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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Solar Senior Capital Ltd.    SUNS

SOLAR SENIOR CAPITAL LTD.

(SUNS)
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SOLAR SENIOR CAPITAL : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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11/04/2019 | 04:27pm EST
The information contained in this section should be read in conjunction with our
consolidated financial statements and notes thereto appearing elsewhere in this
report.

Some of the statements in this report constitute forward-looking statements,
which relate to future events or our future performance or financial condition.
The forward-looking statements contained herein involve risks and uncertainties,
including statements as to:



  •   our future operating results;



• our business prospects and the prospects of our portfolio companies;




  •   the impact of investments that we expect to make;




  •   our contractual arrangements and relationships with third parties;



     •    the dependence of our future success on the general economy and
its
          impact on the industries in which we invest;




  •   the ability of our portfolio companies to achieve their objectives;




  •   our expected financings and investments;




  •   the adequacy of our cash resources and working capital; and



• the timing of cash flows, if any, from the operations of our portfolio

companies.



We generally use words such as "anticipates," "believes," "expects," "intends"
and similar expressions to identify forward-looking statements. Our actual
results could differ materially from those projected in the forward-looking
statements for any reason, including any factors set forth in "Risk Factors" and
elsewhere in this report.

We have based the forward-looking statements included in this report on
information available to us on the date of this report, and we assume no
obligation to update any such forward-looking statements. Although we undertake
no obligation to revise or update any forward-looking statements, whether as a
result of new information, future events or otherwise, you are advised to
consult any additional disclosures that we may make directly to you or through
reports that we in the future may file with the SEC, including any annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K.

Overview

Solar Senior Capital Ltd. ("Solar Senior", the "Company", "we" or "our"), a
Maryland corporation formed in December 2010, is a closed-end, externally
managed, non-diversified management investment company that has elected to be
regulated as a business development company ("BDC") under the Investment Company
Act of 1940, as amended (the "1940 Act"). Furthermore, as the Company is an
investment company, it continues to apply the guidance in the Financial
Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")
Topic 946. In addition, for tax purposes, the Company has elected to be treated,
and intend to qualify annually, as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").

On February 24, 2011, we priced our initial public offering, selling 9.0 million
shares, including the underwriters' over-allotment, raising approximately
$168 million in net proceeds. Concurrent with this offering, Solar Senior
Capital Investors LLC, an entity controlled by Michael S. Gross, our Chairman,
Co-Chief Executive Officer and President, and Bruce Spohler, our Co-Chief
Executive Officer and Chief Operating Officer, purchased an additional 500,000
shares through a concurrent private placement, raising another $10 million.



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We invest primarily in privately held U.S. middle-market companies, where we
believe the supply of primary capital is limited and the investment
opportunities are most attractive. We define "middle market" to refer to
companies with annual revenues between $50 million and $1 billion. Our
investment objective is to seek to maximize current income consistent with the
preservation of capital. We seek to achieve our investment objective by directly
and indirectly investing in senior loans, including first lien, stretch-senior,
and second lien debt instruments, made to private middle-market companies whose
debt is rated below investment grade, which we refer to collectively as "senior
loans." We may also invest in debt of public companies that are thinly traded or
in equity securities. Under normal market conditions, at least 80% of the value
of our net assets (including the amount of any borrowings for investment
purposes) will be invested in senior loans. Senior loans typically pay interest
at rates which are determined periodically on the basis of a floating base
lending rate, primarily LIBOR, plus a premium. Senior loans in which we invest
are typically made to U.S. and, to a limited extent, non-U.S. corporations,
partnerships and other business entities which operate in various industries and
geographical regions. Senior loans typically are rated below investment grade.
Securities rated below investment grade are often referred to as "leveraged
loans," "high yield" or "junk" securities, and may be considered "high risk"
compared to debt instruments that are rated investment grade. In addition, some
of our debt investments are not scheduled to fully amortize over their stated
terms, which could cause us to suffer losses if the respective issuer of such
debt investment is unable to refinance or repay their remaining indebtedness at
maturity. While the Company does not typically seek to invest in traditional
equity securities as part of its investment objective, the Company may
occasionally acquire some equity securities in connection with senior loan
investments and in certain other unique circumstances, such as the Company's
equity investments in Gemino Healthcare Finance, LLC ("Gemino") and North Mill
Holdco LLC ("NM Holdco").

We invest in senior loans made primarily to private, leveraged middle-market
companies with approximately $20 million to $100 million of earnings before
income taxes, depreciation and amortization ("EBITDA"). Our business model is
focused primarily on the direct origination of investments through portfolio
companies or their financial sponsors. Our direct investments in individual
securities will generally range between $5 million and $30 million each,
although we expect that this investment size will vary proportionately with the
size of our capital base and/or strategic initiatives. In addition, we may
invest a portion of our portfolio in other types of investments, which we refer
to as opportunistic investments, which are not our primary focus but are
intended to enhance our overall returns. These opportunistic investments may
include, but are not limited to, direct investments in public companies that are
not thinly traded and securities of leveraged companies located in select
countries outside of the United States. We may invest up to 30% of our total
assets in such opportunistic investments, including loans issued by non-U.S.
issuers, subject to compliance with our regulatory obligations as a BDC under
the 1940 Act. Our investment activities are managed by Solar Capital Partners,
LLC ("Solar Capital Partners" or "Investment Adviser") and supervised by our
board of directors, a majority of whom are non-interested, as such term is
defined in the 1940 Act. Solar Capital Management, LLC ("Solar Capital
Management" or "Administrator") provides the administrative services necessary
for us to operate.

As of September 30, 2019, the Investment Adviser has directly invested
approximately $8.7 billion in more than 385 different portfolio companies since
2006. Over the same period, the Investment Adviser completed transactions with
approximately 200 different financial sponsors.

Recent Developments


On October 3, 2019, the Board declared a monthly distribution of $0.1175 per
share payable on November 1, 2019 to stockholders of record as of October 17,
2019.

On November 4, 2019, the Board declared a monthly distribution of $0.1175 per
share payable on December 3, 2019 to stockholders of record as of November 21,
2019.



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Investments


Our level of investment activity can and does vary substantially from period to
period depending on many factors, including the amount of debt and equity
capital available to middle market companies, the level of merger and
acquisition activity for such companies, the general economic environment and
the competitive environment for the types of investments we make. As a BDC, we
must not acquire any assets other than "qualifying assets" specified in the 1940
Act unless, at the time the acquisition is made, at least 70% of our total
assets are qualifying assets (with certain limited exceptions). Qualifying
assets include investments in "eligible portfolio companies." The definition of
"eligible portfolio company" includes certain public companies that do not have
any securities listed on a national securities exchange and companies whose
securities are listed on a national securities exchange but whose market
capitalization is less than $250 million.

