company.

December 31,

2019

December 31,

2018

Assets

Investments at fair value:

Non-controlled, non-affiliated investments (cost of $389,156,775 and $233,331,450)

$377,136,394

$200,569,644

Non-controlled, affiliated investments (cost of $65,825,475 and $130,892,674)

22,473,524

111,727,234

Controlled investments (cost of $400,561,551 and $388,870,375)

350,249,163

359,356,068

Total investments at fair value (cost of $855,543,801 and $753,094,499)

749,859,081

671,652,946

Cash and cash equivalents

14,678,878

13,497,320

Receivable for investments sold

1,871,435

1,691,077

Interest, dividends and fees receivable

5,708,324

4,084,001

Prepaid expenses and other assets

1,945,709

2,707,036

Total Assets

$774,063,427

$693,632,380

Liabilities

Debt (net of deferred financing costs of $2,298,004 and $3,227,965)

$313,569,694

$186,397,728

Interest and credit facility fees payable

757,472

722,841

Distributions payable

9,637,075

12,552,212

Base management fees payable

3,251,194

3,494,520

Incentive management fees payable

1,849,597

—

Payable for investments purchased

7,312,500

989,460

Accrued administrative services

372,407

376,507

Other accrued expenses and payables

1,704,507

2,078,958

Total Liabilities

338,454,446

206,612,226

Net Assets

Common stock, par value $.001 per share, 200,000,000 common shares authorized, 77,861,287 and 77,861,287 issued and 68,836,255 and 68,921,798 outstanding

77,861

77,861

Paid-in capital in excess of par

849,240,398

853,248,794

Distributable earnings (losses)

(351,040,023)

(304,106,473)

Treasury stock at cost, 9,025,032 and 8,939,489 shares held

(62,669,255)

(62,200,028)

Total Net Assets

435,608,981

487,020,154

Total Liabilities and Net Assets

$774,063,427

$693,632,380

Net Asset Value Per Share

$6.33

$7.07

Three Months Ended

December 31, 2019 (Unaudited)

Three Months Ended

December 31, 2018 (Unaudited)

Year

Ended

December 31, 2019

Year

Ended

December 31, 2018

Investment Income:

Non-controlled, non-affiliated investments:

Cash interest income

$8,370,290

$6,458,180

$29,292,857

$28,138,255

PIK interest income

1,226,151

231,517

2,085,016

516,904

Fee income

89,829

366,042

1,444,113

1,428,852

Total investment income from non-controlled, non-affiliated investments

9,686,270

7,055,739

32,821,986

30,084,011

Non-controlled, affiliated investments:

Cash interest income

128,895

1,937,189

3,493,487

9,401,715

PIK interest income

116,575

374,151

245,197

1,784,118

PIK dividend income

—

254,555

220,480

827,934

Fee income

1,451

—

3,055

35,000

Total investment income from non-controlled, affiliated investments

246,921

2,565,895

3,962,219

12,048,767

Controlled investments:

Cash interest income

5,105,807

7,064,876

22,832,830

24,490,257

PIK interest income

759,254

—

2,776,671

1,474,466

Cash dividend income

3,389,999

3,968,845

15,562,959

14,264,703

PIK dividend income

—

—

—

731,516

Fee income

3,186

13,855

131,485

725,643

Total investment income from controlled investments

9,258,246

11,047,576

41,303,945

41,686,585

Other income

—

48,231

30,371

48,231

Total investment income

19,191,437

20,717,441

78,118,521

83,867,594

Expenses:

Base management fees

3,251,193

3,494,520

12,425,101

14,138,788

Incentive management fees

2,122,796

2,356,899

8,751,521

8,510,866

Interest and credit facility fees

4,091,942

3,786,153

15,558,648

15,228,062

Professional fees

309,728

864,500

2,093,064

2,428,850

Administrative services

372,407

376,507

1,403,419

1,702,723

Director fees

176,500

181,000

729,750

727,000

Investment advisor expenses

87,500

87,500

350,000

350,000

Other

288,190

142,768

1,800,932

1,860,696

Total expenses, before incentive management fee waiver

10,700,256

11,289,847

43,112,435

44,946,985

Incentive management fee waiver

(1,145,894)

(2,356,899)

(6,901,924)

(8,510,866)

Expenses, net of incentive management fee waiver

9,554,362

8,932,948

36,210,511

36,436,119

Net Investment Income

9,637,075

11,784,493

41,908,010

47,431,475

Realized and Unrealized Gain (Loss):

Net realized gain (loss):

Non-controlled, non-affiliated investments

(264,342)

3,237

(23,660,181)

(46,104,588)

Non-controlled, affiliated investments

(879,673)

28,550,295

(1,225,060)

28,550,295

Controlled investments

—

375,000

—

(28,384,662)

Net realized gain (loss)

(1,144,015)

28,928,532

(24,885,241)

(45,938,955)

Net change in unrealized appreciation (depreciation) on:

Non-controlled, non-affiliated investments

953,491

(6,923,226)

21,084,787

17,493,755

Non-controlled, affiliated investments

(1,733,802)

(52,063,236)

(24,529,889)

(35,110,643)

Controlled investments

(9,423,322)

(16,012,774)

(20,798,389)

7,527,453

Foreign currency translation

136,690

(356,834)

333,982

(565,247)

Net change in unrealized appreciation (depreciation)

(10,066,943)

(75,356,070)

(23,909,509)

(10,654,682)

   Deferred Taxes

—

2,220,156

—

—

Net realized and unrealized gain (loss)

(11,210,958)

(44,207,382)

(48,794,750)

(56,593,637)

Net Increase (Decrease) in Net Assets Resulting from Operations

$(1,573,883)

$(32,422,889)

$(6,886,740)

$(9,162,162)

Net Investment Income Per Share—basic

$0.14

$0.17

$0.61

$0.66

Earnings (Loss) Per Share—basic

$(0.02)

$(0.46)

$(0.10)

$(0.13)

Average Shares Outstanding—basic

68,836,255

69,835,855

68,836,590

71,373,570

Net Investment Income Per Share—diluted

$0.14

$0.16

$0.59

$0.64

Earnings (Loss) Per Share—diluted

$(0.02)

$(0.46)

$(0.10)

$(0.13)

Average Shares Outstanding—diluted

85,829,992

86,829,592

85,830,326

88,367,307

Distributions Declared Per Share

$0.14

$0.18

$0.64

$0.72

Three Months

Ended

December 31, 2019

Three Months

Ended

December 31, 2018

Year Ended

December 31, 2019

Year Ended

December 31, 2018

GAAP Basis:

Net Investment Income

$9,637,075

$11,784,493

$41,908,010

$47,431,475

Net Investment Income per share

0.14

0.17

0.61

0.66

Addback: GAAP incentive management fee expense based on Gains

—

—

—

—

Addback: GAAP incentive management fee expense based on Income net of incentive management fee waiver

$976,902

—

$1,849,597

—

Pre-Incentive Fee¹:

Net Investment Income

$10,613,977

$11,784,493

$43,757,607

$47,431,475

Net Investment Income per share

0.15

0.17

0.64

0.66

Less: Incremental incentive management fee expense based on Income net of incentive management fee waiver

$(976,902)

—

$(1,849,597)

—

As Adjusted²:

Net Investment Income

$9,637,075

$11,784,493

$41,908,010

$47,431,475

Net Investment Income per share

0.14

0.17

0.61

0.66