Revenue


We generate revenue primarily in the form of interest and dividend income from
the securities we hold and capital gains, if any, on investment securities that
we may sell. Our debt investments generally have a stated term of three to seven
years and typically bear interest at a floating rate usually determined on the
basis of a benchmark London interbank offered rate ("LIBOR"), commercial paper
rate, or the prime rate. Interest on our debt investments is generally payable
monthly or quarterly but may be bi-monthly or semi-annually. In addition, our
investments may provide payment-in-kind ("PIK") interest. Such amounts of
accrued PIK interest are added to the cost of the investment on the respective
capitalization dates and generally become due at maturity of the investment or
upon the investment being called by the issuer. We may also generate revenue in
the form of commitment, origination, structuring fees, fees for providing
managerial assistance and, if applicable, consulting fees, etc.

Expenses


All investment professionals of the Investment Adviser and their respective
staffs, when and to the extent engaged in providing investment advisory and
management services, and the compensation and routine overhead expenses of such
personnel allocable to such services, are provided and paid for by Solar Capital
Partners. We bear all other costs and expenses of our operations and
transactions, including (without limitation):



  •   the cost of our organization and public offerings;




     •    the cost of calculating our net asset value, including the cost of any
          third-party valuation services;




     •    the cost of effecting sales and repurchases of our shares and other
          securities;




  •   interest payable on debt, if any, to finance our investments;




     •    fees payable to third parties relating to, or associated with, making

investments, including fees and expenses associated with performing due

          diligence reviews of prospective investments and advisory fees;




  •   transfer agent and custodial fees;




  •   fees and expenses associated with marketing efforts;




  •   federal and state registration fees, any stock exchange listing fees;




  •   federal, state and local taxes;




  •   independent directors' fees and expenses;




  •   brokerage commissions;



• fidelity bond, directors and officers errors and omissions liability

          insurance and other insurance premiums;




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• direct costs and expenses of administration, including printing, mailing,

          long distance telephone and staff;



• fees and expenses associated with independent audits and outside legal

          costs;




     •    costs associated with our reporting and compliance obligations under the
          1940 Act and applicable federal and state securities laws; and




     •    all other expenses incurred by either Solar Capital Management or us in

connection with administering our business, including payments under the

Administration Agreement that will be based upon our allocable portion of

overhead and other expenses incurred by Solar Capital Management in

performing its obligations under the Administration Agreement, including

rent, the fees and expenses associated with performing compliance

functions, and our allocable portion of the costs of compensation and

related expenses of our chief compliance officer and our chief financial

officer and their respective staffs.



We expect our general and administrative operating expenses related to our
ongoing operations to increase moderately in dollar terms. During periods of
asset growth, we generally expect our general and administrative operating
expenses to decline as a percentage of our total assets and increase during
periods of asset declines. Incentive fees, interest expense and costs relating
to future offerings of securities, among others, may also increase or reduce
overall operating expenses based on portfolio performance, interest rate
benchmarks, and offerings of our securities relative to comparative periods,
among other factors.

Portfolio and Investment Activity


During the three months ended September 30, 2019, we invested $22.1 million
across 15 portfolio companies. This compares to investing $28.3 million in 8
portfolio companies for the three months ended September 30, 2018. Investments
sold or prepaid during the three months ended September 30, 2019 totaled
$27.7 million versus $84.2 million for the three months ended September 30,
2018.

At September 30, 2019, our portfolio consisted of 50 portfolio companies and was
invested 78.4% directly in senior secured loans and 21.6% in common
equity/equity interests/warrants (of which 7.4% is Gemino and 13.7% is NM
Holdco, through which the Company indirectly invests in senior secured loans),
in each case, measured at fair value versus 49 portfolio companies invested
79.9% directly in senior secured loans and 20.1% in common equity (of which 7.3%
is Gemino and 12.7% is NMC) at September 30, 2018.

At September 30, 2019, 98.1% or $458.0 million of our income producing
investment portfolio* was floating rate and 1.9% or $9.0 million was fixed rate,
measured at fair value. At September 30, 2018, 94.3% or $438.4 million of our
income producing investment portfolio* was floating rate and 5.7% or
$26.6 million was fixed rate, measured at fair value.

Since the initial public offering of Solar Senior on February 24, 2011 and
through September 30, 2019, invested capital totaled approximately $1.6 billion
in over 165 portfolio companies. Over the same period, Solar Senior completed
transactions with more than 100 different financial sponsors.

Gemino Healthcare Finance, LLC

We acquired Gemino (d/b/a Gemino Senior Secured Healthcare Finance) on September 30, 2013. Gemino is a commercial finance company that originates, underwrites, and manages primarily secured, asset-based loans for small and mid-sized companies operating in the healthcare industry. Our initial investment in Gemino was

* We have included Gemino Healthcare Finance, LLC and North Mill Holdco LLC

   within our income producing investment portfolio.




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$32.8 million. The management team of Gemino co-invested in the transaction and
continues to lead Gemino. As of September 30, 2019, Gemino's management team and
Solar Senior own approximately 7% and 93% of the equity in Gemino, respectively.

Concurrent with the closing of the transaction, Gemino entered into a new,
four-year, non-recourse, $100.0 million credit facility with non-affiliates,
which was expandable to $150.0 million under its accordion feature. Effective
March 31, 2014, the credit facility was expanded to $105.0 million and again on
June 27, 2014 to $110.0 million. On May 27, 2016, Gemino entered into a new
$125.0 million credit facility which replaced the previously existing facility.
The new facility has similar terms as compared to the previous facility and
includes an accordion feature increase to $200.0 million and had a maturity date
of May 27, 2020. On June 28, 2019, this $125.0 million facility was amended,
extending the maturity date to June 28, 2023.

Gemino currently manages a highly diverse portfolio of directly-originated and
underwritten senior-secured commitments. As of September 30, 2019, the portfolio
totaled approximately $175.8 million of commitments, of which $115.9 million
were funded, on total assets of $107.3 million. As of December 31, 2018, the
portfolio totaled approximately $174.1 million of commitments, of which
$108.6 million were funded, on total assets of $108.6 million. At September 30,
2019, the portfolio consisted of 32 issuers with an average balance of
approximately $3.6 million versus 34 issuers with an average balance of
approximately $3.2 million at December 31, 2018. All of the commitments in
Gemino's portfolio are floating-rate, senior-secured, cash-pay loans. Gemino's
credit facility, which is non-recourse to us, had approximately $73.0 million
and $75.0 million of borrowings outstanding at September 30, 2019 and
December 31, 2018, respectively. For the three months ended September 30, 2019
and 2018, Gemino had net income of $1.1 million and $1.1 million, respectively,
on gross income of $3.2 million and $3.0 million, respectively. For the nine
months ended September 30, 2019 and 2018, Gemino had net income of $3.0 million
and $2.5 million, respectively, on gross income of $9.7 million and
$8.4 million, respectively. Due to timing and non-cash items, there may be
material differences between GAAP net income and cash available for
distributions. As such, and subject to fluctuations in Gemino's funded
commitments, the timing of originations, and the repayments of financings, the
Company cannot guarantee that Gemino will be able to maintain consistent
dividend payments to us.

North Mill Holdco LLC


We acquired 100% of the equity interests of North Mill Capital LLC ("NMC") on
October 20, 2017. NMC is a leading asset-backed lending commercial finance
company that provides senior secured asset-backed financings to U.S. based
small-to-medium-sized businesses primarily in the manufacturing, services and
distribution industries. We invested approximately $51 million to effect the
transaction. Subsequently, the Company contributed 1% of its equity interest in
NMC to ESP SSC Corporation. Immediately thereafter, the Company and ESP SSC
Corporation contributed their equity interests to North Mill. On May 1, 2018,
North Mill merged with and into NMC, with NMC being the surviving company. The
Company and ESP SSC Corporation own 99% and 1% of the equity interests of NMC,
respectively. The management team of NMC continues to lead NMC. On June 28,
2019, NM Holdco, a newly formed entity and ESP SSC Corporation acquired Summit
Financial Resources, a Salt Lake City-based provider of asset-backed financing
to small and medium-sized businesses. As part of this transaction, the Company's
99% interest in the equity of NMC was contributed to NM Holdco. This
approximately $15.5 million transaction was financed with borrowings on NMC's
credit facility.

NM Holdco currently manages a highly diverse portfolio of directly-originated
and underwritten senior-secured commitments. As of September 30, 2019, the
portfolio totaled approximately $370.7 million of commitments, of which
$175.9 million were funded, on total assets of $208.0 million. As of
December 31, 2018, the portfolio totaled approximately $247.3 million of
commitments, of which $122.3 million were funded, on total assets of
$155.6 million. At September 30, 2019, the portfolio consisted of 148 issuers
with an average balance of approximately $1.2 million versus 80 issuers with an
average balance of approximately $1.5 million at December 31, 2018. NMC has a
senior credit facility with a bank lending group for $160.0 million which
expires on October 20, 2020. Borrowings are secured by substantially all of
NMC's assets. NMC's credit facility, which



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is non-recourse to us, had approximately $132.8 million and $88.9 million of
borrowings outstanding at September 30, 2019 and December 31, 2018,
respectively. For the three months ended September 30, 2019 and 2018, NMC had
net income of $1.2 million and $0.9 million, respectively on gross income of
$6.3 million and $5.6 million, respectively. For the nine months ended
September 30, 2019 and 2018, NMC had net income of $2.1 million and
$2.4 million, respectively on gross income of $14.4 million and $15.9 million,
respectively. Due to timing and non-cash items, there may be material
differences between GAAP net income and cash available for distributions. As
such, and subject to fluctuations in NM Holdco's funded commitments, the timing
of originations, and the repayments of financings, the Company cannot guarantee
that NM Holdco will be able to maintain consistent dividend payments to us.

Critical Accounting Policies


The preparation of consolidated financial statements and related disclosures in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated financial statements, and
revenues and expenses during the periods reported. Actual results could
materially differ from those estimates. We have identified the following items
as critical accounting policies. Within the context of these critical accounting
policies and disclosed subsequent events herein, we are not currently aware of
any other reasonably likely events or circumstances that would result in
materially different amounts being reported.

Valuation of Portfolio Investments


We conduct the valuation of our assets, pursuant to which our net asset value is
determined, at all times consistent with GAAP, and the 1940 Act. Our valuation
procedures are set forth in more detail below:

The Company conducts the valuation of its assets in accordance with GAAP and the
1940 Act. The Company generally values its assets on a quarterly basis, or more
frequently if required. Investments for which market quotations are readily
available on an exchange are valued at the closing price on the date of
valuation. The Company may also obtain quotes with respect to certain of its
investments from pricing services or brokers or dealers in order to value
assets. When doing so, management determines whether the quote obtained is
sufficient according to GAAP to determine the fair value of the investment. If
determined adequate, the Company uses the quote obtained. Debt investments with
maturities of 60 days or less shall each be valued at cost plus accreted
discount, or minus amortized premium, which is expected to approximate fair
value, unless such valuation, in the judgment of the Investment Adviser, does
not represent fair value, in which case such investments shall be valued at fair
value as determined in good faith by or under the direction of the Company's
board of directors (the "Board").

Investments for which reliable market quotations are not readily available or
for which the pricing sources do not provide a valuation or methodology or
provide a valuation or methodology that, in the judgment of the Investment
Adviser or the Board does not represent fair value, each shall be valued as
follows: (i) each portfolio company or investment is initially valued by the
investment professionals responsible for the portfolio investment;
(ii) preliminary valuations are discussed with senior management of the
Investment Adviser; (iii) independent valuation firms engaged by, or on behalf
of, the Board will conduct independent appraisals and review the Investment
Adviser's preliminary valuations and make their own independent assessment for
(a) each portfolio investment that, when taken together with all other
investments in the same portfolio company, exceeds 10% of estimated total
assets, plus available borrowings, as of the end of the most recently completed
fiscal quarter, and (b) each portfolio investment that is presently in payment
default and the Investment Adviser does not expect to reach an agreement with
the portfolio company in the subsequent quarter; (iv) the Board will discuss the
valuations and determine the fair value of each investment in our portfolio in
good faith based on the input of the Investment Adviser and, where appropriate,
the respective independent valuation firm.

The recommendation of fair value generally considers the following factors among
others, as relevant: applicable market yields; the nature and realizable value
of any collateral; the portfolio company's ability to



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make payments; the portfolio company's earnings and discounted cash flow; the
markets in which the issuer does business; and comparisons to publicly traded
securities, among others.

When an external event such as a purchase transaction, public offering or
subsequent equity sale occurs, the Company will consider the pricing indicated
by the external event to corroborate the valuation. Due to the inherent
uncertainty of determining the fair value of investments that do not have a
readily available market value, the fair value of the investments may differ
significantly from the values that would have been used had a readily available
market value existed for such investments, and the differences could be
material.

Investments are valued utilizing a market approach, an income approach, or both
approaches, as appropriate. However, in accordance with ASC 820-10, certain
investments that qualify as investment companies in accordance with ASC 946, may
be valued using net asset value as a practical expedient for fair value. The
market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities (including
a business). The income approach uses valuation approaches to convert future
amounts (for example, cash flows or earnings) to a single present amount
(discounted). The measurement is based on the value indicated by current market
expectations about those future amounts. In following these approaches, the
types of factors that we may take into account in fair value pricing our
investments include, as relevant: available current market data, including
relevant and applicable market trading and transaction comparables, applicable
market yields and multiples, security covenants, call protection provisions, the
nature and realizable value of any collateral, the portfolio company's ability
to make payments, its earnings and discounted cash flows, the markets in which
the portfolio company does business, comparisons of financial ratios of peer
companies that are public, M&A comparables, and enterprise values, among other
factors. When available, broker quotations and/or quotations provided by pricing
services are considered as an input in the valuation process. For the nine
months ended September 30, 2019, there has been no change to the Company's
valuation approaches or techniques and the nature of the related inputs
considered in the valuation process.

Accounting Standards Codification ("ASC") Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.


Level 2: Quoted prices for similar assets or liabilities in active markets, or
quoted prices for identical or similar assets or liabilities in markets that are
not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.


In all cases, the level in the fair value hierarchy within which the fair value
measurement in its entirety falls is determined based on the lowest level of
input that is significant to the fair value measurement. Our assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to each investment. The
exercise of judgment is based in part on our knowledge of the asset class and
our prior experience.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.

Revenue Recognition


The Company records dividend income and interest, adjusted for amortization of
premium and accretion of discount, on an accrual basis. Investments that are
expected to pay regularly scheduled interest and/or dividends in cash are
generally placed on non-accrual status when principal or interest/dividend cash
payments are past due 30 days or more and/or when it is no longer probable that
principal or interest/dividend cash payments will be



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collected. Such non-accrual investments are restored to accrual status if past
due principal and interest or dividends are paid in cash, and in management's
judgment, are likely to continue timely payment of their remaining interest or
dividend obligations. Interest or dividend cash payments received on investments
may be recognized as income or applied to principal depending upon management's
judgment. Some of our investments may have contractual PIK interest or
dividends. PIK interest and dividends computed at the contractual rate are
accrued into income and reflected as receivable up to the capitalization date.
PIK investments offer issuers the option at each payment date of making payments
in cash or in additional securities. When additional securities are received,
they typically have the same terms, including maturity dates and interest rates
as the original securities issued. On these payment dates, the Company
capitalizes the accrued interest or dividends receivable (reflecting such
amounts as the basis in the additional securities received). PIK generally
becomes due at the maturity of the investment or upon the investment being
called by the issuer. At the point the Company believes PIK is not expected to
be realized, the PIK investment will be placed on non-accrual status. When a PIK
investment is placed on non-accrual status, the accrued, uncapitalized interest
or dividends is reversed from the related receivable through interest or
dividend income, respectively. The Company does not reverse previously
capitalized PIK interest or dividends. Upon capitalization, PIK is subject to
the fair value estimates associated with their related investments. PIK
investments on non-accrual status are restored to accrual status if the Company
again believes that PIK is expected to be realized. Loan origination fees,
original issue discount, and market discounts are capitalized and amortized into
income using the effective interest method. Upon the prepayment of a loan, any
unamortized loan origination fees are recorded as interest income. We record
prepayment premiums on loans and other investments as interest income when we
receive such amounts. Capital structuring fees are recorded as other income when
earned.

The typically higher yields and interest rates on PIK securities, to the extent
we invested, reflects the payment deferral and increased credit risk associated
with such instruments and that such investments may represent a significantly
higher credit risk than coupon loans. PIK securities may have unreliable
valuations because their continuing accruals require continuing judgments about
the collectability of the deferred payments and the value of any associated
collateral. PIK interest has the effect of generating investment income and
increasing the incentive fees payable at a compounding rate. In addition, the
deferral of PIK interest also increases the loan-to-value ratio at a compounding
rate. PIK securities create the risk that incentive fees will be paid to the
Investment Adviser based on non-cash accruals that ultimately may not be
realized, but the Investment Adviser will be under no obligation to reimburse
the Company for these fees. For the three and nine months ended September 30,
2019, capitalized PIK income totaled $0.2 million and $0.5 million,
respectively. For the three and nine months ended September 30, 2018,
capitalized PIK income totaled $0.5 million and $0.8 million, respectively.

Net Realized Gain or Loss and Net Change in Unrealized Gain or Loss


We generally measure realized gain or loss by the difference between the net
proceeds from the repayment or sale and the amortized cost basis of the
investment, without regard to unrealized appreciation or depreciation previously
recognized, but considering unamortized origination or commitment fees and
prepayment penalties. The net change in unrealized gain or loss reflects the
change in portfolio investment values during the reporting period, including the
reversal of previously recorded unrealized gain or loss, when gains or losses
are realized. Gains or losses on investments are calculated by using the
specific identification method.

Income Taxes


Solar Senior Capital, a U.S. corporation, has elected to be treated, and intends
to qualify annually, as a RIC under Subchapter M of the Code. In order to
qualify for taxation as a RIC, the Company is required, among other things, to
timely distribute to its stockholders at least 90% of investment company taxable
income, as defined by the Code, for each year. Depending on the level of taxable
income earned in a given tax year, we may choose to carry forward taxable income
in excess of current year distributions into the next tax year and pay a 4%
excise tax on such income, as required. To the extent that the Company
determines that its estimated current year annual



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taxable income will be in excess of estimated current year distributions, the
Company accrues an estimated excise tax, if any, on estimated excess taxable
income.

Recent Accounting Pronouncements


In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820),
Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement. The amendments in this Update modify and eliminate certain
disclosure requirements on fair value measurements in Topic 820, Fair Value
Measurement. ASU 2018-13 is effective for all entities for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2019.
Early adoption is permitted. The Company is evaluating the impact of ASU 2018-13
on its consolidated financial statements and disclosures.

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased
Callable Debt Securities, which will amend FASB ASC 310-20. The amendments in
this Update shorten the amortization period for certain callable debt securities
held at a premium, generally requiring the premium to be amortized to the
earliest call date. For public business entities, the amendments are effective
for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. Early adoption is permitted, including adoption in an interim
period. The Company has adopted ASU 2017-08 and determined that the adoption has
not had a material impact on its consolidated financial statements and
disclosures.

RESULTS OF OPERATIONS

Results comparisons are for the three and nine months ended September 30, 2019 and 2018:


Investment Income

For the three and nine months ended September 30, 2019, gross investment income
totaled $10.4 million and $30.6 million, respectively. For the three and nine
months ended September 30, 2018, gross investment income totaled $11.0 million
and $29.8 million, respectively. The slight decrease in gross investment income
for the year over year three month periods was primarily due to yield
compression.

Expenses


Net expenses totaled $4.7 million and $13.7 million, respectively, for the three
and nine months ended September 30, 2019, of which $1.8 million and
$5.2 million, respectively, were gross base management fees and gross
performance-based incentive fees and $2.8 million and $8.2 million,
respectively, were interest and other credit facility expenses. Over the same
periods, $0.1 and $0.5 million, respectively, of base management fees were
waived and $0.5 million and $1.6 million, respectively, of performance-based
incentive fees were waived. Administrative services and other general and
administrative expenses totaled $0.8 million and $2.4 million, respectively, for
the three and nine months ended September 30, 2019. Net expenses totaled
$5.3 million and $12.8 million, respectively, for the three and nine months
ended September 30, 2018, of which $2.6 million and $5.9 million, respectively,
were gross base management fees and gross performance-based incentive fees and
$2.0 million and $5.2 million, respectively, were interest and other credit
facility expenses. Over the same periods, $0.0 million and $0.7 million,
respectively, of performance-based incentive fees were waived. Administrative
services and other general and administrative expenses totaled $0.7 million and
$2.4 million, respectively, for the three and nine months ended September 30,
2018. Expenses generally consist of management fees, performance-based incentive
fees, administrative services expenses, insurance, legal expenses, directors'
expenses, audit and tax expenses, transfer agent fees and expenses, and other
general and administrative expenses. Interest and other credit facility expenses
generally consist of interest, unused fees, agency fees and loan origination
fees, if any, among others. The increase in gross expenses year over year is
primarily due to higher interest expense on a larger portfolio as compared to
the year ago three and nine month periods.



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Net Investment Income


The Company's net investment income totaled $5.7 million and $17.0 million, or
$0.35 and $1.06, per average share, respectively, for the three and nine months
ended September 30, 2019. The Company's net investment income totaled
$5.8 million and $17.1 million, or $0.36 and $1.06, per average share,
respectively, for the three and nine months ended September 30, 2018.

Net Realized Gain


The Company had investment sales and prepayments totaling approximately
$27.7 million and $55.1 million, respectively, for the three and nine months
ended September 30, 2019. Net realized losses over the same periods were
$5.0 million and $4.8 million, respectively. The Company had investment sales
and prepayments totaling approximately $84.2 million and $135.2 million,
respectively, for the three and nine months ended September 30, 2018. Net
realized losses over the same periods were $0.0 million and $5.3 million,
respectively. Net realized losses for the three and nine months ended
September 30, 2019 were primarily related to the Company's exit of Trident USA
Health Services partially offset by gains on the exit of Engineering Solutions &
Products, LLC. Net realized losses for the nine months ended September 30, 2018
were primarily related to the Company's exit from its investment in Metamorph US
3, LLC.

Net Change in Unrealized Gain (Loss)


For the three and nine months ended September 30, 2019, net change in unrealized
gain on the Company's assets and liabilities totaled 4.5 million and
$5.0 million, respectively. For the three and nine months ended September 30,
2018, net change in unrealized gain (loss) on the Company's assets and
liabilities totaled ($0.4) million and $4.6 million, respectively. Net
unrealized gain for the three months ended September 30, 2019 is primarily due
to the reversal of previously recorded unrealized loss on Trident USA Health
Services as well as appreciation on our investments in TwentyEighty, Inc. and
Gemino Healthcare Finance, LLC, among others, partially offset by depreciation
in NM Holdco and Confie Seguros Holding II Co., among others. Net unrealized
gain for the nine months ended September 30, 2019 is primarily due to the
reversal of previously recorded unrealized loss on Trident USA Health Services
as well as appreciation on our investments in TwentyEighty, Inc. and Gemino
Healthcare Finance, LLC, among others, partially offset by depreciation in NM
Holdco, Aegis Toxicology Sciences Corporation and American Teleconferencing
Services, Ltd., among others. Net unrealized loss for the three months ended
September 30, 2018 is primarily due to some appreciation on our investments in
Advantage Sales and Marketing, Inc., American Teleconferencing Services, Ltd.
and Aegis Toxicology Sciences Corporation, among others, offset by a greater
amount of depreciation in Trident USA Health Services and PPT Management
Holdings, LLC, among others. Net unrealized gain for the nine months ended
September 30, 2018 is primarily due to the reversal of previously recorded
unrealized loss on our investment in Metamorph US 3, LLC, as well as
appreciation on our investments in North Mill Capital LLC and Gemino Healthcare
Finance, LLC, among others, partially offset by depreciation in PPT Management
Holdings, LLC, Polycom Inc. and Confie Seguros Holding II Co., among others.

Net Increase in Net Assets From Operations


For the three and nine months ended September 30, 2019, the Company had a net
increase in net assets resulting from operations of $5.2 million and
$17.1 million, respectively. For the same periods, earnings per average share
were $0.32 and $1.07, respectively. For the three and nine months ended
September 30, 2018, the Company had a net increase in net assets resulting from
operations of $5.4 million and $16.4 million, respectively. For the same
periods, earnings per average share were $0.34 and $1.03, respectively.

LIQUIDITY AND CAPITAL RESOURCES


The Company's liquidity and capital resources are generally available through
its revolving credit facilities, through periodic follow-on equity offerings, as
well as from cash flows from operations, investment sales and



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pre-payments of investments. At September 30, 2019, the Company had $222.2 million in borrowings outstanding on its credit facilities and $77.8 million of unused capacity, subject to borrowing base limits.


On May 31, 2019, the Company as transferor and FLLP 2015-1, LLC, a wholly-owned
subsidiary of the Company, as borrower entered into amendment number five to the
$75 million FLLP Facility with Wells Fargo Bank, NA acting as administrative
agent. The Company acts as servicer under the FLLP Facility. The FLLP Facility
is scheduled to mature on May 31, 2024. The FLLP Facility generally bears
interest at a rate of LIBOR plus a range of 2.15-2.25%.

On June 1, 2018, the Credit Facility was refinanced by way of amendment,
allowing for greater investment flexibility and the extension of the maturity
date, among other changes. On July 13, 2018, commitments to the Credit Facility,
as amended, were increased from $200 million to $225 million by utilizing the
accordion feature.

In September 2016, the Company closed a follow-on public equity offering of
4.5 million shares of common stock at $16.76 per share raising approximately
$75.0 million in net proceeds. In the future, the Company may raise additional
equity or debt capital, among other considerations. The primary uses of funds
will be investments in portfolio companies, reductions in debt outstanding and
other general corporate purposes. The issuance of debt or equity securities will
depend on future market conditions, funding needs and other factors and there
can be no assurance that any such issuance will occur or be successful.

We currently expect that our liquidity needs will be met with cash flows from
operations, borrowings under our $225 million senior secured revolving credit
facility (the "Credit Facility"), including its accordion feature, the FLLP
Facility as well as from other available financing activities.

Cash Equivalents


We deem certain U.S.Treasury bills, repurchase agreements and other
high-quality, short-term debt securities as cash equivalents. The Company makes
purchases that are consistent with its purpose of making investments in
securities described in paragraphs 1 through 3 of Section 55(a) of the 1940 Act.
From time to time, including at or near the end of each fiscal quarter, we
consider using various temporary investment strategies for our business. One
strategy includes taking proactive steps by utilizing cash equivalents as
temporary assets with the objective of enhancing our investment flexibility
pursuant to Section 55 of the 1940 Act. More specifically, from time-to-time we
may purchase U.S.Treasury bills or other high-quality, short-term debt
securities at or near the end of the quarter and typically close out the
position on a net cash basis subsequent to quarter end. We may also utilize
repurchase agreements or other balance sheet transactions, including drawing
down on our credit facilities, as deemed appropriate. The amount of these
transactions or such drawn cash for this purpose is excluded from total assets
for purposes of computing the asset base upon which the management fee is
determined. We held approximately $180 million of cash equivalents as of
September 30, 2019.

Debt


Credit Facility-On August 26, 2011, the Company established our wholly-owned
subsidiary, SUNS SPV LLC (the "SUNS SPV") which entered into the Credit Facility
with Citigroup Global Markets Inc. acting as administrative agent. On
January 10, 2017, commitments to the Credit Facility, as amended, were increased
from $175 million to $200 million by utilizing the accordion feature. The
commitments can also be expanded up to $600 million. The stated interest rate on
the Credit Facility is LIBOR plus 2.00% with no LIBOR floor requirement and the
current maturity date is June 1, 2023. The Credit Facility is secured by all of
the assets held by SUNS SPV. Under the terms of the Credit Facility, Solar
Senior Capital and SUNS SPV, as applicable, have made certain customary
representations and warranties, and are required to comply with various
covenants, including leverage restrictions, reporting requirements and other
customary requirements for similar credit facilities. The Credit Facility also
includes usual and customary events of default for credit facilities of this
nature. The Credit Facility was amended on November 7, 2012, June 30, 2014 and
May 29, 2015 to extend



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maturities and add greater investment flexibility, among other changes. On
June 1, 2018, the Credit Facility was refinanced by way of amendment, allowing
for greater investment flexibility and the extension of the maturity date, among
other changes. On July 13, 2018, commitments to the Credit Facility, as amended,
were increased from $200 million to $225 million by utilizing the accordion
feature. There were $167.0 million of borrowings outstanding under the Credit
Facility as of September 30, 2019.

FLLP Facility-On May 31, 2019, the Company as transferor and FLLP 2015-1, LLC, a
wholly-owned subsidiary of the Company, as borrower entered into amendment
number five to the $75 million FLLP Facility with Wells Fargo Bank, NA acting as
administrative agent. The Company acts as servicer under the FLLP Facility. The
FLLP Facility is scheduled to mature on May 31, 2024. The FLLP Facility
generally bears interest at a rate of LIBOR plus a range of 2.15-2.25%. The
Company and FLLP 2015-1, LLC, as applicable, have made certain customary
representations and warranties, and are required to comply with various
covenants, including leverage restrictions, reporting requirements and other
customary requirements for similar credit facilities. The FLLP Facility also
includes usual and customary events of default for credit facilities of this
nature. There were $55.2 million of borrowings outstanding as of September 30,
2019. At September 30, 2019, the Company was in compliance with all financial
and operational covenants required by the Credit Facility and FLLP Facility.

Contractual Obligations



                                                        Payments due by

Period as of September 30, 2019

                                                                     (dollars in millions)
                                                          Less than                                           More than
                                          Total             1 year        

1-3 years 3-5 years 5 years Revolving credit facilities(1) $ 222.2 $ - $ - $ 222.2 $ -

(1) At September 30, 2019, we had a total of $77.8 million of unused borrowing

capacity under our revolving credit facilities, subject to borrowing base

limits.



Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue
senior securities in amounts such that our asset coverage ratio, as defined in
the 1940 Act, equals at least 150% of gross assets less all liabilities and
indebtedness not represented by senior securities, after each issuance of senior
securities. If the value of our assets declines, we may be unable to satisfy the
asset coverage test. If that happens, we may be required to sell a portion of
our investments and, depending on the nature of our leverage, repay a portion of
our indebtedness at a time when such sales may be disadvantageous. Also, any
amounts that we use to service our indebtedness would not be available for
distributions to our common stockholders. Furthermore, as a result of issuing
senior securities, we would also be exposed to typical risks associated with
leverage, including an increased risk of loss. Our stockholders approved being
subject to a 150% asset coverage ratio effective October 12, 2018.



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Information about our senior securities is shown in the following table as of
each year ended December 31 since the Company commenced operations, unless
otherwise noted. The "-" indicates information which the SEC expressly does not
require to be disclosed for certain types of senior securities.



                                                                                Involuntary
                                                               Asset            Liquidating           Average
                                      Total Amount           Coverage           Preference         Market Value
Class and Year                       Outstanding(1)         Per Unit(2)         Per Unit(3)         Per Unit(4)
Credit Facility
Fiscal 2019 (through
September 30, 2019)                 $        167,000$       1,637       $          -                  N/A
Fiscal 2018                                  119,200               1,770                  -                  N/A
Fiscal 2017                                  124,200               3,175                  -                  N/A
Fiscal 2016                                   98,300               3,738                  -                  N/A
Fiscal 2015                                  116,200               2,621                  -                  N/A
Fiscal 2014                                  143,200               2,421                  -                  N/A
Fiscal 2013                                   61,400               4,388                  -                  N/A
Fiscal 2012                                   39,100               5,453                  -                  N/A
Fiscal 2011                                    8,600              21,051                  -                  N/A
FLLP Facility
Fiscal 2019 (through
September 30, 2019)                           55,152                 541                  -                  N/A
Fiscal 2018                                   51,371                 762                  -                  N/A
Total Senior Securities
Fiscal 2019 (through
September 30, 2019)                 $        222,152$       2,178       $          -                  N/A
Fiscal 2018                                  170,571               2,532                  -                  N/A
Fiscal 2017                                  124,200               3,175                  -                  N/A
Fiscal 2016                                   98,300               3,738                  -                  N/A
Fiscal 2015                                  116,200               2,621                  -                  N/A
Fiscal 2014                                  143,200               2,421                  -                  N/A
Fiscal 2013                                   61,400               4,388                  -                  N/A
Fiscal 2012                                   39,100               5,453                  -                  N/A
Fiscal 2011                                    8,600              21,051                  -                  N/A



(1) Total amount of each class of senior securities outstanding (in thousands) at

the end of the period presented.

(2) The asset coverage ratio for a class of senior securities representing

indebtedness is calculated as our consolidated total assets, less all

liabilities and indebtedness not represented by senior securities, divided by

senior securities representing indebtedness. This asset coverage ratio is

multiplied by one thousand to determine the Asset Coverage Per Unit. In order

to determine the specific Asset Coverage Per Unit for each class of debt, the

total Asset Coverage Per Unit was divided based on the amount outstanding at

the end of the period for each. As of September 30, 2019, asset coverage was

217.8%.

(3) The amount to which such class of senior security would be entitled upon the

involuntary liquidation of the issuer in preference to any security junior to

it.

(4) Not applicable, we do not have senior securities that are registered for

public trading.



We have also entered into two contracts under which we have future commitments:
the Advisory Agreement, pursuant to which Solar Capital Partners has agreed to
serve as our investment adviser, and the Administration Agreement, pursuant to
which Solar Capital Management has agreed to furnish us with the facilities and
administrative services necessary to conduct our day-to-day operations and
provide on our behalf managerial assistance to those portfolio companies to
which we are required to provide such assistance. Payments under the Advisory
Agreement are equal to (1) a percentage of the value of our average gross assets
and (2) a two-part incentive fee. Payments under the Administration Agreement
are equal to an amount based upon our allocable portion of the Administrator's
overhead in performing its obligations under the Administration Agreement,
including rent, technology systems, insurance and our allocable portion of
the costs of our chief financial officer and chief compliance officer and their
respective staffs. Either party may terminate



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each of the Advisory Agreement and Administration Agreement without penalty upon
60 days' written notice to the other. See note 3 to our Consolidated Financial
Statements.

Off-Balance Sheet Arrangements


From time-to-time and in the normal course of business, the Company may make
unfunded capital commitments to current or prospective portfolio companies.
Typically, the Company may agree to provide delayed-draw term loans or, to a
lesser extent, revolving loan or equity commitments. These unfunded capital
commitments always take into account the Company's liquidity and cash available
for investment, portfolio and issuer diversification, and other considerations.
Accordingly, the Company had the following unfunded capital commitments at
September 30, 2019 and December 31, 2018, respectively:



                                                           September 30,           December 31,
                                                               2019                    2018
(in millions)
Unified Physician Management, LLC                         $           8.6         $           -
MSHC, Inc.                                                            7.6                    3.3
Solara Medical Supplies, Inc.                                         3.3                    2.1
US Radiology Specialists, Inc.                                        3.1                     -
Worldwide Facilities, LLC                                             3.0                     -
Kindred Biosciences, Inc.                                             2.1                     -
Rubius Therapeutics, Inc.                                             2.1                    4.1
WIRB-Copernicus Group, Inc.                                           1.7                    2.7
GenMark Diagnostics, Inc.                                             1.6                    0.7
Gemino Healthcare Finance, LLC*                                       1.4                    1.4
MRI Software LLC                                                      1.2                    2.5
Composite Technology Acquisition Corp.                                1.0                     -
Edgewood Partners Holdings, LLC                                       0.9                     -
Cerapedics, Inc.                                                      0.8                     -
AQA Acquisition Holding, Inc.                                         0.1                    0.1
Centria Healthcare LLC                                                0.0                    0.3
The Hilb Group, LLC & Gencorp Insurance Group, Inc.                    -                     3.2
DISA Holdings Acquisition Corp.                                        -                     2.6
Engineering Solutions & Products, LLC                                  -                     0.5
TwentyEighty, Inc.                                                     -                     0.1
MHE Intermediate Holdings, LLC                                         -                      -

Total Commitments                                         $          38.5         $         23.6




* The Company controls the funding of the Gemino commitment and may cancel it at

its discretion.



The credit agreements of the above loan commitments contain customary lending
provisions and/or are subject to the portfolio company's achievement of certain
milestones that allow relief to the Company from funding obligations for
previously made commitments in instances where the underlying company
experiences materially adverse events that affect the financial condition or
business outlook for the company. Since these commitments may expire without
being drawn upon, unfunded commitments do not necessarily represent future cash
requirements or future earning assets for the Company. As of September 30, 2019
and December 31, 2018, the Company had sufficient cash available and/or liquid
securities available to fund its commitments.

In the normal course of its business, we invest or trade in various financial
instruments and may enter into various investment activities with off-balance
sheet risk, which may include forward foreign currency contracts. Generally,
these financial instruments represent future commitments to purchase or sell
other financial instruments at specific terms at future dates. These financial
instruments contain varying degrees of off-balance



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sheet risk whereby changes in the market value or our satisfaction of the obligations may exceed the amount recognized in our Consolidated Statements of Assets and Liabilities.


Distributions

The following table reflects the cash distributions per share on our common
stock for the two most recent fiscal years and the current fiscal year to date:



        Date Declared           Record Date         Payment Date      Amount
        Fiscal 2019
        November 4, 2019     November 21, 2019    December 3, 2019   $ 0.1175
        October 3, 2019       October 17, 2019    November 1, 2019     0.1175
        September 3, 2019    September 20, 2019   October 2, 2019      0.1175
        August 5, 2019        August 22, 2019     August 30, 2019      0.1175
        July 2, 2019           July 25, 2019       August 1, 2019      0.1175
        June 5, 2019           June 20, 2019        July 2, 2019       0.1175
        May 6, 2019             May 23, 2019        June 4, 2019       0.1175
        April 4, 2019          April 18, 2019       May 1, 2019        0.1175
        February 21, 2019      March 21, 2019      April 3, 2019       0.1175
        February 6, 2019     February 21, 2019     March 1, 2019       0.1175
        January 8, 2019       January 24, 2019    February 1, 2019     0.1175

        YTD Total (2019)                                             $ 1.2925

        Fiscal 2018
        December 6, 2018     December 20, 2018    January 4, 2019    $ 0.1175
        November 5, 2018     November 21, 2018    December 4, 2018     0.1175
        October 4, 2018       October 24, 2018    November 1, 2018     0.1175
        September 6, 2018    September 25, 2018   October 2, 2018      0.1175
        August 2, 2018        August 23, 2018     August 31, 2018      0.1175
        July 3, 2018           July 19, 2018       July 31, 2018       0.1175
        June 6, 2018           June 21, 2018        July 3, 2018       0.1175
        May 7, 2018             May 23, 2018        June 1, 2018       0.1175
        April 3, 2018          April 19, 2018       May 2, 2018        0.1175
        February 22, 2018      March 22, 2018      April 3, 2018       0.1175
        February 7, 2018     February 22, 2018     March 1, 2018       0.1175
        January 5, 2018       January 18, 2018    January 31, 2018     0.1175

        Total (2018)                                                 $   1.41

        Fiscal 2017
        December 7, 2017     December 21, 2017    January 4, 2018    $ 0.1175
        November 2, 2017     November 22, 2017    December 1, 2017     0.1175
        October 5, 2017       October 19, 2017    November 1, 2017     0.1175
        September 14, 2017   September 22, 2017   October 3, 2017      0.1175
        August 1, 2017        August 17, 2017     August 31, 2017      0.1175
        July 6, 2017           July 20, 2017       August 1, 2017      0.1175
        June 7, 2017           June 22, 2017        July 6, 2017       0.1175
        May 2, 2017             May 18, 2017        June 2, 2017       0.1175
        April 6, 2017          April 20, 2017       May 2, 2017        0.1175
        February 22, 2017      March 23, 2017      April 4, 2017       0.1175
        February 7, 2017     February 23, 2017     March 1, 2017       0.1175
        January 5, 2017       January 19, 2017    February 1, 2017     0.1175

        Total (2017)                                                 $   1.41





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Tax characteristics of all distributions will be reported to stockholders on
Form 1099 after the end of the calendar year. Future distributions, if any, will
be determined by our Board. We expect that our distributions to stockholders
will generally be from accumulated net investment income, from net realized
capital gains or non-taxable return of capital, if any, as applicable.

We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain
our RIC status, we must distribute at least 90% of our ordinary income and
realized net short-term capital gains in excess of realized net long-term
capital losses, if any, out of the assets legally available for distribution. In
addition, although we currently intend to distribute realized net capital gains
(i.e., net long-term capital gains in excess of short-term capital losses), if
any, at least annually, out of the assets legally available for such
distributions, we may in the future decide to retain such capital gains for
investment.

We maintain an "opt out" dividend reinvestment plan for our common stockholders.
As a result, if we declare a distribution, then stockholders' cash distributions
will be automatically reinvested in additional shares of our common stock,
unless they specifically "opt out" of the dividend reinvestment plan so as to
receive cash distributions.

We may not be able to achieve operating results that will allow us to make
distributions at a specific level or to increase the amount of these
distributions from time to time. In addition, due to the asset coverage test
applicable to us as a business development company, we may in the future be
limited in our ability to make distributions. Also, our revolving credit
facility may limit our ability to declare distributions if we default under
certain provisions. If we do not distribute a certain percentage of our income
annually, we will suffer adverse tax consequences, including possible loss of
the tax benefits available to us as a regulated investment company. In addition,
in accordance with GAAP and tax regulations, we include in income certain
amounts that we have not yet received in cash, such as contractual
payment-in-kind interest, which represents contractual interest added to the
loan balance that becomes due at the end of the loan term, or the accrual of
original issue or market discount. Since we may recognize income before or
without receiving cash representing such income, we may have difficulty meeting
the requirement to distribute at least 90% of our investment company taxable
income to obtain tax benefits as a regulated investment company.

With respect to the distributions to stockholders, income from origination,
structuring, closing and certain other upfront fees associated with investments
in portfolio companies are treated as taxable income and accordingly,
distributed to stockholders. For the nine months ended September 30, 2019 and
the year ended December 31, 2018, 12.5% and 4.9% of distributions were funded
from the waiver of management and/or incentive fees.

Related Parties

We have entered into a number of business relationships with affiliated or related parties, including the following:

• We have entered into the Advisory Agreement with Solar Capital Partners.

Mr. Gross, our Chairman, Co-Chief Executive Officer and President and

Mr. Spohler, our Co-Chief Executive Office, Chief Operating Officer and

board member, are managing members and senior investment professionals

of, and have financial and controlling interests in, the Investment

Adviser. In addition, Mr. Peteka, our Chief Financial Officer, Treasurer

and Secretary serves as the Chief Financial Officer for Solar Capital

          Partners.




     •    The Administrator provides us with the office facilities and

administrative services necessary to conduct day-to-day operations

pursuant to our Administration Agreement. We reimburse the Administrator

          for the allocable portion of overhead and other expenses incurred by it
          in performing its obligations under the Administration Agreement,
          including rent, the fees and expenses associated with performing

compliance functions, and the compensation of our chief compliance

          officer, our chief financial officer and their respective staffs.




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• We have entered into a license agreement with the Investment Adviser,

pursuant to which the Investment Adviser has granted us a non-exclusive,

royalty-free license to use the name "Solar Capital."



The Investment Adviser may also manage other funds in the future that may have
investment mandates that are similar, in whole and in part, with ours. For
example, the Investment Adviser presently serves as investment adviser to Solar
Capital Ltd., a publicly traded BDC, which focuses on investing in senior
secured loans, including stretch-senior and unitranche loans and to a lesser
extent mezzanine loans and equity securities. In addition, Michael S. Gross, our
Chairman, Co-Chief Executive Officer and President, Bruce Spohler, our
Co-ChiefExecutive Officer and Chief Operating Officer, and Richard L. Peteka,
our Chief Financial Officer, serve in similar capacities for Solar Capital Ltd.
and SCP Private Credit Income BDC LLC. The Investment Adviser and certain
investment advisory affiliates may determine that an investment is appropriate
for us and for one or more of those other funds. In such event, depending on the
availability of such investment and other appropriate factors, the Investment
Adviser or its affiliates may determine that we should invest side-by-side with
one or more other funds. Any such investments will be made only to the extent
permitted by applicable law and interpretive positions of the SEC and its staff,
and consistent with the Investment Adviser's allocation procedures. On June 13,
2017, the Adviser received an exemptive order that permits the Company to
participate in negotiated co-investment transactions with certain affiliates, in
a manner consistent with the Company's investment objective, positions,
policies, strategies and restrictions as well as regulatory requirements and
other pertinent factors, and pursuant to various conditions (the "Order"). If
the Company is unable to rely on the Order for a particular opportunity, such
opportunity will be allocated first to the entity whose investment strategy is
the most consistent with the opportunity being allocated, and second, if the
terms of the opportunity are consistent with more than one entity's investment
strategy, on an alternating basis. Although the Adviser's investment
professionals will endeavor to allocate investment opportunities in a fair and
equitable manner, the Company and its Unitholders could be adversely affected to
the extent investment opportunities are allocated among us and other investment
vehicles managed or sponsored by, or affiliated with, our executive officers,
directors and members of the Adviser.

Related party transactions may occur among Solar Senior Capital Ltd., Gemino and
NM Holdco. These transactions may occur in the normal course of business. No
administrative fees are paid to Solar Capital Partners by Gemino or NM Holdco.

In addition, we have adopted a formal code of ethics that governs the conduct of
our officers and directors. Our officers and directors also remain subject to
the duties imposed by both the 1940 Act and the Maryland General Corporation
Law.

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Latest news on SOLAR SENIOR CAPITAL LTD.
02/20SOLAR SENIOR CAPITAL : Management's Discussion and Analysis of Financial Conditi..
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02/20SOLAR SENIOR CAPITAL LTD. : Results of Operations and Financial Condition, Finan..
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02/20SOLAR SENIOR : 4Q Earnings Snapshot
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02/20SOLAR SENIOR CAPITAL LTD. : Announces Quarter and Fiscal Year Ended December 31,..
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02/19SOLAR SENIOR CAPITAL LTD. : Ex-dividend day for
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02/04SOLAR SENIOR CAPITAL LTD. : Regulation FD Disclosure, Financial Statements and E..
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02/04Solar Senior Capital Ltd. Announces Monthly Distribution of $0.1175 Per Share..
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01/22SOLAR SENIOR CAPITAL LTD. : Ex-dividend day for
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01/15Solar Senior Capital Ltd. Schedules the Release of its Financial Results for ..
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01/08SOLAR SENIOR CAPITAL LTD. : Regulation FD Disclosure, Financial Statements and E..
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